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Superior Court Allows Expert Testimony On "Materiality" When Not An Ultimate Issue

Mizel v. Xenonics, Inc., 2008 WL 116203 (Del. Super. Jan. 11, 2008).

This decision addresses the question of whether an expert can testify as to materiality under the securities laws. The moving party argued that materiality was an ultimate issue in this breach of contract action and thus could not be the subject of expert testimony, citing Hill v. Equitable Banks, 1987 WL 8953 (D. Del. 1987), a case in which the ultimate issue was whether certain alleged misrepresentations and omissions were material. 

The court, however, distinguished this case from Hill, finding that materiality was not the core question before the jury. The critical issue was whether the plaintiff, a warrant holder, was prevented from exercising his purchase rights—a fact the company denied completely.   

The expert testimony on materiality was being offered to explain the rationale for why the company denied his purchase rights: allowing him to exercise his warrant at such a low price would have jeopardized a significant financial restructuring, where investors would pay more per share. The low exercise price would have been a material fact under the securities laws and would have to be disclosed to other purchasers, who were paying more as part of the restructuring and would have been upset by the discrepancy. 

The court allowed the expert testimony as it would assist the jury in weighing the credibility of the company and its claim that it did not deny the warrant holder’s purchase rights.     

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