The Trial Court's Decision
- On January 11, 2009, the trial court rejected the motion to certify the class action. The decision is based on the determination that the claim does not meet the prescribed condition In sections 4(a)(1) and8(a)(1) 30Class Actions Law In the matter The existence of substantive questions of a fact or law common to all members of the The team. The court found that the class that the appellants wish to represent - i.e., those who held the shares of Elsynt on September 6, 1999 and continued to hold them until the date of filing the claim - may contain shareholders who purchased their shares after one or more of the events underlying the claim occurred, and therefore they were not deprived in respect of that event. Thus, for example, the expectations of those who purchased the shares of Elsynt during the period in which the company's activity focused in the field of medical imaging are not identical to those of those who purchased the company's shares after its assets in this field were realized, and it in fact remained as a "cash fund". It was also determined that the causes of action rooted in the misrepresentation that, according to the appellants, Elbit created a simulation against them regarding the intention to make a tender offer, are intrinsically related to the question of the date of purchase of Elsynt shares by the various members of the group. This is because the nature of the reports regarding the future tender offer and the degree of deception involved - to the extent that there was such deception - changed over the period. The court noted that it was possible to legitimize a number of causes of action for clarification in the framework of a class action using the authority given to it In section 10(c) 30Class Actions Law "Define a subgroup if it finds that questions of fact or law arise regarding some of the members of the group, which are not common to all members of the class." However, since the parties did not address this possibility in the pleadings, and in any event, no data was presented that would make it possible to define such a sub-group to which any of the appellants belonged, the court did not see fit to order so.
- At the same time, the court found that among the many events underlying the lawsuit, there was one event that occurred while all the members of the class held securities of Elsynt. Thus, the hotel and marina transaction event occurs, it was determined, during the aforementioned period of time and the condition regarding the existence of questions of fact or law common to the members of the class is met. Therefore, the court was required to address the question of the existence of the causes of action that were prima facie formed by virtue of this event, in the other conditions listed in theClass Actions Law, including the existence of a personal cause of action for the appellants (as distinct as a cause of action for a derivative claim) as required In section 4(a)(1) to the law. In this context, the court mentioned the precedent according to which a decrease in the value of the company's shares, in and of itself, does not establish a cause of action by the shareholders as it is secondary damage that reflects the company's damages (see: Civil Appeal 2967/95 Magen and Keshet in Tax Appeal v. Tempo Beer Industries Ltd., IsrSC 51(2) 312 (1997) (hereinafter: the Shield and Bow); Civil Appeal 3051/98 Darin v. Discount Investment Company, Piskei Din Net(1) 673 (2005) (hereinafter: The Darin)). However, in the circumstances of the case, it was held that one of the exceptions to this rule applies to the existence of a gap between the amount of damage caused to one group of shareholders and the damage caused to the other shareholders. The court explained that if the appellants are correct in their claim that Alcint paid the Euro-Israel group excessive consideration in the framework of the hotel and marina transactions, then the damage caused to the minority shareholders as a result of the acquisition is greater than that caused to the controlling shareholder. This type of damage, it was held, establishes a personal cause of action for the shareholders. In the margins, the court noted that additional causes of action that appear in the statement of claim, which are also based on Elsint's decision to purchase a property at a price that was claimed to be exorbitant (in the framework of a Gil transaction), are not rooted in clear discrimination of the minority, and for this reason they cannot be clarified in the framework of a class action.
