Delaware Supreme Court Offers Insight on Enforceability of Preliminary Agreements and the Entitlement to Damages

In SIGA Technologies, Inc. v. PharmAthene, Inc., No. 20, 2015 (Del. Dec. 23, 2015), the Delaware Supreme Court affirmed a Court of Chancery opinion awarding expectation damages for a parties breach of an agreement to negotiate in good faith. This is the second Delaware Supreme Court decision rendered in this dispute.

The facts of this case involved merger agreement between SIGA Technologies, Inc. and PharmAthene, Inc. which provided that if the merger was not consummated, then the parties would negotiate in good faith to enter into a license agreement. This sort of agreement is known as a Type II agreement. The merger was not consummated. The Court of Chancery found that SIGA, acting in bad faith, refused to negotiate a license agreement when the merger was terminated and awarded $115 million in expectation damages, based upon the Supreme Court’s prior ruling that PharmAthene was entitled to expectation damages for the breach.