Neem International CV v. Vadim Shulman

Opinion

COURT OF CHANCERY OF THE STATE OF DELAWARE LORI W. WILL LEONARD L. WILLIAMS JUSTICE CENTER VICE CHANCELLOR 500 N. KING STREET, SUITE 11400 WILMINGTON, DELAWARE 19801-3734

July 30, 2026

Thomas W. Briggs, Jr., Esquire Jonathan M. Stemerman, Esquire Lauren K. Neal, Esquire Armstrong Teasdale LLP Morris, Nichols, Arsht & Tunnell LLP 1007 North Market Street, 1201 North Market Street 3rd Floor Wilmington, Delaware 19801 Wilmington, Delaware 19801

Scott B. Czerwonka, Esquire Wilks Law, LLC 4250 Lancaster Pike, Suite 200 Wilmington, Delaware 19805

RE: Neem International CV et al. v. Vadim Shulman et al., C.A. No. 2022-0187-LWW

Dear Counsel:

This letter opinion addresses the plaintiffs’ motion for attorneys’ fees, costs,

and expenses against defendant Vadim Shulman. The plaintiffs invoke the bad

faith exception to the American Rule. Shulman opposes the motion, arguing that

the exception does not apply and that the fees sought are disproportionate to the

plaintiffs’ limited success. For the reasons that follow, the motion is granted in

part.

July 30, 2026 Page 2 of 11

I. RELEVANT BACKGROUND

The background of this dispute is detailed in my December 31, 2025

Post-Trial Memorandum Opinion.1 Pathway Genomics Corporation was a

once-promising startup that fell into financial distress.2 Shulman, its largest

outside investor, moved from a passive role to taking over the company—

including its management and board of directors.3 He purportedly loaned millions

of dollars to the company through convertible notes and directed corporate officers

to sign security agreements collateralizing those notes with substantially all of the

company’s assets.4 These actions were taken without board approval, rendering

the debt unauthorized and unenforceable.5

As the company’s financial position worsened, Shulman staged an Article 9

foreclosure sale.6 He and his personal counsel sidelined independent directors,

populated the board with loyalists and patsies, manufactured approvals, and forged

1 Post-trial Mem. Op. (Dkt. 295) (“Mem. Op.”).

2 Id. at 1, 3-9.

3 Id. at 1, 5-9.

4 Id. at 9-12, 17-18.

5 Id. at 55-58, 60.

6 Id. at 27-32.

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letters to stockholders.7 At the conclusion of the auction, an entity owned by

Shulman acquired Pathway’s assets via a credit bid of the invalid debt, wiping out

the plaintiffs’ contractual liquidation preferences.8

The plaintiffs filed this action in February 2022 and advanced thirteen

claims against Shulman and other defendants.9 After trial, I found in favor of the

defendants on the plaintiffs’ ten derivative claims because Pathway’s corporate

charter was void due to unpaid franchise taxes, which deprived the plaintiffs of

standing to sue on the entity’s behalf.10 I found in favor of the plaintiffs on their

direct claim for breach of the liquidation preference in Pathway’s certificate of

incorporation.11 I also concluded that Shulman caused Pathway to commit that

breach through bad-faith conduct in violation of his duty of loyalty.12 The

plaintiffs were awarded equitable restitution of $1,849,437.93, representing their

ratable share of the distributable assets.13

7 Id. at 53-54, 58-59.

8 Id. at 31-32.

9 Verified Compl. for Breach of Fiduciary Duties (Dkt. 1).

10 Mem. Op. 35-36.

11 Id. at 49-50.

12 Id. at 66.

13 Id. at 74-77.

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The plaintiffs then filed the present motion, seeking $3,530,230.80 in

attorneys’ fees and expenses.14 Shulman opposes the motion.15

II. ANALYSIS

Under Delaware law, the American Rule serves as the baseline, meaning that

litigants are generally expected to bear their own attorneys’ fees.16 The court may

depart from this default under recognized exceptions, including when a party

engages in bad-faith conduct.17 The bad faith exception allows the court to shift

fees in “extraordinary circumstances” to deter abusive behavior and safeguard the

integrity of the judicial process.18 To invoke the exception, the moving party must

demonstrate by “clear evidence” that the opposing party acted in “subjective bad

faith.”19 Satisfying this “more stringent ‘clear evidence’ standard of proof”

14 Pls.’ Mot. for Attys’ Fees, Costs, and Expenses (Dkt. 298) (“Pls.’ Mot.”); see also Pls.’ Reply in Further Supp. of Mot. for Attys’ Fees, Costs, and Expenses (Dkt. 308) (“Pls.’ Reply”). 15 Def.’s Opp’n to Pl.’s Mot. for Attys’ Fees, Costs, and Expenses (Dkt. 306) (“Def.’s Opp’n”). 16 See Montgomery Cellular Hldg. Co. v. Dobler, 880 A.2d 206, 227 (Del. 2005).

