COURT OF CHANCERY
OF THE
STATE OF DELAWARE
BONNIE W. DAVID COURT OF CHANCERY COURTHOUSE
MASTER IN CHANCERY 34 THE CIRCLE
GEORGETOWN, DE 19947
Date Submitted: May 8, 2023
Final Report: May 11, 2023
Peter B. Ladig, Esquire Patricia R. Urban, Esquire
Emily L. Skaug, Esquire Elizabeth Wilburn Joyce, Esquire
BAYARD, P.A. Megan Ix Brison, Esquire
600 N. King Street, Suite 400 PINCKNEY WEIDINGER URBAN
Wilmington, Delaware 19801 & JOYCE LLC
2 Mill Road, Suite 204
Wilmington, Delaware 19806
RE: Minnie Sarwal v. Nephrosant, Inc.,
C.A. No. 2023-0222-BWD
Dear Counsel:
This final report addresses Dr. Minnie Sarwal’s (“Plaintiff”) motion for
continued confidential treatment of information redacted in the public version of
Nephrosant, Inc.’s (“Nephrosant”) answer and counterclaims filed in this action (the
“Motion”). The redacted information in dispute describes wrongdoing that Plaintiff
allegedly committed during an internal investigation undertaken by a special
committee of the corporation’s board of directors. Because Plaintiff has failed to
demonstrate good cause for confidential treatment of these allegations, I recommend
that the Motion be denied.
Minnie Sarwal v. Nephrosant, Inc., C.A. No. 2023-0222-BWD
May 11, 2023
Page 2 of 9
By way of background, on February 21, 2023, Plaintiff initiated this action for
advancement and indemnification against Nephrosant, a Delaware corporation that
Plaintiff founded six years ago “to develop and monetize one of [her] concepts, a
non-invasive urine test to identify the risk of transplant rejection commercially
known as QSant.” Verified Compl. ¶ 3, Dkt. No. 1 [hereinafter, “Compl.”].
According to Plaintiff’s Verified Complaint (the “Complaint”), the company
“steadily achieved success” under Plaintiff’s leadership, until investors with
representation on the company’s board of directors (the “Board”) ousted her under
the “artifice” of an internal investigation undertaken solely to “justify freezing
[Plaintiff] out” of the company. Id. ¶¶ 1, 8-9. In short, the Complaint alleges that
in early 2022, weeks after removing Plaintiff as CEO, the Board established a
committee of directors (the “Special Committee”) to investigate “complaints from
unnamed employees” about assays used in the company’s QSant product. Id. ¶ 13.
Plaintiff alleges that although she was placed on administrative leave and her access
to the company’s servers and email was suspended during the Special Committee’s
investigation, Plaintiff “cooperat[ed] fully with” the investigation, “the investigation
found no wrongdoing by her,” and she is entitled to indemnification of fees and
expenses incurred in responding to the investigation. Id. ¶¶ 20, 22, 25, 28.
Minnie Sarwal v. Nephrosant, Inc., C.A. No. 2023-0222-BWD
May 11, 2023
Page 3 of 9
Nephrosant filed its Answer and Verified Counterclaims to Plaintiff’s
Verified Complaint (the “Counterclaims”) under seal on March 27, 2023. Def.
Nephrosant, Inc.’s Answer and Verified Countercls. to Pl.’s Verified Compl., Dkt.
No. 9 [hereinafter, “Countercls.”]. The Counterclaims assert four causes of action,
including two counts seeking declaratory relief that Plaintiff is not entitled to
indemnification or that Nephrosant is entitled to a set off under a separate note
agreement; a count for “computer related offenses” pursuant to 11 Del. C. §§ 931 et.
seq.; and a count for breach of fiduciary duty. As required by Court of Chancery
Rule 5.1, Nephrosant subsequently filed a public version of the Counterclaims,
which redacted information that Plaintiff designated as confidential. Generally, the
redacted allegations describe the Special Committee’s conclusions based on its
investigation and Plaintiff’s alleged misconduct during the investigation, “in
violation of her confidentiality and fiduciary obligations to the Company.”
Countercls. at 13.
On April 4, 2023, Nephrosant filed a Notice of Challenge to Confidential
Treatment of the redacted allegations in the public version of the Counterclaims. On
Minnie Sarwal v. Nephrosant, Inc., C.A. No. 2023-0222-BWD
May 11, 2023
Page 4 of 9
April 12, 2023, Plaintiff filed the Motion, and on May 5, 2023, Nephrosant filed its
opposition to the Motion.1 This action was reassigned to me on May 8, 2023.
“Court of Chancery Rule 5.1 serves to ‘protect the public’s right of access to
information about judicial proceedings,’ ensuring that ‘most information presented
to the Court should be made available to the public.’” In re Lordstown Motors Corp.
S’holders Litig., 2022 WL 601120, at *3 (Del. Ch. Feb. 28, 2022) (citing Sequoia
Presidential Yacht Gp. LLC v. FE Partners LLC, 2013 WL 3724946, at *2 (Del. Ch.
July 15, 2013)). “United States’ citizens have a fundamental right . . . to an open
court system.” Cantor Fitzgerald, Inc. v. Cantor, 2001 WL 422633, at * 1 (Del. Ch.
Apr.17, 2001). Accordingly, when parties “seek the benefits of litigating in a public
court,” they also assume the responsibility “to disclose previously non-public
information in order to satisfy the public’s right of access to court documents,”
including “information necessary to understand the nature of the dispute they
litigate.” Al Jazeera Am., LLC v. AT & T Servs., Inc., 2013 WL 5614284, at *7 (Del.
Ch. Oct. 14, 2013).
1
The parties also dispute confidential treatment of information redacted in the public
versions of Plaintiff’s Reply to Defendant’s Counterclaims filed on April 25, 2023, and
Nephrosant’s opposition to the Motion filed on April 27, 2023, on the same grounds
addressed herein. See Dkt. Nos. 27, 29, 31. At a May 5, 2023 scheduling teleconference
before the Chancellor, the parties confirmed that Plaintiff’s two outstanding motions for
confidential treatment and Nephrosant’s three notices of challenge to confidential
treatment are fully submitted.
Minnie Sarwal v. Nephrosant, Inc., C.A. No. 2023-0222-BWD
May 11, 2023
Page 5 of 9
Court of Chancery Rule 5.1 reflects this Court’s commitment to these
principles, explaining that, “[e]xcept as otherwise provided in this Rule, proceedings
in a civil action are a matter of public record.” Ct. Ch. R. 5.1(a). “The party or
person seeking to obtain or maintain Confidential Treatment always bears the burden
of establishing good cause for Confidential Treatment.” Ct. Ch. R. 5.1(b)(3). “Good
cause exists only where the public interest in access to Court proceedings is
outweighed by the harm public disclosure of sensitive, non-public information
would cause.” In re Boeing Co. Derivative Litig., 2021 WL 392851, at *2 (Del. Ch.
Feb. 1, 2021); see also Ct. Ch. R. 5.1(b)(2). “The ‘public interest’ is especially
strong where the information is material to understanding the ‘nature of the
dispute,’” in which case “denial of public access to material requires a ‘strong
justification.’” In re Oxbow Carbon LLC, 2016 WL 7323443, at *2 (Del. Ch. Dec.
15, 2016) (citing Al Jazeera, 2013 WL 5614284, at *7, and Horres v. Chick-fil-A,
Inc., 2013 WL 1223605, at *1 (Del. Ch. Mar. 27, 2013)).
The Plaintiff here contends that good cause exists for continued confidential
treatment of Nephrosant’s “inflammatory allegations” describing Plaintiff’s
misconduct during the Special Committee’s investigation because (1) Nephrosant
included these allegations “knowing and intending for the allegations to cause
[Plaintiff] great professional and personal embarrassment once published”; (2) the
Minnie Sarwal v. Nephrosant, Inc., C.A. No. 2023-0222-BWD
May 11, 2023
Page 6 of 9
allegations do not pertain to viable claims in the action; (3) “the relevant acts all
occurred approximately one year ago” and are therefore “stale”; and (4) disclosure
of these allegations risks harming the company by jeopardizing its ability to obtain
desperately needed funding. Pl.-Countercl. Def.’s Mot. for Continued Confidential
Treatment of Nephrosant’s Answer and Verified Countercls. to Pl.’s Verified
Compl. ¶¶ 3, 12, 14, 16, Dkt. No. 15 [hereinafter, “Mot.”].
First, Plaintiff contends that Nephrosant’s “inflammatory allegations” are
focused “on causing embarrassment” to Plaintiff. Mot. ¶ 14; see also id. ¶¶ 3, 7, 11-
12, 14-15. The allegations at issue do not strike me as particularly “inflammatory”
or salacious, but in any event, as Plaintiff acknowledges, “information that ‘may be
embarrassing or previously undisclosed does not alone warrant confidential
treatment.’” Id. ¶ 11 (citing Al Jazeera, 2013 WL 5614284, at *4).2
Next, Plaintiff argues that allegations of her wrongdoing should remain
confidential because they do not pertain to viable claims in the action. Mot. ¶¶ 3, 7,
2
See also, e.g., Soligenix, Inc. v. Emergent Prod. Dev. Gaithersburg, Inc., 289 A.3d 667,
677 (Del. Ch. 2023) (“‘[T]hat the information for which a party seeks confidential
treatment may be embarrassing or previously undisclosed does not alone warrant
confidential treatment.’”) (citing Sequoia, 2013 WL 3724946, at *2)); In re Boeing Co.
Derivative Litig., 2021 WL 392851, at *4 (same); Manhattan Telecomms. Corp. v. Granite
Telecomms., LLC, 2020 WL 6799122, at *3 (Del. Ch. Nov. 19, 2020), as corrected (Nov.
