Civil Case (Tel Aviv) 17456-12-18 Yonit Werber v. Shmuel Froimovich - part 9

Werber's understanding of the maturity of the project and the system throughout the contacts with Froimovich

172. The evidence supports Werber's version regarding their understanding of the system's readiness for launch in light of information received from Shmulik.
173. In January 2018, Yonit asks Shmulik "how their project is progressing" and Shmulik replies, "I hope that in about a week we will start uploading everyone's courses and then the lecturers will start distributing them first" (p. 9 of Werber's evidence) in reference to the first planned portal for business owners in which Werber was engaged. Later, according to Shmulik, in 4-5 months, the next portals on other topics are expected to be launched (pp. 10-11 of Werber's evidence).
174. Later, on February 2, 2018, Shmulik writes to Yonat that "the site is ready in a big way" and that he will show it to her "when it is finally polished" (p. 109 of Werber's evidence). In addition, on February 15, 2018, Shmulik responds to Yonit's question about the launch date, which "at the moment seems to be happening in the first week of March."

I will note that when Shmulik was asked in the cross-examination whether the site was ready at that time and only polishing was required, he replied at first "ready in a big way", then "apparently he was not ready until the end", and later when he asked to clarify again and was asked if the intention was that he was ready to minimize bugs, he replied "it could be", and finally he said "it was ready in a big way, but again I don't remember specifically what was in it" (pp. 186-187 of the transcript). In this context, too, Shmulik's testimony did not inspire confidence.

175. Later, Shmulik also sent Yonit a link to view the example website "chilbiz" (the photograph was presented in color in paragraph 52 of Yonit's affidavit), while in a correspondence dated March 4, 2018, Shmulik wrote to Yonit that the real site was located on "BizAcademy" and was password protected, when it would be open to lecturers on March 12 as planned, and later to the general public on March 13-14 (P/5).
176. The launch was postponed and in a webinar dated April 12, 2018, Shmulik refers to "going live" on April 23, 2018 and also notes that there is currently a password at the entrance to the site because it is still in the works (p. 15 of the transcript of Q. 19-20).
177. In a letter to lecturers dated April 20, 2018, Shmulik writes, "We are almost ready for the launch, a few more small things and we will be able to fly up," and that "in the coming days we will send you all the marketing materials such as email formulas, videos and cool banners" (Appendix 13 to the Werber evidence).
178. This written evidence supports Werber's version that already in the initial conversation in December 2017, their understanding was that Shmulik and Keren had been working on the project for many months and that the system would be ready to go live within a few weeks (paragraph 24 of the affidavit); An understanding that was later strengthened in light of the exchange of words between the parties, as described in Yonit's affidavit and supported by the written evidence detailed above.

The establishment of the system began at the beginning of 2018 and not earlier (contrary to Shmulik's representations)

