Um, this new weak effort at coming up with damages to PIP is far better for Siga than Parsons' previous weak effort of a income stream. Damages are now capped at less than $200 million... Parsons previously said a lump sum remedy is speculative (and it is), and now he has "reconsidered" ... I've never heard of a judge overturning himself! He looks like a complete jackass right now. He reminds me of one of those world cup refs that lets the game get away from them, this case has definitely gotten away from Parsons. Siga will obviously appeal on the grounds that a remedy must actually be based on something (like the terms of a contract) and not completely made up (again, this is getting old). Parsons' made some weak argument that once damages are established, he can essentially do whatever he wants in the construction of a remedy. This is of course untrue. This remedy is actually weaker than his first effort (if that is possible) and will be overturned or substantially reduced by the SC on appeal.
What you are seeing now is a cornered animal lashing out, that's all. Lets go to the SC for the final word.
The interest should be in accordance with the delivery schedule; the five deliveries speculated to start in 2010 spaced out through 2015 should each have interest accruing from the respective delivery dates. The interest on the 2015 delivery should be negative! Look, this is but one of many blatant basic math errors in the ruling. Parsons must have some weak clerks. This thing is going to get torn apart on appeal; the odds of an appeal by siga are 100%
So let me address a couple of points that are being openly debated and shouldn't be. Like some people suggesting siga might not appeal... that was dumb! First, there is some talk of siga possibly going bankrupt due to the size of the award. This talk is asinine. There is zero chance of siga going bankrupt over the lousy $200 mil that the award has now been reduced to, if it needed to be paid in the near future, and it doesn't because this thing is going to drag out for a while. Siga has over $100 mil in the bank, no debt, and a contract with over $200 mil in profits assuming performance. Siga gets 100% of follow on contracts. If siga needed to do a shelf to cover, which they don't because they will just go to GE Capital for a loan if it comes to that, but let's talk hypotheticals and say they did offer more shares, they would have no problem raising the cash.
Second, I have been pretty consistent in saying that Parsons would likely come up with a crazy remedy and it would be reversed by the SC on appeal. So let's just wait a few months for the next SC reversal to see what stands.
Third, this damages award is not going to stand. Parsons found a lump sum expectation damages award to be too speculative in his original ruling. He was right the first time. However, He is now desperately trying to backpedal because the SC took his absurd income stream remedy off the table and this weak effort is his best chance at getting pip anything. He is actually trying to ignore Hadley v baxendale. Good luck jackass!
Fourth, Jeff Eiseman has literally been wrong about everything in all of his articles except the fact that Parsons really wanted to give pip something. I won't be responding to any of his seeking alpha articles anymore because I am convinced he is more interested in getting his penny a page view than engaging in meaningful debate. He actually suggested today that siga might not appeal this ruling. I'm going to leave him to his own fantasy land.
Fifth, I am very happy the more I read. And this award still has a significant chance of getting overturned. I think it is natural for a chancery court judge to try to expand the powers of the chancery by making the argument that once damages are established, any amount of speculation is allowed to craft a remedy. Check out Hadley v baxendale to see why this is absurd. I think what comes out of the SC on appeal is some sort of clarified constraint on the chancery in constructing a remedy when damages have been established but can't be calculated. Even if it stands as is, I can absolutely live with it, I like siga getting 100% of any follow on contracts and the award as is roughly splits the current contract assuming siga continues to deliver. This is a win for the long haul, especially if there are ANY follow on contracts which I expect long before the court stuff is finalized.
Around $200 mil to pip after the litigation drags on for a long time. Siga will delay payment for a long time which is as good as a $200 mil loan at 6%. All in on this contract assuming FDA approval siga looks to net a little over $300 million (probably closer to $350 mil). So assuming this stands as is--highly unlikely--then siga and pip are really just splitting the current contract with siga getting all follow ons. The math is pretty simple here: divide 1.07 billion dollars by 91 million courses, multiply by 15 million courses, divide again by 5, take that result I'll call yearly damages, and apply a 6% interest rate compounded quarterly while adding the yearly damages number annually for another four years to bring it to current day. $200 million. And it will be overturned on appeal anyway. The dumb money will rush into pip on Monday just like it did after Parsons original debacle of a ruling only to get crushed when the SC has its say.
There are many failings of basic logic in the latest effort by Parsons to get PIP some damages. Probably the most damning is that, unlike the parties in every other Type II case referenced in the SC reversal, had there been good faith negotiations, siga and pip had only one customer for their product: the US Government. There was no market that would have paid the hundreds of millions of dollars Parsons is now saying 246 was worth at the time. If we were talking about valuing a piece of land or some sort of mall development, I think PIP might have an argument where they could calculate a value at the time of the breach. A new drug with zero sales and a single potential customer who has not committed to a purchase is not as easy to value. So what Parsons is really arging is that once a chancery judge makes a determination that damages took place, there are then no limits in coming up with a remedy of contract expectation damages no matter how speculative the construction of that remedy. This is a weak argument. I expect the SC will find PIP's argument lacks merit.