- The court continued to examine the fulfillment of the conditions set forth in the law for the purpose of certifying a class action, in relation to the causes of action stemming from the hotel and marina transaction incident. In this context, it was held that despite the prima facie existence of a personal cause of action for the appellants, the class action should not be certified. This is because it does not meet the stipulation In section 4(b)(1) 30Class Actions Law, according to which when one of the elements of the cause of action is damage, the class plaintiff is required to show, prima facie, that he has indeed suffered damage. In the circumstances of the case, it was held, the appellants did not meet the aforementioned condition Because their pleadings do not relate at all to the question of the fate of the shares of Alcint held by them. Thus, for example, it was not stated whether the shares were sold prior to the merger between Elsynt and Elbit Imaging, which took place, as you may recall, in 2005, and if so, at what price? And insofar as the shares of Elsynt owned by the appellants were converted into shares of Elbit Imaging - if these shares were sold and at what price? In this context, the court mentioned the respondents' argument that whoever purchased Elsynt shares in 1999 and continued to hold them until after the company's merger, earned a cumulative return of up to 236.5 percent on his investment. As a result, the court ruled that in the absence of reference to the question of the fate of the shares, the appellants did not prove, even prima facie, that they suffered damage, and therefore the class action cannot be certified.
- The court further noted, in an examination of more than necessary, that the claim does not even meet the prescribed condition In section 8(a)(1) 30Class Actions Law According to it, it is necessary to prove the existence of a reasonable possibility that the questions that arise in the framework of it will be decided in favor of the group. In this context, the court rejected the appellants' argument that the price paid by Alcint for the properties it purchased as part of the hotel and marina transactions was exorbitant, noting that this argument was based on financial statements from the years 1998-1999 in which the properties were presented according to their historical cost and not according to their fair value (in accordance with the accounting rules that were in force at the time). It was also determined that in order to assess the fairness of the price paid by Elsint, an appraisal opinion that was not submitted by the appellants was required. On the other hand, the court accepted the respondents' argument that in the test of reality, these transactions had proven themselves over the years to be profitable. Finally, the court noted that the action is based on a large number of events and includes a large mix of causes of action in relation to each event, and therefore it is doubtful whether the conduct of the action in a class proceeding will constitute the most efficient and fair way to resolve the disputes. In view of all of the above, the court rejected the motion to certify the class action and ordered the appellants to pay each of the respondent groups legal expenses and attorney's fees in the amount of ILS 50,000.
The Appeal
- The appellants raise before us a series of arguments against the decision of the trial court, the main of which are: First, it was argued that with respect to the suitability of the causes of action rooted in the discrimination of minority shareholders to be clarified in the framework of a class action, there was a company estoppel. According to the appellants, this court has already discussed the question stated in the judgment given by the Civil Appeal Authority 7028/00 [Published in Nevo] and ruled that the discrimination of the minority shareholders in Alicent is a cause worthy of clarification in the framework of a class action. Therefore, the appellants claim that the trial court was not entitled to reject the motion to certify the class action on the basis of acceptance of arguments in this area. Second, the appellants complain about the decision of the trial court not to examine the possibility of qualifying a number of grounds for clarification in a class proceeding, using the authority granted to it in the Class Actions Law to split the group of plaintiffs into sub-groups in accordance with the various causes of action and the various questions they raise. Third, it was argued that the trial court erred in applying the requirement of absolute uniformity between the members of the represented class according to a "homogeneity test", which, according to them, is stringent in comparison to the case law in which it was determined that a class action can be approved even if there is no absolute identity between the factual and legal questions that arise in the case of all the class members. Finally, the appellants complain about the rulings of the trial court regarding the lack of proof of damage. According to them, there is no dispute that following the signing of the hotels and marina agreements, there was a deterioration in the price of the Alcint share, and this is sufficient to lift the burden imposed on them at this preliminary stage of the discussion. Moreover, according to them, the court's willingness to examine the issue of damage in light of the share price of Elbit Imaging (and not Elsynt) in 2007 (two years after the merger between the companies, and about seven years after the filing of the original claim) is absurd. In terms of the capital market, this is a date that has no relevance to the events underlying the claim, and in any event, that date occurred at the height of the financial bubble in the real estate sector that burst in 2008.