179. There is no dispute that the system was established using WordPress, which is a platform used to create and manage websites. There is also no dispute that the website was not built by writing the software code from scratch - a method that is expensive and inefficient in many cases - as the evidence shows. The method of work, which is accepted in the field, was the use of what is known as Plug Ins. This is an existing software code written by a third party, the implementation of which in the system allows it to add the function that the plug-in is intended to perform, while the system developers are also required to make various adjustments in order for the system to meet the defined needs.
180. In his supplementary affidavit, Shmulik writes that "the software at the heart of the project was developed for us" and that he "planned and characterized many months before January 2018 through extensive research..." (paragraph 6), when in his testimony he stated that he had begun working on the system at the beginning of 2017 and even earlier, and that at the beginning of January 2018 he had transferred a copy to the server on which the system operated (p. 177 of the transcript).
181. I cannot accept this version of Shmulik. The probable conclusion from the evidence material, in the balance of probabilities in a civil trial, is that the work on the establishment of the technical system intended to serve the project actually began at the beginning of 2018, and that prior to that it was, at most, preliminary thoughts or tests, rather than serious "groping." These are the reasons for this:
182. First, it is unreasonable in my opinion that there is no written documentation of the characterization and planning work that Shmulik allegedly carried out in 2017 "in the course of a comprehensive study" according to his testimony. Alexandra testified that Shmulik explained to her about the system "in a big way" (p. 41 of the transcript at para. 10); and that what was discussed with her was more of a "vision" rather than a detailed technical characterization, and that the details were explained to her orally (p. 41 of the transcript). She further stated that a detailed technical specification of such a system takes about two weeks to a month to prepare (p. 41 of the transcript at para. 31 to p. 42, para. 2). In a characterization work of such magnitude that, according to Shmulik, requires "40 components that need to be integrated between them..." (p. 176 of the transcript at paras. 3-5), it is difficult to accept the absence of any written documentation from a real time of that characterization and planning that was done - even at the outline - and given that Shmulik testified that he did not write a code but only engaged in planning (p. 176 of the transcript at paras. 3-4). Shmulik was expected to present at least internal documentation for work purposes (as opposed to detailed characterization intended for a third party).
183. Second, Shmulik's claim that there was a development environment in which he conducted tests, planning, and experiments is not backed up by serious evidence. While there is an indication that there was a previous development environment (Shmulik presented the expert with a reference to its deletion from a storage notebook), it has not been proven when Shmulik began working in this development environment. There is a difficulty in the conduct of Froimovich that they did not take care to preserve the claimed development environment throughout the proceeding, when they claimed that the storage company deleted it in January 2023 (p. 21 for the expert's response to the clarification questions). The deletion of the development environment where the proceeding is pending without a satisfactory explanation acts on Froimovich's duty and establishes in the circumstances of the case, against the background of Froimovich's conduct prior to the proceeding and the proceeding itself, the conclusion of an attempt to conceal the information. In any event, in the absence of a presentation of the alleged development environment to the expert, as well as the absence of any written documentation of the period in which there was activity in that development environment, and as to the nature of the activity, the conclusion is that Froimovich did not prove serious development activity or characterization prior to January 2018. The correspondence to which Shmulik refers in the supplementary affidavit (Appendix 40) is also partial and cannot be inferred from it that serious work was done prior to January 2018.
184. Third, the sequence of events and additional evidence in the case support this conclusion. The court-appointed expert explained in his opinion that the administrator of the system (who was Shmulik as he admitted in the cross-examination, p. 176, paras. 28-29 of the minutes of December 31, 2024) was registered only on December 31, 2017, when the registration for the subscriber system "MumberPress" was only on January 9, 2018, and the initial content was uploaded to the content table only on January 20, 2018 (pp. 25-26 of the opinion). This attests to the date on which work on the establishment of the system actually began, and support for this is also found in the documentation of the correspondence with freelance programmers that Shmulik hired in order to develop the system, which began in January 2018 (Appendix 32 to Werber's evidence, at pp. 450-451). The timing of Alexandra's work - in February 2018 - when she was responsible for supervising the freelance programmers (paragraphs 1 of her affidavit, her testimony on p. 39, s. 13 and p. 40 s. 5-7 of the transcript of December 31, 2024) also supports this conclusion, when later in April after her departure, Shmulik hired the services of the programmer Michal.
185. Fourth, Shmulik's testimony that the technical aspect of the system cannot be carried out in a few months and that "the idea that something like this can be lifted in a few months is ridiculous" (p. 177 of the transcript, paras. 16-20) is contradicted by both Alexandra's testimony and the expert's testimony. Alexandra testified, as stated, that for the purpose of detailed technical characterization, two weeks to a month are required, and the expert testified that after the characterization is done, it takes two or three months to develop the system (p. 80 of the transcript, paras. 24-27).
186. It should also be noted, in this context, Shmulik's sophisticated and evasive testimony. Beyond the version that was found to be unreliable regarding the use of change management (GIT), there are other difficulties in Shmulik's testimony. For example, in response to Answer 5 to a questionnaire in which he was asked when he started working on the site, he replied, "We started working at the beginning of 2017", and when he was asked in his testimony who we started with, it turned out that he was the only one who had worked on it (p. 178, Q. 21), while explaining that he used the plural in reference to the company. Shmulik's testimony also revealed that contrary to his statements in a webinar to lecturers that a lot of money was invested in the project (p. 3, s. 5 of the transcript), the real financial investment was negligible. Froimovich did not present a breakdown of expenses, and Alexandra's testimony showed that the cost of employing freelance programmers (from developing countries) was negligible - on the order of a few thousand dollars (p. 44 of the transcript at paras. 3-9) when she worked for free and it was agreed with her that she would receive future remuneration as a partner (p. 44 of the transcript at paras. 15-20). I will note thatthe explanation given by Shmulik in the cross-examination to the statements regarding a high financial investment was that he was referring to the salaries that the company he owned paid him during the 18 months in which he worked on the venture, and that this was the main cost (pp. 182-183 of the transcript). This convoluted explanation does not contribute to the assessment of Shmulik's testimony as reliable.
187. Finally, Froimovich's duty should also be attributed to her failure to summon the testimony of Keren, who is Shmulik's wife and was involved in the venture, and in the absence of an explanation for the fact that an affidavit of the main witness was not given on her behalf, the reasonable conclusion is that her testimony would have acted in accordance with the defendants' obligation.

