The bottom line regarding yesterday’s Supreme Court Opinion is that the ridiculous 50/50 damages (based on promissory estoppel) ruling by Judge Parsons has been completely and totally reversed and this is incredible news for SIGA and terrible news for PIP. The reason that Parsons needed to use promissory estoppel when he came up with damages is that there was never a contract for a 50/50 profit split between PIP and SIGA! Promissory estoppel, as an equitable doctrine, essentially lets you make it up as you go to “prevent injustice”, so that is exactly what our caped crusader did. Now Parsons gets to try again on the damages and, oh and by the way, they are now clearly limited to (at most) expectation damages. The reason this is important is that expectation damages are based on the actual contract, not a made up contract that existed only in VC Parsons imaginationland. Oh, and expectation damages require reasonable certainty and foreseeability. Parsons himself found in his original ruling: “Applying these precedents to the facts before me, I conclude that I cannot award PharmAthene the present value of its estimated lost profits on a license agreement that (1) would have contained the risk of receiving no profits and (2) was never consummated, because such an award would be speculative.” and “Having carefully reviewed the testimony and reports of PharmAthene’s experts, including especially Baliban, I find that PharmAthene’s claims for expectation damages in the form of a specific sum of money representing the present value of the future profits it would have received absent SIGA’s breach is speculative and too uncertain, contingent, and conjectural.”
One problem with your analysis; The appeals Court knew what Parsons had said about the expectation damages being speculative. If theythought that foreclosed any damage award they would not have remanded the case; they would havesaid that since Parsons could not calculate expectancy damages w/o speculating, then PIP gets nothing. They sent it back to Parsons to recalculate, so there will be a new damage award.
There is a footnote in he opinion that says that PIP must show that the damages are not too speculatve. If you are right, why that footnote? Leaves it open for Parsons to stay with his original conclusion.
Thanks for your thoughts. PIP seems to disagree that they have anything but a complete victory on their hands with their gloating Sunday PR. They are working hard this Sunday morning to establish the tone. Perception is reality, until Parsons sings.
So where does that leave us? I come to essentially the same conclusion as Golongin2008:
“OK...Here are my thoughts on "expectation damages"...
Parson's has already gone on record as stating that expectation damages for PIP would be difficult to prove under general contract law as the damages were both speculative, and unquantifiable, at the time of the "breach". Because of this, and also because of the uncertainties of the documents themselves amounting to an enforceable "contract at law," Parsons went another route he felt was available and invoked equitable principles and remedies under the doctrine of "promissory estoppel" to give PIP the remedies he felt they deserved for the bad faith of Siga in negotiations (ie, the 50-50 split of profits for ST-246).
Now the Appellate Court has basically slapped Parson's hands and said he went too far in trying to bootstrap an equitable award of 50-50 in net profits to PIP, where the underlying contract, if there even was one, was too uncertain and speculative to award anything close to that in a remedy.
So now it's back to proving expectation damages under general contract law (no equitable remedies this time around), wherein Parson's has already stated that such would be difficult for PIP to prove in the first place.
Parson's does not want to risk being reversed a second time, let me tell you! But, bad faith and breach of contract has been found and upheld by the higher court, so PIP will get something.
(csmclemore said) " Now the Appellate Court has basically slapped Parson's hands and said he went too far in trying to bootstrap an equitable award of 50-50 in net profits to PIP, where the underlying contract, if there even was one, was too uncertain and speculative to award anything close to that in a remedy".
You obviously have not read the opinion of the Supremes. They never said any such thing.
In my opinion, to truly find justice in the situation, we need to step back even further and understand the terms of the merger agreement... but had that been done, this case would have been thrown out long ago.
The fact is that the two companies were "joining forces" to make a powerhouse Biodefense company and, PIP was bringing to the table with two winning candidates while SIGA was coming to the table with one. Thus, the terms of the merger were such that SIGA shareholders were to receive 1/3 of the merged company and PIP shareholders were to receive 2/3.
How many drugs did PIP bring to market? None.
So, all I can say, is thank goodness SIGA didn't go through with the merger! How about the fact that PIP was operating in bad faith and had nothing that could even remotely represent 10% of the company, let alone 2/3.
Regretfully, SIGA lawyers didn't take this argument... the fact that PIP was propping up their drugs to be more than they were... but that's because lawyers don't like science... because "medical experts" tend to counter each other at trial.... and, at least in court, it's a zero sum game...
And, even though that is not the issue that's being argued, it should be. We have the benefit of retrospectively being able to see into the future. Not only didn't PIP have anything on which to maintain a company, they were incredibly greedy with their fight for majority stake on the merged company.
However the court case is being argued.... SIGA finally realized that they could take their winning candidate on their own... and that PIP had nothing but really good spokes people to scrounge up ignorant investors with money.
I'm thinking Parson's gets both parties into chambers and tells them to settle and fast. Maybe something in the line of Siga paying PIP 10-15 million and hasta la vista. PIP has little bargaining power now other than to threaten further delays and appeals, but that's pretty standard. Parson's, if forced to, will not be overly kind to PIP even though he might want to be. He must make sure he follows the law this time around..no doubt about it.”
So where does that leave the stocks? Well PIP is on its own. They just lost the only money they could expect to get from SIGA in the near term and whatever they do get based on the constraints the Supremes placed on Parsons is going to be a pittance in comparison to a 50/50 profit split. SIGA on the other hand should now have a market cap worth at least rougly $400 million based on its current contracts alone. That is a rough doubling of the share price as of its Friday close. Of course, with all the shares short out there, it could go much higher, especially now that much of the monkey is off its back.
Let me also make clear that although I personally think reliance damages is a more appropriate remedy in this case, I defer to the learned opinion of the Supreme Court Justices that expectation damages are appropriate under the circumstances outlined, although it is obviously a lot more touchy feely than the many other courts out there that do limit the damages to reliance damages or don’t recognize good faith negotiations at all. I thought the Supremes opinion was as fair and as just as it could have been considering all the BS in Parsons original opinion.