Delaware Federal Court Discusses the Duty to Negotiate

Since SIGA Technologies Inc. v. PharmAthene Inc. (Del. 2013), the duty to negotiate in good faith is well recognized in Delaware, but it is not as clear when exactly that duty arises. On December 2, 2013, in Osco Motors Company, LLC v. Marine Acquisition Corp., the Delaware district court explained how the duty is created and distinguished Delaware law from New York law. The court distinguished between the express, contractual duty of good faith, created through the parties’ agreement (such as in a letter of intent, as long as such provision is binding), and the implied covenant of good faith and fair dealing, created by statute and implied in parties’ agreements (which must be separately claimed).

In addition, the court disagreed with the defendants’ claim that they did not violate the confidentiality agreement because they used the confidential information, but did not disclose the information. The court confirmed the standard from Martin Marietta Materials, Inc. v. Vulcan Materials Co., that “confidentiality agreements are intended and structured to prohibit both the use and disclosure of confidential, nonpublic information, unless the parties agree otherwise.”