The plaintiffs further claimed that although the directors did not know about Pinkowitz's actions, if they had acted like reasonable directors, they could have known about his actions and prevented them. In this context, it was argued that the trial court examined this argument in general, with respect to the entire board of directors, without examining individually whether each of the directors fulfilled its duties to the company during the period of its tenure. According to the plaintiffs, the directors Horn, Rebas, Sharon and Gutwein, were negligent in their duties by not demanding the information relating to the financial situation of the company and the subsidiary, by not carrying out the necessary checks, and in fact by not supervising the CEO's activities as required of them. It was argued that the directors' claim that they did not understand the financial matters and relied on the experts did not exempt them from the responsibility that they should have acted actively, delved into the economic and financial issues relating to the company, and took an independent position with respect to the matters brought to their approval.
As to the determination that as a matter of policy, directors should not be held liable in the event of a business failure, it was argued that it contradicts the ruling of the trial court that Pinkowitz's actions amounted to fraud and breach of trust and were done intentionally, and not out of erroneous business judgment.
In view of the above, the plaintiffs request that the trial court's ruling exempting the directors from liability for damages caused by their negligence to the company be annulled, and that they be obligated to pay the company the full amount of the claim that was made available for fee purposes in the sum of ILS 12 million, plus linkage differentials and interest from the date the claim was filed (January 23, 2003).
- On behalf of the estates or heirs of directors Rebas, Gutwein and Sharon, separate responses to the appeal were submitted, but the fundamental arguments in them are similar, and therefore they will be presented jointly. In general, the directors relied on the rulings of the trial court, and emphasized their commitment to the village and its purpose, their activity for the benefit of the shelters over the years, and the fact that they acted in good faith even in the relevant years of the lawsuit and in accordance with the representations presented to them by Pinkovich and the professional advisors. The directors added that the transfers of funds from the company to the subsidiary should not be considered "damage," but rather as a financial investment intended to realize the village's goals. At most, it is argued, these losses can be attributed to a mistake in the business judgment of the directors, and therefore they should not be held liable for the damages, insofar as they were caused. It was also emphasized that some of the directors had passed away, and the lawsuit was conducted against their estates, which required an increased burden of proof.
E.2.1. Discussion and Decision
- At the outset, it should be noted that in the circumstances of the case at hand, the very discussion of the negligence and liability of the directors for the company's damages, taking into account the nature of the company and its goals, and taking into account the directors' involvement and high commitment to the welfare of the residents over the years, is not at all simple. It is evident that all parties agree that the directors did indeed invest a significant part of their energy and skills for the benefit of the village, and that the motivation for their tenure as directors stemmed from a sense of mission in general, and some of them even acted voluntarily over the years. Moreover, a significant number of the directors have long since passed away, and their heirs fear the "harsh closing chord," in the form of the lawsuit, which will tarnish the legacy and actions of their loved ones.
Therefore, as stated, it is clear that the discussion of the negligence attributed to the directors requires great sensitivity, and although this is a "cold" legal discussion, I do not ignore the impact that the rulings of this judgment can have on the feelings of those who apparently dedicated their lives to doing good, and believed that they were acting properly and lawfully, and on the feelings of those close to them. However, this complexity does not exempt us from the task assigned to us, which is to discuss the claims directed against the directors and to examine the rulings of the trial court in this context. I will note by now that negligence is often attributed to innocent people who believe that they are acting properly. Indeed, a liability for damages for negligence does not indicate that the person found to be "negligent" acted maliciously or with the intention of harm, but rather that his actions or omissions did not conform to the objective standards required in similar circumstances. This is even if the intentions of the tortfeasor were innocent (although even one who acted maliciously can be found to be negligent - but more on that below). As will be clarified below, after reviewing it, I found that the actions of the directors amounted to negligence, and that they should be held liable for the company's damages. However, in the spirit of the above, it is to be hoped that these determinations will not overshadow the legacy of the directors, their life's work, and the entirety of their beneficial activities over the years.