That the LATS was considered by Parsons to be anything more than a jumping off point for negotiations is totally ridiculous. That a two page LATS could be considered adequate to form the entire basis of a hypothetical final license agreement for a potential multi-billion dollar drug product like ST-246 in any non-speculative and meaningful way offends common sense. That the terms of the agreement that the parties would have reached had SIGA "negotiated in good faith" could be knowable by Parsons through anything other than pure, undiluted speculation (14 pages of it) is a matter of faith, not reason.
All that was definitely agreed to (in accordance with the SC ruling) was that the parties would negotiate around an incomplete document missing essential terms that the parties themselves had no intention of being bound to. Even if you take the leap of faith that the contract would have closed if not for SIGA's bad faith, the terms of such a fundamentally speculative, nonexistent, yet-to-be-negotiated contract are unknowable in any meaningful and non-speculative way. Parsons couldn't come up with them, he tried justifying his speculation through promissory estoppel and was reversed.
I find this case again strongly supports the point of view that PIP is not going to be able to show lost profits here are not too speculative since the CC and SC have already conclusively found that PIP would not be entitled to receive damages under any theory of damages Columbia prevailed on here. And, as was pointed out by the SC in every case they referenced in their opinion, damages can’t be speculative, and this really is the sticking point for PIP. Parsons is boxed in.
In the case you cited, Columbia specifically elected to forego any claim for lost profits because profits for a new business are generally “‘too speculative, uncertain, and conjectural to become a basis for the recovery of damages.’” Instead, it rightly contended that the bundle of rights it had acquired by the time of the City’s breach (its 50-year lease, its shoreline permit, its approved site plan, and its exclusivity agreement, all associated with an exceptional recreational property) was assignable and that a market existed for such development rights. Columbia asked the jury to award it the market value of this asset it claimed was destroyed.
I disagree that this is merely a semantic distinction and another way to provide lost profits without saying it, a plaintiff should be able to recover damages if it can show that “a market existed and whether a …… price would have been paid for the bundle of rights in that market.” Pharmathene also made this exact point in SC oral arguments when they were still trying to get a lump sum payment. PIPs lawyer: “So there’s no question how Pharmathene was harmed, it had the right to sublicense this thing. Had it received the license with the economic terms it was entitled to, it could have turned around and sold it.” Of course, PIP’s expectation damages expert was rejected by the CC so, as the SC pointed out, it is impossible to say what it would have sold for. The critical difference is that Colombia was able to show the value of their right (through expert testimony) and that a market existed for it, and thus they were entitled to damages. In contrast, PIP was not able to show the value of their right or even that a market existed for it, and thus were not entitled to damages.
Parsons' original remedy (that got reversed) wasn't based on the agreed upon (binding) contract between SIGA and PIP to "to negotiate in good faith for a definitive license agreement in accordance with the LATS’s terms". Instead, it was based on a series of made up "promises" pulled from snippets of both parties' courtroom testimony in a blatant abuse of the doctrine of promissory estoppel. The SC reversed him and told him to try again, this time by looking to the contract to come up with damages.
So in what way is Parsons original attempt at a remedy not in accordance with the requirements of contract law? In other words, why did it get reversed? The primary answer is the unavoidable requirement that damages must be proved with reasonable certainty under contract law without the assistance of made up crutches through promissory estoppel (oh, nothing in the contract on that? Well, I find there was a promise made...).
Fundamentally, a remedy is speculative when it has terms based loosely on those of an unconsummated final license agreement and (even assuming away the speculation through the questionable finding that a final license agreement would have come into existence had the parties negotiated in good faith as Parsons did) is also required to have terms "substantially similar" to the terms of the original LATS, which was found to be missing essential terms for the purposes of being the basis of a final license agreement.
In SIGA v Pharmathene, the Delaware Supreme Court found 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. However, they also noted that "an expectation damages award presupposes that the plaintiff can prove damages with reasonable certainty...(“It is well-settled law that ‘a recovery for lost profits will be allowed only if their loss is capable of being proved, with a reasonable degree of certainty. No recovery can be had for loss of profits which are determined to be uncertain, contingent, conjectural, or speculative.’”"
See the trend? There really isn't that much that is uncertain about where the Delaware Supreme Court is looking to go. Everyone is in agreement that expectation damages are theoretically recoverable in these Type II good faith cases; the real difficulty is in the practical requirements: It must be found that both parties would have agreed to the terms of the future contract (Parsons gets around this one by claiming he knows they would have-which is ridiculous but is now a finding of fact so OK, whatever) AND it must be found, by objective criteria, that there would be no missing essential terms in the contract (This is the one it's all going to hinge on, Parsons already found there were missing essential terms and tried to get around this by making up 14 pages of additional imaginary terms and definitions in his final judgement to suppliment the two page LATS). It's that simple.
