Etay Bogner has chalked up another victory in his battle against Check Point Security Software. The Supreme Court ruled last week that a group of founders of Check Point subsidiary SofaWare, which includes Bogner, has veto power to prevent SofaWare from taking any decision of which he disapproves - even after his resignation from the company's board of directors.
SofaWare develops and markets data security hardware and software products. Check Point has a 60% stake in the company.
Relations between Check Point and the SofaWare founders soured after the start's acquisition in 2002. Two years later, in 2004, Bogner scored his first legal victory over Check Point. He sought court approval to file a shareholder derivative suit (in which a shareholder sues a third party for damages on behalf of the company), claiming Check Point was not transferring funds to SofaWare as required for its use of SofaWare's products and technology.
His derivative suit was ultimately approved and last year Check Point was ordered by the Tel Aviv District Court to pay SofaWare NIS 13 million for breach of contract. In 2005, while the litigation was still pending, SofaWare's board of directors fired Bogner as company CEO after he resigned from the board.
Bogner then sought an injunction giving him and other founders of SofaWare, Adi Ruppin and Amanet Technologies, the power to veto any SofaWare decision with which any of them disagreed. Check Point opposed the petition, arguing that anyone who is not a company director could not have veto power over the company's decisions, a measure that would make the board's judgment subject to outside parties.
The court then ruled that Bogner's interpretation of the agreement between the SofaWare founders and Check Point was at variance with the language of the agreement itself, and noted that individual veto power in the hands of the founders could paralyze SofaWare's operations.
The judge in the case at the time also noted that it would be illogical for Check Point to have invested large sums in SofaWare under such circumstances.
Bogner appealed the ruling to the Supreme Court.
In a ruling last week, a Supreme Court panel headed by Justice Elyakim Rubinstein sided with Bogner, saying the agreement among the parties made no distinction between veto power for office holders in the company and those that simply held the company's shares and apparently the shareholders who were party to the agreement did not have to be on the board of directors to exercise their veto power.
Rubinstein rejected the position of SofaWare and Check Point that the agreement constituted an invalid voting arrangement, but did rule that the three founders could not individually exercise their veto power, but only as a group and by majority rule. Otherwise, the court said, the three could indeed paralyze Sofa Ware's decision-making. "It is not reasonable," Rubinstein wrote, "that a company, and in this case Check Point, would have invested such large sums of money with the knowledge that each of the founders individually could block any decision."
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