Delaware Courts May Award Expectation Damages for a Breach of an Obligation to Negotiate in Good Faith C. Stephen Bigler, Jennifer Veet Barrett
In that connection, the Supreme Court held that “where the parties have a Type II preliminary agreement to negotiate in good faith, and the trial judge makes a factual finding, supported by the record, that the parties would have reached an agreement but for the defendant’s bad faith negotiations, the plaintiff is entitled to recover contract expectation damages.” Further, the court found that the factual conclusions made by the Court of Chancery support a finding that the LATS was a Type II preliminary agreement and that SIGA and Pharmathene could not, in good faith, propose terms of the definitive licensing agreement that were inconsistent with the LATS. Because this was the first time the Delaware Supreme Court addressed whether Delaware law recognizes Type II preliminary agreements or whether a plaintiff is entitled to recover expectation damages in connection with a breach of an obligation to negotiate a definitive agreement in good faith, the Supreme Court reversed the Court of Chancery’s damages award for reconsideration consistent with its ruling.
The Court of Chancery has not yet ruled on whether Pharmathene is entitled to expectation damages as a result of SIGA’s breach of its obligation to negotiate in good faith. Since the case has been remanded, the Court of Chancery has permitted the parties to reopen the record to allow Pharmathene to introduce a limited amount of evidence regarding the profits SIGA has generated on ST-246 over the past seven years since the case was filed and to allow SIGA to respond to such evidence. Delaware courts calculate expectation damages based on the reasonable expectations of the non-breaching party at the time of the breach. The court, therefore, has expressed doubt about whether such new evidence will ultimately be relevant to its decision on the damage award.
Where the subject of the contract is unique, or where expectancy damages would not adequately compensate the aggrieved party, the court may order specific performance of the contract. So says the Uniform Commercial Code.