IN THE SUPREME COURT OF THE STATE OF DELAWARE

SIGA TECHNOLOGIES, INC., §

a Delaware Corporation, §

§ No. 20, 2015

Defendant Below, § 

Appellant/Cross-Appellee, § Court Below: Court of Chancery

§ of the State of Delaware 

v. §

§ C.A. No. 2627-VCP

PHARMATHENE, INC., §

a Delaware Corporation, §

§

Plaintiff Below, §

Appellee/Cross-Appellant. §

Submitted: October 7, 2015

Decided: December 23, 2015

Corrected: December 28, 2015

Before STRINE, Chief Justice; HOLLAND, VALIHURA, VAUGHN, and SEITZ, 

Justices, constituting the Court en Banc.

Upon appeal from the Court of Chancery. AFFIRMED.

Stephen P. Lamb, Esquire (Argued), Meghan M. Dougherty, Esquire, Matthew D. 

Stachel, Esquire, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Wilmington, Delaware,

for Defendant Below, Appellant/Cross-Appellee SIGA Technologies, Inc.

Roger Crane, Esquire (Argued), K&L Gates LLP, New York, NY, Christopher A. 

Selzer, Esquire, McCarter & English, LLP, Wilmington, Delaware, for Plaintiff Below, 

Appellee/Cross-Appellant PharmAthene, Inc.

SEITZ, Justice, for the Majority:
2

I. INTRODUCTION

This is the second appeal by SIGA Technologies, Inc. (“SIGA”) from a Court of 

Chancery judgment awarding PharmAthene, Inc. (“PharmAthene”) damages stemming 

from failed merger and license negotiations between the parties. In the first appeal, this 

Court upheld the Court of Chancery’s finding that SIGA in bad faith breached its 

contractual obligation to negotiate a license agreement consistent with the parties’ license 

agreement term sheet, known throughout this litigation as the “LATS.” This Court also 

held that where parties have agreed to negotiate in good faith, and would have reached an 

agreement but for the defendant’s bad faith conduct during the negotiations, the plaintiff 

can recover contract expectation damages, so long as the plaintiff can prove damages 

with reasonable certainty. Because the Court of Chancery ruled out expectation damages 

in its first decision, this Court remanded the case to reconsider an award of damages to 

SIGA in a decision we will call “SIGA I.”1

The Court of Chancery did as instructed and reevaluated the evidence, including

evidence of expectation damages. Although the court previously found that lump-sum 

expectation damages were too speculative to recover, the Court of Chancery held on 

remand that PharmAthene met its burden of proving with reasonable certainty 

 1 SIGA Techs. Inc. v. PharmAthene, Inc., 67 A.3d 330, 347 (Del. 2013) [hereinafter SIGA I].
3

expectation damages and awarded PharmAthene $113 million.2 The parties once again 

appealed to this Court.

SIGA raises essentially two claims of error in the current appeal: first, the Court of 

Chancery was not free to reconsider its prior holding that lump-sum expectation damages 

were too speculative; and, second, if reconsideration was permitted, the expectation 

damages awarded following remand were too speculative. After careful consideration of 

SIGA’s arguments, we find that the law of the case doctrine did not preclude the Court of 

Chancery from reconsidering its earlier determination that lump-sum expectation 

damages were too speculative. In SIGA I, this Court clarified that expectation damages 

were available, instructed the Court of Chancery to revisit its damages award, directed 

the trial court to reevaluate the helpfulness of expert testimony, and permitted the court to 

make any order in further progress of the case not inconsistent with the SIGA I decision. 

The Court of Chancery followed the law of the case by complying with the mandate in 

SIGA I. 

We also find that the court did not abuse its discretion when it awarded 

PharmAthene lump-sum expectation damages, and its factual findings supporting its new 

damages determination were not clearly erroneous. The Court of Chancery considered

anew all issues relevant to the remedy, including the uncertainty caused by the 

wrongdoer’s breach. 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. The 

 2 PharmAthene, Inc. v. Siga Techs., Inc., 2015 WL 220445, at *1 (Del. Ch. Jan. 15, 2015) 

[hereinafter Final Remand Order].
4

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.3

 When 

awarding lump-sum expectation damages for breach of a Type II contract, the Court of 

Chancery correctly took into account all the circumstances of the breach, including the 

wrongdoer’s willfulness,

4 especially when the wrongdoer caused uncertainty about the 

economic terms of the transaction by its failure to negotiate in good faith.

5

 Accordingly, 

we affirm the judgment of the Court of Chancery.

II. FACTUAL BACKGROUND6

A. SIGA’s Development Of ST-246

In 2004, SIGA acquired technology for ST-246, an antiviral drug for the treatment 

of smallpox. At that time, the viability, potential uses, safety, and efficacy of the drug, as 

 3 Beard Research, Inc v. Kates, 8 A.3d 573, 613 (Del. Ch. 2010), aff’d sub. nom. ASDI, Inc. v. 

Beard Research, Inc., 11 A.3d 749 (Del. 2010); Del. Express Shuttle, Inc. v. Older, 2002 WL 

31458243, at *15 (Del. Ch. Oct. 23, 2002) (quoting Red Sail Easter Ltd. Partners, L.P. v. Radio 

City Music Hall Prods., Inc., 1992 WL 251380, at *7 (Del. Ch. Sept. 29, 1992)).

4 Cura Fin. Servs. N.V. v. Elec. Payment Exch., Inc., 2001 WL 1334188, at *20 (Del. Ch. Oct. 

22, 2001) (citing RESTATEMENT (SECOND) OF CONTRACTS § 352 cmt. a (1981)).

5 Beard, 8 A.3d at 613 (“Public policy has led Delaware courts to show a general willingness to 

make a wrongdoer ‘bear the risk of uncertainty of a damages calculation where the calculation 

cannot be mathematically proven.’”) (quoting Great Am. Opportunities, Inc. v. Cherrydale 

Fundraising, LLC, 2010 WL 338219, at *23 (Del. Ch. Jan. 29, 2010) (citing Duncan v. TheraTx, 

Inc., 775 A.2d 1019, 1023 (Del. 2001); Henne v. Balick, 146 A.2d 394, 396 (Del. 1958); Gotham 

P’rs, L.P. v. Hallwood Realty P’rs, L.P., 855 A.2d 1059, 1067 (Del. Ch. 2003); Dionisi v. 

DeCampli, 1995 WL 398536, at *18 (Del. Ch. June 28, 1995)).

6 The background facts are taken from the extensive record in both appeals. 
5

well as the likelihood of SIGA obtaining regulatory approval or making sales to the 

government, were, as is typical in this industry, uncertain. 

By late 2005, SIGA was running out of money, its largest shareholder, 

MacAndrews & Forbes, refused to invest additional funds, and the NASDAQ threatened 

to de-list its shares. SIGA estimated that it needed an additional $16 million to complete 

development of the drug. On top of its financial problems, SIGA was having trouble 

developing ST-246 because it had no experience or employee expertise bringing a drug to 

market. 

B. SIGA And PharmAthene Negotiate A Business Collaboration

In dire straits, SIGA began discussing a possible collaboration with PharmAthene. 

This was not their first attempt to work together. PharmAthene had previously backed 

out of merger negotiations between the parties in late 2003. Nevertheless, Thomas 

Konatich, SIGA’s Chief Financial Officer, contacted Eric Richman, PharmAthene’s Vice 

President of Business Development and Strategies, to begin discussions. According to 

Richman’s contemporaneous notes, due to the prior failed attempt at a merger and to 

SIGA’s need for a fast cash infusion, SIGA insisted on framing a license agreement 

before discussing a potential merger. 

Both companies put together teams to negotiate the potential business 

collaboration. On SIGA’s side, in addition to CFO Konatich, the key participants

included the Chairman of SIGA’s board, Donald Drapkin, who also served as the Vice 

Chairman of SIGA’s biggest stockholder, MacAndrews & Forbes; SIGA’s Chief 

Scientific Officer, Dennis Hruby, who kept SIGA’s senior management apprised of 
6

ST-246’s scientific developments; and then-board member and current Chief Executive 

Officer, Eric Rose. SIGA’s financial controller, Ayelet Dugary, prepared financial 

projections that informed the negotiations. Additionally, several in-house lawyers from 

MacAndrews & Forbes took an active role in negotiating with PharmAthene on SIGA’s 

behalf, including Michael Borofsky who was involved in negotiating the terms of the 

LATS; and Steven Fasman, who worked with SIGA personnel to prepare a valuation of 

ST-246, and who was involved in discussions with PharmAthene after SIGA experienced 

positive developments and backed out of the merger and the LATS negotiations. SIGA 

also hired attorney Nicholas Coch to represent it in communications with PharmAthene’s 

attorney right before SIGA breached its obligation to negotiate a license agreement

according to the LATS. 

PharmAthene’s team, assembled by Richman, included CEO David Wright; CFO

Ronald Kaiser; and board member Elizabeth Czerepark; as well as attorney Jeffrey 

Baumel. PharmAthene also later hired attorney Elliot Olstein who communicated with 

SIGA’s attorney Coch in the time leading up to SIGA’s breach. 

1. SIGA And PharmAthene Negotiate And Sign The LATS

Konatich and Richman led the negotiations over the license agreement on behalf 

of their companies. The Court of Chancery found that at the end of 2005, the parties 

conservatively valued ST-246’s market potential at around $1 billion to $1.26 billion.7

 

The parties reflected their negotiations in the specific terms of the LATS, with the last 

 7 PharmAthene, Inc. v. Siga Techs., Inc., 2011 WL 4390726, at *3 (Del. Ch. Sept. 22, 2011) 

[hereinafter 2011 Opinion].
7

revisions dated January 26, 2006. This final version of the LATS was titled

“SIGA/PharmAthene Partnership” and the footer of the document read: “Non Binding 

Terms.”8

 The objective read: “To establish a partnership to further develop & 

commercialize [ST-246] for the treatment of Smallpox and orthopox related infections 

and to develop other orthopox virus therapeutics.”9

 The LATS provided that SIGA 

would grant PharmAthene a worldwide, exclusive license to use, develop, sell, and 

sublicense ST-246 and related products. The LATS also contemplated a joint research 

and development committee and allocated certain roles on the committee to 

PharmAthene and SIGA. PharmAthene would also fund research at SIGA based on a 

defined research and development plan and budget. 

The LATS included a number of economic terms. PharmAthene had to pay a total 

“License Fee” of $6 million, consisting of (1) a $2 million upfront cash payment; (2) a 

$2.5 million deferred license fee to be paid 12 months after the execution of a license 

agreement upon the occurrence of certain events; and (3) a $1.5 million payment to be 

made after SIGA obtained over $15 million in financing. The LATS also required 

PharmAthene to pay up to an additional $10 million for SIGA’s achievement of certain 

milestones such as meeting specific sales targets and obtaining necessary regulatory 

approvals. Additionally, PharmAthene was required to make incremental annual royalty 

payments on net sales of “Patented Products” on a sliding percentage scale of between 

8% and 12%, depending on the amount of yearly sales. SIGA was also “entitled to 

 8 App. to Answering Br. at 1498 (The License Agr. Term Sheet).

9 Id.
8

receive 50% of any amounts by which [the] net margin exceed[ed] 20% on sales to the 

[U.S.] Federal Government.”10 After negotiating the LATS, the parties turned their focus 

to merger negotiations. 

2. SIGA And PharmAthene Enter Into A Bridge Loan Agreement 

And A Merger Agreement

Due to SIGA’s precarious financial position, PharmAthene agreed to provide 

SIGA with bridge financing for continued development of ST-246 while the parties 

negotiated a merger. On March 20, 2006, the parties entered into a Bridge Loan 

Agreement whereby PharmAthene loaned SIGA $3 million. Section 2.3(a) of the Bridge 

Loan Agreement bound the parties to negotiate in good faith a license agreement in 

accordance with the terms of the LATS if the merger was terminated or not executed, and 

imposed a 90-day exclusivity period.11 

After executing the Bridge Loan Agreement, SIGA and PharmAthene continued to 

negotiate the merger. In connection with the merger discussions, PharmAthene created a 

financial model in February 2006 based on SIGA’s evaluation of ST-246’s market 

potential (the “PharmAthene Model”). On June 8, the parties signed a Merger 

 10 Id. at 1499.

11 App. to Opening Br. at 132 (Bridge Loan Agreement § 2.3(a)):

Upon any termination of the Merger Term Sheet . . . , termination of the 

Definitive Agreement relating to the Merger, or if a Definitive Agreement is not 

executed . . . , SIGA and PharmAthene will negotiate in good faith with the 

intention of executing a definitive License Agreement in accordance with the 

terms set forth in the [LATS] and [SIGA] agrees for a period of 90 days during 

which the definitive license agreement is under negotiation, it shall not, directly or 

indirectly, initiate discussions or engage in negotiations with any corporation, 

partnership, person or other entity or group concerning any Competing 

Transaction without the prior written consent of the other party or notice from the 

other party that it desires to terminate discussions hereunder. 
9

Agreement. Section 12.3 of the Merger Agreement imposed a similar obligation on the 

parties to negotiate in good faith a license agreement in accordance with the LATS if the 

merger was terminated.12 The Merger Agreement had a drop-dead date of September 30. 

The parties attached the LATS as an exhibit to the Bridge Loan Agreement and the 

Merger Agreement. 

C. ST-246’s Prospects Improve As The Drug Hits Development 

Milestones And SIGA Acquires Funding

After the parties signed the Merger Agreement, SIGA experienced several 

positive developments, the most important of which related to developments suggesting 

that ST-246 had bright prospects. First, on June 9, SIGA’s Chief Scientific Officer, 

Hruby, received news of a $5.4 million award for ST-246 from the National Institute of 

Allergy and Infectious Disease.13 Hruby informed Konatich of the grant in an email, to 

which Konatich responded: “[I]t is a damn shame we had to merge.”14 Hruby stated in 

his response: “With the 5.4M grant being activated, the 10.9M BAA award on its way, an 

8M grant pending along with a couple of appropriations—we could have gone all the way 

ourselves. Instead we got sold into slave labor and if anything the [PharmAthene] gang 

 12 Id. at 271 (Merger Agreement § 12.3):

Upon any termination of this Agreement, SIGA and PharmAthene will negotiate 

in good faith with the intention of executive a definitive License Agreement in 

accordance with the terms set forth in the [LATS] and SIGA agrees for a period 

of 90 days during which the definitive license agreement is under negotiation, it 

shall not . . . initiate discussions or engage in negotiations with any corporation, 

partnership, person or other entity or group concerning any Competing 

Transaction . . . without the prior written consent of PharmAthene . . . .

13 App. to Answering Br. at 807–08 (Email Chain between Hruby and Konatich).

14 Id. at 807.
10

will drag us down.”15 Next, on July 13, SIGA announced that “its lead smallpox drug 

candidate, [ST-246], has successfully completed the first planned human clinical safety 

trial.”16 Then, on September 13, Hruby called Richman to tell him that personnel at the 

Centers for Disease Control and Prevention, where tests of ST-246 were conducted, “are 

beside themselves—never saw anything like it.”17

A few months later, on September 27, Hruby emailed a number of high-level 

SIGA officials (including CEO, Donald Drapkin, and board member Adnan Mjalli) to 

inform them of the company’s recent accomplishments. In this email, Hruby lauded the 

success of recent trials of ST-246 as “excellent” and having “no adverse effects.”18 He 

also noted that he presented to the Department of Homeland Security and the Department 

of Defense (“DoD”) the week before, and that the agencies were “very ‘impressed’ and 

both indicated acquisitions in the future.”19 He further explained that “[the Department 

of Homeland Security] is developing an implementation plan that will be disclosed ~ Jan. 

1 that should spell out the timing and size of the acquisition. Of note, both groups also 

indicated an interest in acquiring our HFV antivirals in development.”20 Notably, Hruby 

also announced the following:

[W]e just received today notice of award on a $16.5M contract from the 

[National Institutes of Health] to fund all ST-246 development activities up 

to and through the NDA filing. Bottom line is the product’s entire 

 15 Id. 

16 Id. at 811 (SIGA Press Release).

17 Id. at 1133 (Email from Richman to Wright).

18 Id. at 1135 (Email from Hruby to Drapkin). 

19 App. to Answering Br. at 1135.

20 Id. 
11

development is supported, we have all the necessary partnerships and 

advocates in place, and we have the team in place to see it through.21 

After pointing out all of SIGA’s recent successes, Hruby concluded in his email: 

I have grave concerns about the merger as it is currently going forward in 

that it appears that the merged company will not be [Small Business 

Innovation Research] compliant. In that case, we would have to shut down 

$30M in current grants and contracts and damage all the positive 

relationships we have developed to date.22 

When Hruby testified at trial, he stated that his representation that $30 million would be 

lost “might have been an exaggeration.”23

D. SIGA Terminates The Merger Agreement And Proposes A LLC 

Agreement In Place Of A Licensing Agreement In 

Accordance With The Terms Of The LATS

Meanwhile, the Merger Agreement’s drop-dead date of September 30 approached,

but the SEC had not yet approved SIGA’s draft of the related proxy statement. On 

October 3, Fasman emailed Hruby stating: “Here is the decision to be reached: Should 

SIGA continue with its merger plans or should it try to go it alone?”24 SIGA’s board met 

the next day. According to the board minutes, Chairman Drapkin discussed the planned 

merger and whether SIGA should exercise its right to terminate the merger given that it 

did not close before September 30, or whether SIGA should grant PharmAthene an 

extension. Hruby gave a presentation about SIGA’s scientific results and Konatich 

presented on SIGA’s financial status. At this meeting, the SIGA board resolved to 

terminate the Merger Agreement. 

 21 Id. 

22 Id. 

23 Id. at 2574 (Trial Test. of Hruby).

24 Id. at 1141 (Email from Fasman to Hruby).
12

Two weeks later, SIGA publicly announced that the results of a primate trial 

showed that ST-246 provided 100% protection against smallpox. On October 18, SIGA’s 

Controller, Dugary, emailed Konatich and SIGA’s legal representatives a financial 

analysis concluding that total past and future development costs equaled $39.66 million, 

and that a $40 million upfront license fee would support a 50-50 split of ST-246’s 

profits.25 On October 19, SIGA announced a $9 million private placement whereby it 

sold two million shares of its stock at a price three times greater than SIGA’s 2005 share 

price. 