Regarding Goodstein, The Eighth Circut commented that it was “not as confident . . . that Goodstein . . . should be read as categorically precluding benefit-of-thebargain damages for all breaches of binding preliminary agreements to negotiate a final agreement in good faith.” The Eighth Circuit then proceeded to analyze the question of whether Goodstein would bar expectation damages for breach of a Type II agreement.The Eighth Circuit questioned whether Goodstein would still apply if a judge could discern “what agreement would have been reached.” Ultimately, the Eighth Circuit declined to award expectation damages because the “[t]erm [s]heet was silent on significant issues” and “the missing terms [could not] be judicially determined by objective criteria in the [t]erm [s]heet itself or in commercial practice, usage, or custom.
In Venture Associates, the Seventh Circuit Court of Appeals addressed “a binding agreement to negotiate in good faith toward the formation of a contract of sale” under Illinois law. The majority noted that “if the plaintiff can prove that . . . [but] for the defendant’s bad faith[,] the parties would have made a final contract, then the loss of the benefit of the contract is a consequence of the defendant’s bad faith,” and the defendant is liable for that loss if it is foreseeable. And...“[t]he difficulty, which may well be insuperable, is that since by hypothesis the parties had not agreed on any of the terms of their contract, it may be impossible to determine what those terms would have been and hence what profit the victim of bad faith would have had.”
It's been nice catching up with all the serious longtime posters. It is a huge relief for me personally to know that Parsons is reversed and boxed in and I have a pretty good idea of the new timeframe. My work here is done, I'll talk to you all again in roughly a year barring any unexpected surprises. I'm out!
P.S. Drod, you can have the board back now.
History puts Chancery responses taking roughly between 6 months and a year on Chancery cases remanded by the SC. Based on Parsons having been sent back to square one on damages by the SC, I'd estimate we are looking at the next ruling to come out probably somewhere on the longer side of that between March and May of 2014. I hope Pharmathene wasn't counting on getting paid anytime soon because we are all back to waiting.
Hey, speaking of, Pharmathene should be about due to dilute again any day now; That's the only thing related to PIP and SIGA that does happen like clockwork!
Even though Parsons determined that PIP and SIGA would have reached an agreement if not for SIGA’s bad faith, Teachers makes clear that this finding alone is not sufficient to enforce such an agreement; Parsons would also need to find that “the parties have reached complete agreement, including the agreement to be bound, on all the issues perceived to require negotiation.” And Parsons, in his ruling, says: “In particular, I find that a reasonable negotiator in the position of PharmAthene would not have concluded that the LATS, as attached to the Bridge Loan and Merger Agreements, manifested agreement on all of the license terms that SIGA and PharmAthene regarded as essential. In that context, therefore, such a reasonable negotiator would not have believed that the LATS concluded the parties’ negotiations.” However, instead of relying on the precedent established by Teachers and properly concluding that the missing essential terms rendered the preliminary agreement non-binding, Parsons, in desperation, decided to pull the missing essential terms out of his @&$.
I have little faith that Parsons won’t attempt another ridiculous way to measure damages that is not based in reality (he really doesn’t like SIGA) but I am confident that if he does, the Delaware SC is going to reverse him again.
Now that the SC has reversed Parsons on promissory estoppel as a cause of action, we are left only with one cause of action on which PIP has prevailed: SIGAs breach of a binding obligation to negotiate in good faith. With his first attempt at a remedy reversed, what is going to be the structure of his new remedy based on that cause of action? That does seem to be the billion dollar question (or is it the 400 million dollar question?)
Teachers Insurance & Annuity Association v. Tribune Co. may provide the answer. It is the Cadillac of cases involving breach of a binding obligation to negotiate in good faith. In fact, during the SC oral arguments, PIP's lawyer even referenced it, and SIGA's lawyer brought it up as well: "that's a wonderful case for us!"
Teachers says: “Notwithstanding the intention of the parties at the time, if the agreement is too fragmentary,”—in this case, the agreement to negotiate in good faith in accordance with the terms of the LATS—“in that it leaves open terms of too fundamental importance, it may be incapable of sustaining binding legal obligation.” And: “The conclusion that a preliminary agreement created binding obligations may leave open the further question of the nature, scope and extent of the binding obligations.” And especially: “A preliminary contract with binding force occurs when the parties have reached complete agreement, including the agreement to be bound, on all the issues perceived to require negotiation.”
From Parsons: "I find that PharmAthene has not shown that, when the parties executed either the Bridge Loan Agreement or the Merger Agreement, they intended to bind themselves to enter into a license strictly conforming to the LATS." and "The Bridge Loan Agreement and Merger Agreement provisions incorporating the LATS do not constitute a basis for binding SIGA to the terms of the LATS for a second and independent reason: they do not contain all the essential terms of a license agreement for a product like ST-246."
An income stream might be available to PIP if the LATS was found to be binding on the parties; it wasn't. It was already a stretch for Parsons to find that, if not for SIGA's bad faith, the parties would have agreed on the terms of and bound themselves to a yet to be negotiated license agreement that did not have to have terms in strict accordance with the LATS. It is impossible to know what the terms of such a license agreement would have been when "the parties also recognized that the negotiations probably would introduce new terms and lead to some adjustment of terms expressly embodied in the LATS, while other terms in the LATS were almost certain to remain.” Fundamentally, how do you determine the terms of a yet to be negotiated license agreement that does not have to conform to the terms of the LATS with any certainty?
"the Seventh Circuit Court of Appeals addressed “a binding agreement to negotiate in good faith toward the formation of a contract of sale” under Illinois law.95 The majority noted that “if the plaintiff can prove that . . . [but] for the defendant’s bad faith[,] the parties would have made a final contract, then the loss of the benefit of the contract is a consequence of the defendant’s bad faith,” and the defendant is liable for that loss if it is foreseeable." and "Judge Posner, writing for the majority, addressed “the practicality of the remedy” and noted that “[t]he difficulty, which may well be insuperable, is that since by hypothesis the parties had not agreed on any of the terms of their contract, it may be impossible to determine what those terms would have been and hence what profit the victim of bad faith would have had.”
But what about an equitable payment stream or a constructive trust or something like that? Well those are all equitable remedies that essentially require the reformation of the contract, and such remedies are unavailable now that promissory estoppel award was reversed. Remember, the ability for Parsons to award expectation damages was not something new given to him by the SC opinion, it is important to recognize that he could have awarded expectation damages in the original ruling and he chose not to because he knew awarding an equitable payment stream under expectation damages does not meet certainty requirements and requires a prohibited reformation of the contract. The Supreme Court, in their opinion, directed Parsons to look to the contract to determine the remedy and I don’t see reference to a non-speculative equitable payment stream that would have been within the contemplation of the parties anywhere in the original contract.
To determine awardable damages, we must look to the contract that PIP and SIGA bound themselves to by mutual consent. So what is that contract? Hint: it’s not “the LATS”. The correct answer is that SIGA and PIP contractually bound themselves to negotiate a license agreement-which did not have to strictly conform to the LATS-in good faith. SIGA was found to have breached this contract when it acted in bad faith by completely ignoring the terms of the LATS and, were it not for those bad faith negotiations, a license agreement would have been consummated. Therefore PIP is entitled to recover its expectation damages.
What expectation damages are likely to be awarded?
In order to determine damages, we must determine, in accordance with contract law, what elements of the to be negotiated license agreement were reasonably certain and within the contemplation of the parties at the time the contract was formed. Parsons said “PharmAthene’s request for specific performance must be construed as a request for an order compelling SIGA to negotiate in good faith a license agreement for ST-246 and not for an order specifically enforcing the LATS. Similarly, I construe PharmAthene’s alternative request for monetary damages as a request for the damages PharmAthene suffered as a result of SIGA’s failure to negotiate a license agreement in good faith and not for the damages it suffered because it did not obtain a license strictly conforming to the LATS.” So specific performance and lump sum monetary damages have already been ruled out.
You get an A+ Mush! I would agree that roughly $16 million is the maximum amount of tangible monies that can, with any reasonable certainty, be shown to have been within the contemplation of both parties at the time the contact was made.
Maybe I was too coy with this post originally because it really does sum this whole thing up very neatly. Allow me to break it down because I still see a lot of folks out there who are under the mistaken impression that the LATS is, was, or ever will be binding (Jimmy Altucher, I'm looking at you). Parsons said in his original opinion that the LATS was not a binding contract The Supreme Court of Delaware, in its opinion, agreed with his conclusion regarding the non-binding nature of the LATS.
Both Parsons and the Supreme Court did conclude that SIGA had a duty to negotiate a license agreement with PharmAthene having economic terms substantially similar to those agreed to in the LATS. SUBSTANTIALLY SIMILAR, not binding! What substantially similar economic terms would have been agreed to? They are impossible know under contract law. They are easy to make up under promissory estoppel where "if a party changes his or her position substantially either by acting or forbearing from acting in reliance upon a gratuitous promise, then that party can enforce the promise ALTHOUGH THE ESSENTIAL ELEMENTS OF A CONTRACT ARE NOT PRESENT"
And that brings me back to my original question which I will expand a little to hopefully make more clear to those who are still struggling: What are the damages PharmAthene suffered as a result of SIGA’s failure to negotiate a license agreement-which does not have to strictly conform to the LATS-in good faith?
Again, I stress that answers referring to speculative and unforeseeable damages will receive no credit from the Delaware Supreme Court.
Remember, no credit will be awarded for answers referring to damages that are speculative or unforeseeable.