The precarious condition of the system near the launch

188. The evidence indicates that the system intended to support the project was designed and executed without orderly characterization and without the implementation of accepted work methods (change tracking, version management, automated tests). Although this is not a complex or expensive system to develop, as indicated by the expert's opinion and testimony, the result was a very low-quality system.
189. Moreover, Shmulik presented the lecturers and Lorber Shmulik with a presentation of the system's readiness for launch as early as January 2018, but in Shmulik's own internal correspondence with Alexandra on May 4, 2018 - in which he asks her various questions (after her departure) - he writes, among other things, the following (p. 461 of Werber's evidence):

The site stabilizes (every day we discover new things that don't work, but we'll come with it to launch one way or another).

190. This correspondence - the day after the signing of the agreement between Froimovich and Werber - is significant written evidence from real time that reveals that Shmulik is aware that the site is unstable and that he intends to move forward with the launch despite this ("one way or another"). It should be noted, in this context, that Shmulik chose not to refer directly to this correspondence in the affidavit of the main witness, with all that it entails.
191. According to Shmulik's supplementary affidavit, the system was programmed by a "programmer" (paragraph 11), and in his testimony Shmulik explained that the reference was to Michal (p. 174 of the transcript, paras. 26-28). When asked in the cross-examination whether she was the one who programmed the system, Shmulik testified, "She worked on a critical mass, she built substantial parts of the support" (Q. 30-31). When asked if she developed the lion's share, he replied, "She didn't develop the lion's share, but she developed a lot of more complex things..." (p. 175 of the transcript at para. 3). Subsequently, it emerged from Shmulik's testimony that Michal began working on the system only on April 22, 2018 (pp. 175, paras. 16-17). Shmulik's testimony therefore shows that, contrary to what emerged from what he gave to Lorber and the lecturers in January and onwards, at the end of April, substantial parts of the system, according to his own opinion, had not yet been developed. This strengthens Werber's position regarding the immaturity of the system close to the launch and their version that Shmulik conveyed misleading messages in this context.
192. Additional support for the technical immaturity of the system prior to the launch is contained in a correspondence dated May 27, 2018 in an e-mail sent by Shmulik Lorber. In the same email, Shmulik refers to the tests and implementations that need to be carried out, including technological development regarding the stabilization of the system before massive customer acquisition ("leads and wood, new clearing, performance"); Implementation and testing of a mechanism for transferring funds to partners; Selection, construction and implementation of a customer service and management system, etc. (p. 499 of the Werber evidence).

There is a reason for Werber's claim in their summaries (paragraph 79) that these are basic matters that they did not imagine that the system would go live without them, or at least most of them, ready.

193. Finally, Froimovich should be credited, in this context as well, with not being summoned to testify to Michal Ben Hamo. Michal was the programmer who, as mentioned, worked on the system before and after the launch. This is a key witness whose testimony regarding the maturity of the system prior to launch is substantial. No satisfactory explanation was given for the fact that Froimowitz did not summon her to testify, and the obvious conclusion is that her testimony would have strengthened the evidence regarding the failures in the system and its immaturity leading up to the launch. In this context, too, the defendants should be credited with the lack of Keren's testimony.