On October 26, PharmAthene attorney Elliot Olstein emailed SIGA attorney 

Nicholas Coch, advising Coch that PharmAthene was prepared to sign its proposed draft 

of the license agreement.

26 Coch responded that the nature of the negotiations 

necessitated a meeting.27 

On November 6, the parties met for the first time since SIGA’s termination of the 

merger agreement to discuss a license agreement. Richman attended the meeting with 

PharmAthene attorneys Baumel and Olstein. Konatich and Rose were present on SIGA’s 

side along with their legal counsel, Coch and attorney Fasman. Fasman spoke to SIGA’s 

perspective, emphasizing the LATS’s reference to a “partnership” between the parties 

and the need to revise some of the economic terms of the LATS. He proposed a $40 to 

 25 App. to Answering Br. at 1166–70 (SIGA ST-246 Market Potential Presentation). 

26 2011 Opinion at *9.

27 Id.
13

$45 million upfront fee and a 50-50 profit split. Olstein insisted that the parties were 

bound by the LATS but allowed SIGA to put together a formal proposal. 

On November 9, SIGA announced that ST-246 demonstrated protection against 

the monkeypox virus in two primate trials. Then, on November 21, SIGA sent 

PharmAthene a draft LLC Agreement that departed drastically from the terms of the 

LATS in a way that strongly favored SIGA. 

E. SIGA’s Internal Valuation Of ST-246 Ranged Between $3 Billion And 

$5.6 Billion Before SIGA’s Breach

With SIGA’s proposed draft of an LLC agreement in the background, in a series 

of emails on November 27 and 28, Fasman communicated with SIGA’s senior 

management—including CFO Konatich, CEO Drapkin, Controller Dugary, and two 

board members—about ST-246’s valuation.28 Fasman’s initial email on November 27 

criticized the PharmAthene Model, which reflected sales of between $300 million and 

$700 million per year starting in 2008, calling this projection “clearly erroneous.”29 

Fasman attached a revised revenue projection that he prepared with input from Konatich 

and Dugary, and proposed that SIGA should advocate to use the assumptions in his 

projection in its discussions with PharmAthene.

30 He concluded, “[a]s you will see, all of 

the individual assumptions are easily justified, and the result shows a $3 billion valuation 

 28 App. to Answering Br. at 1189–201 (Fasman Emails).

29 Id. at 1189 (“Nonetheless, PharmAthene’s projection is clearly erroneous in several important 

respects. For example, PharmAthene assumes that the drug is useful only for populations where 

vaccine is contra-indicated. PharmAthene also grossly understates the potential for foreign sales. 

At the same time, PharmAthene assumes that [ST-246] can be sold for $100/treatment in the 

U.S. and $150/treatment abroad, prices that appear to us excessive.”).

30 Id. at 1190–91.
14

for [ST-246], which makes the financial terms that SIGA proposed in the [LLC 

Agreement between SIGA and PharmAthene] draft circulated last week a bargain.”31 

Fasman also noted in this email that “PharmAthene assumes that [ST-246] can be sold for 

$100/treatment in the U.S. and $150/treatment abroad, prices that appear to us to be 

excessive.”32 

A comparison of the parties’ assumption attached to Fasman’s email shows that 

SIGA assumed a price of $75 per course of treatment in the U.S. and $100 abroad (with a 

smaller net margin abroad due to greater marketing expenses).33 The comparison table 

revealed additional differences between the parties’ assumptions. For example, 

PharmAthene assumed a 5% contraindication rate34 for purchase into the Strategic 

National Stockpile (the “National Stockpile”) whereas SIGA’s table stated that ST-246 

can be “therapeutic, prophylactic and adjuvant” and assumed a 20% contraindication 

rate,

35 which Fasman lowered to 15% in a subsequent email.36 Also, as to purchase of 

ST-246 into the National Stockpile, the table reflected that PharmAthene’s view was that 

the “[r]equirement does not yet exist—dependent on DHHS ‘integration plan’ to be 

 31 Id. at 1189 (emphasis added). Fasman also stated that he intended to share these documents 

with PharmAthene at a meeting the following afternoon. Id. 

32 Id. at 1189. 

33 Id. at 1190.

34 The Court of Chancery noted that “[c]ontraindication rate refers to the fact that, for any 

number of reasons, a vaccine will not be effective at preventing or curing a disease for some 

particular individuals.” PharmAthene, Inc. v. SIGA Techs., Inc., 2014 WL 3974167, at *15 n.70 

(Del. Ch. Aug. 8, 2014) [hereinafter Remand Opinion].

35 App. to Answering Br. at 1190.

36 Id. at 1200. 
15

released IQ 07,” and SIGA’s column stated “same.”37 Additionally, relative to 

PharmAthene, SIGA assumed higher sales to the military because it assumed that the size 

of the military would grow with the population.38 Finally, the table reflected 

PharmAthene’s position that sales of ST-246 to the [DoD] may require FDA approval, 

but SIGA’s position was that this was “[n]ot true, or not an obstacle.”39

In response to Fasman’s initial email, Dugary suggested that Fasman raise the 

profit margin used in his projection: “I think the excel spreadsheet you sent reflected only 

33% margin. If you recalculate (see attached revised) with the 75% margin, the net 

present value increases to $5.1 billion.”40 Fasman replied to inform the group that he 

raised the profit margin, but that this resulted in a net present value that was 

“unreasonably high.”41 He further explained in his email that he made additional 

adjustments to his original valuation to come up with a net present value of $5.6 billion, 

calling this “more than sufficient for [SIGA’s] needs.”42 In another email sent later that 

day, however, Fasman noted that “accepting [PharmAthene’s] treatment and pricing 

assumptions, which would lead to a profit margin in excess of 90%, and otherwise using 

the same cost and discounting assumptions that the prior spreadsheet used, leads to a 

 37 Id. at 1190.

38 Id. PharmAthene assumed a 10% contraindication rate for military personnel, but SIGA 

assumed that the government would purchase ST-246 for 50% of the then-current military 

population because that population would grow.

39 Id.

40 Id. at 1193 (emphasis added).

41 Id. at 1195.

42 Id. (emphasis added).
16

present value well in excess of $2.3 billion.”43 He concluded that “[b]ecause this 

valuation is more than sufficient to justify our upfront and milestone payments, we will 

begin our discussions with the [PharmAthene]-based valuation model.”44

On December 4, SIGA attorney Coch sent a letter to PharmAthene attorney 

Olstein. Coch’s letter stated that SIGA received PharmAthene’s projections for ST-246, 

reflecting a future revenue stream of over $2 billion. He further stated that the terms in 

the proposed LLC agreement were realistic and fair given PharmAthene’s valuation, 

“[a]lthough SIGA believes the actual value of [ST-246] is well in excess of $5 billion

(based on projected sales that incorporate more realistic assumptions of the size of the 

market and up-to-date information concerning the likely uses of [the drug]).”45 On 

December 6, Olstein replied that PharmAthene indicated at a meeting with SIGA that it 

was “willing to consider” a 50-50 split, and that if SIGA was “married” to having an LLC 

structure it should incorporate the split into that structure. PharmAthene at no time 

indicated that it was “prepared to accept a 50-50 proposal or any other proposal in lieu of 

the binding terms of the [LATS].”46 On December 12, Coch sent a letter back to Olstein, 

stating that SIGA was prepared to negotiate a definitive agreement “without 

preconditions,” but that if PharmAthene insisted on the terms of the LATS as binding, 

 43 Id. (emphasis added).

44 Id. 

45 Id. at 1204 n.1 (Letter from Coch to Olstein) (emphasis added).

46 Id. at 1205 (Letter from Olstein to Coch).
17

then the parties would have “nothing more to talk about.”47 About a week later, 

PharmAthene filed a lawsuit in the Court of Chancery. 

*****

The reason for the end of negotiations has to be underscored to understand the 

Court of Chancery’s damages award. SIGA refused to enter into a license agreement in 

accordance with the LATS not because of any uncertainty about the strongly positive 

future results for ST-246. Rather, SIGA refused to contract on terms consistent with the 

LATS because it had come to the belief that ST-246 was worth $3 billion as a 

conservative matter—due to events that suggested that ST-246’s prospects were much 

brighter than when the parties agreed to the LATS. As is the case in any business 

situation, SIGA’s belief was based on its estimate of the future cash flow ST-246 would 

generate. This reasoned estimate led SIGA first to refuse to merge, and then refuse to 

negotiate a license agreement on the same material terms as were in the LATS. 

III. PROCEDURAL HISTORY

A. The Court of Chancery’s 2011 Decision

In January 2011, the court held an eleven-day trial. In a September 22, 2011 

decision (the “2011 Decision”) the Court of Chancery found, among other things, that (1) 

SIGA breached its contractual obligation under the Bridge Loan Agreement and the 

Merger Agreement to negotiate in good faith a definitive license agreement in accordance 

with the terms of the LATS; (2) the parties would have agreed to a license agreement that 

 47 Id. at 1207 (Letter from Coch to Olstein).
18

was generally in accordance with the LATS had it not been for SIGA’s bad faith 

breach;48 (3) SIGA was liable for damages under the doctrine of promissory estoppel; and 

(4) the proper remedy under these circumstances was to impose an equitable payment 

stream based on SIGA’s future profits.49 

The Court of Chancery declined to award lump-sum expectation damages to 

PharmAthene, finding that “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.”50 The Court of Chancery additionally declined to 

order specific performance because it would impose too great a burden on the trial court 

to supervise the parties to ensure that they were faithfully carrying out their obligations to 

negotiate a license agreement in accordance with the terms of the LATS.51 

On May 31, 2012, the Court of Chancery issued a Final Order and Judgment 

together with a Letter Opinion. SIGA appealed and PharmAthene cross-appealed to this 

Court. 

 48 On this point, the Court of Chancery stated: 

I [] find that, but for SIGA’s bad faith negotiations, the parties likely would have 

reached agreement on a transaction generally in accordance with the LATS. 

PharmAthene was willing to agree to a license agreement for ST-246 on terms 

that varied “to some extent” from the LATS. . . . Had SIGA engaged in good 

faith negotiations, I am convinced that a license agreement between PharmAthene 

and SIGA for ST–246 would have resulted in terms no less favorable to 

PharmAthene than the 50/50 profit split it already had mentioned and an increase 

in the upfront and milestone payments from a total of $16 million, as specified in 

the LATS to something in the range of $40 million. 

2011 Opinion at *38.

49 See 2011 Opinion. 50 Id. at *37.

51 Id. at *35.
19

B. The 2013 Supreme Court Decision

On May 24, 2013, in SIGA I, this Court affirmed the Court of Chancery’s decision 

in part, reversed in part, and remanded for further proceedings consistent with its opinion. 

To begin, SIGA I upheld the Court of Chancery’s decision that SIGA had in bad faith 

breached its contractual obligations under the Bridge Loan Agreement and the Merger 

Agreement to negotiate a license agreement in accordance with the LATS.52 

SIGA I then reversed the Court of Chancery’s finding that SIGA was liable on a 

theory of promissory estoppel. In SIGA, this Court reasoned that “promissory estoppel 

does not apply . . . where a fully integrated, enforceable contract governs the promise at 

issue,”53 and in this case, there were two enforceable contracts.

54 SIGA I noted that the 

Court of Chancery “must look to the contract as a source of remedy on the breach of an 

obligation to negotiate in good faith.”55 

Next, SIGA I discussed “Type II preliminary agreements,” which are “preliminary 

agreements [where the parties] ‘agree on certain major terms, but leave other terms open 

for further negotiation.’”56 After surveying the law adopted by federal courts,57 SIGA I

held: 

 52 SIGA I, 67 A.3d at 347 (Del. 2013). 53 Id. at 348. 

54 Id. (“The promise to negotiate in good faith for a definitive license agreement in accordance 

with the LATS’s terms is expressly included in both the Bridge Loan and Merger Agreements.”); 

2011 Opinion at *21 (“By executing the Bridge Loan Agreement and the Merger Agreement, 

both SIGA and PharmAthene became bound by the terms of those contracts.”).

55 SIGA I at 348.

56 Id. at 349 (quoting Adjustrite Sys., Inc. v. GAB Bus. Servs., Inc., 145 F.3d 543, 548 (2d Cir. 

1998)).
20

[W]here 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.58 

In a footnote to this holding, SIGA I stated that “[a]n expectation damages award 

presupposes that the plaintiff can prove damages with reasonable certainty.”59

Based on the foregoing, SIGA I remanded to the Court of Chancery with specific 

instructions to reconsider the damages issue:

Because we had not previously addressed whether Delaware recognizes 

Type II preliminary agreements and permits a plaintiff to recover 

expectation damages, and because it is unclear to what extent the Vice 

Chancellor based his damages award upon a promissory estoppel holding 

rather than upon a contractual theory of liability predicated on a Type II 

preliminary agreement, we reverse the Vice Chancellor’s damages award 

and remand the case for reconsideration of the damages award consistent 

with this opinion.60

In SIGA I, this Court also explained when instructing the Court of Chancery to 

reconsider the award of attorneys’ fees:

On remand, the Vice Chancellor shall redetermine his damage award in 

light of this opinion and is free to reevaluate the helpfulness of expert 

testimony. Therefore, we reverse the award of attorneys’ fees and expenses 

 57 Id. at 349–50 (discussing Goodstein Constr. Corp. v. City of New York, 604 N.E.2d 1356, 1360 

(N.Y. 1992); Fairbrook Leasing, Inc. v. Mesaba Aviation, Inc., 519 F.3d 421, 428–30, 428 n.7, 

429, 430 (8th Cir. 2008) (citations omitted); Venture Assocs. v. Zenith Data Sys. Corp., 96 F.3d 

275, 277, 278–79, 281 (7th Cir. 1996)).

58 Id. at 350–51. 

59 Id. at 351 n.99 (citing Callahan v. Rafail, 2001 WL 283012, at *1 (Del. Super. Mar. 16, 2001) 

(citation omitted) (“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.”)). 

60 Id. at 351–52. 
21

so that the Vice Chancellor may determine on remand the proper award 

consistent with this opinion.61

Finally, SIGA I noted that it did not reach any of PharmAthene’s claims on crossappeal, specifically acknowledging that it did not determine whether the Court of 

Chancery erred in declining to award specific performance, among other remedies:

PharmAthene’s claims that it is entitled to (1) an alternative payment 

stream based on the LATS’s terms, (2) specific performance granting it a 

license in accordance with the LATS’s terms because the LATS is an 

enforceable contract, or (3) recover damages under the doctrine of unjust 

enrichment. All those claims are alternative contentions advanced in the 

event we do not affirm the Vice Chancellor’s judgment. Because we affirm 

the Vice Chancellor’s finding that SIGA is liable for breaching its 

contractual obligations to negotiate in good faith in accordance with the 

LATS’s terms, we do not reach these arguments.

Significant to the present appeal, SIGA I observed that the Court had not 

determined whether the Court of Chancery erred in declining to award lump-sum 

expectation damages because such damages were too speculative, and instead remanded 

for reconsideration of the issue: 

PharmAthene also contends that the Vice Chancellor erroneously failed to 

award PharmAthene its lump-sum expectation damages on the basis that 

they would be too speculative. We do not need to reach this claim either, 

because we reverse the Vice Chancellor’s damages award and remand for 

him to reconsider it in light of this opinion.62

C. The Court of Chancery’s Decision On Remand

1. The Court Of Chancery Determined That It Was Not Bound By Its 

Prior Decision Denying Expectation Damages As Too Speculative

 61 Id. at 353.

62 Id. 
22

On remand, and over SIGA’s objection, PharmAthene moved to reopen the record 

to introduce post-breach evidence.63 The Court of Chancery granted PharmAthene’s 

motion, but noted that it would evaluate any new evidence before admitting it.64 After a 

two day evidentiary hearing and post-hearing briefing, on August 8, 2014, the court

issued a Memorandum Opinion (“Remand Opinion”), as well as an accompanying Order 

instructing PharmAthene’s damages expert how to adjust the damages calculation based 

on the Court of Chancery’s findings (“Remand Order”).65 

The Vice Chancellor first addressed the threshold questions—whether the trial 

court may reconsider conclusions made in the 2011 Decision and, if so, whether there 

was any basis to change his prior holding in those respects. On the first issue, the Vice 

Chancellor concluded that “[t]he plain language of the Supreme Court decision indicates 

that I may reconsider my prior finding that an award of lump-sum expectation damages to 

PharmAthene would be improper because such a measure of damages is too 

speculative.”66 The Vice Chancellor based that conclusion on several aspects of SIGA I. 

He cited the fact that SIGA I did not reach PharmAthene’s claim that the Court of 

Chancery erred in not imposing lump-sum expectation damages for being too speculative. 

 63 See Ex. A to Opening Br. (Oral Arg. on Pl.’s Mot. to Reopen the R., Aug. 15, 2013). 

64 Id. at 31 (“[A]s to all this new evidence, I am going to have to decide, number one, does it 

come in at all, is it relevant, and does it meet the requirements.”). 

65 PharmAthene, Inc. v. Siga Techs., Inc., 2014 WL 3893449 (Del. Ch. Aug. 8, 2014) [hereinafter 

Remand Order].

66 Remand Opinion at *3.
23

He also pointed to SIGA I’s instruction that the Court of Chancery was free to “reevaluate 

the helpfulness of expert testimony.”67 

The Vice Chancellor reasoned that the latter guidance “would be rendered largely 

superfluous if the rest of [SIGA I] is read as prohibiting [the Court of Chancery] from 

reconsidering whether PharmAthene is entitled to lump-sum expectation damages for 

SIGA’s bad faith breach.”68 Thus, the Vice Chancellor concluded that “while I have the 

authority to reaffirm my previous decision in that regard, I am not required or bound by it 

to reach the same conclusion I did previously.”69 

The Vice Chancellor expressed a similar sentiment where he discussed the merits 

of an award of lump-sum expectation damages. There, he stated that “the Supreme Court 

explicitly invited me to reconsider my prior holding that an award of lump-sum 

expectation damages to PharmAthene for SIGA’s bad faith was unduly speculative.”70 

He then reasoned that a meaningful reconsideration requires a reexamination of the 

expert testimony relating to expectation damages. According to the Vice Chancellor, his

conclusion was supported by the instruction in SIGA I to redetermine the attorneys’ fees 

and expenses award, and by SIGA I’s holding that Type II agreements could support an 

award of expectation damages, noting that the uncertainty as to this point of law was part 

of the reason that he had imposed an equitable remedy in the first instance. 

