This post highlights SIGA Technologies, Inc. v. PharmAthene, Inc., Del. Supr., No. 20, 2015 (Dec. 23, 2015).

At the end of 2015, the Delaware Supreme Court issued an opinion affirming its earlier holding that where parties have agreed to negotiate in good faith, a failure to reach an agreement based upon the bad faith of one party entitles the other party to expectation damages so long as damages can be proven with "reasonable certainty."

Francis Pileggi, on his excellent Delaware Commercial and Business Litigation blog, provides a succinct summary of the case, available here.  The parties to the suit entered into merger negotiations to develop a smallpox antiviral drug.  Due to the uncertainty of the merger negotiations, the parties also entered into a non-binding license agreement, the terms of which would be finalized if the merger fell through for whatever reason.   While nonbinding, the preliminary license agreement contained detailed financial terms and benchmarks.  When the merger was terminated, SIGA proposed terms for a collaboration that departed from the preliminary license agreement.  The Delaware Supreme Court affirmed the Court of Chancery finding that SIGA's acted in bad faith.  The question of the case became what damages were due from the bad faith breach of a preliminary agreement to "negotiate in good faith,” when all essential terms have not been agreed to by the parties?

The first gem in the opinion, and something I'll be working into my damages lectures for first year contracts this spring,  is that: 

when a contract is breached, expectation damages can be established as long as the plaintiff can prove the fact of damages with reasonable certainty. The amount of damages can be an estimate.  

What constitutes reasonable certainty changes whether the party is establishing damages are due versus the amount of the damages.  And here is the second gem:  the standard of proof can be lessened where willful wrongdoing contributed to the breach and the uncertainty about the amount of damages.

where the wrongdoer caused uncertainty about the final economics of the transaction by its failure to negotiate in good faith, willfulness is a relevant factor in deciding the quantum of proof required to establish the damages amount.

-Anne Tucker