The nature of the transaction: a partnership in a start-up company ("startup") and not the purchase of software

194. As to Werber's argument, which was emphasized in the summaries of the reply, that the essence of the transaction between the parties was the purchase of software, and that Fromovitz-Schurber's claim that they acquired rights in a business venture that is a startup, constitutes an expansion of the front, I cannot accept it.
195. As for the claim of widening the front, throughout the statement of defense and the claim against Froimovich explain that the essence of the transaction between the parties was Werber's entry into a business partnership with Froimovich in the venture (for example, paragraphs 16, 18-20 of the counterclaim). There is no substance to the claim of expanding the façade.
196. On its merits, the claim is also incorrect. The essence of the transaction as an entry into Werber's business partnership with Froimovich in a startup venture is firmly rooted in the evidence. This is clearly reflected in the recorded conversation between the parties on April 25, 2018, in which the parties discussed the significance of the business partnership from Werber's point of view. At the very beginning of the conversation, Shmulik says, "It's a startup, you know that if you join you get a percentage in the startup and you enter the startup... There's a lot of things to do, a lot of things to think about..." (p. 12 of the transcript of S. 6-8), and following that, Yonit asks, among other things, "As if what does it mean for you that... We enter as partners" (p. 13, 3-4); Significance that the conversation dealt with at length later on.
197. The legal structure of the transaction, as indicated by the documented exchanges between the parties and the agreements that were made, was that in exchange for a 41% stake in a joint company that would be the owner of the rights in the venture and the system that would enable it to be executed, Werber would invest ILS 500,000 in the joint company, with the joint company using this amount in order to acquire all the rights in the system and related to it from Froimovich's company (see clauses 1.4-1.2 of the founders' agreement). Shmulik also clarifies in a conversation dated April 25, 2018, that Werber's payment is "in order to buy your share of what is in the venture so far" (p. 13 of the transcript of S. 7). The essence of the transaction was therefore the purchase of rights in the startup and not the purchase of software, as evidenced by the definition of "the system" in the purchase agreement, according to which the purchase is not only of software but also of "all rights related to it..." And Yonit clarifies that this is also the intention in the conversation documented with Adv. Mor on May 2, 2018, in which Yonit explains, inter alia, that the acquisition is supposed to cover all the "assets of the system" and asks that a broad definition be formulated that will also include broadcasting rights, leads, etc., so that they will not forget anything (pp. 5-6 of the transcript).

The understanding of the nature of investment as one that requires an investment of effort and not a "passive investment"

198. It should also be clarified that contrary to what may be implied by Werber's summaries and affidavits, the documented exchange between the parties indicates that this was not a passive investment, but rather that the Schurber venture was planned to be active in the framework of it for a significant period of time.
199. Werber refers to Shmulik's words in the same conversation dated April 25, 2018, according to which Werber can be a passive owner "after the establishment". However, this is an excerpt that does not reflect the entirety of the changes in that conversation. The general impression that emerges from the conversation is that it has been made clear to Werber several times that this is an entry into a partnership in the startup, and that this means that Werber will be required to invest significant work for an extended period of time.

At the beginning of the conversation, Shmulik explains, as mentioned, that this is a startup that has a lot of work to do (p. 12 of the transcript of S. 6-9). Keren later explains that she and Shmulik see themselves and Werber as a team of "four strong people who go together and contribute..." and that everyone will have an area of responsibility (p. 40 of the transcript). As emerges from the conversation, Yonit is indeed troubled by the question of how long they will have to work on the venture and when it will become passive and that the strenuous work will not be "forever" (p. 49), and Keren explains that the establishment period may last between a year and a half and three years (p. 51). Later, when Yonit wants to understand what the amount of investment is expected to be required of her, Shmulik explains, "I don't know how many hours you will really have there" (p. 55 of the transcript of S. 22). Later on, Yonit says, "I want to know that we can say in a big way... It will take 2 years of development and after that we can stop and enjoy the fruits... I don't want to be in a frenzy for 20 years now... [my emphasis - L. G.]" (p. 46 of the transcript of S. 7-9) in a way that makes it clear to her that this is a significant investment in work for the joint company for a long period of time, and Shmulik goes on to explain, "We need to make it happen. The launch is the first step...", when in response to Yonit's question, "And if we get tired and want to go on a trip around the world?" Shmulik replies, "So that's why we opened you up for joining the startup" (p. 64 of the transcript).