 67 Id.; SIGA I at 353.

68 Remand Opinion at *3. 

69 Id.

70 Id. at *6. 
24

The Vice Chancellor then took account of the additional guidance in SIGA I. 

Specifically, he noted that, in the 2011 Decision, he “awarded PharmAthene a payment 

stream with terms that were significantly less favorable to it than those set out in the 

LATS.”71 And he acknowledged SIGA I’s ruling that “neither party could in good faith 

propose terms inconsistent with [the LATS] appears to place greater weight on the terms 

specified in the LATS than I afforded those terms in determining my prior damages 

award.”72 From this, he concluded that the Court of Chancery must “[a]t a minimum . . . 

reexamine the role of the terms of the LATS in crafting any such award.”73 Relatedly, 

the Vice Chancellor noted the reality that SIGA ended up expending materially more 

time and money to develop ST-246 without PharmAthene’s participation than the parties 

contemplated in the LATS.74 The Vice Chancellor also observed that, after the 2011 

Decision, SIGA secured a lucrative U.S. government contract to sell ST-246 to the 

Biomedical Advanced Research Development Authority (“BARDA”). The Vice 

Chancellor stated that this fact “mitigates or possibly eliminates some of the concerns [] 

expressed in the 2011 Decision regarding ST-246’s future prospects.”75 

Finding that the court was not restricted from reconsidering its prior holding that 

an award of lump-sum expectation damages would be too speculative, the Court of 

Chancery proceeded to analyze the issue on the merits.

 71 Id. at *4.

72 Remand Opinion at *4 (quoting SIGA I at 351). 73 Id.

74 Id. at *5.

75 Id. at *6.
25

2. The Court of Chancery Found That PharmAthene Met Its Burden 

Of Proving That It Was Entitled To Lump-Sum Expectation 

Damages

At the outset, the Court of Chancery noted that the relevant inquiry for awarding 

expectation damages was: “[A]t the time of SIGA’s breach in December 2006, what were 

the parties’ reasonable expectations regarding PharmAthene’s ability to realize profits 

from the sale of ST-246 under a license agreement in accordance with the LATS[?]”76 

The Court of Chancery also acknowledged SIGA I’s observation that an award of lost 

profits “‘presupposes that the plaintiff can prove damages with reasonable certainty.’”77 

Further, the Court of Chancery stated that “[w]hile proof of the fact of damages must be 

certain, proof of the amount can be an estimate, uncertain, or inexact.”78 The court 

additionally noted its ability to “take into account all the circumstances of the breach, 

including willfulness, in deciding whether to require a lesser degree of certainty, giving 

greater discretion to the trier of facts.”79 In addition to considering events that existed at 

 76 Id. at *8.

77 Id. at *7 (citing SIGA I at 351 n.99). 

78 Id. at *8 (quoting Agilent Techs., Inc. v. Kirkland, 2010 WL 610725, at *29 n.271 (Del. Ch. 

Feb. 18, 2010)); ROBERT L. DUNN, RECOVERY OF DAMAGES FOR LOST PROFITS § 1.3 (6th ed. 

2005); WILLISTON ON CONTRACTS § 64:9 (4th ed. 2000) (“Thus, it is now well established that 

the uncertainty that prevents recovery is uncertainty as to the fact of damage and not as to its 

amount.”).

79 Id. (quoting Cura, 2001 WL 1334188, at *20 (internal citations omitted)); Beard Research, Inc 

v. Kates, 8 A.3d 573, 613 (Del. Ch. 2010) (“Public policy has led Delaware courts to show a 

general willingness to make a wrongdoer ‘bear the risk of uncertainty of a damages calculation 

where the calculation cannot be mathematically proven.’”) (quoting Great Am. Opportunities, 

Inc. v. Cherrydale Fundraising, LLC, 2010 WL 338219, at *23 (Del. Ch. Jan. 29, 2010)); 

RESTATEMENT (SECOND) OF CONTRACTS § 352 cmt. a (1981).
26

the time of the breach, the trial court took into account several post-breach developments 

“‘to aid in its determination of the proper expectations at the time of the breach.’”80

The Court of Chancery then considered PharmAthene’s claim for expectation 

damages by considering the parties’ expectations and analyzing a damages calculation 

model prepared for the original trial by an experienced valuation expert, Jeffrey L. 

Baliban.

81 Baliban’s report stated that PharmAthene retained him “to calculate the net 

present value of expected PharmAthene earnings from sales of the antiviral ST-246, had 

SIGA executed a license agreement in accordance with the terms of the LATS.”82 At 

trial, Baliban presented six variations of damages calculations. Noting SIGA I’s focus on 

the LATS as the appropriate yardstick for measuring damages, the court based its 

analysis on the “Basis 1 LATS Scenario,” where “Baliban calculated PharmAthene’s 

damages according to the terms of the LATS based on facts purportedly known as of 

December 20, 2006.”83 The court also considered some information from another 

variation of Baliban’s calculations, the “Basic 2 LATS Scenario,” which was still based 

 80 Id. at *9 (quoting Comrie v. Enterasys Networks, Inc., 837 A.2d 1, 17 (Del. Ch. 2003)). The 

Court of Chancery noted that “[f]or example, while it is appropriate to consider the fact that, to 

date, SIGA has sold ‘X dollars’ worth of ST-246 to evaluate whether at the time of the breach 

PharmAthene had a reasonable expectation of commercializing ST-246, it would be 

inappropriate to use ‘X dollars’ as the basis of a damages award because it was neither known 

nor knowable at the time of SIGA’s breach.” Id. at *9.

81 Id. at *9–10. Baliban was a Senior Vice President in the Securities and Finance practice at 

National Economic Research Associates, Inc., a global economic consulting firm. The Court of 

Chancery observed that SIGA failed to present an alternative damages model, and instead was 

content to have its experts criticize PharmAthene’s model. 

82 App. to Answering Br. at 1453 (Baliban’s Report).

83 Remand Opinion at *9.
27

on the LATS but used facts known as of November 2009, nearly three years after SIGA’s 

breach.84

To determine the value to PharmAthene of a license for ST-246, Baliban used a 

discounted future earnings model to forecast earnings ten years into the future and then 

discounted them to their net present value at the time of the breach. As with any financial 

model, this required Baliban to make certain assumptions. A number of these 

assumptions were based on the PharmAthene Model, which was prepared by 

PharmAthene in early 2006 and used by the parties in their negotiations.85 Specifically, 

Baliban used the PharmAthene Model’s quantity and price projections for sales of ST246 over a ten-year period from 2008 to 2017. He found that, over those ten years, 

PharmAthene would have sold approximately 91.9 million courses of the drug at $100 

per course. 

Baliban then deducted research and development costs, the costs of goods sold, 

and selling, general, and administrative expenses. The LATS did not address these 

expenses, and Baliban noted that the parties did not provide “any comprehensive analysis 

of costs and expense estimates or expected margins.”86 Thus, Baliban relied on 

“discussions with PharmAthene management personnel” and on “independent research 

supporting typical pharmaceutical costs and expenses” to come up with these figures.87 

 84 Id. at *9 n.45.

85 Id. at *10.

86 App. to Answering Br. at 1473 (Baliban’s Report). 

87 Id.
28

Once Baliban calculated ST-246’s discounted future earnings, he incorporated the 

terms of the LATS before allocating the return generated from projected sales of ST-246 

to the parties, noting in his report that:

The LATS provided that, to the extent the net margin on sales to the U.S. 

Government exceeded 20 percent, such excess margin would be split 50-50 

between PharmAthene and SIGA. The LATS also provided for license 

fees, milestone payments and royalties to be paid to SIGA in accordance 

with referenced amounts and timing schedules. We apply these rates to 

expected future ST-246 earnings . . . to yield the allocation of product 

earnings to PharmAthene and SIGA.88

He then applied an 84% probability of success factor to the total expected earnings from 

ST-246. Finally, he discounted the earnings to present value using PharmAthene’s 

weighted average cost of capital.89 This yielded a total payment due to PharmAthene of 

$1.07 billion. 

The Court of Chancery scrutinized Baliban’s assumptions and inputs to aid its own 

analysis of the parties’ reasonable expectations at the time of breach. The court

concluded that PharmAthene’s expectations of ST-246’s future prospects were informed 

by four primary factors: “(1) the likelihood that ST-246 ever would be sold commercially 

in meaningful quantities; (2) the timing of when any such sales would begin; (3) the price 

at which ST-246 would be sold; and (4) the quantity of ST-246 that would be sold.”90 

For each of these factors, the court engaged in a careful and thorough analysis of how 

they affected the lost profits calculation.

 88 Id. at 1475.

89 Because PharmAthene only had equity financing as of December 2006, the WACC rate was 

equivalent to PharmAthene’s cost of capital. Id. at 1475–76. 

90 Remand Opinion at *10.
29

a. The Likelihood That ST-246 Would Be Sold Commercially

The Court of Chancery took note of the facts established at the original trial and 

upheld by SIGA I: “SIGA’s own confidence in ST-246’s prospects, which caused it 

internally to value ST-246 at the time of the breach at between three and five billion 

dollars, and SIGA’s development of ‘seller’s remorse’ which ultimately motivated its bad 

faith conduct.”91 Based on this evidence, the court found that PharmAthene established 

that, at the time of SIGA’s breach, the parties had a reasonable expectation that ST-246 

would be commercialized in the near future. In other words, the Court of Chancery 

reasonably took into account that it was SIGA’s increasingly bullish view of ST-246’s 

prospects based on what was known in December 2006 that caused it to commit a breach 

to secure more of the drug’s future value for itself than it would have had from a deal 

consistent with the terms of the LATS. 

The trial court also noted that, even though SIGA was not awarded the BARDA 

contract until after the January 2011 trial, “the record supports a reasonable inference that 

[the parties] knew of BARDA’s imminent establishment” at the time of SIGA’s breach.92 

The Court of Chancery further observed that, at the time of the breach, the U.S. 

government had already established requirements for procuring pharmaceuticals for ST246’s target market, the National Stockpile, and that such requirements did not include 

FDA approval of the drug to be considered for acquisition.

 91 Id. at *11. 92 Id. 
30

The Court of Chancery then considered whether the 84% “probability of success” 

input used in Baliban’s damages calculation was reasonable or unduly speculative.93 

That number was based on a report provided by PharmAthene’s pharmaceutical expert, 

Dr. Carl Peck. Dr. Peck’s report stated that, at the time of SIGA’s breach, there was an 

84% to 95% chance that ST-246 would obtain FDA approval; but a more than 95% 

chance that the drug would meet the criteria for purchase into the National Stockpile. 

The court considered the fact that PharmAthene had a reasonable expectation at the time 

of breach that ST-246 would be eligible for acquisition for the National Stockpile and hit 

certain milestones in 2006, such as “becoming the first drug to demonstrate 100% 

protection against the human smallpox virus in a primate trial [and] demonstrating 

protection against the monkey virus in two primate trials in November 2006.”94 

The Court of Chancery also noted that post-breach sales of ST-246 to BARDA 

showed that the drug was being sold to its intended purchaser, and that this demonstrated 

that the parties in 2006 had a reasonable expectation it would be successful. Finally, the 

court noted that these facts came on top of SIGA’s own conduct and beliefs as to ST246’s promising prospects, which motivated its breach, so “PharmAthene was not alone 

in reasonably believing ST-246 imminently would be commercialized with great 

success.”95 Based on all of these factors, the Court of Chancery concluded that in 

December 2006, ST-246 had “a very high likelihood of being commercialized in the near 

 93 Id.

94 Id. at *12 n.57.

95 Id. at *12.
31

future” and thus the “84% ‘probability of success’ factor was both reasonable and 

supported by the evidence.”96 

b. The Timing Of When Sales Of ST-246 Would Begin

Baliban used 2008 as the time when sales of ST-246 would begin. In response, 

SIGA pointed out that the first courses of the drug were not delivered until 2013. 

PharmAthene claimed that the parties used 2008 as the start date during their negotiations 

and that the delay in delivery was caused by SIGA’s failure to develop the drug 

efficiently due to its lack of experience, whereas PharmAthene would have completed the 

process sooner. The Court of Chancery weighed the evidence and noted that, at the time 

of breach, there was no evidence as to when the drug might be procured for the National 

Stockpile. But, taking into account the “tremendous promise in preliminary studies, 

[which] enabled SIGA to raise over $20 million in development funding,” and the fact 

that ST-246 was “granted ‘orphan drug’ and ‘fast track’ status by the FDA,” all of which 

was known at the time of the breach, the Court of Chancery concluded that PharmAthene 

had a reasonable expectation that the U.S. government would start buying ST-246 for the 

National Stockpile by 2010, as opposed to 2008.97

c. The Price At Which ST-246 Would Be Sold

Baliban assumed that PharmAthene would sell ST-246 for $100 per course of 

treatment. PharmAthene claimed that this number was rooted in the parties’ negotiations 

and that it was comparable to the price the U.S. government paid for other bioterrorism-

 96 Id. 

97 Id. at *13.
32

related countermeasures. The Court of Chancery noted that Baliban independently 

assessed the parties’ use of the $100 per course price in their negotiations98 and found 

that the price was consistent with the government’s prior purchases. The court also took 

into account the fact that the post-breach BARDA contract “requires the government to 

pay significantly more than $100 per course.”99 On these bases, the Court of Chancery 

concluded that PharmAthene met its burden to show that it had a reasonable expectation

at the time of breach that ST-246 would be commercialized at a price of $100 per course.

d. The Quantity Of ST-246 That Would Be Sold

Analyzing the reasonable expectation at the time of breach of the quantity of ST246 to be sold, the Court of Chancery considered Baliban’s quantity inputs for three 

separate categories of sales: (1) sales to the National Stockpile; (2) sales to the DoD; and 

(3) sales outside of the U.S. to foreign nations. 

i. Sales Of ST-246 To The National Stockpile 

Baliban used the sales projections in the PharmAthene model as a starting point to 

estimate the quantity of sales to the National Stockpile. PharmAthene calculated these 

sales by multiplying the size of the National Stockpile’s smallpox vaccine stockpile by 

the percentage of the population contraindicated for the smallpox vaccine, which it 

assumed to be 5%. Because ST-246 was intended to help the percentage of the 

 98 The parties used the $100 per course of treatment price point in their own negotiations because 

this price was incorporated into the PharmAthene Model which SIGA was comfortable using in 

negotiations before its breach, even though this price was “excessive” from SIGA’s perspective. 

App. to Answering Br. at 1189 (Fasman Email). 99 Remand Opinion at *14 (emphasis in original). 
33

population that is contraindicated for the smallpox vaccine, the contraindication rate had 

a directly proportional effect on the quantity of sales to the National Stockpile. Although 

Baliban used the PharmAthene Model’s quantity figure for National Stockpile sales, he 

increased those sales from 10,300,000 courses to 14,778,000 courses. He based this 

increase on an observation that the size of the National Stockpile was roughly equal to 

the size of the U.S. population in 2002. Baliban then assumed that the size of the 

National Stockpile in 2006 would be equal to the size of the U.S. population as of the 

July 1, 2005 U.S. Census Bureau estimate. Further, even though Baliban believed that, 

based on his research, the 5% contraindication rate used in the PharmAthene Model was 

understated; he kept the conservative 5% figure. 

In assessing the reasonableness of these inputs, the Court of Chancery took 

account of the fact that the U.S. government was increasingly focused on bioterrorism 

counter-measures between 2002 and 2006 to conclude that it was reasonable that the size 

of the National Stockpile would continue to track the U.S. population during that time 

period, as opposed to decline as the PharmAthene Model assumed. As for the 5% 

contraindication rate, the court found it important that SIGA and PharmAthene appeared 

to incorporate this number in the projections used during negotiations. The court also 

noted that Baliban’s research showed a contraindication rate of between 20% and 30%, 

so the 5% figure was a relatively conservative estimate.

Finally, the Court of Chancery addressed some of the criticisms presented by 

SIGA’s damages expert, Dr. Keith Ugone. As a general matter, the court found Dr. 

Ugone’s approach of challenging Baliban’s assumptions to be largely unpersuasive, 
34

stating: “Dr. Ugone’s credibility was undermined by the fact that at trial he merely 

attempted to discredit Baliban’s analysis without providing an alternative calculation of 

his own.”100 The court nonetheless still considered his criticisms. 

Dr. Ugone criticized Baliban’s calculation for failing to account for ST-246’s 

competitors and the seven-year duration of the orphan drug status, explaining that these 

considerations would have materially reduced the quantity of National Stockpile sales as 

well as the time period during which those sales would have successfully been made. 

The Court of Chancery disagreed with these assertions on the basis that “[a]t the time of 

the breach, ST-246 [appeared] to have been 8,000 times more effective than its closest 

competing product” and that SIGA pointed to no evidence to suggest that ST-246’s 

orphan drug status was the basis for the calculation’s use of a ten-year time period.101 

The court also reasoned that any overstatement on these grounds was offset by the 

conservative contraindication rate and Baliban’s use of a high discount rate of 23.1%. 

Based on these facts, the Court of Chancery found that PharmAthene proved with 

reasonable certainty that it had a reasonable expectation of the quantity of National 

Stockpile sales used in Baliban’s model. Finally, the court allocated delivery of National 

Stockpile sales to five years instead of the four used in Baliban’s model.

ii. Sales Of ST-246 To The DoD

 100 Id. at *16 n.78. The Court of Chancery noted that the court “has been critical of such an 

approach in the past.” Id. (citing Agilent, 2010 WL 610725, at *29). The court further stated: “If 

the Court were to credit completely the testimony of Dr. Ugone, it would never be possible to 

award expectation damages in a case such as this one, no matter how much the underlying 

breach of contract could be attributed to the breaching party’s bad faith.” Id. 101 Id. at *16.
35

The Court of Chancery noted that there was evidence in the record that the parties 

“projected that the [DoD] would purchase ST-246” although it acknowledged that those 

projections varied materially due to their different estimates of the size of the U.S. 

military population.102 The court noted that it was unclear what PharmAthene used to 

come up with the estimate in the PharmAthene Model, but that Baliban again relied on 

U.S. Census data. The court found that Baliban’s estimate of sales based on a military 

population size taken from the U.S. Census data was reasonable. But Baliban used a 10% 

contraindication rate for the military population, which the court rejected, finding that 

PharmAthene did not meet its burden of justifying why the higher rate was appropriate,

and that it was reasonable to assume a 5% contraindication rate instead. The court

ultimately found that, even if the parties’ projections of sales “differed significantly,” that 

both parties believed the DoD would buy ST-246. Based on the lowered contraindication 

rate, the court found that PharmAthene proved that “it had a reasonable expectation of 

selling approximately half of the quantities of ST-246 to the DoD that Baliban projected 

in his model.”103

iii. Foreign And Replacement Sales Of ST-246

Baliban’s damages calculation assumed that foreign sales would be equal to 

National Stockpile sales. But the Court of Chancery noted that, although there was

evidence of the prospect of sales to U.S. government agencies at the time of the breach, it 

was missing evidence to suggest material future sales to foreign countries. Further, the 

 102 Id. at *17. 103 Id.
36

court noted that there was no clear evidence presented at trial as to what criteria other 

countries would use to procure pharmaceuticals. Based on this lack of evidence, the 

court found that PharmAthene did not meet its burden to show that SIGA had a 

reasonable expectation at the time of breach of selling ST-246 to foreign nations.