17 See Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Est. Fund, 68 A.3d 665, 687 (Del. 2013) (outlining exceptions to the American Rule). 18 Shawe v. Elting, 157 A.3d 142, 149 (Del. 2017) (quoting Montgomery Cellular, 880 A.2d at 227). 19 Id. at 150.

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requires a showing that the conduct was “so fraudulent, frivolous, vexatious,

wanton or oppressive as to amount to egregiousness.”20

Here, the plaintiffs assert that Shulman’s conduct preceding and during this

litigation justifies an award of fees. They have met their heavy burden.

A. Entitlement

The plaintiffs ask that I shift the attorneys’ fees and expenses they incurred

prosecuting this action. They assert that Shulman’s egregious pre-litigation

conduct, along with his obstructive behavior during discovery, satisfies the bad

faith exception to the American Rule.21 I agree. The record provides clear

evidence that Shulman engaged in an extraordinary pattern of subjective bad faith.

Pre-litigation, Shulman’s conduct was not a mere breach of contract, but

extreme disloyalty.22 As detailed in the Memorandum Opinion, he orchestrated a

sham Article 9 sale to acquire Pathway’s assets for his own entity, without regard

to the plaintiffs’ liquidation preferences or his fiduciary duties.23 To execute this

scheme, Shulman and his personal counsel manufactured board approvals through

20 Reagan v. Randell, 2002 WL 1402233, at *3 (Del. Ch. June 21, 2002) (citation omitted). 21 See Pls.’ Mot. ¶¶ 18, 24.

22 See Mem. Op. 55.

23 Id. at 2, 31.

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coercion and fabrication, forged letters to stockholders, and directed corporate

officers to sign clandestine security agreements—bypassing the board.24

Shulman’s bad faith extended into the litigation itself. Rather than concede

the invalidity of the debt or impropriety of the foreclosure process, he forced the

plaintiffs to incur massive costs to uncover the truth. He consistently obfuscated,

resisting discovery to the point of warranting sanctions.25 During his deposition,

for example, he admitted to his evasiveness, testifying that “maybe [he] [was] not

saying the entire truth” because he was “not on a lie detector.”26

Shulman opposes the plaintiffs’ motion by arguing that it is improperly

based on the same conduct underlying the substantive claims. Relying on Versata

Enterprises, Inc. v. Selectica, Inc., he contends that the bad faith exception does

24 Id. at 54, 58-59.

25 Pls.’ Mot. ¶ 24 (citing Dkts. 114, 143); see also Tr. of Oral Arg. and Rulings of the Ct. on Pls.’ Mot. to Compel (Dkt. 127). 26 Pls. Mot. ¶ 24 (quoting Shulman Dep. 11, 33 (Dkts. 247, 248)).

July 30, 2026 Page 7 of 11

not apply to pre-litigation conduct giving rise to a cause of action.27 That case is

inapposite.28

In Versata, the challenged conduct—deliberately triggering a poison pill and

aggressively negotiating a settlement—constituted the factual basis for the

underlying declaratory judgment claim.29 Here, Shulman and his personal counsel

fabricated corporate records, including board minutes and loan materials, to create

a false narrative.30 In contrast to Versata, where the pre-litigation conduct gave

rise to a claim, Shulman’s actions infected the litigation process and forced the

plaintiffs to incur substantial costs to unravel the deception.31 These actions fit

squarely within the bad faith exception.32

27 Def.’s Opp’n ¶¶ 11-12 (citing Versata Enters., Inc. v. Selectica, Inc., 5 A.3d 586, 607 (Del. 2010) (“[T]he bad faith exception . . . ‘does not apply to the conduct that gives rise to the substantive claim itself.’” (citation omitted))). 28 Shulman did not engage with the plaintiffs’ authorities recognizing that sufficiently egregious pre-litigation conduct may support fee shifting. See Pls.’ Reply ¶¶ 1, 3-4; see also Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are deemed waived.”). 29 Versata, 5 A.3d at 607-08.

30 Mem. Op. 58-59.

31 See Versata, 5 A.3d at 607-08; see also Star Am. Rail HoldCo, LLC v. Cathcart, 2024 WL 5239938, at *10-11 (Del. Ch. Dec. 17, 2024) (shifting fees for pre-litigation conduct that involved manufacturing false financial statements to trigger a contractual right and then doubling down on that falsity in litigation). 32 See In re Straight Path Commc’ns Inc., 2024 WL 4602914, at *5 (Del. Ch. Oct. 29, 2024) (explaining that an award of attorneys’ fees is appropriate “where the

