Delaware High Court Affirms SIGA's $195M Liability


By Michael Greene and John T. Aquino

Dec. 23 — SIGA Technologies Inc., which supplies the only smallpox drug in the U.S. strategic stockpile, can't escape a ruling requiring it to pay about $195 million to PharmAthene Inc. in damages stemming from a failed merger and license negotiations between the parties, the Delaware Supreme Court ruled Dec. 23.

The state's high court affirmed the Delaware Chancery Court's decision from January ordering SIGA to pay lump-sum expectation damages for failing to negotiate a licensing agreement in good faith. The chancery court had awarded PharmAthene $113 million and later added $81 million in interest charges, legal fees and costs.

The Delaware Supreme Court's decision came a week after SIGA filed a reorganization plan in the U.S. District Court for the Southern District of New York that describes how it wants to come out of Chapter 11 bankruptcy. SIGA had filed for Chapter 11 to challenge the Delaware chancery court's award without having to post a bond.

Making Other Party Whole

The high court found that the court of chancery's determination that expectation damages PharmAthene requested were too speculative didn't prohibit it from awarding them on remand and that the lower court's factual findings had supported its award.

Expectation damages help the injured party in breach of contract litigation realize the value of the expectancy that was created by the promise of the other party.

“When a party breaches a contract, that party often creates a course of events that is different from those that would have transpired absent the breach,” Justice Collins J. Seitz Jr. wrote for the court's majority. “The breaching party cannot avoid responsibility for making the other party whole simply by arguing that expectation damages based on lost profits are speculative because they come from an uncertain world created by the wrongdoer. Rather, when a contract is breached, expectation damages can be established as long as the plaintiff can prove the fact of damages with reasonable certainty. The amount of damages can be an estimate.”

Dissent, SIGA's Comment

In a dissenting opinion, Justice Karen L. Valihura found that only reliance damage should have been available to PharmAthene.

“I disagree with the Majority's articulation of the standard of proof required for an award of expectation damages, its approval of the trial court's consideration of post-breach evidence, and its application of the “wrongdoer rule” to lessen the quantum of proof to the point of speculation and to broadly attribute to SIGA uncertainties in damages as the ‘but for' cause for failure to consummate a license agreement,” she wrote.

In a statement released after the ruling, Dr. Eric A. Rose, SIGA's chairman and chief executive officer, said that the company was disappointed by the Supreme Court's ruling but that it had anticipated it by filing its reorganization plan. The plan was supported by the Official Committee of Unsecured Creditors appointed in SIGA's Chapter 11 bankruptcy case, of which PharmAthene was one of two members.

SIGA was represented by Stephen P. Lamb, Meghan M. Dougherty and Matthew D. Stachel of Paul, Weiss, Rifkind, Wharton & Garrison LLP, Wilmington, Del., and PharmAthene by A. Richard Winchester and Christopher A. Selzer of McCarter & English, LLP, Wilmington, Del.

To contact the reporters on this story: Michael Greene in Washington at mgreene@bna.com and John T. Aquino in Washington at jaquino@bna.com

To contact the editor responsible for this story: Che Odom at codom@bna.com