Finally, the Court of Chancery addressed Baliban’s assumption that “ST-246 had a 

shelf life of three to five years and . . . as a result, replacement purchases to replace 

courses that expired would occur every four years . . . .”104 Dr. Ugone criticized this 

assumption on the grounds that there were too many uncertainties as to the U.S. 

government’s future plans for the purchase of bioterrorism measures and that the more 

time passed, the higher the likelihood was that a competitor would enter the market. The 

Court of Chancery found these criticisms persuasive and found there was insufficient 

evidence that PharmAthene had a reasonable expectation of sales to the U.S. government 

nine years down the road. 

*****

Based on its exhaustive and independent analysis of the four factors, the Court of 

Chancery required Baliban to make substantial adjustments to his model, most if not all 

of which benefitted SIGA, and held that PharmAthene met its burden of demonstrating it 

was entitled to lump-sum expectation damages. After Baliban submitted a revised 

damages calculation, on January 7, 2015, the Court of Chancery issued a Letter Opinion 

 104 Id. at *18.
37

to address additional criticisms raised by SIGA’s expert of the revised calculation.

105 In 

response to SIGA’s criticisms, the court made two additional adjustments in SIGA’s 

favor to the damages calculation. First, SIGA objected to Baliban reducing certain 

selling, general, and administrative expenses for the year 2006 in the revised calculation 

due to the December 20 date of SIGA’s breach. Second, SIGA criticized Baliban’s use 

of a “mid-year convention of discounting in calculating the present value of the relevant 

cash flows.”106 The court noted that both changes were departures from the methodology 

used in Baliban’s original damages calculation and directed him to return to his previous 

assumptions. After making these final adjustments, the Court of Chancery awarded 

PharmAthene $113 million in contract expectation damages in a January 15, 2015 Final 

Order and Judgment.

107 

IV. ANALYSIS

SIGA raises two primary issues on appeal—whether the law of the case doctrine 

precluded the Court of Chancery from revisiting its earlier determination that expectation 

damages were too speculative; and if not, whether the Court of Chancery should have 

found again on remand that lump-sum expectation damages were unavailable as too 

speculative. We review the Court of Chancery’s law of the case determination de 

 105 Re: PharmAthene, Inc. v. SIGA Techs., Inc., 2015 WL 98901, at *1–2 (Del. Ch. Jan. 7, 2015) 

[hereinafter Letter Opinion]. 

106 Id. at *1.

107 Final Remand Order at *1.
38

novo.

108 We review its damages determination for abuse of discretion, and will uphold 

its factual findings unless they are clearly erroneous.

109

A. The Court of Chancery Did Not Err In Reconsidering 

Expectation Damages

SIGA argues that the law of the case bound the Court of Chancery on remand to 

its previous determination that lump-sum expectation damages were too speculative. The 

Court of Chancery found otherwise, and held that SIGA I expressly instructed it to 

reconsider expectation damages. We agree with the Court of Chancery’s interpretation of 

SIGA I. 

The law of the case doctrine, like stare decisis, “is founded on principles of 

efficiency, finality, stability and respect for the judicial system.”110 Where the Supreme 

Court remands for further proceedings, “the trial court must proceed in accordance with 

the appellate court’s mandate as well as the law of the case established on appeal.”111 

The law of the case doctrine did not require the Court of Chancery to follow its 

earlier decision ruling out expectation damages. It would have been error to have done so 

because in SIGA I this Court remanded with the specific instruction to revisit damages, 

including expectation damages. In SIGA I, when discussing PharmAthene’s cross-appeal 

challenging the Court of Chancery’s refusal to award lump-sum expectation damages as 

 108 Cede & Co. v. Technicolor, Inc., 884 A.2d 26, 36 (Del. 2005).

109 Gatz Props., LLC v. Auriga Capital Corp., 59 A.3d 1206, 1212 (Del. 2012) (citing William 

Penn P’ship v. Saliba, 13 A.3d 749, 758 (Del. 2001)); Weinberger v. UOP, Inc., 457 A.2d 701, 

715 (Del. 1983).

110 Cede, 884 A.2d at 39 (citing Gannett Co. v. Kanaga, 750 A.2d 1174, 1181 (Del. 2000)). 111 Id. at 38 (citing Ins. Corp. of Am. v. Barker, 628 A.2d 38, 40 (Del. 1993)).
39

speculative, this Court stated that it did not need to decide the issue and “reverse[d] the 

Vice Chancellor’s damages award and remand[ed] for him to reconsider it in light of this 

opinion.”112 In other words, SIGA I remanded to the Court of Chancery to reconsider 

damages, which included the expectation damages now possible as a result of SIGA I. 

Further guidance in SIGA I supports the Vice Chancellor’s determination. SIGA I

stated that the Court of Chancery was free to “reevaluate the helpfulness of expert 

testimony,” which would be a meaningless statement if the court could not review 

expectation damages on remand.113 SIGA I also clarified that expectation damages were

possible with Type II agreements, and acknowledged that the Court of Chancery had 

been unable to award such damages because whether they were possible was, at the time, 

an unsettled legal question.

114 Further, SIGA I expressly overturned the Court of 

Chancery’s prior finding that PharmAthene was entitled to damages based on a 

promissory estoppel theory, and directed the court to revisit damages under a contractual 

theory.

115 

On remand, the Court of Chancery was free to “make any order or direction in 

further progress of the case so long as it is not inconsistent with the decision of the 

appellate court, as to any question not settled by the decision.”116 Consistent with and as 

required by SIGA I, the Vice Chancellor revisited the damages award, including 

 112 SIGA I at 353. 113 Id.; Remand Opinion at *3. 114 SIGA I at 350–52.

115 Id. at 347–48. 

116 Cede, 884 A.2d at 39 (citing Barker, 628 A.2d at 41).
40

expectation damages, and therefore the law of the case was not a bar to 

reconsideration.

117 The Vice Chancellor properly wrote on a clean slate when he 

reevaluated expectation damages.

B. The Court of Chancery Did Not Abuse Its Discretion In Finding 

That PharmAthene Met Its Burden To Show That Lump-Sum 

Expectation Damages Were Proper

SIGA asserts that, regardless of law of the case, the Court of Chancery determined 

prior to remand that expectation damages were “speculative and too uncertain, 

contingent, and conjectural,”118 and should have come to the same conclusion after

remand. It further argues that the court improperly relied on post-breach evidence 

because the same uncertainties noted by the court in its earlier decision were never

resolved. In the alternative, SIGA argues that the new evidence was insufficient to firm 

up the earlier uncertainties in calculating expectation damages. 

PharmAthene responds that the Court of Chancery properly based its damages 

award on SIGA’s reasonable expectations at the time of its breach, evidenced by SIGA’s 

internal communications praising the company’s successes and questioning the merger, 

and by the internal analysis prepared by Fasman for SIGA’s senior officials, which 

valued the company as high as $5.6 billion. PharmAthene also contends that the Court of 

Chancery properly considered post-breach facts for the limited purpose of determining 

the reasonableness of the parties’ expectations at the time of SIGA’s breach. Finally, 

PharmAthene agreed with the Court of Chancery’s analysis of the four primary drivers of 

 117 Remand Opinion at *3–6; SIGA I at 353. 

118 Opening Br. at 22 (citing 2011 Opinion at *37).
41

its expectations of ST-246’s prospects, except for the finding that PharmAthene did not 

establish foreign sales prospects with sufficient certainty.119

We emphasize the limited scope of appellate review of a damages award. 

Damages awards are reviewed for abuse of discretion.120 Thus, “we do not substitute our 

own notions of what is right for those of the trial judge if that judgment was based upon 

conscience and reason, as opposed to capriciousness and arbitrariness.”121 We also will 

uphold the Court of Chancery’s factual findings so long as they are not clearly 

erroneous.

122 The clearly erroneous standard applies to factual determinations based on 

credibility and the evidence.

123 Where there is more than one permissible determination 

to be drawn from the evidence, and the trial court chooses one, its finding cannot be 

clearly erroneous.124 

1. The Court Of Chancery Applied The Correct Legal Standard

SIGA argues as an initial matter that the Vice Chancellor should have simply 

followed his prior determination because expectation damages are difficult to measure for 

undeveloped products and new businesses, and especially so in the case of new drugs 

subject to regulatory approval. 

 119 PharmAthene did not cross-appeal this finding in light of the abuse of discretion and clearly 

erroneous standards of review that apply to the Court of Chancery’s decision.

120 Gatz, 59 A.3d at 1212 (Del. 2012); Weinberger, 457 A.2d at 715 (“[The Court of Chancery 

has] broad discretion . . . to fashion such relief as the facts of a given case may dictate . . . .”).

121 Gatz, 59 A.3d at 1212 (quoting William Penn P’ship v. Saliba, 13 A.3d 749, 758 (Del. 2001)) 

(quotations omitted).

122 Id. (citing Cede, 758 A.2d at 491); Bank of N.Y. Mellon Trust Co. v. Liberty Media Corp., 29 

A.3d 225, 236 (Del. 2011).

123 Bank of N.Y. Mellon Trust Co., 29 A.3d at 236.

124 Id.
42

As a preliminary matter, and perhaps most significant, SIGA I directed the Court 

of Chancery to reconsider its damages award. SIGA I also instructed the Court of 

Chancery to reevaluate the helpfulness of expert testimony, and reconsider an award of 

lump-sum expectation damages in light of the opinion. These instructions were not 

ambiguous. SIGA I required the Court of Chancery to take a fresh look at the expert 

testimony in light of the clarified legal point that lump-sum expectation damages were 

available.

The Court of Chancery followed SIGA I’s mandate. First, it applied the correct 

legal standard to evaluate expectation damages. As this Court said in Duncan v. Theratx, 

Inc.:

[T]he standard remedy for breach of contract is based upon the reasonable 

expectations of the parties ex ante. This principle of expectation damages 

is measured by the amount of money that would put the promisee in the 

same position as if the promisor had performed the contract. Expectation 

damages thus require the breaching promisor to compensate the promisee 

for the promisee’s reasonable expectation of the value of the breached 

contract, and, hence, what the promisee lost.125

The Court of Chancery recognized this Court’s admonition in SIGA I that 

expectation damages must be proven with reasonable certainty, and “no recovery can be 

had for loss of profits which are determined to be uncertain, contingent, conjectural, or 

speculative.”126 But it also confirmed what has been established by our courts—that

certain presumptions apply when evaluating harm and loss. Where the injured party has 

proven the fact of damages—meaning that there would have been some profits from the 

 125 775 A.2d 1019, 1022 (Del. 2001) (footnotes omitted).

126 67 A.3d at 351 (quotations and citations omitted).
43

contract—less certainty is required of the proof establishing the amount of damages.127 

In other words, the injured party need not establish the amount of damages with precise 

certainty “where the wrong has been proven and injury established.”128

The Vice Chancellor found that PharmAthene firmly established the fact of 

damages. SIGA’s breach caused PharmAthene to lose out on the opportunity to develop 

the vaccine, to enhance its reputation, and to access government funding to support 

continued drug development.129 PharmAthene “was poised to commercialize profitably 

ST-246 in a way that it was reasonably certain would be profitable and . . . SIGA 

deprived it of that opportunity.”130 The Court of Chancery also applied the established 

presumption that doubts about the extent of damages are generally resolved against the 

breaching party. As a corollary to this presumption, the court noted it could take into 

account the willfulness of the breach in deciding whether to require a lesser degree of 

certainty.

131

SIGA argues that the Court of Chancery applied the “wrongdoer rule” punitively, 

because it is only to those uncertainties caused by the breach that the presumption 

 127 Beard Research, Inc. v. Kates, 8 A.3d 573, 613 (Del. Ch. 2010), aff’d sub. nom. ASDI, Inc. v. 

Beard Research, Inc., 11 A.3d 749 (Del. 2010); Del. Express Shuttle, Inc. v. Older, 2002 WL 

31458243, at *15 (Del. Ch. Oct. 23, 2002) (quoting Red Sail Easter Ltd. Partners, L.P. v. Radio 

City Music Hall Prods., Inc., 1992 WL 251380, at *7 (Del. Ch. Sept. 29, 1992)).

128 Del. Express, 2002 WL 31458243, at *17 (“Responsible estimates that lack mathematical 

certainty are permissible so long as the court has a basis to make a responsible estimate of 

damages.”).

129 Remand Opinion *8 n.41. 

130 Id. 131 Id. at *8 (citing Cura, 2001 WL 1334188, at *20 (citing RESTATEMENT (SECOND) OF 

CONTRACTS § 352 cmt. a (1981) (“A court may take into account all the circumstances of the 

breach, including willfulness, in deciding whether to require a lesser degree of certainty, giving 

greater discretion to the trier of the facts.”)).
44

applies. SIGA is correct that the trial court did not have unbridled authority to dress up 

punitive damages as expectation damages by importing the willfulness of the breach into 

the damage award. And it is not every contract case where the court should assess the 

bona fides of the breaching party. But in a case about expectation damages caused by

breach of a Type II agreement, where the wrongdoer caused uncertainty about the final 

economics of the transaction by its failure to negotiate in good faith, willfulness is a 

relevant factor in deciding the quantum of proof required to establish the damages

amount.132 

The Vice Chancellor applied the wrongdoer rule in a limited and proper way. For 

instance, as the Vice Chancellor found, if SIGA had negotiated in good faith under the 

 132 Courts in Delaware and other jurisdictions have frequently applied the “wrongdoer rule” 

where the wrongdoer’s breach contributed to uncertainty over the amount of damages. See 

Duncan, 775 A.2d at 1023 (“The intuition behind this rule is that the issuer-defendant should 

bear the risk of uncertainty in the share price because the defendant’s acts prevent a court from 

determining with any degree of certainty what the plaintiff would have done with his securities 

had they been freely alienable.”) (quotations omitted); Agilent, 2010 WL 610725, at *26–27 

(“[I[n cases where a specific injury to the plaintiff cannot be established, the defendant’s actual 

gain may be considered.”) (citations omitted); Beard, 8 A.3d at 613; Thorpe v. CERBCO, Inc., 

1993 WL 443406, at *963 (Del. Ch. Oct. 29, 1993); Am. Gen. Corp. v. Cont’l Airlines Corp., 

622 A.2d 1, 10 (Del. Ch. 1992) (“[Because the acts of a wrongdoer defendant created 

uncertainties,] fundamental justice requires that, as between [the plaintiff] and [the defendant], 

the perils of such uncertainty should be ‘laid at the defendant’s door’”) (quoting Madison Fund, 

Inc. v. Charter Co., 427 F. Supp. 597, 608 (S.D.N.Y. 1977)); Tanner v. Exxon Corp., 1981 WL 

191389, at *2 (Del. Super. July 23, 1981) (citing 5 CORBIN ON CONTRACTS § 1020 (Rev. ed. 

1969)); see also Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 565 

(1931) (“[W]hatever uncertainty there may be in this mode of estimating damages is an 

uncertainty caused by the defendants’ own wrongful act; and justice and sound public policy 

alike require that he should bear the risk of the uncertainty thus produced.”) (quoting Gilbert v. 

Kennedy, 22 Mich. 117, 131 (1871)); Boyce v. Soundview Tech. Grp., 464 F.3d 376, 391 (2d Cir. 

2006) (“[W]here the existence of damage is certain, and the only uncertainty is as to its amount, . 

. . the burden of uncertainty as to the amount of damage is upon the wrongdoer.”) (quotations 

and citations omitted); 17A AM. JUR. 2d Contracts § 611; RESTATEMENT (SECOND) OF 

CONTRACTS § 352 cmt. a (1981).
45

LATS, and the parties had executed a final agreement, there would have been no 

uncertainty about the research and development costs under the final license 

agreement.133 The court resolved the uncertainties about those costs against SIGA. 

Where uncertainty could not be traced to SIGA’s breach, the Court of Chancery did not 

resolve the uncertainty against SIGA. For example, the court rejected certain

assumptions about foreign sales used in Baliban’s model.

134 The court found that these 

assumptions were not supported by sufficient evidence and that it was “inappropriate to 

award lost profits on foreign sales because those sales were too speculative as of 

December 2006.”135 The court did not apply the wrongdoer rule to resolve all uncertainty 

against SIGA, where SIGA’s breach was not the cause of the lack of information.

 In addition, the LATS’s core financial terms were not in dispute and did not have 

to be construed one way or the other. SIGA I stated that “[i]n this case, the Vice 

Chancellor made [the factual finding], supported by the record, [that] the parties 

memorialized the basic terms of a transaction in the LATS.”136 “[T]he LATS was 

intended to capture ‘the key economic components’ of any license agreement to which 

the two sides would agree regarding ST-246.”137 The Court of Chancery did not have to 

 133 Remand Opinion at *14 n.67 (“Had SIGA negotiated in good faith, [the parties] would have 

reached a license agreement in which PharmAthene would have controlled ST-246’s 

development and would have been in a position to know the exact amount of such cost figures.”). 134 Id. at *17.

135 Id. at *17 n.84.

136 SIGA I at 351. SIGA I also reiterated and affirmed that “but for SIGA’s bad faith 

negotiations, the parties would have consummated a license agreement.” Id.

137 Remand Opinion at *5.
46

resort to the wrongdoer rule to construe the LATS’s financial terms, which provided the 

framework for the court’s damage award.

2. The Court Of Chancery Relied On Post-Breach Evidence For A 

Limited And Proper Purpose

The Court of Chancery correctly noted that “[u]nder Delaware law, the standard 

remedy for breach of contract is based on the reasonable expectations of the parties that 

existed before or at the time of the breach.”138 The court also properly acknowledged 

that PharmAthene must show that there would be some future profits, but after this 

showing, the amount of such profits may be an estimate.139 SIGA does not dispute that 

the court could consider post-breach evidence when determining the reasonable 

expectations of the parties before or at the time of the breach.

140 Instead, SIGA argues 

that the Court of Chancery improperly used post-breach evidence “to cure the fatally 

 138 Id. at *7 (citing Duncan, 775 A.2d at 1022 (Del. 2001)). The Court of Chancery noted:

Proof of the fact of damages in a lost profits case means proof that there would 

have been some profits. If the plaintiff’s proof leaves uncertain whether plaintiff 

would have made any profits at all, there can be no recovery. But once this level 

of causation has been established for the fact of damages, less certainty (perhaps 

none at all) is required in proof of the amount of damages. . . . [P]roof of the 

amount can be an estimate, uncertain, or inexact.

Id. at *8 (quoting Agilent, 2010 WL 610725, at *29 n.271 (citations omitted)). The court also 

accounted for the wrongdoer rule, noting:

Doubts [about the extent of damages] are generally resolved against the party in 

breach. A party who has, by his breach, forced the injured party to seek 

compensation in damages should not be allowed to profit from his breach where it 

is established that a significant loss has occurred. A court may take into account 

all the circumstances of the breach, including willfulness, in deciding whether to 

require a lesser degree of certainty, giving greater discretion to the trier of the 

facts. Damages need not be calculable with mathematical accuracy and are often 

at best approximate.

Id. (citing Cura, 2001 WL 1334188, at *20) (emphasis in original).

139 Agilent, 2010 WL 610725, at *29 n.271.

140 Remand Opinion at *9.
47

speculative nature of the damages at the time of the breach.”141 The record does not 

support SIGA’s argument.

The Court of Chancery recognized that post-breach evidence could be used “in 

order to aid in its determination of the proper expectations as of the date of the breach,”

but relied on such evidence “sparingly.”142 According to the court, it also limited the use 

of such evidence to the parties’ expectations, and “in all other respects” determined that 

the post-breach evidence was “irrelevant” to measure expectation damages at the time of 

the breach.143 We find after reviewing the record that the Court of Chancery properly 

limited the use of post-breach evidence to confirm its conclusions as to the parties’ 

reasonable expectations at the time of breach, or used the evidence to adjust the damages 

award in SIGA’s favor. 

First, the Court of Chancery observed that even though SIGA did not secure the 

BARDA contract until after the 2011 trial, there was a reasonable inference that the 

 141 Opening Br. at 33.

142 Remand Opinion at *9 (citing Comrie, 837 A.2d at 17; Cura, 2001 WL 1334188, at *23–24 

(considering evidence of post-breach transactions to calculate a damages award); Honeywell 

Int’l, Inc. v. Hamilton Sundstrand Corp., 378 F. Supp. 2d 459, 465 (D. Del. 2005)); see also 

Sinclair Ref. Co. v. Jenkins Petroleum Process Co., 289 U.S. 689, 697–98 (1933) (“The law will 

make the best appraisal that it can, summoning to its service whatever aids it can command. At 

times the only evidence available may be that supplied by testimony of experts. . . . But a 

different situation is presented if years have gone by before the evidence is offered. Experience 

is then available to correct uncertain prophecy. Here is a book of wisdom that courts may not 

neglect. We find no rule of law that sets a clasp upon its pages, and forbids us to look within.”) 

(citations omitted).

143 Remand Opinion at *9.
48

parties knew this contract was imminent at the time of SIGA’s breach.

144 The Court of 

Chancery also found ST-246’s post-breach sale to BARDA supported its conclusion that 

PharmAthene had a reasonable expectation at the time of SIGA’s breach that the U.S. 

government would contract to buy ST-246 in the near future, because the drug was 

actually sold to its intended buyer. These inferences supported ST-246’s commercial 

viability at the time of SIGA’s breach, including SIGA’s own optimism and high 

valuation of the drug’s prospects.145 

SIGA’s internal emails revealed that Vice President Konatich, Chief Scientific 

Officer, Hruby, and attorney Fasman, all questioned the need for a business collaboration 

with PharmAthene given the success of ST-246.

146 Additionally, Hruby’s emails showed

that government agencies were interested in a potential acquisition in the near future,

147

and that SIGA received over $21 million in grant money because agencies recognized the 

potential of ST-246.148 SIGA also publicly announced the successful results of ST-246 in 

primate trials and was able to sell its stock at a premium following its positive 

developments. Additionally, PharmAthene was willing to consider giving SIGA more 

 144 Id. (“Although officially BARDA did not come into existence until roughly 

contemporaneously with SIGA’s bad faith conduct, the record supports a reasonable inference 

that both SIGA and PharmAthene knew of BARDA’s imminent establishment.”).

145 The Court of Chancery specifically noted the facts of SIGA’s “own confidence in ST-246’s 

prospects, which caused it internally to value ST-246 at the time of the breach at between three 

and five billion dollars, and SIGA’s development of ‘seller’s remorse’ which ultimately 

motivated its bad faith conduct.” Id.

146 App. to Answering Br. at 807 (Email from Hruby to Konatich); id. at 1141 (Email from 

Fasman to Hruby). 147 Id. at 1135 (Email from Hruby to Drapkin). 148 Id. at 808 (Email from Hruby to Konatich).
49

favorable terms than those contemplated in the LATS,149 likely because it recognized 

ST-246’s potential for commercial success and because SIGA was balking at going 

forward because of its self-proclaimed view that ST-246 had a conservative value of $3

billion150 and an optimistic value of $5.6 billion.

151 Based on these facts, there was 

substantial evidence, including post-breach information about the BARDA contract, that 

the parties had a reasonable expectation at the time of SIGA’s breach that ST-246 would 

be commercialized in the near future. 

Finally, the Court of Chancery noted that BARDA contracted to buy ST-246 for 

“significantly” more than $100 per course (SIGA is eligible to receive at least $180 per

course under the contract) supported its conclusion that, at the time of SIGA’s breach, 

PharmAthene had a reasonable expectation of commercializing ST-246 for $100 per 

course.152 Although around the time of SIGA’s breach, Fasman viewed PharmAthene’s 

$100 per course of treatment price as “excessive” and assumed a price of $75,153 SIGA 

was willing to continue negotiations based on the assumptions in the PharmAthene 

Model, which used the $100 figure.

154 According to Baliban’s research, the $100 per 

course of treatment price was comparable to the price the U.S. government paid for 

similar pharmaceutical countermeasures. 

 149 Id. at 1205 (Letter from Olstein to Coch). 150 Id. at 1195.

151 Id. at 1204 n.1 (Letter from Coch to Olstein). 152 Remand Opinion at *14 n.66. 153 App. to Answering Br. at 1189 (Fasman Email). 154 Id. at 1195.
50

The fact that BARDA agreed to pay 80% more per course confirmed that the 

parties’ expectations at the time of SIGA’s breach were reasonable. Had the court given 

more weight to the post-breach BARDA contract, it could have concluded that the $100 

price per course expectation at the time of breach was unreasonable for being too low. 

The Court of Chancery did not give undue weight to post-breach evidence, and properly 

limited the post-breach evidence to corroborate other facts establishing the expectation of 

the parties at the time of the breach.155

3. The Court Of Chancery Used The LATS Economic Terms 

To Determine Expectation Damages

SIGA argues that the Court of Chancery found in its 2011 Decision that the parties 

would have reached an agreement on terms substantially different from those set forth in 

the LATS. We read the 2011 Decision otherwise. The Vice Chancellor stated: 

I [] find that, but for SIGA’s bad faith negotiations, the parties likely would 

have reached agreement on a transaction generally in accordance with the 

LATS. PharmAthene was willing to agree to a license agreement for ST246 on terms that varied “to some extent” from the LATS. . . . Had SIGA 

engaged in good faith negotiations, I am convinced that a license agreement 

between PharmAthene and SIGA for ST–246 would have resulted in terms 

no less favorable to PharmAthene than the 50/50 profit split it already had 

mentioned and an increase in the upfront and milestone payments from a 

total of $16 million, as specified in the LATS to something in the range of 

$40 million.156

 155 SIGA also argues that the Court of Chancery “selectively and arbitrarily” considered the postbreach evidence, and supposedly “ignored” post-breach evidence that proved damages were 

speculative or should have been far less than awarded. Opening Br. at 35. The weighing of 

pertinent evidence is within the discretion of the trial court, and will not be second-guessed on 

appeal. See Gatz, 59 A.3d at 1212; Bank of N.Y. Mellon Trust Co., 29 A.3d at 236; Hudak v. 

Procek, 806 A.2d 140, 150 (Del. 2002) (“The weight to be given to evidence . . . is for the trier 

of fact to determine.”).

156 2011 Opinion at *38 (emphasis added).
51

Although the parties might have agreed to modifications of the LATS in SIGA’s 

favor given ST-246’s recent successes, had SIGA not breached its obligation to negotiate 

in good faith toward a license agreement in accordance with the LATS, fairly read the 

Vice Chancellor found that the parties would still have reached an agreement that was 

“generally in accordance with the LATS.”157 The financial terms of the LATS were a 

sufficiently certain basis to calculate damages, and the Court of Chancery did not err in 

rely on the LATS financial terms used by Baliban in his financial model. 

SIGA also argues that the Court of Chancery deviated from the material financial 

terms of the LATS. Once again the record does not support SIGA’s argument. The 

Court of Chancery used Baliban’s Basis 1 damages calculation, which incorporated the 

LATS economic terms. After Baliban prepared a projection of ST-246’s future profit 

using inputs from the PharmAthene Model as well as assumptions that were based on his 

research, he applied the key LATS economic terms to the calculation. That is, the license 

fees, milestone payments, and royalties PharmAthene owed SIGA were all applied to the 

calculation before earnings from ST-246 were allocated to the parties. Thus, the 

economic terms of the LATS were incorporated into Baliban’s damages calculation, 

which served as the basis for the Court of Chancery’s analysis of the damages award. 

Furthermore, in its Remand Order, the Court of Chancery directed Baliban to 

apply the economic terms of the LATS to its calculation of damages and altered the 

timing of when certain upfront and milestone payments would have been made. The 

 157 Id. 
52

court gave SIGA the opportunity to comment on the revised calculations.

158 The Remand 

Order accounted for the license fee payments and the milestone payments, all of which 

PharmAthene owed to SIGA under the express economic terms of the LATS. Thus, the 

court’s analysis in its Remand Opinion and its instructions in the Remand Order were

based on the economic terms of the LATS. 

4. The Court Of Chancery’s Factual Findings Were Not Clearly 

Erroneous

The Court of Chancery took into account SIGA’s own conduct and beliefs about 

ST-246’s prospects before the breach, and painstakingly considered the relevant factors 

underlying Baliban’s damages calculation. In evaluating the evidence, the Court of 

Chancery first took account of ST-246’s successes and SIGA’s own optimism about the 

drug’s prospects. Specifically, it noted that the criteria for purchase into the National 

Stockpile was already known at the time of SIGA’s breach, and the parties had a 

reasonable expectation that ST-246 would meet that criteria. It also noted that FDA 

approval was not one of the requirements for being considered for the National Stockpile, 

which weakened SIGA’s argument that ST-246’s prospects were too speculative because 

of the uncertainty of obtaining FDA approval. Had the parties truly believed that the 

success of the drug was premised on FDA approval, they would have been much more 

conservative in their valuations, and SIGA might not have walked away from the merger 

or a deal consistent with the LATS. 

 158 Remand Order at *2 (“SIGA shall serve on PharmAthene any objections to the revised 

calculations within ten days of receiving . . . the calculations . . . . The scope of these 

objections shall be limited to computational errors . . . .”) (emphasis in original).
53

Further, the Court of Chancery considered SIGA’s damages expert’s criticisms of 

Baliban’s damages calculation and either found them wanting or made the requested 

adjustments. For example, SIGA’s expert criticized Baliban’s damages calculation for 

failing to consider competitors and failing to account for the seven-year duration of the 

“orphan drug” status. The court noted, however, that the 5% contraindication rate used in 

Baliban’s model was conservative as compared to Baliban’s independent research, which 

showed contraindication rates of between 20% and 30%.159 Thus, the court reasoned that 

the shortcomings of Baliban’s calculation were offset by the use of a conservative 

contradiction rate. It also noted that Baliban’s use of a high discount rate of 23.1% 

compensated for these criticisms. The court considered and responded to SIGA’s 

expert’s criticisms, but could not rely on an alternative model for comparison because 

SIGA did not provide one. Also, in the January 7, 2015 Letter Opinion, the court

directed Baliban to adhere to his original assumptions, which further reduced

PharmAthene’s damages award.160 In this regard, it is worth noting that this is another

instance where SIGA faults the Vice Chancellor for using a more conservative approach 

than he could have given the evidence. When it was deciding to breach, SIGA’s internal 

valuation used a contraindication rate of 15%.161 The Vice Chancellor would have been 

within his discretion to hold SIGA to its own contemporaneous estimate. 

 159 App. to Answering Br. at 1468 (Baliban’s Report).

160 Letter Opinion at *1–2.

161 App. to Answering Br. at 1200.
54

On top of the changes made in response to SIGA’s expert, the Court of Chancery 

conducted its own analysis and adjusted Baliban’s calculations. Specifically, the court 

changed the start date assumption for ST-246 sales, and adjusted the assumed sales to the 

National Stockpile, both in SIGA’s favor. The court also found that PharmAthene did 

not prove that it had a reasonable expectation of commercializing ST-246 outside of the 

U.S. at the time of SIGA’s breach. Additionally, the court lowered the contraindication 

rate for the military population from 10% to 5%, because PharmAthene failed to justify 

the higher rate. The court also amended PharmAthene’s projected recognition of its 

milestone payment obligations under the LATS to reflect the new timing of ST-246 sales. 

These changes demonstrate that the Court of Chancery carefully analyzed the factors 

used in Baliban’s model to avoid an excessive award. Ultimately, the court awarded 

PharmAthene $113 million in expectation damages—less than 11% of the $1.07 billion 

damages figure in Baliban’s model.

SIGA is poorly positioned to argue that the parties’ expectations about ST-246’s 

prospects at the time of the breach were too speculative. At the time of the breach, SIGA 

internally valued ST-246 conservatively at $3 billion162 and optimistically at $5.6 

billion.

163 A letter from SIGA’s attorney to PharmAthene’s attorney stated that SIGA 

valued the drug at over $5 billion.

164 Right before the breach, ST-246 received $21.9 

million in grant money from the National Institute of Allergy and Infectious Disease and 

 162 Id. at 1189 (Fasman Email). 163 Id. at 1195.

164 Id. at 1204 n.1 (Letter from Coch to Olstein). 
55

the National Institutes of Health to address SIGA’s cash shortage, allowing SIGA to 

continue development of a drug that was demonstrating promise.165 These grants 

reflected the organizations’ confidence in ST-246, confirming SIGA’s optimism about 

the drug’s prospects. It was precisely because SIGA believed that ST-246 was worth $3 

to $5.6 billion that it did not wish to share the upside with PharmAthene under LATS

terms and why SIGA refused to consummate a final agreement.

SIGA is also poorly positioned to argue that profits were entirely speculative 

because ST-246 was an experimental drug. Both of these companies were in the business 

of developing pharmaceuticals for use against biological warfare. They understood that 

the government was a likely near-term purchaser.166 SIGA confidently announced on 

July 13, 2006 that ST-246 was “its lead smallpox drug candidate” and that it had 

“successfully completed the first planned human clinical safety trial.”167 SIGA had met 

the scientific milestones for ST-246, and sought the bridge financing because of its 

confidence in the drug.

168 The additional government funding awarded to SIGA to 

complete development of ST-246 in September 2006 also undercuts SIGA’s argument 

that this was merely an experimental drug.

169 This was not a situation where profits were 

entirely speculative—SIGA believed it was on the cusp of bringing ST-246 to market.

 165 Id. at 808 (Email from Hruby to Konatich); id. at 1135 (Email from Hruby to Drapkin). 166 App. to Answering Br. at 1135 (“I presented to both DHS and DOD last week. They were 

very ‘impressed’ and indicated acquisitions in the future.”).

167 Id. at 811 (SIGA Press Release). 168 Id. at 1135.

169 SIGA I at 338.
56

We respectfully disagree with the dissent that PharmAthene should be limited to 

reliance damages, which, as the Court of Chancery found, would be no remedy at all for 

SIGA’s bad faith breach.170 Although the dissent characterizes SIGA I as “unclear,” we 

find nothing unclear about the instructions from this Court to the Court of Chancery on 

remand. We instructed the court to determine anew whether expectation damages should 

be awarded, which included a specific instruction to reconsider the helpfulness of expert 

testimony directed to expectation damages. Further, faced with PharmAthene’s argument 

that the court erred by failing to award lump-sum expectation damages, we “remand[ed] 

for him to reconsider it in light of [the SIGA I] opinion.” The Court of Chancery 

followed this Court’s mandate, painstakingly applied accepted principles of law to a 

detailed record, and exercised its broad discretion for a second time to fashion a damages 

remedy.171

The dissent’s extended discussion of cases from other jurisdictions, including New 

York, and its fear of falling out of step with other leading commercial jurisdictions, 

suggests that its main dissatisfaction is with SIGA I and the rule it adopted permitting the 

recovery of expectation damages for bad faith breach of Type II agreements. We note, 

however, that despite SIGA’s concerns about the precedent set in SIGA I, the decision is 

 170 Remand Opinion at *5 n.29.

171 The Court of Chancery crafted a remedy earlier in the case that was designed to eliminate 

uncertainty even more, by tying relief to a stream of royalties derived from sales. This Court in 

SIGA I never addressed whether that remedy was within Chancery's broad remedial discretion, 

and the dissent does not explain why that original remedy was incorrect.
57

the law of the case. Whether it was correctly decided was not raised by the parties and is 

not before us in this appeal.172 

The Court of Chancery’s opinion reflects a reasoned and thorough approach to 

evaluating the evidence underlying PharmAthene’s damages claim. In view of our 

standard of review and of the evidence that was before the trial court, the Court of 

Chancery did not abuse its discretion or make conclusions that were clearly erroneous 

when it awarded PharmAthene lump-sum expectation damages on remand.