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B. Apportionment

The plaintiffs seek $3,530,230.80 in attorneys’ fees, costs, and expenses.33

Shulman asserts that this request is unreasonable because the plaintiffs succeeded

on only one of their thirteen causes of action.34 He also questions the sufficiency

of the plaintiffs’ fee affidavits and complains of excessive staffing and

unreasonable hours billed to failed claims.35

Delaware courts assess the reasonableness of fee awards by reference to the

factors in Rule 1.5(a) of the Delaware Lawyers’ Rules of Professional Conduct.36

But determining reasonableness does not require the court to examine each time

entry and disbursement.37 Nor must a fee award be mathematically prorated by a

judge concludes a litigant brought a case in bad faith or through his bad faith [litigation] conduct increased the litigation’s cost”), aff’d, 351 A.3d 448 (Del. 2025) (TABLE); Scion Breckenridge, 68 A.3d at 687 (holding fees may be shifted when pre-litigation conduct involves fraud or is “totally unjustified”). 33 Pls.’ Mot. ¶¶ 14, 15.

34 Def.’s Opp’n ¶¶ 2, 28.

35 Id. ¶¶ 19-23, 41-43.

36 See Mahani v. Edix Media Gp., Inc., 935 A.2d 242, 245 (Del. 2007) (citing Del. Lawyers’ R. Prof’l Conduct 1.5(a)). 37 Sorrento Therapeutics, Inc. v. Mack (Sorrento II), 2026 WL 906110, at *5 (Del. Ch. Apr. 2, 2026) (ORDER).

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party’s win-loss ratio on individual counts.38 When a plaintiff achieves mixed

success on claims that arise from a “common factual predicate[,]” the court may

award a flat percentage of the overall fees.39

In this case, the plaintiffs’ fees cannot be cleanly segregated claim by claim.

Their successful direct claim for breach of the liquidation preference and their

failed derivative claims rested on the same factual predicate. The legal work

required to expose Shulman’s breach of his duty of loyalty was likewise

inextricably intertwined across all counts.

Even so, an award of the plaintiffs’ full fees is unwarranted. Ten of the

plaintiffs’ thirteen claims failed for a threshold reason: the plaintiffs lacked

derivative standing because Pathway’s corporate charter was void due to unpaid

franchise taxes.40 That standing defect counsels against awarding the full amount

requested.41

38 See Mahani, 935 A.2d at 248 (affirming the refusal to “give primary weight to [the] limited trial success” when assessing reasonableness). 39 Sorrento Therapeutics, Inc. v. Mack (Sorrento I), 2025 WL 2172268, at *19 (Del. Ch. July 31, 2025). 40 See Mem. Op. 35-36; see also 8 Del. C. § 510 (stating that the charter of a corporation that fails to pay its franchise taxes becomes “void” and the corporation becomes “inoperative”). 41 See Mem. Op. 36; cf. Def.’s Opp’n ¶ 41 (noting that plaintiffs’ counsel billed 149.6 hours researching and drafting the complaint).

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Balancing the severity of Shulman’s bad faith against the plaintiffs’ standing

oversight and limited success, I conclude that an award of one-third of the

requested fees and expenses is appropriate. This approach aligns with recent

precedent involving similar fiduciary and litigation misconduct coupled with

partial success.42 The reduction also accounts for Shulman’s objections regarding

staffing inefficiencies and time billed to failed claims, making a line-by-line audit

unnecessary.43 Thirty-three percent of the requested fees and expenses equals

$1,164,976.16.

To ensure this award is reasonable, I must weigh the relevant factors in

Rule 1.5(a). The litigation was complex and painstaking, driven in part by

Shulman’s obstruction.44 The plaintiffs were represented by skilled Delaware

counsel whose hourly rates are customary for practitioners of their caliber.45 At the

same time, the plaintiffs’ $3,530,230.80 fee request far exceeds their

42 See Sorrento I, 2025 WL 2172268, at *19-20 (awarding one-third of a $16 million fee request where the plaintiffs were only partially successful, but the defendant breached its duty of loyalty). 43 See Def.’ Opp’n ¶¶ 41-43; see also Sorrento II, 2026 WL 906110, at *4 (rejecting a request for line-item reductions where the court awarded a flat percentage of overall fees). 44 Del. Lawyers’ R. Prof’l Conduct 1.5(a)(1).

45 Id. at 1.5(a)(3), 1.5(a)(7).

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$1,849,437.93 monetary recovery.46 Discounting the request to 33% brings the fee

award into proportion with the result achieved.

III. CONCLUSION

Fees are shifted, in part, under the bad faith exception to the American Rule.

The plaintiffs are entitled to fees of $1,164,976.16. This amount is reasonable,

proportionate, and sufficient to address Shulman’s bad faith without

overcompensating the plaintiffs. IT IS SO ORDERED.

Sincerely yours,

/s/ Lori W. Will

Lori W. Will Vice Chancellor

46 See id. at 1.5(a)(4) (explaining that a reasonable fee includes consideration of “the amount involved and the results obtained”).