- On the other hand, the respondents rely on the decision of the trial court and raise a series of arguments in response to the appellants' arguments (for the sake of convenience, the respondents' arguments will all be presented together, even though each of the respondents' groups filed pleadings in relation to the grounds attributed to it separately). The respondents reject with both hands the appellants' argument regarding the existence of a company estoppel. According to them, the judgment in the Civil Appeals Authority 7028/00 [Published in Nevo] Dealt with the question of the timely applicability of instructions Class Actions Law and it does not make any positive decision on the question of the fulfillment of the prerequisites for the certification of the class action. According to them, it was precisely for the purpose of clarifying this issue that the hearing was returned to the District Court. With regard to the appellants' arguments regarding the application of a homogeneity test to all potential members of the group, the respondents argue that in law, the trial court held that the multiplicity of possible dates of purchase of Elsynt shares by the group members and the multiplicity of the circumstances of the purchase and holding, go to the root of the condition regarding the existence of substantive questions of fact or law that are common to all the members of the class and negate its existence. Moreover, according to them, the aforementioned multiplicity also excludes the possibility of defining subgroups or recognizing a joint cause of action for the group members in respect of the hotel and marina transactions. With regard to the issue of proving the damage, the respondents argue that the determinations of the trial court are well anchored in the evidentiary basis that was laid out before it and in the law. In this context, the respondents recall that the trial court was presented with a number of affidavits and accounting opinions on behalf of the respondents, which were not contradicted by the appellants, while the appellants did not back up their claims with a real evidentiary basis. The respondents emphasize that the disputes between the parties revolved mainly about factual claims, and these disputes were decided by the trial court after three days of hearings, in a reasoned and detailed decision. Therefore, according to them, there is no ground for this court's intervention in the findings and determinations of the trial court. Finally, the respondents argue that even if there had been truth to the appellants' factual claims, there would have been no reason to approve the class action, since the causes of action, to the extent that they arise, belong to the company and not to its shareholders. According to them, the damage claimed by the appellants is only secondary damage, which is expressed in the decrease in the value of their shares, and therefore according to the rule Shield and Bow And you went Darin It does not establish a personal cause of action. They further claim that the appellants' objections constitute, in fact, an attempt to attack a business operation in one of the company's assets, under the guise of claims of discrimination. According to them, the cause of discrimination concerns the company's internal management and organization and its impact on its shareholders, and there is no reason to resort to such claims in relation to a public company traded on the stock exchange. This is because in a public company, a shareholder who considers himself disadvantaged can sell his shares.
Discussion
- Before we discuss the arguments of the parties, it is worth mentioning in a few words the previous judgment given by this court in this case, in order to get the hearing back on track. The Judgment of the Civil Appeal Authority 7028/00 [Published in Nevo] dealt with, as recalled, the question of the timely applicability of the provisions Class Actions Law and the possibility of suing on their behalf in proceedings that were pending before an appellate court prior to the publication of the law. In the judgment, we held that the law applies to grounds that arose prior to its entry into force, including applications that were pending before a judicial instance. At the same time, in the circumstances of the concrete case, in view of the long period of time that elapsed between the creation of the cause of action and the date of publication of the Class Actions Law, we also addressed the issue of the statute of limitations for the cause of action according to the Permanent Transitional Provision In section 45(c) to the Class Actions Law. In this context, we determined that a cause of action for shareholder discrimination was one of the grounds for which a class action could have been approved in principle in accordance with the provisions of the Companies Law. Therefore, in accordance with the transitional provision in the law, the statute of limitations was terminated on the day the claim was filed and not on the day of publication of the Class Actions Law. In this context, the President noted Lightning Because:
"In accordance with theCompanies Law, it was possible to authorize the minority shareholders of Elcinet, a public company registered in Israel, to file a class action against the respondents on the grounds of shareholder discrimination. Managing the affairs of a company in a manner that discriminates against its shareholders has established a cause of action for which a class action could have been filed... The result, therefore, is that the appeal is accepted. The District Court's judgment regarding the deletion of the motion to certify a class action is annulled. The hearing of the motion to certify the claim as a class action is returned to the District Court, so that it can hear it in accordance with the provisions of the Class Actions Law" (ibid., para. 23).