V. CONCLUSION

The law of the case doctrine did not prevent the Court of Chancery from 

reconsidering its prior finding that lump-sum expectation damages were too speculative. 

Instead, the Court of Chancery was required to reevaluate the helpfulness of expert

testimony and reconsider the damages award in light of SIGA I’s guidance. That is 

precisely what the Court of Chancery did. Further, the Court of Chancery did not abuse 

its discretion in finding that PharmAthene met its burden of proving its expectation 

damages with reasonable certainty, and the court’s factual findings were not clearly 

erroneous.

The judgment of the Court of Chancery is affirmed. 

 172 See Gannett Co., Inc. v. Kanaga, 750 A2d 1174, 1181 (Del. 2000) (“there must be some

closure to matters already decided in a given case by the highest court of a particular jurisdiction,

particularly when (with a different composition of jurists) that same court is considering matters

in a later phase of the same litigation.”).
1

VALIHURA, Justice, concurring in part and dissenting in part:

I concur with the Majority in part, and respectfully dissent in part.

I agree with the Majority’s conclusion that the Court of Chancery’s 2011 finding 

that expectation damages were “speculative and too uncertain, contingent, and 

conjectural”1 is not the law of the case. Rather, as the Majority says, pursuant to our 

decision in SIGA I, the trial court was free to reconsider a damages award.2

 However, 

this Court also stated clearly in SIGA I that expectation damages must be proven with 

reasonable certainty.3

 No recovery can be had for damages that are “uncertain, 

contingent, conjectural, or speculative.”4

 While it is not the law of the case, the Court of 

Chancery’s reversal of its earlier finding that expectation damages here are “speculative 

and too uncertain, contingent, and conjectural,”5 after examining essentially the same 

information as it had in 2011,6 is the product of certain legal errors which, in turn, are 

perhaps the result of the remand instructions from this Court in SIGA I.

7

 1 PharmAthene, Inc. v. SIGA Techs., Inc., 2011 WL 4390726, at *37 (Del. Ch. Sept. 22, 2011) 

[hereinafter, “PharmAthene I, 2011 WL 4390726, at __”].

2 See SIGA Techs., Inc., v. PharmAthene, Inc., 67 A.3d 330, 351-52 (Del. 2013) (citation 

omitted) [hereinafter, “SIGA I, 67 A.3d at __”].

3 Id. at 351 n.99.

4 Id. (quoting Callahan v. Rafail, 2001 WL 283012, at *1 (Del. Super. Mar. 16, 2001)) (internal 

quotations omitted).

5 PharmAthene I, 2011 WL 4390726, at *37.

6 On remand from this Court’s opinion in SIGA I, the Court of Chancery granted PharmAthene’s 

motion to reopen the record. See Op. Br. Ex. A. (Tr. 33:21-24). The Court of Chancery 

indicated that it “relied only sparingly on post-breach information . . . .” PharmAthene, Inc. v. 

SIGA Techs., Inc., 2014 WL 3974167, at *9 (Del. Ch. Aug. 8, 2014) [hereinafter, “PharmAthene 

II, 2014 WL 3974167, at __”]. At oral argument before this Court, counsel for PharmAthene 

confirmed that the only factual difference between the evidence before the Court of Chancery in 

2011 and the evidence as supplemented by reopening the record on remand was the existence of 

a post-breach contract between SIGA and the federal government via the Biomedical Advanced 

Research and Development Authority (“BARDA”). See Videotape: Oral Argument Before the 
2

As a preliminary matter, the Majority asserts that our scope of review of a 

damages award is “limited” and that “[d]amages awards are reviewed for abuse of 

discretion.”8

 However, our review of embedded legal issues is de novo.

9

 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. Accordingly, I would reverse the 

trial court’s decision, and I respectfully dissent as to those aspects of the Majority’s 

Opinion. 

I. THE LAW OF EXPECTATION DAMAGES

 

Delaware Supreme Court, at 26:06 (SIGA Techs., Inc. v. PharmAthene, Inc., No. 20, 2015, 

October 7, 2015), archived at

http://livestream.com/DelawareSupremeCourt/events/4404659/videos/101331469. 

7 In particular, this Court’s direction to the trial court to reevaluate the helpfulness of expert 

testimony is not as clear as it perhaps could have been, as evidenced by the parties’ briefs on 

appeal. Compare SIGA’s Op. Br. at 29 (“And the Court of Chancery flatly misunderstood the 

significance of this Court’s invitation to ‘reevaluate the helpfulness of expert testimony.’ That 

invitation was extended in the context of this Court’s discussion of expert fee-shifting, and was 

limited to a reexamination of whether expert testimony was helpful in determining a damage 

award ‘in light of this opinion’—an opinion that explicitly held that speculative damages cannot 

be awarded, and left untouched the Court of Chancery’s original finding that expectation 

damages in this case are speculative.”) (internal citations omitted), with PharmAthene’s Ans. Br. 

at 26 n.12 (“Rather than affirm the Vice Chancellor’s findings that expectation damages were too 

speculative, this Court instead ordered the Vice Chancellor to reconsider his award consistent 

with the Court’s opinion and even encouraged him to ‘reevaluate the helpfulness of expert 

testimony’ in so doing.”) (citation omitted). 8 Maj. Op. at 41 (citations omitted). 

9 See Schock v. Nash, 732 A.2d 217, 232 (Del. 1999) (“Whether or not an equitable remedy 

exists or is applied using the correct standards is an issue of law and reviewed de novo.”) 

(citations omitted).
3

Ordinarily, expectation damages are not awarded for the breach of a preliminary 

agreement due to difficulties in establishing such damages with sufficient certainty. As 

this Court acknowledged in SIGA I, “[n]o recovery can be had for loss of profits which 

are determined to be uncertain, contingent, conjectural, or speculative.”10 The award of 

lump sum expectation damages in this case violates that basic principle—as the trial court 

correctly determined in the first instance. A review of the development of the law in the 

area of preliminary agreements provides a useful analytical backdrop for explaining why 

damages for breach of preliminary agreements are typically limited to reliance 

damages.11

A. New York Develops a Conceptual Framework Regarding Preliminary 

Agreements

In 1987, Judge Leval of the United States District Court for the Southern District 

of New York observed in Teachers Insurance & Annuity Association of America v. 

Tribune Co., that “[p]reliminary contracts with binding force can be of at least two 

distinct types.”12 He explained that one type “occurs when the parties have reached 

complete agreement (including the agreement to be bound) on all the issues perceived to 

require negotiation.”13 The second “expresses mutual commitment to a contract on 

 10 SIGA I, 67 A.3d at 351 n.99 (quoting Callahan, 2001 WL 283012, at *1) (internal quotations 

omitted).

11 See, e.g., E. Allan Farnsworth, Precontractual Liability and Preliminary Agreements: Fair 

Dealing and Failed Negotiations, 87 COLUM. L. REV. 217, 267 (1987) (“[T]he appropriate 

remedy [for breach of a preliminary agreement] is not damages for the injured party’s lost 

expectation under the prospective ultimate agreement but damages caused by the injured party’s 

reliance on the agreement to negotiate.”).

12 Teachers Ins. & Annuity Ass’n of Am. v. Tribune Co., 670 F. Supp. 491, 498 (S.D.N.Y. 1987).

13 Id. 
4

agreed major terms, while recognizing the existence of open terms that remain to be 

negotiated.”14 

Two years later, in Arcadian Phosphates, Inc. v. Arcadian Corp.,

15 the United 

States Court of Appeals for the Second Circuit adopted Judge Leval’s bifurcated 

framework for analyzing preliminary agreements. The Second Circuit has since applied 

this dual construction, observing that “binding preliminary agreements fall into one of 

two categories[,]”16 either a Type I preliminary agreement or a Type II preliminary 

agreement. 

As explained by the Second Circuit Court of Appeals, a Type I preliminary 

agreement exists “where all essential terms have been agreed upon in the preliminary 

contract, no disputed issues are perceived to remain, and a further contract is envisioned 

primarily to satisfy formalities.”17 Instruments of this type are “preliminary only in 

form,” such that the parties only desire “a more elaborate formalization of the agreement. 

The second stage is not necessary; it is merely considered desirable.”18 Stated otherwise, 

Type I preliminary agreements are “fully binding,” and are “created when the parties 

agree on all the points that require negotiation (including whether to be bound) but agree 

to memorialize their agreement in a more formal document.”19 Type I agreements 

 14 Id. 

15 884 F.2d 69 (2d Cir. 1989).

16 Adjustrite Sys., Inc. v. GAB Bus. Servs., Inc., 145 F.3d 543, 548 (2d Cir. 1998); see also 

Vacold LLC v. Cerami, 545 F.3d 114, 124 (2d Cir. 2008) (quoting Adjustrite, 145 F.3d at 548).

17 Vacold, 545 F.3d at 124 (quoting Shann v. Dunk, 84 F.3d 73, 77 (2d Cir. 1996)) (internal 

quotations omitted).

18 Tribune, 670 F. Supp. at 498.

19 Vacold, 545 F.3d at 124 (quoting Adjustrite, 145 F.3d at 548) (internal quotations omitted).
5

“render the parties fully bound to carry out the terms of the agreement even if the formal 

instrument is never executed.”20 

Type II preliminary agreements are commitments that are “binding only to a 

certain degree,” as parties to such instruments “agree on certain major terms, but leave 

other terms open for further negotiation.”21 In other words, a Type II preliminary 

agreement is “a contract ‘that expresses mutual commitment to a contract’” on certain 

agreed terms, with others to be negotiated.22 In the context of a Type II preliminary 

agreement, the parties “recognize the existence of open terms, even major ones, but, 

having agreed on certain important terms, agree to bind themselves to negotiate in good 

faith to work out the terms remaining open.”23 However, Type II preliminary agreements 

“do[] not commit the parties to their ultimate contractual objective but rather to the 

obligation to negotiate the open issues in good faith in an attempt to reach the . . . 

objective within the agreed framework.”24 Therefore, a party to a Type II preliminary 

agreement “may only demand that [the] counterparty negotiate the open terms in good 

faith toward a final contract incorporating the agreed terms. This obligation does not 

guarantee that the final contract will be concluded if both parties comport with their 

obligation, as good faith differences in the negotiation of the open issues may prevent a 

 20 Id. (quoting Adjustrite, 145 F.3d at 548) (internal quotations omitted).

21 Id. (quoting Adjustrite, 145 F.3d at 548) (internal quotations omitted).

22 Westerbeke Corp. v. Daihatsu Motor Co., Ltd., 304 F.3d 200, 206 n.3 (2d Cir. 2002) (quoting 

Tribune, 670 F. Supp. at 498).

23 Vacold, 545 F.3d at 124 (quoting Dunk, 84 F.3d at 77) (internal quotations omitted).

24 Brown v. Cara, 420 F.3d 148, 153 (2d Cir. 2005) (quoting Adjustrite, 145 F.3d at 548) 

(internal quotations omitted) (alterations in original). 
6

reaching of final contract.”25 However, a party to a Type II preliminary agreement is 

barred “from renouncing the deal, abandoning the negotiations, or insisting on conditions 

that do not conform to the preliminary agreement.”26 Ultimately, “[i]f the parties ‘fail to 

reach such a final agreement after making a good faith effort to do so, there is no further 

obligation.’”27 

This Court first applied New York’s bifurcated approach to preliminary 

agreements in SIGA I.

28 There, we held that plaintiffs who are party to a Type II 

preliminary agreement may recover reasonably certain expectation damages if “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 . . . .”29 SIGA I held 

that expectation damages are theoretically available, not definitively available, since our 

acknowledgement that a plaintiff might be entitled to recover expectation damages for 

breach of a Type II preliminary agreement was qualified by the associated footnote, 

which expressly stated that “[a]n expectation damages award presupposes that the 

plaintiff can prove damages with reasonable certainty.”30 SIGA I, in that respect, does 

 25 Westerbeke, 304 F.3d at 206 n.3 (quoting Tribune, 670 F. Supp at 498) (internal quotations 

omitted) (alternations in original).

26 Tribune, 670 F. Supp. at 498.

27 Vacold, 545 F.3d at 124 (quoting Adjustrite, 145 F.3d at 548) (internal quotations omitted).

28 SIGA I, 67 A.3d at 349-51.

29 Id. at 350-51.

30 Id. at 351 n.99 (citing Callahan, 2001 WL 283012, at *1 (“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.’”)).
7

not diverge from bedrock contract law establishing that reasonably certain proof is a 

predicate to an award of lost profits.31 

Notably, the same New York courts that adopted and applied the distinction 

between Type I and Type II preliminary agreements disfavor awarding expectation 

damages in cases of a breach of a Type II preliminary agreement.32 For example, in 

Goodstein Construction Corporation v. City of New York, a case decided after Judge 

 31 See RESTATEMENT (SECOND) OF CONTRACTS § 352 (1981) (“Damages are not recoverable for 

loss beyond an amount that the evidence permits to be established with reasonable certainty.”) 

(emphasis added), ch. 16, topic 2, § 352, cmt. a (“Requirement of certainty. A party cannot 

recover damages for breach of a contract for loss beyond the amount that the evidence permits to 

be established with reasonable certainty. . . . The main impact of the requirement of certainty 

comes in connection with recovery for lost profits. . . . Although the requirement applies to 

damages based on the reliance as well as the expectation interest, there is usually little difficulty 

in proving the amount that the injured party has actually spent in reliance on the contract, even if 

it is impossible to prove the amount of profit that he would have made. In such a case, he can 

recover his loss based on his reliance interest instead of on his expectation interest.”); 5 CORBIN 

ON CONTRACTS § 1020 (Rev. ed. 1964) (“In order to be entitled to a verdict, or a judgment, for 

damages for breach of contract, the plaintiff must lay a basis for a reasonable estimate of the 

extent of his harm, measured in money. This applies alike to harm that consists in losses

suffered by the plaintiff (expenditures and other subtractions from his wealth) and to harm that 

consists in gains prevented by the breach.”) (emphasis added), § 1022 (“[A] plaintiff who has 

been injured by a breach of contract frequently has a right to damages much greater in amount 

than the mere net profit that would have resulted from full performance; but such profits, when 

their amount and the fact that they have been prevented by the breach of the defendant can be 

proved with reasonable certainty, always form one of the elements in the damages that can be 

recovered.”) (emphasis added); MODERN LAW OF CONTRACTS § 14:14 (2015) (“Although the 

value of lost profits and other consequential damages do not have to be proven with precision, 

the proof must be solid enough to justify a reasonable approximation by the trier of fact. Thus, 

rules of certainty and foreseeability apply both to proof of damage and to fact of damage.”) 

(emphasis added), § 14:6 (“Proving breach is not enough to recover damages. There also must 

be proof of actual damages that flow from the breach. . . . There must be evidence of associated 

costs from which a finder of fact can determine the actual net loss—or a close approximation 

thereof—that resulted from the breach. Mathematical certainty is not required. ‘Reasonable’ 

certainty, which may be based upon probabilities and inferences, will suffice.”) (citations 

omitted).

32 See Goodstein Constr. Corp. v. City of N.Y., 604 N.E.2d 1356, 1360-62 (N.Y. 1992); see also 

180 Water St. Assocs., L.P. v. Lehman Bros. Holdings, Inc., 7 A.D.3d 316, 317 (N.Y. App. Div. 

2004) (citing Goodstein, 604 N.E.2d at 1360-61) (noting that a plaintiff claiming breach of an 

agreement to negotiate in good faith was limited to damages for out of pocket losses).
8

Leval’s decision in Tribune and the Second Circuit’s adoption of his analytical 

framework in Arcadian Phosphates, the New York Court of Appeals considered whether 

a plaintiff could recover damages in the amount of profits it might have earned in the 

event that a preliminary agreement to negotiate a final contract evolved into a complete 

instrument.33 The court disallowed expectation damages under the circumstances,34

reasoning that awarding such damages would require it to “transform[] an agreement to 

negotiate for a contract into the contract itself” and “give the injured party the benefit of 

the bargain that was not reached.”35 Goodstein reflects the general rule that “lost profits 

are not available where no agreement is reached, out-of-pocket costs incurred in the 

course of good faith partial performance are appropriate[.]”36 

Although some federal cases in New York have awarded expectation damages for 

breach of preliminary agreements, those cases are distinguishable. In Network 

Enterprises, Inc. v. APBA Offshore Productions, Inc.,

37 for example, the parties entered 

into a fully enforceable contract for airtime to present ten telecasts of boat races. That 

contract incorporated an option to renew, which the court characterized as a Type II 

 33 Goodstein, 604 N.E.2d at 1359-60.

34 The Goodstein Court noted that the conclusion of a final agreement was far from certain 

because the City of New York had the ability to terminate the preliminary agreement. Id. at 

1361. Here, by contrast, the Court of Chancery found that the LATS would have matured into a 

final agreement but for SIGA’s breach. PharmAthene I, 2011 WL 4390726, at *38. 

Nevertheless, as discussed below, other factors present here contribute to the speculative nature 

of PharmAthene’s asserted profits, including the revenue-based economic terms of the LATS. 

PharmAthene II, 2014 WL 3974167, at *4 n.20; see A352-53. Further, Goodstein involved the 

development of real property, the object of the LATS was to research, test, and market a new 

drug—an undertaking that embraces greater business risk and uncertainty.

35 Goodstein, 604 N.E.2d at 1361 (internal quotations omitted) (citations omitted).

36 L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 431 (2d Cir. 2011) (citing Goodstein, 604 

N.E.2d at 1361) (citation omitted).

37 427 F. Supp. 2d 463 (S.D.N.Y. 2006), aff’d, 264 F. App’x 36 (2d Cir. 2008).
9

preliminary agreement to negotiate the “number, dates[,] and times” of the next season’s 

telecasts in good faith and which contained a “limited” number of open terms.38 The 

court, in view of the certainty of the damages calculus and the successful negotiating 

history between the parties, granted expectation damages by multiplying the fee per 

telecast set forth in the option by ten, as the option stated that the existing agreement 

would be renewed under “the same terms and conditions.”39

Similarly, in Teachers Insurance & Annuity Association of America v. Ormesa 

Geothermal,

40 a borrower breached a commitment agreement it entered into with a lender 

to obtain a long-term loan. The agreement included “all of the crucial economic terms of 

the loan,” including the principal, term, interest rate, security, repayment schedule, and 

penalties.41 The open terms “were terms that customarily are left for later negotiation” 

between loan parties.42 After the borrower breached the commitment agreement by 

insisting on a lower interest rate, the court awarded expectation damages to the lender in 

the amount as measured by the difference between the interest income it would have 

earned had the contract been performed and that it “would be deemed to have earned by 

timely mitigating its damages—i.e., by making an investment with similar characteristics 

at the time of the breach.”43

 38 Id. at 478, 485.

39 Id. at 487.

40 791 F. Supp. 401 (S.D.N.Y. 1991).

