Firm Highlight: Delaware Court of Chancery Finds Breach of Fiduciary Duty and Awards Our Client $1.85 Million of  Equitable Restitution in Complex Governance Dispute

Shustak Reynolds & Partners, P.C. served as counsel to plaintiffs Neem International CV and ALJ Holdings, Ltd. in Neem International CV, et al. v. Vadim Shulman, et al., C.A. No. 2022-0187-LWW, a corporate governance and breach of fiduciary duty action decided by the Delaware Court of Chancery on December 31, 2025. The plaintiffs, two Series E-1 preferred stockholders of Pathway Genomics Corporation, a San Diego-based genetic testing company, brought direct and derivative claims against Vadim Shulman, a controlling stockholder and de facto director who seized control of the company’s board and stripped Pathway of its assets to the detriment of its preferred stockholders. The litigation arose from Shulman’s unauthorized extension of millions of dollars in convertible notes to the company, his direction that officers pledge substantially all of Pathway’s assets as collateral without board approval, and his acquisition of those assets through a foreclosure sale in which he was the sole bidder.

Partner Paul A. Reynolds led the plaintiffs’ litigation strategy throughout this multi-year Delaware Chancery Court action, serving alongside Delaware co-counsel from Morris, Nichols, Arsht & Tunnell LLP and Wilks Law, LLC. The case proceeded through a five-day trial with sixteen fact and expert witnesses and a record of more than 500 joint exhibits and seventeen deposition transcripts, followed by post-trial briefing, oral argument, and supplemental submissions the Vice Chancellor requested on the authorization of the challenged notes and security agreements. Facing a threshold standing challenge arising from Pathway’s void corporate status and thirteen counts spanning derivative and direct theories, Mr. Reynolds concentrated the trial presentation on the plaintiffs’ direct claim for breach of their liquidation preference rights, a strategic focus that proved decisive once the derivative counts fell away, and he overcame defenses invoking board independence and the commercial reasonableness of the foreclosure process to secure a finding of liability on that theory.

The result was a significant vindication of the plaintiffs’ rights in a case where most avenues for recovery had been foreclosed. Although the court found the plaintiffs lacked derivative standing on the majority of their claims because Pathway’s charter had become void for unpaid franchise taxes, and rejected two of their three remaining direct claims, it ruled in the plaintiffs’ favor on the claim Mr. Reynolds had prioritized: that Shulman breached his duty of loyalty by impairing their contractual liquidation preference rights through the foreclosure sale. The Vice Chancellor held that Shulman’s advances to the company were properly recharacterized as equity rather than debt, meaning he had no legitimate right to credit bid for Pathway’s assets, and that the entire foreclosure process failed the entire fairness standard applicable to conflicted controlling-stockholder transactions. As a result, the court awarded the plaintiffs equitable restitution of $1,849,437.93, plus pre- and post-judgment interest accruing from January 22, 2020, and expressly preserved the plaintiffs’ right to separately seek recovery of their attorneys’ fees.

This outcome is particularly noteworthy given the complexity of the underlying facts. The court itself described a “governance vacuum in which a conflicted fiduciary dominated the company’s affairs to an extraordinary degree,” featuring manufactured board resolutions, forged stockholder correspondence, and a foreclosure auction that was, in the court’s words, “a foregone conclusion.” Shustak Reynolds overcame a purported debt claim exceeding $25 million, a corporate defendant rendered void by tax delinquency, and a complex debt-versus-equity recharacterization analysis to secure a finding of fiduciary breach and a meaningful equitable remedy for its clients.

This result reflects the depth of Shustak Reynolds & Partners’ capabilities in complex, multi-jurisdictional corporate governance and fiduciary duty litigation. Mr. Reynolds’ disciplined focus on the plaintiffs’ strongest theory, sustained through trial and a demanding standing challenge, secured a meaningful recovery for stockholders whose rights had been systematically undermined, and reflects the firm’s sustained commitment to rigorous, sophisticated advocacy on behalf of clients facing entrenched and well-resourced opposition.