An imprecise materiality scrape can significantly expand the scope of a seller’s potential liability for indemnification and fraud claims. In a recent opinion, the Delaware Superior Court, applying a materiality scrape, held that the seller breached its absence of changes representation that no event had occurred that had or reasonably could have an “adverse effect” (as opposed to a material adverse effect) on the acquisition target. This Legal Update examines in detail the Court’s analysis of the purchase agreement and its application of the materiality scrape and discusses considerations for parties when negotiating materiality scrape provisions.
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