41 Id. at 414-15.

42 Id. at 415.

43 Id. at 416.
10

In Network Enterprises and Ormesa Geothermal, the terms left open in the 

preliminary agreements were limited to details of a logistical nature. These agreements 

allowed the courts to calculate damages based on the terms therein. Here, by contrast, the 

terms set forth in the LATS provided a “nuanced, revenue-based approach” to calculating 

royalties.44 In addition, other payments would only be made upon the occurrence of 

certain milestones. A meaningful degree of speculation concerning the success of the 

project, the occurrence of various contingencies, and the extent of the ensuing profits, if 

any, would be required to ascertain the extent of PharmAthene’s expectation damages. 

In the context of a Type II preliminary agreement, lost profits damages, as a 

general rule, are inherently speculative. This case is no exception. Accordingly, I would 

hold that damages for SIGA’s breach of its obligation to negotiate the license agreement 

in good faith are limited to PharmAthene’s reliance damages.

B. The Majority Misapplies SIGA I and Now Places Delaware Out of Step with 

Other Major Commercial Jurisdictions

This Court has imported New York’s recognition of the binding force of 

preliminary agreements without adopting its concomitant limitations on expectation 

damages. Where parties have not established expectation damages to a reasonable 

certainty, limiting parties’ damages for breach of a Type II preliminary agreement to 

reliance damages is necessary to prevent recovery in excess of the reasonable 

expectations of the parties at the time of breach. The Majority’s decision, allowing nonreliance damages for breach of a Type II preliminary agreement absent sufficient 

 44 PharmAthene II, 2014 WL 3974167, at *4 n.20; see A352-53.
11

evidence establishing such damages to a reasonable certainty, is a misapplication of SIGA 

I, which now places Delaware out of step with other important commercial jurisdictions. 

i. New York Courts Disfavor Expectation Damages for Breach of a Preliminary 

Agreement

As observed above, New York courts have hesitated to award expectation 

damages for the breach of a preliminary agreement, except in narrow cases where 

damages are ascertainable with reasonable certainty.45 In L-7 Designs, Inc. v. Old Navy, 

LLC,

46 the United States Court of Appeals for the Second Circuit, in addressing the 

District Court’s grant of a motion for judgment on the pleadings which rejected a claim 

for failure to negotiate a licensing agreement in good faith, commented that “[u]nder New 

York law parties who enter into binding preliminary agreements . . . ‘accept a mutual 

 45 See, e.g., Bulldog N.Y. LLC v. Pepsico, Inc., 8 F. Supp. 3d 152, 175 (D. Conn. 2014) (“In 

situations where a defendant has breached a Type II [a]greement by failing to negotiate in good 

faith, ‘lost profits are generally not available where no agreement is reached, [but] out-of-pocket 

costs may still be appropriate.’ . . . The only damages [that the plaintiff] appears to claim relate 

to its expected profits . . . which are unavailable for breach of a Type II agreement.”) (citation 

omitted) (alterations in original and added) (applying New York law); Learning Annex Holdings, 

LLC v. Whitney Educ. Grp., Inc., 765 F. Supp. 2d 403, 417 (S.D.N.Y. 2011) (“Although it is true 

that lost profits are generally not available where no agreement is reached, out-of-pocket costs 

may still be appropriate.”) (citations omitted); Fairbrook Leasing, Inc. v. Mesaba Aviation, Inc., 

519 F.3d 421, 429-30 (8th Cir. 2008) (“This is a difficult, largely unsettled question of remedies. 

. . . [But] we have no difficulty affirming the district court’s decision that expectancy damages 

may not be recovered in this case. . . . The same reasoning [that applied in Goodstein for 

denying expectation damages] applies in this case. The Term Sheet was silent on significant 

issues . . . . The parties were not obligated to agree on these issues, nor can the missing terms be 

judicially determined by objective criteria in the Term Sheet itself or in commercial practice, 

usage, or custom. In effect, [the appellant] asks us to do what New York law prohibits—

transform a binding preliminary agreement to negotiate for a contract into the contract itself.”) 

(applying New York law). Cf. Worldwide Servs., Ltd. v. Bombardier Aerospace Corp., 2015 

WL 5671724, at *20 (S.D.N.Y. Sept. 22, 2015) (“The Court recognizes that the Second Circuit 

has explained that although out-of-pocket costs incurred in the course of good faith partial 

performance are appropriate, lost profits are not available where no agreement is reached.”) 

(citing L-7 Designs, 647 F.3d at 431).

46 647 F.3d 419 (2d Cir. 2011).
12

commitment to negotiate together in good faith in an effort to reach final agreement . . . 

.’”47 Consistent with the decisions noted above, it then observed that, “[a]lthough lost 

profits are not available where no agreement is reached . . . out-of-pocket costs incurred 

in the course of good faith partial performance are appropriate[.]”48

ii. California Courts Disfavor Expectation Damages for Breach of a Preliminary 

Agreement

California courts have consistently declined to award expectation damages for the 

breach of a preliminary agreement.49 In Copeland v. Baskin Robbins U.S.A.,

50 the parties 

entered into a preliminary agreement regarding a Baskin Robbins plant, whereby 

“Copeland would purchase the plant’s manufacturing assets and sublease the plant 

property. Baskin Robbins would purchase seven million gallons of ice cream from 

 47 Id. at 430 (quoting Tribune, 670 F. Supp. at 498).

48 Id. at 431 (citing Goodstein, 604 N.E. at 1361) (citation omitted). See also ICBC (London) 

PLC v. Blacksands Pac. Grp., Inc., 2015 WL 5710947, at *9 n.94 (S.D.N.Y. Sept. 29, 2015), 

notice of appeal filed, Oct. 23, 2015 (No. 15-3387) (citing L-7 Designs, 647 F.3d at 431) 

(observing that “lost profits are not available as a remedy for [breach of a Type II preliminary 

agreement]; recovery is limited to out-of-pocket costs incurred in partial performance of good 

faith negotiations”).

49 See, e.g., Advanced Thermal Scis. Corp. v. Applied Materials, Inc., 2010 WL 2015236, at *52

(C.D. Cal. May 18, 2010) (discussing the uncertainty of lost profits damages and awarding 

reliance damages); In re ECC Sys., Inc., 2009 WL 1028061, at *2 (9th Cir. Apr. 17, 2009) 

(denying expectation damages in view of the fact that they were “not the reliance damages that 

under California law as set forth in [Copeland v. Baskin Robbins U.S.A.] are the only damages 

available for breach of a contract to negotiate an agreement”) (emphasis added); Original S.F. 

Toymakers, Inc. v. Trendmasters, Inc., 2003 WL 22384771, at *7 (N.D. Cal. Oct. 7, 2003) (“The 

appropriate remedy for a breach of an agreement to negotiate are those damages which the 

plaintiff incurred in reliance on the defendant to negotiate in accordance with the covenant of 

good faith and fair dealing implied in every contract. This measure includes the ‘plaintiff’s out 

of pocket costs in conducting the negotiations’ but may not include ‘lost expectations 

(profits).’”) (internal citations omitted); Vestar Dev. II, LLC v. Gen. Dynamics Corp., 249 F.3d 

958, 962 (9th Cir. 2001) (affirming the denial of expectation damages in connection with a 

preliminary agreement on the grounds that any such award would require “impermissible 

speculation”).

50 117 Cal. Rptr. 2d 875 (Cal. Ct. App. 2002).
13

Copeland over a three year period.”51 The agreement was contingent upon the ice cream 

purchase arrangement, referred to as a “co-packing” agreement, which the parties 

understood to be a material aspect of the deal.52 “Among the issues to be settled were the 

price Baskin Robbins would pay for the ice cream, the flavors Copeland would produce, 

quality standards and controls, who would bear the loss from spoilage, and trademark 

protection.”53 However, Baskin Robbins later wrote to Copeland, explaining that “‘the 

proposed co-packing arrangement [was] out of alignment with [its] strategy.’ Therefore, 

Baskin Robbins informed Copeland, ‘we will not be engaging in any further negotiations 

of a co-packing arrangement.’”54 

In a suit for breach of contract, Copeland alleged that the preliminary agreement 

“constituted a contract to negotiate the remaining terms of the co-packing agreement and 

Baskin Robbins breached this contract by refusing without excuse to continue 

negotiations or, alternatively, by failing to negotiate in good faith.”55 The court, 

however, observed that “[a]rguing bad faith is an uncertain concept which could cost the 

defendant millions of dollars in expectation damages [and] is also without merit. . . . 

[T]he appropriate remedy for breach of a contract to negotiate is not damages for the 

injured party’s lost expectations under the prospective contract but damages caused by 

the injured party’s reliance on the agreement to negotiate.”56 Accordingly, the court held 

 51 Id. at 877. 

52 Id. 

53 Id. at 878.

54 Id. 

55 Id. at 880.

56 Id. at 883 (citation omitted).
14

that “damages for breach of a contract to negotiate an agreement are measured by the 

injury the plaintiff suffered in relying on the defendant to negotiate in good faith. This 

measure encompasses the plaintiff’s out-of-pocket costs in conducting the negotiations 

and may or may not include lost opportunity costs. The plaintiff cannot recover for lost 

expectations (profits) because there is no way of knowing what the ultimate terms of the 

agreement would have been or even if there would have been an ultimate agreement.”57

iii. Other Jurisdictions Disfavor Expectation Damages, Particularly in the 

Pharmaceutical Context 

Particularly in the pharmaceutical context, the courts of other jurisdictions appear 

to disfavor expectation damages.58 In AlphaMed Pharmaceuticals Corp. v. Arriva 

Pharmaceuticals, Inc.,

59 in the context of a patent infringement suit, the United States 

District Court for the Southern District of Florida observed that “only a minuscule 

percentage of drugs in development ever reaches the commercial market—and of those, 

only a subset ever prove profitable for their manufacturer. Accordingly, reliance on a 

multitude of assumptions is endemic to any valuation of the prospective profitability of 

 57 Id. at 885 (citations omitted). Notably, in PharmAthene I, the trial court found that “the parties 

did not intend the LATS as attached to [the Bridge Loan Agreement and Merger Agreement] to 

be a binding license agreement or to require that any later formal agreement include exactly the 

same terms as the LATS.” PharmAthene I, 2011 WL 4390726, at *16. But, on remand, the trial 

court observed that this Court’s opinion in SIGA I “place[d] greater weight on the terms specified 

in the LATS than [it] afforded those terms in determining [the] prior damages award.” 

PharmAthene II, 2014 WL 3974167, at *4. 

58 See, e.g., PharmaNetics, Inc. v. Aventis Pharms., Inc., 2005 WL 6000369, at *12, *16 

(E.D.N.C. May 4, 2005), aff’d, 182 F. App’x 267 (4th Cir. 2006) (affirming exclusion of expert 

testimony and noting that there was “no clear error in ruling the new technology’s lost sales to be 

too speculative”).

59 432 F. Supp. 2d 1319 (S.D. Fla. 2006), aff’d, 294 F. App’x 501 (11th Cir. 2008). 
15

new pharmaceutical products.”60 In view of the intrinsic unpredictability underlying the 

development of pharmaceuticals, the District Court noted that “inherent uncertainty 

makes the recovery of lost profits for anticipated sales of a new drug exceedingly 

difficult.”61 

In Microbix Biosystems, Inc. v. BioWhittaker, Inc.,

62 the United States District 

Court for the District of Maryland, in the antitrust context, found that a plaintiff’s request 

for lost profits related to the production of a pharmaceutical ranging between $60 and $95 

million, even before trebling, was too speculative. In so holding, the District Court stated 

that “for the damages to be of the amount claimed (or any amount for that matter), one 

must assume that [the p]laintiff would have successfully secured a manufacturing facility, 

obtained FDA approval, developed the [drug’s essential protein enzyme] in commercial 

quantities, and marketed the product during the relevant time frame.”63 Because the court 

concluded that the plaintiff failed to present evidence of damages “with a sufficient 

degree of certainty,” it granted summary judgment.64

 60 Id. at 1345 (internal citation omitted). See also Schonfeld v. Hilliard, 218 F.3d 164, 172 (2d 

Cir. 2000) (explaining that under New York law, “evidence of lost profits from a new business 

venture receives greater scrutiny because there is no track record upon which to base an 

estimate”) (citing Kenford Co., Inc. v. Erie Cnty., 493 N.E.2d 234, 235 (N.Y. 1986)).

61 Id. at 1346. In AlphaMed, the plaintiff failed to prove the fact of damages, i.e., that it would 

have earned a profit (of any amount) but for the defendant’s conduct.

62 172 F. Supp. 2d 680 (D. Md. 2000), aff’d, 11 F. App’x 279 (4th Cir. 2001).

63 Id. at 698. 

64 Id. at 699.
16

Further, this Court has recognized the desirability of maintaining symmetry of 

laws in important areas.65 In SIGA I, we acknowledged that there were two enforceable, 

relevant contracts. We stated that “[t]he promise to negotiate in good faith for a 

definitive license agreement in accordance with the LATS’s terms [was] expressly 

included in both the Bridge Loan and Merger Agreements.”66 The Bridge Loan 

Agreement was governed by New York law67 and the Merger Agreement was governed 

by Delaware law.68 The asymmetry between New York and Delaware law, now 

enhanced by the Majority’s Opinion, is undesirable, particularly since it is common for 

financing agreements to be governed by New York law, and for merger and other related 

transaction agreements to be governed by Delaware law.

II. ERRONEOUS RELIANCE ON POST-BREACH EVIDENCE

The Court of Chancery erroneously looked to post-breach evidence to determine 

what the parties’ expectations were at the time of the breach seven years earlier. Such 

evidence included the award of the BARDA contract in 2011, several years after the 

breach, despite the reality that BARDA is a government agency that did not come into 

existence until the day before the breach. The trial court then decided that sales of ST246 would have begun in 2010, ignoring the undisputed fact that it was first delivered in 

 65 See Stewart v. Wilmington Trust SP Servs., Inc., 2015 WL 6672222, at *2 (Del. Nov. 2, 2015) 

(discussing the beneficial impact of synchronizing laws of “sister states, such as New York, 

whose laws are often involved in situations involving Delaware corporations”). Harmonizing the 

laws of sister states is useful where, as here, we adopt a portion of the sister state’s law as our 

own. 

66 SIGA I, 67 A.3d at 348.

67 A147 (Bridge Loan Agreement § 7.11).

68 A273 (Merger Agreement § 13.5).
17

2013. Further, in the model adopted by the Court of Chancery, the calculation of 

damages is extremely sensitive to changes in the timing of ST-246 sales.69

Uncertainty with respect to the success of the project, the occurrence of 

contingencies, and the extent of the profits to be gained, if any, were the basis of the 

Court of Chancery’s 2011 determination that calculating expectation damages was 

“speculative and too uncertain, contingent, and conjectural.”70 As the Court of Chancery 

then ruled, the fact of damages was even uncertain: “The evidence adduced at trial 

proved that numerous uncertainties exist regarding the marketability of ST-246 and that it 

remains possible that it will not generate any profits at all.”71 The following chart 

illustrates that the trial court’s consideration of post-breach evidence reversed this 

important conclusion:

The trial court’s view in 

2011 of the fact of 

damages

The trial court’s 

consideration of postbreach evidence

The trial court’s 2014 view of 

the fact of damages

“The evidence adduced at 

trial proved that 

numerous uncertainties 

exist regarding the 

marketability of ST-246 

and that it remains 

possible that it will not 

“[S]ince I issued the PostTrial Opinion, SIGA has been 

awarded a contract to sell ST246 to the United States 

government via BARDA. The 

parties dispute the extent to 

which I can and should 

“Having considered the 

competing arguments and 

relevant case law, I have decided 

that this Court should take note of 

SIGA’s success in procuring a 

contract with BARDA (i.e., its 

actual commercialization of ST-

 69 In 2011, by contrast, the trial court had found that “[t]he disparity of outcomes between, on the 

one hand, the Basis I and 2009 Basis II models and, on the other hand, the 2010 Basis II model 

highlights the inherently speculative nature of Baliban’s damages calculations.” PharmAthene I, 

2011 WL 4390726, at *37 n.224 (“With the benefit of slightly more current information, 

PharmAthene’s estimated damages diminished by over $600 million, or more than 50%.”). The 

trial court, specifically, had found Baliban’s analysis to be too speculative due to its sensitivity to 

the timing of sales. See id. (“[W]ere sales to commence one year later than assumed . . . the 

ultimate damages amount would decrease by over $90 million, a decrease of over 20%.”).

70 Id. at *37.

71 Id. 
18

generate any profits at 

all.”72

consider an event such as this, 

which occurred several years 

after SIGA’s bad faith 

breach.”73

246). In particular, that fact 

mitigates or possibly eliminates 

some of the concerns I expressed 

in the Post-Trial Opinion 

regarding ST-246’s future 

prospects, including the 

possibility that the drug might not 

generate any profits at all.”74

That the Court of Chancery came to the opposite conclusion in 2014 suggests that it gave 

undue weight to evidence of ST-246’s performance in the intervening years. The future 

performance of ST-246 could not have been known to the parties at the time of breach. 

The Majority holds that the Court of Chancery properly “recognized that postbreach evidence could be used ‘in order to aid in its determination of the proper 

expectations as of the date of the breach,’ but relied on such evidence ‘sparingly.’”75 

Yet, the chance in 2006 of an event occurring years later is not altered by subsequent 

knowledge that the event did or did not occur.

Moreover, consideration of post-breach information in the chart below—although 

this is admittedly “20/20 hindsight”—only illustrates the speculative nature of 

PharmAthene’s claimed expectation damages and highlights the unreliability of crafting 

an award of damages based on the expectations of parties in cases such as this:

 72 Id. 

73 PharmAthene II, 2014 WL 3974167, at *6.

74 Id. (citation omitted).

75 Maj. Op. at 47 (citing PharmAthene II, 2014 WL 3974167, at *9).
19

Court of Chancery 

Factors76

PharmAthene’s 2006 and 2009 

Assumptions77

Eventual Result78

The likelihood that ST-246 

would be sold 

commercially.

