In the late-night negotiations where redlines are passed back and forth on representations and warranties in definitive M&A agreements, investment bankers and advisors alike might glaze over the materiality qualifier in all material respects. They should not.
In Shareholder Representative Services, LLC v. Alexion Pharmaceuticals, Inc., C.A. No. 2020-1069-MTZ, Vice Chancellor Zurn ruled on May 27, 2026 that a target in an acquisition by merger breached one of its fundamental representations and was thereby required to pay $11MM in indemnification to the buyer. Zurn’s analysis turned, in part, on the standard of materiality.
Buried in the opinion is a fascinating nugget where the court distinguished in all material respects from material breach. The former is “ ‘less onerous’ for the party asserting breach than the common law material breach standard.” What this means in practice is that the phrase in all material respects has a lower threshold than material breach. Material breach is context dependent but generally rises to the level of a dealbreaker that excuses the counterparty’s performance. By contrast, in all material respects excludes “small, de minimis, [or] nitpicky issues,” but everything else can be fair game.
In this case, the target represented to the following, that the acquired drug materials:
… at all times have been, developed, tested, labelled,
manufactured, stored, imported, exported, and distributed, as applicable,
in compliance in all material respects with the FDCA and applicable
implementing regulations issued by the FDA, the EMA, and any other
applicable Governmental Entities, including, as applicable, those
requirements relating to the FDA’s current good manufacturing
practices, good laboratory practices, good clinical practices,
investigational use, pre-market approval, and applications to market a
new pharmaceutical product, except as disclosed on Section 4.13(a) of
the Disclosure Schedule.
The court found that the target’s faulty manufacturing processes were not “small, de minimis, [or] nitpicky.” Essentially, if the target had used the words material compliance rather than compliance in all material respects, the standard would have been a higher bar for the court to cross.
Jerome Fogel is co-founder of Fogel & Potamianos LLP, a firm recognized by Chambers & Partners’ California Spotlight Guide for excellence in corporate law. A partner in the Corporate Practice Group and Chair of the Sports & Entertainment Group, he is known as an innovator and dealmaker in the legal community. He serves as a general counsel to privately held companies, including representation in mergers and acquisitions.
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