Civil Case (Center) 49145-02-18 Yigal Yadin v. Paragon Plastic Ltd.

Judgment

A claim for the provision of accounts and enforcement of a franchise agreement for the marketing of defendant 1's products by the plaintiff, as well as a counterclaim in which defendant 2 petitioned to charge the plaintiff with payment of the sum of ILS 650,000.

In the background of the proceeding is a business relationship between the parties.

The parties to the proceeding

1. The plaintiff - Mr. Yigal Yadin (hereinafter: "the plaintiff" or " Yadin") is a shareholder in Shira S. Marketing in a tax appeal (hereinafter: "Shira Company") and the person who managed a business partnership with the defendant 2.
2. Defendant 1, Paragon Plastic Products in Tax Appeal (hereinafter: "the Defendant" or "Paragon") is a company registered in Israel engaged in the manufacture and marketing of plastic products.
3. Defendant 2 - Mr. Eliyahu Alfasi (hereinafter: "Defendant 2" or " Alfasi") is the person who is alleged to have served as the plaintiff's business partner during part of the period relevant to the claim.
4. Defendant 3 - T.P.M. Tal Plast Marketing 2014 in a Tax Appeal (hereinafter: "Tal Plast") is a company registered in Israel, owned by Defendant 2.

Summary of the plaintiff's arguments

5. According to the plaintiff, he and Mr. Alfasi had a business partnership relationship in which they marketed the plastic products manufactured by Paragon in Israel (hereinafter: the "Partnership").
6. Since the end of 2011, the partnership has been operating in three different channels to market the products. One was through Shira Company, in which the plaintiff and Mr. Alfasi served as shareholders in equal shares, the second through the authorized dealer of defendant 2 - a commercial business of Mr. Alfasi called Shira Marketing which is not a member of the tax appeal (hereinafter: "Shira Marketing" or "the Authorized Dealer") and the third channel was through the plaintiff directly.
7. According to the plaintiff, the marketing of the products by the partnership was done in accordance with an exclusive and non-exclusionary franchise, which was granted to the partnership at the end of 2011 by Paragon, after its previous marketer, Mr. Nahmias, encountered financial difficulties and left behind a financial debt to Paragon, in the amount of approximately ILS 2 million.
8. The plaintiff further claimed that the concession was purchased from Paragon in exchange for the payment of ILS 3,750,000, and when it was added and agreed between the parties that the partnership would be given a significant credit facility, which would enable it to meet the payment of the purchase of the concession.

By the end of 2013, the partnership had paid Paragon the full payment for the purchase of the franchise, but it was not recorded on its ledger.

9. At a certain point, at the end of 2013, Mr. Alfasi sold his share in the partnership to the plaintiff, for a sum of ILS 650,000, and the plaintiff remained the owner of all the rights in the partnership, including all of its assets, rights and liabilities, including the franchise.
10. According to the plaintiff, the sum of ILS 650,000 was paid to Mr. Alfasi in cash and by means of merchandise that was supplied by Shira at Mr. Alfasi's request, to Best Marketing, and Mr. Alfasi even signed a document confirming receipt of the full consideration for the shares.

(In the margins, I will note that in the framework of the statement of claim, the plaintiff raised harsh allegations against Mr. Alfasi on issues that go beyond the activity of the partnership, while it was added that these claims would be discussed in the framework of other proceedings).

11. In the months of January and March 2014, the plaintiff purchased goods from Paragon in the amount of ILS 4,300,000 through the Shira Company. The consideration for that merchandise was paid by way of the issuance of checks from the end of April 2014 and ending in September 2014 (hereinafter: the "First Arrangement").
12. The Ottoman Settlement [Old Version] 1916In April 2014, following Paragon's demand that from that date onwards, the goods would be purchased against cash payment only, the parties reached agreements regarding the application of additional financial arrangements that related to both the goods already supplied to the plaintiff and to the future supply of goods, each replacing its predecessors.

12-34-56-78 Chekhov v.  State of Israel, P.D.  51 (2)As part of these arrangements, Paragon was supposed to, inter alia, return to the plaintiff previous checks that were delivered to it and exchanged with others, as well as credit him with at least ILS 2 million in respect of surplus goods supplied by it or in respect of second-class goods.

13. According to the plaintiff, Paragon did not comply with its obligations and agreements with him, and in bad faith or negligence, presented for payment the checks that it was supposed to return to him and did not credit him or Shira with the sums that it should have credited.
14. As a result, as well as the fact that the concession payment was not recorded in the partnership's ledger, in Paragon's books of accounts an alleged debt of Shira was created, in the amount of ILS 5,000,000 and more, even though it was a debt that did not reflect the real financial and accounting conduct between the partnership and Paragon.
15. In addition, Paragon breached its obligations to the plaintiff when it acted independently to market goods to the Shufersal chain, in violation of the franchise agreement with the plaintiff, without paying him the commissions he was entitled to in respect of this and while illegally enriching itself at his expense.
16. The plaintiff further claimed that in retrospect it became clear to him that from the very beginning of the partnership, Paragon and Mr. Alfasi cooperated with each other, behind the plaintiff's back, and acted to transfer goods directly to Mr. Alfasi or anyone on his behalf, while charging the plaintiff or Shira Company to pay for them.
17. It also became clear that even after the termination of the partnership relationship, Mr. Alfasi did not inform the banks that he was prevented from carrying out transactions in the joint account and in the account of Shira in the bank, and he continued to operate in these accounts while obliging Shira to carry out financial transactions, by withdrawing funds, giving checks and making financial transfers, all without authorization and fraudulently.
18. In August 2014 or thereabouts, Mr. Alfasi acted behind the plaintiff' s back, in cooperation with the other defendants, to circumvent the plaintiff's concession by establishing Tal Plast for the marketing of plastic products and for the construction of a warehouse, which would serve as a substitute for the partnership and the plaintiff. All this while fraudulently taking the sum of US$100,000 from the plaintiff and the Shira Company, which was paid through the plaintiff's relative.