84% probability of FDA 

approval, forecasted to occur in 

2012.

No FDA approval, and no 

indication of when or if FDA 

approval will occur.

When such sales were 

likely to begin.

Between 2008 and 2011. First delivery in 2013.

The price at which ST-246 

would be sold.

$100 per course79 At least $180 per course80

under the BARDA contract.

The quantity of ST-246 

that would be sold.

Sales to the Strategic National 

Stockpile of between 14.778 

million and 18.9 million courses 

of treatment; sales to the 

Department of Defense of 

between 250,490 and 600,460 

courses of treatment; and sales to 

the rest of the world of between 

14.778 million to 17.2 million 

courses of treatment.

1.7 million courses of 

treatment under the BARDA 

contract;81 no sales to the 

Department of Defense; and 

no sales to the rest of the 

world.

The Court of Chancery recognized in 2011 that expectation damages were likely 

speculative because the legislation enacting BARDA was less than a day old at the time 

of breach and “predictive models for regulatory success [were] difficult to come by for 

ST-246 both because there [were] no other treatments for smallpox to compare it to and 

 76 PharmAthene II, 2014 WL 3974167, at *10-18.

77 Unless otherwise indicated, these figures are drawn from the assumptions made by 

PharmAthene expert Jeffrey L. Baliban in his “Basis I” and “Basis II” damages estimates. 

Baliban conducted a discounted future earnings analysis on two different bases, “forecasting 

over a ten-year period the earnings PharmAthene would have received under a license for ST246 consistent with the terms of the LATS. . . . Basis I employed data inputs derived from 

information the parties knew as of December 2006, and Basis II updated those inputs to account 

for new information the parties had learned as of a date shortly before trial.” PharmAthene I, 

2011 WL 4390726, at * 36. The trial court, on remand, considered some information from the 

Basis II scenario, using facts known as of November 2009—almost three years post-breach. 

PharmAthene II, 2014 WL 3974167, at *9 n.45. SIGA’s expert, Keith R. Ugone, opined in his 

2009 expert report that an 84% probability of success was “too high,” and that, in view of the 

“developmental stage and regulatory uncertainties associated with ST-246,” forecasted sales 

beginning in 2008 under Basis I and 2010 under Basis II were “highly uncertain and 

unreasonable.” AR613-14. 

78 The eventual result is current as of December 2013. See A808.

79 PharmAthene II, 2014 WL 3974167, at *14.

80 Id. at *14 n.66.

81 PharmAthene II, 2014 WL 3974167, at *12.
20

very few drugs have been approved under the Animal Efficacy Rule[.]”82 Also, based 

upon the trial record, the Court of Chancery in 2011 denied expectation damages as 

impermissibly speculative in part because “ST-246 might [have] never receive[d] FDA 

approval, there [were] no guaranteed purchasers of ST-246, and research delays or 

problems in animal trials might [have] prevent[ed] ST-246 from reaching a viable market 

in a timely fashion[,]”83 and, as of April 2010, “no final contract with BARDA yet 

existed.”84 I believe that the trial court’s reliance on post-breach evidence to resolve 

uncertainties that it had previously ruled were fatally speculative was error.

III. THE WRONGDOER RULE

The Court of Chancery relied on the so-called “wrongdoer rule” to resolve, or 

compensate for, uncertainties in establishing damages payable by SIGA. In doing so, the 

Court of Chancery erroneously used SIGA’s breach of its duty to negotiate a commercial 

contract in good faith as a basis to relieve PharmAthene of its duty to prove nonspeculative damages. 

While I agree with the Majority’s conclusion that the fact of damages must be 

proven with reasonable certainty, I disagree with its holding that the amount of damages 

does not have to be proven with reasonable certainty.85 Here, the Majority observes that 

 82 PharmAthene, Inc. v. SIGA Techs., Inc., 2010 WL 4813553, at *11 n.64 (Del. Ch. Nov. 23, 

2010).

83 PharmAthene I, 2011 WL 4390726, at *31.

84 Id. at *37 n.224.

85 See Cole v. Homier Distrib. Co., Inc., 599 F.3d 856, 864 (8th Cir. 2010) (“[A] plaintiff in a 

contract action generally has the burden of proving ‘the existence and amount of . . . damages 

with reasonable certainty.”) (citation omitted) (emphasis added); Schonfeld, 218 F.3d at 172 (“In 

an action for breach of contract, a plaintiff is entitled to recover lost profits only if he can 
21

where the fact of damages has been proven, less certainty is required to establish the 

amount of damages. It then adds that “where the wrongdoer caused uncertainty about the 

final economics of the transaction by its failure to negotiate in good faith, willfulness is a 

relevant factor in deciding the quantum of proof required to establish the damages 

amount.”86 Even if mathematical precision is not required to establish the amount of 

damages and even if reasonable estimates are permissible, I believe the Majority 

understates the level of certainty required for an award of expectation damages,87 and 

then compounds the error by relying on the wrongdoer rule to lessen the burden of proof 

and sanction an award of speculative damages. 

As we said in SIGA I, lost profits damages must be proved with reasonable 

certainty.88 “The general rule, followed in Delaware law and elsewhere, is that future lost 

profits must be established by ‘substantial evidence’ and not by speculation.”89 Thus, 

 

establish both the existence and amount of such damages with reasonable certainty.”) (citing 

Kenford Co., 493 N.E.2d at 235) (emphasis added); Summit Props. Int’l, LLC v. Ladies Prof’l 

Golf Ass’n, 2010 WL 2382405, at *2 (S.D.N.Y. June 14, 2010) (“In order to recover loss of 

future profits as damages for breach of contract under New York law, the plaintiff must establish 

the existence and the amount of lost profits with reasonable certainty . . . .”) (citing Schonfeld, 

218 F.3d at 173) (emphasis added); Am. Commc’ns Network, Inc. v. Steuben Assocs., 2005 WL 

1355070 (E.D. Mich. Apr. 5, 2005) (“In general, damages must be proved by the plaintiff by 

establishing both the existence and amount of such damages with reasonable certainty.”) 

(citation omitted).

86 Maj. Op. at 44 (collecting cases).

87 See 5 CORBIN ON CONTRACTS § 1022 (Rev. ed. 1964) (“[T]he term ‘speculative and uncertain 

profits’ is not really a classification of profits, but is instead a characterization of the evidence 

that is introduced to prove that they would have been made if the defendant had not committed a 

breach of contract. The law requires that this evidence shall not be so meager or uncertain as to 

afford no reasonable basis for inference . . . .”).

88 SIGA I, 67 A.3d at 351 n.99. See also Chrysler Corp. v. Quimby, 144 A.2d 123, 139 (Del. 

1958). 

89 Agilent Techs., Inc. v. Kirkland, 2010 WL 610725, at *29 n.271 (Del. Ch. Feb. 18, 2010) 

(quoting Mobile Diagnostics, Inc. v. Lindell Radiology, P.A., 1985 WL 189018, at *4 (Del. 
22

while estimates are permissible, the calculus for such estimates must exclude evidence 

founded upon speculation or conjecture, and rely, instead, on reasonably certain evidence 

which enables the factfinder to determine estimated expectancy damages.

Accordingly, I believe that the trial court’s and the Majority’s application of the 

wrongdoer rule to compensate for the lack of requisite certainty is error. The Majority, 

for example, relies on Beard Research, Inc. v. Kates90 for the proposition that if the 

plaintiff can prove the fact of damages with reasonable certainty, the amount of damages 

can be an estimate that is not reasonably certain.91 Beard Research is distinguishable, in 

that the case involved misappropriation of trade secrets, breach of fiduciary duty, aiding 

and abetting a breach of fiduciary duty, tortious interference with contractual relations, 

and tortious interference with prospective business relations. That is to say, Beard 

Research was not a case that centered on a breach of contract, let alone a breach of a 

preliminary agreement. “Courts have traditionally required greater certainty in the proof 

of damages for breach of a contract than in the proof of damages for a tort.”92 In SIGA I, 

we instructed that the trial court “must look to the contract as the source of a remedy on 

the breach of an obligation to negotiate in good faith.”93 Further, while the Beard 

 

Super. July 29, 1985) (“The general rule is that loss of future profits must be established by 

substantial evidence and can’t be left to speculation.”); Re v. Gannett Co., Inc., 480 A.2d 662, 

668 (Del. Super. 1984), aff’d, 496 A.2d 553 (Del. 1985) (“Courts have required that loss of 

future profits be established by substantial evidence and not be left to speculation.”) (internal 

citations omitted)).

90 Beard Research, Inc. v. Kates, 8 A.3d 573 (Del. Ch. 2010), aff’d sub. nom., ASDI, Inc. v. 

Beard Research, Inc., 11 A.3d 749 (Del. 2010).

91 Maj. Op. at 4, 25, 43, 44. 92 RESTATEMENT (SECOND) OF CONTRACTS ch. 16, topic 2, § 352, cmt. a (1981).

93 SIGA I, 67 A.3d at 348. 
23

Research court observed that “‘[t]he quantum of proof required to establish the amount of 

damage is not as great as that required to establish the fact of damage[,]’”94 the court’s 

immediately succeeding qualifier with respect to the required certainty of damages states: 

“Nevertheless, when acting as the fact finder, [the Court of Chancery] may not set 

damages based on mere ‘speculation or conjecture’ where a plaintiff fails to adequately 

prove damages.”95 

The Majority relies upon Delaware Express Shuttle, Inc. v. Older96 for the same 

proposition. Like Beard Research, Delaware Express involved claims of 

misappropriating trade secrets and breach of fiduciary duties, in addition to claims with 

respect to breach of a non-competition agreement, defamation, and tortious interference 

with existing and prospective business relationships. The plaintiff sought injunctive 

relief as well as damages. The court entered an injunction and awarded damages of “only 

$6,000.”97 As in Beard Research, the Court of Chancery acknowledged in Delaware 

Express that “[t]he law does not require certainty in the award of damages where a wrong 

has been proven and injury established. Responsible estimates that lack mathematical 

certainty are permissible so long as the court has a basis to make a responsible estimate of 

 94 Beard Research, 8 A.3d at 613 (citation omitted) (alteration in original).

95 Id. (quoting Medek v. Medek, 2009 WL 2005365, at *12 n.78 (Del. Ch. July 1, 2009)). The 

Majority also cites to 24 WILLISTON ON CONTRACTS § 64:9 (4th ed. 2000) for the proposition that 

“it is now well established that the uncertainty that prevents recovery is uncertainty as to the fact 

of damage and not as to its amount.” Williston’s immediately succeeding qualifying language, 

however, provides: “In other words, where substantial damage has been suffered, the 

impossibility of proving its precise amount provides no basis for denying the recovery of 

substantial damages altogether.” Id. (citations omitted). Indeed, damages need not be denied 

merely because the plaintiff cannot establish their exact amount, but that is not to say, as the 

Majority suggests, that damages may be awarded based on speculative estimations. 

96 2002 WL 31458243 (Del. Ch. Oct. 23, 2002).

97 Id. at *1.
24

damages.”98 But, in the immediately succeeding sentence, the court reiterated that 

“[s]peculation is an insufficient basis” for an award of damages.99 Further, the court 

rejected the plaintiff’s argument that any uncertainties must be resolved against the 

defendants as wrongdoers.100 

This Court’s decision in Duncan v. Theratx, Inc.101 illustrates that uncertainties not 

attributed to the wrongdoer in a breach of contract case should be excluded from the 

damages calculus. There, the defendant’s breach of a merger agreement caused a 

temporary restriction on the ability of certain stockholders to sell their shares. The 

uncertainty in calculating damages—“‘what the plaintiff[s] would have done with [their] 

securities had they been freely alienable’”—was caused by the breach.102 The court 

calculated damages based upon the difference between the “highest intermediate price” 

achieved while the restriction was in effect and the average price during the period 

immediately after the restriction was lifted, in order to approximate the effect on share 

values caused by the restriction. Notably, the court rejected a calculation of damages 

based on the actual price later obtained for the plaintiffs’ stock—or, for the plaintiffs who 

retained their shares, the trading price at the time of trial—because such an approach 

would shift to the defendant the risk of fluctuations in the stock price that were not 

 98 Id. at *15 (internal quotations omitted) (citation omitted).

99 Id. (internal quotations omitted) (citation omitted). 

100 Id. at *15 n.88.

101 775 A.2d 1019 (Del. 2001).

102 Id. at 1023 (quoting Am. Gen. Corp. v. Cont’l Airlines Corp., 622 A.2d 1, 10 (Del. Ch. 

1992)).
25

correlated with the breach. Thus, the award in Duncan was tailored to the scope of the 

injury caused by the breach, and it excluded uncertainties caused by external factors. 

Risks of uncertainty concerning future events that are “impossible to know” do not 

shift to the defendant in a breach of contract case.103 Here, the uncertainties that bar 

expectation damages were caused by neither SIGA nor its breach. Rather, they were the 

result of the same externalities and third-party decisions that compelled the Court of 

Chancery to find such damages to be too speculative in 2011. These uncertainties 

include: (i) whether, when, or how FDA approval would be achieved; (ii) feasibility and 

cost of manufacturing; (iii) potential toxicities; (iv) whether or when sales would occur 

and the amount of such sales; and (v) the state of the economy, which has limited 

government spending on biological threat countermeasures. SIGA’s bad faith conduct 

does not absolve PharmAthene of its burden to prove expectation damages with 

reasonable certainty.

IV. CONCLUSION

SIGA I allowed for the theoretical availability of expectation damages for breach 

of a preliminary agreement. It added the important qualifier that such damages must be 

established with reasonable certainty. Such requirement is presently firmly grounded not 

only in New York and California law, but in Delaware’s as well. In my view, the 

Majority erodes the “reasonable certainty” requirement by applying a “presumption that 

doubts about the extent of damages are generally resolved against the breaching party” to 

 103 See id. at 1023-24 (citing Madison Fund, Inc. v. Charter Co., 427 F. Supp. 597, 608 

(S.D.N.Y. 1977)).
26

the point of speculation, and then taking “into account the willfulness of the breach” in a 

manner that imposes responsibility on SIGA for uncertainties beyond those that it 

caused.104 

I believe that this Court’s remand instructions in SIGA I were unclear, perhaps 

prompting the trial court to interpret them in a fashion that essentially ignores the 

important qualifier regarding the standard of proof.105 Consequently, it applied the 

analytical framework borrowed from New York law, without properly accounting for the 

concomitant limitations on expectation damages, including the requirement that they be 

established with reasonable certainty. The Majority states that the Dissent’s “main 

dissatisfaction is with SIGA I and the rule it adopted permitting the recovery of 

expectation damages for bad faith breach of Type II agreements.”106 The Majority is 

incorrect. I do not believe that SIGA I’s adoption of New York’s analytical framework

with respect to preliminary agreements was error. Rather, I respectfully suggest that it is 

the Majority’s application of SIGA I that is problematic for the reasons expressed herein.

 104 Maj. Op. at 43. 105 The Majority Opinion suggests that the remand instructions were clear because they 

instructed the trial court to “determine anew whether expectation damages should be awarded” 

and to “reconsider the helpfulness of expert testimony directed to expectation damages.” Id. at 

56. But the trial court, perhaps understandably, appears to have interpreted the instructions as a 

hint that this Court believed that expectation damages were likely available. Yet, this Court, in 

SIGA I, expressly stated that it was not reaching the question of whether such an award “would 

be too speculative.” SIGA I, 67 A.3d at 353. Since we made clear in footnote 99 of SIGA I that 

an award of expectation damages “presupposes that the plaintiff can prove damages with 

reasonable certainty,” the remand instructions, to the extent they suggested that an award of 

expectation damages would likely be available, are inconsistent with SIGA I’s recognized need to 

reach the issue of speculation first—which this Court expressly did not do. Id. at 351 n.99. 

106 Maj. Op. at 56.
27

I appreciate that the trial court, having fashioned two remedial orders, should not 

be asked to act again to fashion a third remedial order. Nor should the parties be delayed 

further in obtaining a final resolution in this long-running dispute. But to further push 

our law in the wrong direction and out of alignment with other major commercial 

jurisdictions is a more significant error, and one which has far greater consequences than 

the impacts felt by the parties in this case alone. I would prefer that this Court accept 

responsibility for its less-than-clear guidance to the trial court in fashioning a remedial 

order on remand.

I would vacate this Court’s prior order and remand with an instruction that, based 

upon this record, expectation damages for breach of this Type II preliminary agreement 

are “speculative and too uncertain, contingent, and conjectural[,]”107 and, as a 

consequence, only reliance damages are available.108

 107 PharmAthene I, 2011 WL 4390726, at *37 (citing PharmAthene, Inc. v. SIGA Techs., Inc., 

2010 WL 4813553, at *11 (Del. Ch. Nov. 23, 2010)).

108 The Majority states that the Court of Chancery found that reliance damages “would be no 

remedy at all for SIGA’s bad faith breach.” Maj. Op. at 56 (citation omitted). In fact, the trial 

court stated that, “[b]ased on the evidence presented at trial . . . reliance damages here appear to 

be in the range of only about $200,000, a nominal sum relative to PharmAthene’s claimed 

damages of hundreds of millions of dollars.” PharmAthene II, 2014 WL 3974167, at *6 n.29. 

SIGA maintains that PharmAthene made a strategic decision not to proffer any evidence of 

reliance damages at trial. The record reflects that, on remand, PharmAthene predominantly 

sought lump sum expectation damages as relief. Compare PharmAthene’s Pre-Trial Br. on 

Remand at B638 (urging that PharmAthene is entitled to its “expectation and not simply its 

reliance interest”), with PharmAthene’s Post-Hearing Response Br. at B715 (same), and SIGA’s 

Op. Br. on Remand at A817 (“If the only reliance damages in the record are de minimis (SIGA 

contends they are not), it is the consequence of a strategy PharmAthene adopted in an effort to 

press the Court [of Chancery] to make an inappropriately larger award.”). The Majority also 

claims SIGA is “poorly positioned” to argue that the parties’ expectations at the time of breach 

were too speculative. Maj. Op. at 54. As support, it points to SIGA’s internal valuations of ST246, which ranged from $3 billion to $5 billion. Id. Yet, its affirmance of a lump sum award of 
28

For the foregoing reasons, I respectfully DISSENT.

 

$113 million undercuts the credibility of those valuations as a tool to appropriately measure 

damages.