This article summarizes the Court of Chancery of Delaware’s November 12, 2026 post-trial memorandum opinion in Minnie Sarwal v. NephroSant, Inc., C.A. No. 2023-0222-BWD. The case concerns allegations of breach of fiduciary duty, document deletion, and indemnification claims arising from a dispute over changes to the proprietary QSant kidney transplant rejection diagnostic test developed by NephroSant.
The QSant test, originally developed using six biomarkers measured in urine samples and combined through a machine learning algorithm, was designed to generate a score between 1 and 100 indicating the risk of kidney transplant rejection. NephroSant sought coverage and reimbursement from Centers for Medicare & Medicaid Services (CMS) through the MolDX program, submitting clinical dossiers that consistently described QSant as a six-biomarker test.
After initial development involved frozen samples, challenges arose in testing fresh samples due to heat exposure degrading one biomarker, clusterin. The company’s laboratory directors, including plaintiff Dr. Sarwal, who was then CEO and a board member, decided to exclude clusterin from the algorithm, effectively converting QSant into a five-biomarker test. The Court found that Dr. Sarwal did not inform the board of this material change. She later contended that the test algorithm “evolved” to de-emphasize clusterin, but a former Vice President of Data Science testified the algorithm was locked to five biomarkers by April 2021 despite prior representations to MolDX that it was six biomarkers.
In 2022, following concerns from NephroSant employees about the five-biomarker test in use, the board formed a special committee to investigate. During this investigation, counsel instructed Sarwal to preserve company documents. Nevertheless, Sarwal downloaded and deleted tens of thousands of documents from her NephroSant Box account, purportedly containing data foundational to the company’s research. She also allegedly solicited company investors for a new competing venture using NephroSant’s technology. The board responded by halting commercialization, refunding Medicare reimbursements, and attempting a bridging study to validate the five-biomarker test. The initial validation concluded the five- and six-biomarker tests were not equivalent. Although NephroSant raised funds for a further study, it was never completed, and the company transferred substantially all assets to a new entity, KidneyMetrix.
The Court concluded that Sarwal breached her fiduciary duty of loyalty by concealing material changes to the QSant test from the board, destroying company documents in violation of counsel’s instructions, and soliciting investors for a competing business. It imposed sanctions for her document destruction and awarded damages for the breaches, though significantly less than the $100 million damages claimed by NephroSant’s expert. The Court also found Sarwal was not entitled to indemnification for legal expenses related to the special committee’s investigation under her indemnification agreement.
“Sarwal breached her fiduciary duty of loyalty by concealing material information about changes to the QSant test from the board, destroying company documents, and soliciting investors to form a competing business.”
The litigation initiated by Sarwal included claims for indemnification of legal expenses, indemnification agreement breaches, and attorney fees, which the Court addressed in light of the counterclaims. The Court’s decision followed a two-day trial, post-trial briefing, and oral argument, focusing on the disputed facts of the test’s biomarker composition, document deletions, and fiduciary conduct.
Editorial: Potential Impact
This decision highlights risks that may arise when companies utilize AI-driven diagnostic tools whose methodologies evolve during development but are represented differently to regulators and payers. The Court’s scrutiny of undisclosed material changes to a diagnostic algorithm and the associated compliance and governance failures emphasizes the need for transparency and robust board oversight in companies commercializing AI-based medical tests.
The finding that an AI algorithm change —here characterized as a shift from six to five biomarkers—was a material change subject to board disclosure and regulatory updates may signal to the industry the importance of careful validation and transparency surrounding evolving AI models, particularly in regulated environments. The case illustrates challenges in balancing innovation and iterative development with regulatory compliance and fiduciary duties.
Although this particular ruling arises in a fact-specific corporate governance and fiduciary context and is not a precedent on AI regulation per se, it could influence how corporate boards and management approach disclosures about AI-driven products and the handling of related intellectual property and data integrity issues. Companies in the AI healthcare sector may view this case as a cautionary tale regarding the governance risks of modifying machine learning-based diagnostics without appropriate oversight and communication.
Source: Read the full decision on CourtListener
Court: Court of Chancery of Delaware | Docket: C.A. No. 2023-0222-BWD | Date filed: 2026-11-12
This article was generated automatically from a public court record and is provided for informational purposes only. It is not legal advice. Refer to the linked source document for the authoritative text of the decision.