20, 2020) (noting that “potential embarrassment or the fact that the information has not
previously been disclosed” is “not enough” to overcome the presumption of public access).
Minnie Sarwal v. Nephrosant, Inc., C.A. No. 2023-0222-BWD
May 11, 2023
Page 7 of 9
12-14. In making this argument, Plaintiff fixates on Nephrosant’s counterclaim for
computer related offenses, asserting that this count does not fall “within this Court’s
jurisdiction.” But in addition to that claim, the allegations Plaintiff seeks to keep
redacted also form the basis for Nephrosant’s defense that Plaintiff is not entitled to
indemnification because she did not act in good faith in connection with the Special
Committee’s investigation, as well as its claim that Plaintiff breached her fiduciary
duties during the investigation.3
Plaintiff also contends that the alleged misconduct in question “occurred
approximately one year ago” and is therefore “stale.” Mot. ¶ 14. That argument
cuts against continued confidential treatment since disclosure of older information
is less, not more, likely to cause harm.4
3
See Partner Invs. L.P. v. Theranos, Inc., 2017 WL 2303954, at *3 (Del. Ch. May 25,
2017) (denying in part motion to maintain confidential treatment, rejecting argument that
certain documents “should remain confidential because they do not pertain to the parties’
disputes in the case” where information supported multiple theories in the case); In re
Oxbow Carbon LLC, 2016 WL 7323443, at *3 (“The parties also undervalue the
importance of other aspects of this case. By focusing almost exclusively on their
contractual claims, they downplay the claims for breach of fiduciary duty, reformation, and
tortious interference. Nearly all of the purportedly confidential information relates to these
claims. Information revealing the individual defendants’ motives is essential to
understanding the parties’ fiduciary duty claims.”).
4
See Oklahoma Firefighters Pension Ret. Sys. v. Corbat, 2017 WL 5484125, at *2 (Del.
Ch. Nov. 15, 2017) (“[A]ny cognizable detriment represented by reference to . . . stale
documents is unlikely to outweigh the public interest in these proceedings.”); In re Oxbow
Carbon LLC, 2016 WL 7323443, at *3 (requiring disclosure of information that was “stale
and lack[ed] competitive value”); Reid v. Siniscalchi, 2014 WL 6486589, at *1 n.2 (Del.
Minnie Sarwal v. Nephrosant, Inc., C.A. No. 2023-0222-BWD
May 11, 2023
Page 8 of 9
Finally, Plaintiff argues that if “allegations that a former executive” engaged
in misconduct are made public, this “would indeed cause harm to the Company in
the marketplace.” Mot. ¶ 16. This concern is particularly “acute” here, she says,
because “the Company needs funding,” and “disclosure of this damaging type of
information often makes funding more expensive or not available at all.” Id.
Coming from the former executive alleged to have engaged in the wrongdoing, this
is an interesting take on harm to the party advocating for public disclosure. In any
event, assuming the harm Plaintiff has identified is sufficiently concrete to otherwise
justify confidential treatment,5 it does not outweigh the public interest in
understanding the nature of the dispute. It is “difficult to imagine” an action
involving allegations of fiduciary breaches where at least some potential for harm to
the company “would not always be present.” Manhattan Telecomms. Corp., 2020
WL 6799122, at *4 (emphasis in original). Yet permitting the parties to conceal the
nature of the defendant’s defenses and counterclaims “‘merely because its disclosure
Ch. Nov. 20, 2014) (observing that disclosure “concerns . . . lose force with the passage of
time”).
5
See In re Boeing Co. Derivative Litig., 2021 WL 392851, at *2 (“A party seeking
confidential treatment based on harm to its business relationships with customers ‘must
point to specific information like trade secrets or competitively sensitive pricing
information that is not in the public mix and, if disclosed, will cause clearly identified
harm.’”) (emphasis added).
Minnie Sarwal v. Nephrosant, Inc., C.A. No. 2023-0222-BWD
May 11, 2023
Page 9 of 9
could cause the parties economic harm’ would turn the presumption of public access
on its head and frustrate the purpose of Rule 5.1.” Id.
Nor could this Court “render and deliver a comprehensible decision without
reference to the currently redacted information” that forms the basis of Nephrosant’s
defenses and counterclaims. Id. at *5. Plaintiff’s Complaint, which was not filed
confidentially, alleges that the Special Committee’s investigation was a “sham,” but
that Plaintiff nevertheless fully complied, and no wrongdoing was uncovered. The
Motion seeks to conceal Nephrosant’s response, but a final adjudication of this
matter necessarily will decide—publicly—whose version of the facts is correct.
For these reasons, I recommend that the Motion be denied. Separately, I
understand that Plaintiff has filed a partial motion to dismiss Count III of the
Counterclaims. It strikes me as most efficient to address that motion at the two-day
trial in July 2023, but if the parties wish to submit letters arguing otherwise, I am
happy to consider them.
Sincerely,
/s/ Bonnie W. David
Bonnie W. David
Master in Chancery
cc: All counsel of record (by File & ServeXpress)