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CALIFORNIA CORPORATE & SECURITIES LAW

Choosing Delaware, Instead Of California Law, May Prove Very Costly Indeed!

Last spring, I had the pleasure of meeting Delaware Supreme Court Justice Karen Valihura when we were speaking at the Los Angeles County Bar Association’s annual Delaware & California Law Update.  Given her visit to California, I was interested in her mention of California law in SIGA Techs., Inc. v. Pharmathene, Inc., 2015 Del. LEXIS 678 (Del. Dec. 23, 2015).  The majority, in a an opinion written by Collins J. Seitz, Jr.,  found that the Court of Chancery did not abuse its discretion when it awarded one party expectation damages for bad faith breach of a contractual obligation to negotiate a license.  In concurring in part and dissenting in part, Justice Valihura remonstrated that the majority had placed “Delaware out of step with other major commercial jurisdictions”.  In support of her position, she argued that California courts have consistently declined to award and that New York courts disfavor expectation damages for breach of a preliminary agreement.

The case highlights how important choice of law might be.  The Delaware Court of Chancery awarded $113 million in contract expectation damages.  Thus, the choice of Delaware law could be an extremely costly one.  According to Justice Valihura, the promise to negotiate was included in both a financing agreement governed by New York law and a merger agreement governed by Delaware law.

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