District Court / Breach Of The Fiduciary Duties Of Founders Who Abandoned A Start-Up In Favor Of Another Start-Up

Author:Mr Yoram Shiv and Alex Berman
Profession:Sharir, Shiv & Co. Law Offices

A founder who was abandoned by his founder-partners with whom he founded a company filed a claim against his founder-partners for establishing a competing company. The remedy determined by the Court was the allocation of shares in the new company to the abandoned founder.

In this case, several founders established Doppel Ltd. ("Doppel"), which operated in the field of security for organizational systems. Each founder held a quarter of Doppel's shares. Doppel's articles of association contained undertakings by each founder to operate in the field related to Doppel business only through Doppel and to avoid conflicts of interest or competition with Doppel.

Shortly after Doppel's formation, three of the founders accepted a third-party proposal to set up a new company, abandoned Doppel and together with the third party established Armron Technologies Ltd. ("Armron"), which also operated in the field of organizational security. After Doppel's collapse, the remaining founder in Doppel sued his former partners and claimed improper use of Doppel's trade secrets and breach of duty of care and fiduciary obligations to Doppel. In addition, the founder claimed that the third-party committed a tort of inducing a breach of contract.

After examining the evidence, the Court was persuaded that Doppel's trade secrets had not been misappropriated, since Doppel was in the initial stages of development and had no trade secrets.

However, the Court ruled that the technology used by Armron's products had the potential for commercial realization within the framework of Doppel and therefore...

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