- Thus, the judgment inCivil Appeal Authority 7028/00 [Published in Nevo] It did not contain a positive determination as to the suitability of the claim in question to be clarified in a class action proceeding. However, the result of the judgment was based on the determination that in respect of the type of claims concerning shareholder discrimination, it was possible to obtain a motion to certify a class action in accordance with the provisions Companies Law. In order to examine the suitability of the concrete circumstances of the case to be clarified in a class proceeding, the hearing was returned to the District Court. From the above, three conclusions emerge: First, that the impression of this court, as expressed in the judgment inCivil Appeal Authority 7028/00, [Published in Nevo] The appellants' arguments give rise to a concern, which is not unfounded on the face of it, of the deprivation of the minority shareholders in Elsynt by the respondents (and this without setting any conclusions on this question). If it were not for this impression, there would have been no room to appeal the judge's ruling Lindenstrauss and to return the hearing to the District Court. Second, it appears from this that there is no substance in the appellants' argument regarding the existence of a company estoppel on the issue of the suitability of the causes of action for clarification in the framework of a class action. The clarification of this issue was the purpose of returning the hearing to the District Court. Finally, it is clear that the causes of action whose suitability for the class proceeding should have been clarified by the District Court are those rooted in the discrimination of the minority shareholders in Alcinet. Because, according to the judgment inCivil Appeal Authority 7028/00, [Published in Nevo] These are the grounds for which it was in principle possible to sue in a class action by virtue of the provisions Companies Law. As such, the Transition Provision reinstatesClass Actions Law It has control over these grounds (as opposed to other grounds). Therefore, in any case, there was no room in the trial court to hear the other causes of action (which originate in the laws of contracts, torts, etc.).
- The appellants are "full of arguments like a pomegranate", but a reading of the statement of detail submitted by them to the trial court shows that among the many causes of action, a relatively small number of claims can be refined according to which the respondents, or any of them, deprived the minority shareholders of Alcinet: the claim regarding the avoidance of distributing a dividend from the profits remaining in Alcinet's coffers after the realization of its assets in the field of medical imaging; the claim regarding the sale of control of Elron Imaging to Europe-Israel in exchange for an unusual control premium in height; the claim regarding the thwarting of the execution of a tender offer and the failure to take action to enforce the undertaking to execute a tender offer; the claim regarding the acquisition of assets from Euro-Israeli subsidiaries and control centers in the framework of the hotel and marina transactions at an exorbitant price; and the claim regarding the purchase of shares of Elbit Imaging by Gil at a price that exceeded their value on the stock exchange. As may be recalled, the trial court decided not to approve a class action in the aforementioned causes of action, and this appeal was filed before us. However, before we deal with the rulings of the trial court on their merits, we will mention in a few words the criteria by which a court hearing a motion to certify a class action must examine the existence of the conditions set forth in the law.
The Role of the Court in the Hearing of a Motion to Certify a Class Action
- The stage of the hearing of the motion to certify a class action was of great importance. Its importance stems from the need to locate the proper balance between the desire not to turn this preliminary proceeding into a main proceeding in which the causes of action are clarified in a manner that delays the hearing and impairs its effectiveness, on the one hand; However, also out of recognition that the very decision to approve a class action imposes a heavy burden on the defendants and may incentivize them to compromise even in cases where there is no material justification for filing the lawsuit, on the other hand. The President insisted on this Lightning:
"The class action law... They must be interpreted according to the purpose underlying them. Everything must be done to realize the goals underlying the legislation, while maintaining the defense mechanisms that will prevent the abuse of the class action. Indeed, the class action should not be treated as a stepchild. It should be seen as an important means of realizing the right of the individual and the collective. However, this means must be guarded against abuse. Hence the great importance of the first stage of the class action, which concerns the court's approval (full or conditional) of the class action. This is the corridor through which one can enter the lounge, which is the hearing of the trial itself. The corridor should not be turned into a permanent dwelling. The approval process should be serious and efficient. This proceeding must not be a factor that cools worthy plaintiffs from filing a class action. However, it should be a factor that deprives improper plaintiffs of the continuation of the class action" (Civil Appeal Authority 4556/94 Tatzet v. Zilbershatz, IsrSC 49(5) 774, 787 (1995) (hereinafter: the Tetzet case)).