Mush brought up a critical point that has helped clarify my thinking. In all the other cases cited by the SC in their opinion where Type II expectation damages were allowed, the key argument in crafting the remedy was the ability to determine, with reasonable certainty, the value of the lost contract expectation. All the other cases involved something that there was some sort of MARKET with multiple potential buyers so the value was always in some range, say in a range of $150 million to $200 million for a piece of land for example. There is nothing in the record to support the existence of a market for ST-246 or the rights surrounding it.... and it's not in the record because there was no way to reasonably value st-246 in 2006.
The absurd argument Parsons made is that a single customer, the government, would start making purchases 4 years after the breach with a certain probability and would fail to make any purchases with another probability. So Parsons is really making the argument that the outcome of a SINGLE spin of a roulette wheel is not a speculative event. He is arguing that, for example, if you have $100 million on red, and therefore you will either get nothing or you win another $100 million, that prior to the spin, the expected result of $50 million in winnings would be a reasonable basis on which to award damages. Unfortunately for PIP, there is no certainty as to where that little bouncing roulette ball will land.
As to the matter of law that Parsons ignored in his ruling, Parsons argues that once the fact of damages are proven, a basis in the record to determine the amount of damages is not necessary; he actually argues there are no limits on what a chancery judge can award in that situation. His argument flies in the face of hadley v baxendale and literally every case cited by the SC in their reversal of his original opinion. It is well settled contract law that the value of the expectation in a contract expectation case cannot be made up through pure speculation! Parsons himself in his original ruling said an award of lump sum expectation damages would be speculative and unavailable, and then he reverses himself and makes the arguement that the value of the expectation is still completely speculative but now that’s ok. Sorry Parsons, it’s not OK and there is no question that the SC is not going to accept your argument that the chancery court has unlimited power in that regard.
Had there been a path in the record where PIP had an opportunity to sell its supposed rights to st-246 at the time—lets say it was in the record that Pfizer came to PIP and said “we will give you $1 billion to take over manufaturing and distribution of siga-246”, then I think pip might have a legitimate argument for a lump sum award based on Parsons finding because they would be able to point to a MARKET and a non-speculative value for their expectation. However, a future hypothetical contract involving uncertain terms with the federal government (a notoriously fickle partner) several years down the road and requiring peformance is obviously not an adequate basis on which to calculate the value of the parties expectation at the time of breach. No market existed for PIPs supposed rights at the time of the breach by which to value st-246. So by definition, the vaue of pip’s supposed rights to st-246 are speculative and cannot form the basis of a contract expectation damages award.
My expectation is that this will 100% be reversed by the SC on appeal. Is it speculative to say that?
Drod, I'm going to actually respond to your baseless accusation that "I haven't been right once." So lets see what I have been wrong on... um, nothing. I said the SC would reverse Parsons ridiculous original award. They did. I said the income stream wasn't available under contract law. It's not. I said specific performance was not available (and ridiculous). It wasn't (and is). I said Parsons was a wild card and would probably come up with some crazy award in response to the SC reversal. He did (and by reversing himself, which was weirder than even I expected). And now I'm saying Parsons' current award has no basis in contract law, it doesn't, and will definitely get overturned on appeal. It will.
"In New Jersey, the posting of a bond is not required to appeal a decision. However, if the party wishes to stay a judgment during the appeal, a motion must be made with the Superior Court, and the Court can require the posting of a bond or cash deposit under R.2:9-5. The same rule applies in Delaware under the State Constitution as well as the court rules."
Does anyone really think Siga is going to be denied its due process rights to an appeal through the requirement that Siga post an excessive appeal bond?!?! Be serious. The U.S. Supreme Court (federal, not Delaware) already has ruled (through abstention) that the use of an appeal bond to drive a company into bankruptcy to prevent an appeal is off the table, see 2nd Circuit, Texaco Inc. v. Pennzoil Co where it was found inflexibly requiring a bond in the full amount of a huge judgment can be "irrational, unnecessary, and self-defeating, amounting to a confiscation of the judgment debtor's property without due process."
The Delaware SC is going to have the final word in a few months.
Fwdlook is missing the point by actually making the argument that Parsons' ruling isn't speculative. There is no question the ruling is speculative; it is speculative and that's ok is Parsons' whole argument!! His ridiculous and weak assertion that flies in the face of contract law is that any value of contract expectation damages CAN be completely speculative as long as the mere fact that ANY damages occured is proven with certainty. Chew on that for a minute and let me know how it tastes. So, in summary, Parsons is again trying out some new untested theories of contract law. They will almost certainly be overturned by the Delaware SC on the appeal that is definitely going to happen, substantially reducing this ridiculous award.
The only thing certain in life is death and taxes... However, on this I'm still at 100% with a caveat: by saying "almost certainly" I was allowing for the possibility of earth ending unexpectedly by a plague or a meteor or something. If we are all still around in five months, damages WILL be reduced substantially by the SC.
I expect it will take a few months. The appeal won't even be submitted until after the value of Parsons' latest speculative award to pip is official, so another month there roughly. Then I'd expect three months at least for the DSC to hear arguments en-banc followed by two months for them to reverse and remand Parsons' latest errors. So I'd estimate between 5 and 7 months for a SC decision. This thing is likely go on for a long time, back and forth back and forth.
In the unlikely event that this doesn't get overturned by the SC (hey, unlikely is not the same as impossible) the parties will be forced to settle quickly for (probably) a lump sum amount that will be paid out over time. It is in neither sides interests for siga to have to resort to drastic measures to raise money like sell assets (perhaps a percentage of st-246) to cover an immediate lump sum because that sort of thing would essentially come out of pip's end and delay payments to them. Does anyone really think pip would want to continue this litigation in bankruptcy court? I suspect forcing a settlement was Parsons intent all along with this ruling; I don't think he really expects his latest ruling to stand up to an appeal in its current form.
I guess my point is that, even in the absurdly unlikely worst case scenario, siga is DRASTICALLY undervalued right now.
In the unlikely event Parsons' ruling makes it through the SC unscathed, it is in neither parties' interests to start litigation again in bankruptcy court. There would be a quick settlement, pip would agree to get their money paid out over some sort of extended timeline as it came in from the barda contract. People suggesting pip will drive siga into bankruptcy, take all their cash, and somehow gain control of the drug have a limited understanding of how the world works. The only reason there hasn't been a settlement thus far is that the parties have been so far apart on what damages are going to end up being (and because they hate each other but they will set that aside). Once damages are finalized in stone one way or another after this appeal to the SC, both parties will be forced to come to settlement terms quickly. I expect this is what Parsons intended to force with this ruling. Or maybe this ruling gets remanded like the last one and the carousel keeps spinning.
Fundamentally, I don't see Parsons ruling making it through the SC without the amount of the award being substantially reduced. Siga has strong arguments to make on appeal and I expect at least some of them will stick. However, in the unlikely scenario the SC lets this stand, I expect the parties to settle immediately, pip will get their roughly $200 million over some length of time, siga will get the rest of the existing contract, so maybe roughly $100 million, the rights to the drug, and all future contracts.
And there will be future contracts, that's where siga will make its money. I love that siga no longer has to worry about giving pip a dime on any new contracts and limiting the award to $200 mil to pip would be something I can live with. This is where people able to buy now will make money. I'd wait until the damages number is finalized though.
The biggest question of law I see is some guidance on determining how speculative the damage calculation is allowed to be assuming damages are found to have occured. Parsons argues argues a damage calculation that is complete speculation is ok in that circumstance. I don't think there is much of a legal precedent to support that position; it is not in accordance with the longstanding requirement that damages must be foreseeable and it clearly creates a windfall for the wronged party (not allowed in contract damages). How much speculation is too much speculation in determining the value of a remedy? I think the SC is going to want a say how that question is answered in Delaware. Hint: it's not going to be the level of speculation Parsons used to put together his remedy.
And SIGA's experts tore apart the methodology pip's expert used to estimate damages; any estimate of damages in this case is completely speculative, and this fact was reflected in Parsons' original decision, by Parsons! To suggest that the level of speculation allowed in crafting a remedy for a breach of contract is both unlimited and a settled question of law is simply wrong. The question isn't did Parsons use what he had available, obviously he did. The real question is: what was the value of the drug at the time of breach and how much speculation can be used to come up with that number considering the legal requirements regarding foreseeability and windfalls. Parsons himself originally ruled the estimates were too speculative so obviously there is a threshold, I look forward to finding out what it is.
"A “reasonably certain” threshold for expert testimony is a function of “best efforts” having regard for the merits of the case. The courts enjoy a wide judicial discretion in determining whether or not the expert’s testimony qualifies as a “best” effort and it appears that the courts will look toward several potential variables including, but not limited to: (a) soundness of opinion based upon (b) an acceptable methodology underpinned by (c) relevant data, all of which is to be judged against and, at least according to Posner, (d) the intellectual rigor that could be expected of an industry expert. Finally, where expert testimony falls short of the standard, Judge Posner believes that the trial judge “should” throw out the testimony in question. The word “should” may serve as fertile ground upon which the seeds of a new “duty to exclude” testimony may grow."
What an ideal opportunity to lay down some duty to exclude clarification!
Golong, I understand everything you are saying. I understand both the rules and the "art" of contract expectation damages. I understand your argument is that the reasonable certainty standard only applies to the fact of damages and not the value of damages. I know that's what Parsons is attempting to get by on. I find your arguments unpersuasive, especially the idea that there should be no threshold of certainty for value below which damages should be rejected. There is no question this is an unsettled area of law in Delaware. I expect the SC to provide some direction.
See the California Supreme Court's decision in Sargon Enterprises, Inc. v. University of Southern California. I doubt there is a case with questions of law at issue that is more analogous to Siga v Pip.
I'm definitely talking about the gatekeeper function, which Parsons has failed at by any reasonable test.
I recommend looking at "Daubert," which Delaware has accepted in its entirety, to learn why this latest Parsons ruling gets reversed by the SC.