As a result of that infringement conduct, Paragon, in bad faith, unilaterally and without any prior notice, ceased to sell products to the plaintiff and Shira Company, And all of this In contravention of the concession agreement, and while continuing to grant Mr. Alfasi and Tal Plast a franchise to market its products in Israel, with the exception of the Shufersal chain, to which Paragon continued to market products independently.
To all this, Paragon added and acted in bad faith At the time of accessing the immediate payment of checks of the plaintiff and the Shira Company, in the sums of millions of Shekels, contrary to the law and contrary to what is agreed with them, and thus directly caused their economic collapse.

19. Copied from BoltThe plaintiff's claim that in this conduct, as detailed above, Paragon breached the contract with him, while Applicants 2-3 induced it to do so. According to the plaintiff, the defendants' tort against him included torts of negligence, theft, breach of duties by virtue of the Commercial Torts Law, breach of fiduciary duties, unjust enrichment, and more.
20. The plaintiff petitioned for the relief of providing accounts against all the defendants, as well as the appointment of an expert on behalf of the court to prepare the accounts, which will serve as the basis for a future financial claim that will be filed by him.
21. In addition, the court was asked to rule that the exclusive franchise for marketing Paragon products in Israel will be returned to the plaintiff immediately and without any reservation, in relation to all customers in Israel, including the Shufersal chain.

Summary of Defendant 1's Arguments

22. In the statement of defense filed by Paragon, it claimed, inter alia, that it never entered into an exclusivity agreement or an exclusivity franchise agreement with anyone in connection with the marketing of its products, including the plaintiff and/or defendants 2-3, and never received any payment for granting such exclusivity.
23. It was also claimed that the plaintiff, by himself and through the Shira company he owns, and at some time also in cooperation with defendants 2-3, purchased products from Paragon during the years 2012-2014, but that the plaintiff breached his obligations to Paragon, including the undertaking to pay for the goods as well as to provide collateral for his debts, and even further violated various financial arrangements reached by the parties and which were intended to enable him to pay his debts. All of these resulted in a reality in which the plaintiff remained in a financial debt to the defendant, in an amount exceeding ILS 5 million, which has not been repaid to this day.
24. In addition, it was claimed that the plaintiff concealed, in bad faith, the fact that some of the issues that are the subject of the lawsuit had already been discussed and clarified in the framework of another proceeding being conducted in the Tel Aviv Magistrate's Court;
25. According to the defendant, some of the payments for which documents are requested were made in 2011 and a statute of limitations applies in respect of them; no platform or evidentiary basis has been laid to justify the provision of bills, and the claim should be dismissed outright, inter alia due to the lack of quantification of the remedies claimed and the non-payment of fees.

Summary of Defendants' Arguments 2-3

26. According to defendants 2-3, they owe nothing to the plaintiff, while it is the plaintiff who owes Mr. Alfasi the sum of ILS 650,000, for which a counterclaim was even filed.
27. It was also claimed that Mr. Alfasi was never presented with a representation indicating that an exclusive franchise was granted for the sale of Paragon's products and that any consideration was paid to Paragon in connection with the receipt of such a franchise, and that the parties' engagement with Paragon for the purchase and marketing of products was in fact a direct continuation of the previous activity of each of them vis-à-vis it, in one format or another.
28. Alfasi's decision to terminate the joint activity was made against the background of a crisis of trust between the parties and the plaintiff's poor conduct, and to date, Mr. Alfasi has not been paid for his share in the sale of his rights in the partnership, in the amount of ILS 650,000.
29. It was also argued that the requested remedy of providing accounts should be rejected, since no evidentiary basis was laid in relation to the facts that confer the right to grant such relief, and since the claim was filed in bad faith and in an abusive use of legal proceedings, with the sole purpose of a fishing expedition that should not be permitted and the receipt of funds illegally.

The Deliberative Framework

30. On behalf of the plaintiff, the plaintiff himself, Mr. Nahmias and Mr. Zion Alaluf, testified.
31. On behalf of Paragon, Mr. Dershewitz, Mr. Haberman, CPA Keinan, Mr. Akoka and Ms. Miriam Attias testified.
32. On behalf of defendants 2-3, defendant 2 himself and Adv. Amar testified.

After reviewing the pleadings, affidavits, the minutes of the hearing and the summaries of the parties, I have come to the conclusion that the claim should be dismissed and the counterclaim should be accepted.  My reasons are as follows: