Civil Case (Center) 38712-06-23 Coover Agencies Ltd. v. Pitkit-Printing Factories Ltd. - part 3

In addition, the plaintiff concealed material documents, and refrained from summoning key witnesses (the interested parties in Pitkit and Adi Kidron, the financial manager at Pitkit), whose testimonies could have worked against her.

61. On the other hand, the testimonies on behalf of Liberty and Shahar were orderly, coherent, and backed by references, and the plaintiff's attempts to undermine their credibility were unsuccessful.
62. The personal lawsuit against Shahar should be dismissed, as no reason was presented that would allow him to be personally liable. There is no dispute that there is no contractual source for Shahar's obligation, since he is not a party to any agreement. He did not acquire Pitkit, and every action attributed to him was done, insofar as it was taken, by virtue of his positions at Unima or Liberty.  In accordance with case law, imposing personal liability on an officer for breach of a company's contract is highly unusual and not proven.  The addition of Shachar is intended to exert pressure and artificially expand the circle of defendants, while abusing the legal process.

Firon Claims (Defendant 6)

63. The lawsuit lacks cause of action against Firon. Firon is not a party to the brokerage agreements and is not a signatory to them. Firon did not purchase anything or sell anything, and was not a party to any other agreement.  It is not possible to impose a brokerage fee charge on a person who is not a party to the brokerage agreement (explicitly or implicitly), and general contacts or indirect involvement are not sufficient to make him a person who is responsible for the broker, retroactively.  In any case, a company agreement does not automatically bind a shareholder or an organ, in the absence of an explicit personal obligation.
64. The Unima brokerage agreement was not ratified by Unima, and the condition for eligibility for brokerage fees (purchase of a note by Unima) was not met.
65. It was Liberty that ultimately purchased Pitkit's shares, and there is no claim of a brokerage agreement between the plaintiff and Liberty.
66. The main reason for the failure of the negotiations between Unima and Pitkit is Matan. In contravention of the agreements, and without the approval of the contractor, Matan approached non-bank entities in an attempt to obtain financing, thus blatantly violating the non-disclosure agreement between the parties. This violation led to the cancellation of the second memorandum of understanding.
67. Firon, on the other hand, acted all along in complete good faith, in an attempt to save the deal and mitigate the damage caused as a result of Matan's conduct. The resignation of Shachar and Piron from the board of directors of Unima and the return of the shares attests to their need to disconnect from Matan's activities, out of a desire that the impropriety that has stuck with him will not infect them.
68. Firon held only 3% of Unima's shares. This is in contrast to Matan, who held 72% of the shares. Matan's status as an absolute controlling shareholder made Piron, like the other directors and shareholders, incapable of influencing Unima's decisions.
69. Piron did not serve as Unima's legal advisor at any stage. His presentation in the information leaflet (Appendix 1 to the statement of claim) as a legal advisor was a marketing idea only, and has no significance regarding his actual role. Shahar confirmed in his testimony that Firon did not serve as a legal advisor to Unima, and Matan confirmed that Firon was not paid for the services of a legal advisor to Unima.  In addition, the business card that was presented was never issued, and Piron asked to change his title on the card from legal advisor to company secretary.
70. Firon joined Liberty at a later stage. He served as legal counsel to Liberty, and was responsible for the legal aspects of the transaction, including conducting due diligence. His position did not give him any status at Liberty.  Firon held only 3% of Liberty's shares, and as a minority shareholder and legal advisor, he had no authority to make decisions from good to bad.
71. The entitlement to brokerage fees arises only when the broker is the "effective factor" that led to the parties' engagement in a binding agreement. In a Unima-note transaction, there is no qualifying "effective factor", because the transaction was not executed and the explicit condition in the Unima agreement was not met. The evidence and testimonies indicate that Katz was not present at the meetings between the parties, did not take part in the negotiations, and did not act to advance the engagement.  In the Liberty-Pitkit deal, Katz himself testified that he had no connection to the negotiations that took place between these parties.
72. The deal signed between Liberty and Pitkit was substantially different from the deal that Unima sought to enter into with Pitkit, including a change in consideration and cash payment; Separate due diligence; and the absence of the plaintiff or Katz or anyone on their behalf in the negotiations. A material change in the terms of the transaction, the entry of new and significant entities and a different buyer's identity, attest to the severance of the causal connection and the lack of entitlement to brokerage fees in the late transaction.
73. The plaintiff should be denied brokerage fees even because she acted in a conflict of interest and in bad faith, by concealing the double representation of the parties and trying to obtain benefit from both parties to the transaction, unlawfully.
74. It is not possible to impose a personal charge on Firon. Imposing personal liability on a director or officer for the company's debts to third parties is one of the exceptions, and requires the existence of circumstances such as fraud, deliberate deception, or misuse of the separate legal personality. In our case, the plaintiff did not claim, and therefore did not prove any fraud or deception on the part of Firon, who was a minority shareholder in Unima, as well as in Liberty, without any management or decision-making powers.
75. In addition, the plaintiff did not raise (and certainly did not prove) claims relating to lifting the veil or a valid personal reference framework against Piron.
76. When it comes to the possibility of imposing personal liability on an organ or officer of a company for conducting pre-contractual negotiations, proof of personal culpability will be required. Firon did not conduct the negotiations at Unima and Liberty, and he had no management or decision-making powers over whom.
77. Firon acted in full transparency with the plaintiff, reported to her all developments, and even did everything in his power to mediate between the parties so that the plaintiff would be paid brokerage fees for the transaction, in his view, beyond the letter of the law. Therefore, if there is an allegation of "conspiracy" in this lawsuit (and there is no basis for this), it is clear that Piron was not part of such an organization.
78. The plaintiff did not meet the burden of proving the elements of tort caused breach of contract. There is no binding agreement that was breached in connection with any act or omission of Firon, the suspension condition set out in the Unima brokerage agreement was not fulfilled since no deal was concluded at the end of the day, and Piron did not act to breach any agreement, and certainly did not knowingly do so.
79. There is also no basis for the claim of theft of a trade secret, since none of the elements of this tort exist in Firon's case. There was no trade secret, there was no theft, and in any case there was no illegal use of the information that was transferred to Firon.
80. There is no basis for Piron's personal obligation by virtue of the cause of enrichment and not at trial, since Piron received nothing. In Unimma, Firon never received any salary or payment, while the shares he received in Liberty were, as noted, a negligible minority, which did not give him voting or decision-making power, and as noted, he was not an officer of this company. The plaintiff is prevented from arguing on the cause of enrichment, while she claims at the same time that there is a binding agreement with Firon.
81. As an alternative argument, if and to the extent that the court finds to obligate Firon in any amount against the plaintiff, Firon is entitled, in accordance with oral agreements between him and Katz, to deduct from this sum his share of the brokerage fees that the plaintiff received from the interested parties in Pitkit, as well as his share of the brokerage fees, if and to the extent that they are decided, in this claim. Alternatively, since Pitkit was allegedly purchased by Liberty alone, Liberty must indemnify Piron for any amount that will be charged in this context, if and to the extent that it is charged. In any case, Firon may owe a maximum of 3% of those brokerage fees, which is the economic rate that can be attributed to him in this transaction.

The Plaintiff's Response

82. The claim that the Unima brokerage agreement was not ratified is incorrect, both factual and legal. In addition, the fact that no brokerage agreement was entered into between Liberty and the plaintiff does not in itself negate the plaintiff's entitlement to brokerage fees, since the courts also required payment to someone who is not a party to the brokerage agreement, but who received the information due to contact with the party who signed the brokerage agreement. If the broker was the effective factor in the first buyer's transaction (if it was completed), he is also the effective factor in the transaction of the second buyer, who made use of the information he received from the first buyer.
83. The plaintiff's activity in promoting the transaction was far beyond what was required of a realtor, and contrary to what was claimed, she was the "effective factor" in the transaction. The defendants do not deny Haimi's deep involvement in the negotiations. Even if they mistakenly believed that Haimi acted on behalf of Pitkit, this does not raise or lower it.  The defendants did not dispute that the plaintiff was entitled to carry out the brokerage through another means, and she did indeed perform the brokerage through Haimi as well.
84. The Liberty deal is not fundamentally different from the Unima deal. Liberty acquired Pitkit for a total of ILS 45 million, with all of its assets, including funds in its account in the amount of ILS 10 million. The claim that more in-depth and thorough legal and accounting due diligence was carried out in the Liberty transaction is irrelevant and untrue.  No evidence was presented for the outcome of those tests.
85. The claim that the plaintiff concealed the brokerage agreement was not proven. Matan testified that he knew about the agreement at the initial stage. A duty of disclosure exists only if the realtor has a hidden conflicting interest, with the clearest example being the receipt of an unusual consideration from one of the parties, so that there is a concern that the realtor will not seek other assets for the buyer, for example.  In our case, a Pitkit brokerage agreement did not include an unusual consideration from one of the parties, and in any case the Unima brokerage agreement referred only to the acquisition of Pitkit.
86. The criticism of the opinion of Shalom Sofer, CPA, is wrong. His opinion was not cracked. The defendants also did not dispute the ruling that adopted a rate of 4%, and did not deny that the Lehman formula on which Prof.  Hadas Glander was based was replaced by the modern Lehman formula, according to which the brokerage fees set out in the brokerage agreement are not exceptional.

The Evidence

87. On behalf of the plaintiff, Katz, Haimi, Matan and the expert, Shalom Sofer, CPA, testified.
88. On behalf of the defendants, Shahar, Firon, Shira Dollar, CPA Ofir Alfasi (a director and shareholder of 16.5% in Liberty) and the expert - Prof. Hadas Glander.
89. The reference to the exhibits will be in accordance with their numbering, as they were scanned in the file.

Discussion and Decision

90. The disputes between the parties focus on the following questions:

1. Was a binding brokerage agreement entered into between the plaintiff and Unima, and was the plaintiff the "effective factor" in the Unima-Pitkit transaction?
2. Can the defendants be obligated to pay brokerage fees in respect of the Liberty-Pitkit transaction, and by virtue of what ground?
3.  If the answer is yes, what is the percentage of the brokerage fees to which the defendants should be charged?
4. Should the plaintiff be deprived of her entitlement to brokerage fees (to the extent she determines) due to a breach of her duty of good faith?
5. Does Firon have an offset claim?

91. We will discuss each of the issues below.

The Unima Brokerage Agreement - Pitkit

92. In accordance with the case law, the claimant to be entitled to brokerage fees must prove two cumulative conditions: (a) that a brokerage contract was entered into between him and one or both of the parties to the transaction. (b) that he was the effective factor in entering into the transaction (Civil Appeal 2144/91 Moskowitz v. Beer as the executor of the estate of the late Tuvia Beer , IsrSC 48 (3) 116, 122-123 (hereinafter: "the Moskowitz case")).
93. The terms of the effective factor are anchored in the Realtors Law, which is not relevant to our case, as it relates to business brokerage. However, the case law held that even in the field of business brokerage, despite the inherent differences between this field and real estate brokerage, and the changes and adjustments required by these differences, it is necessary to prove the existence of an effective factor in the transaction as a condition for eligibility for payment of brokerage fees (see Civil Appeal 5876/06 Vertical Integration Ltd.   Rada Electronics Industries Ltd.  (Nevo, February 4, 2009) at paragraph 17 (hereinafter: "Vertical Integration Matter")).
94. Therefore, the plaintiff must prove the fulfillment of two conditions:

1. The first is that a binding brokerage agreement was entered into between it and Unima.
2. Second, because she was the effective factor in the deal.

Has a binding agreement been concluded?

95. A Unima brokerage agreement was entered into between the plaintiff and Matan and Unima (under construction), i.e., prior to the formal incorporation of Unima.
96. According to subsection 12(a) of the Companies Law, a company may approve the action of an entrepreneur that was done in its name or in its place.
97. An action by an entrepreneur will be considered as having been done in the name or on behalf of the company in the initiation, if two conditions are met: a. The appearance of the action from the point of view of the third party indicates that it was done for the corporation under establishment; b. At the time of the execution of the action, the developer had in mind a certain corporation for which the action was carried out (Civil Appeal 8559/15 Suleiman Abbas v.  Oven Falls Ltd.  (Nevo, May 27, 2018)).
98. The ratification does not have to be done in writing or in any other formal way, but also verbally, orally and in conduct (Civil Case 11918-09-18 Beauty Technologies R&D Ltd. et al.   Yanai et al.  (Nevo, June 9, 2020)).
99. In our case, no written ratification of the brokerage agreement was presented by Unima's board of directors, after its incorporation. However, the totality of the evidence shows that the Unima brokerage agreement was implicitly ratified by it, and that the conditions for giving effect to the agreement are met.
100. As appears from the evidence, the representation given to the plaintiff is that the purchase of Pitkit will be made by Unima, which is a company under construction (which was established shortly afterwards), and that the brokerage fees will be paid by Unima. There has never been talk that Pitkit will be purchased by Matan personally, or that he will personally bear the brokerage fees.  Indeed, Matan, who was the controlling shareholder of Unima and held 72% of its shares, testified that he signed the brokerage agreement with the plaintiff on behalf of Unima (p.  73 of the transcript at paras.  16-17, p.  109 of Q.  13-14 and p.  137 Q.  4).  Katz also testified that as far as he was concerned, the brokerage agreement was with Unima (p.  225 of Protokand S.  1).
101. It also emerges that the Unima Brokerage Agreement was known to the members of the Board of Directors of Unima, and they did not protest in real time the amount of brokerage fees included in it. Thus, Matan testified that Shahar knew about the Unima brokerage agreement right after it was signed, and that Shaul Danjali (a shareholder and director of Unima) (hereinafter: "Danjali") knew about this agreement at an early stage.  According to him, "it was not a secret" (p.  76 of the transcript at paras.  6-9).
102. 00In addition, it was proven that on March 2, 2022, shortly before Unima was formally incorporated (March 29, 2022), in a WhatsApp correspondence between Shachar and Matan (Court/P/103), Shahar wrote: "...It says that the total price for all purchases will be over 66 million. Where does it come from? Does this number include the brokerage commission, which as far as I remember is 4% (?)"In his testimony, Shahar checked and confirmed that the correspondence was indeed on March 2, 2022 (p.  307 of the transcript at para.  11).  When asked how this correspondence is consistent with his claim that he knew about the UNIMA brokerage agreement only in May 2022, Shahar replied: "It turns out that I saw it before me and did not pay attention" (p.  307 of the transcript at para.  19).  Needless to say, Shachar did not write to Matan that he was surprised by the amount of the brokerage fees, or that in his opinion their rate was excessive (as confirmed by Shahar in his testimony at p.  308 of the transcript at s.  2).
103. 0The second memorandum of understanding was signed on April 11, 2022 by Unima, after it was officially incorporated. The plaintiff, through Katz and Haimi, continued the brokerage work even after the incorporation of Unima, and no letter was issued by Unima or anyone on its behalf warning that the Unima brokerage agreement was not binding on it.
104. On May 22, 2022, a meeting was held between Katz and representatives of Unima (Matan, Shachar and Danjali). Its very existence indicates that the members of the board of directors of Unima were aware of the brokerage agreement, and even knew that the plaintiff, through Katz and Haimi, continued the brokerage work, even after the incorporation of Unima.  The versions of what was said at that meeting are different, but there is no dispute that no written documentation was issued that the members of the board of directors objected to the brokerage agreement and the brokerage fees included in it.  In an e-mail correspondence between Shahar, Firon and Matan dated May 24, 2022 (Court of Appeal 105), two days after that meeting, Firon sent a fee agreement with M.    Shachar replied that there was no talk of spreading out payments, and Piron replied: "I don't remember talking about a year's spread of rent.  I talked about a one-year deployment of the brokerage agreement with Kobi." Shachar replies: "...  I guess I was wrong and thought we were talking about Firon and not just Kobi, " while Matan replied: "Irish, you didn't make a mistake, we talked about both Piron and Kobi." In that correspondence, Shahar did not mention his objection to the brokerage agreement and the brokerage fees included in it, and in fact it seems that only the issue of deployment was on the agenda.
105. In a WhatsApp correspondence dated June 18, 2022 (Court No. 107), Matan writes to Shahar: "... I didn't make a presentation for an agenda, could you make something short?" and Shahar replies: "It's a four-page presentation.  No problem.  I'll make " A review of the presentation prepared by Shachar (Court of Appeal 106), which was presented at the meeting of the Board of Directors on June 19, 2022, shows that among the expenses accompanying the Pitkit transaction was also a brokerage fee of 4% (maximum).  In other words, the Unima Board of Directors was aware of the existence of a Unima brokerage agreement, and that the brokerage fees may reach a maximum rate of 4%.  In the minutes of the meeting of the Board of Directors (Court/92) no objection was raised to the brokerage agreement.
106. In June 2022, when disputes arose between Unima and Pitkit, Haimi contacted the stakeholders in Pitkit with a request to agree to extend the timetables for the transaction, or to allow Unima to finance the acquisition through a non-bank entity (see: paragraph 30 of Katz's affidavit, paragraphs 29-31 of Haimi's affidavit, Matan's testimony at p. 80 of transcript s.  21-28, correspondence between Haimi and Fishman dated July 3, 2022 and July 5, 2022 - Appendix 32 to Haimi's affidavit).  Again, no documentation was presented that there was a dispute regarding the validity of the Unima brokerage agreement, or the brokerage fees requested.
107. It was also proven that other brokerage agreements were signed by Unima (and/or anyone on its behalf) at similar rates. Thus, it was proven that on December 25, 2021, Shahar, as CEO of Unima, signed a brokerage agreement with CPA Ami Ben Ayon, according to which the consultant (Ben Ayun) will be entitled to a locating fee of 5% of the investment amount, in the event that a transaction is signed between Unima and/or its shareholders and/or anyone on their behalf, and investment companies that were presented by the consultant (Court/P/108 and Court/P/109).  When Shahar was questioned about this agreement, he claimed that the role of that consultant was to present transactions under particularly optimal conditions, and therefore high brokerage fees were agreed upon (p.  319 of the transcript, paras.  7-11).  However, an examination of the agreement shows that it is not contingent on the achievement of a transaction under certain conditions, and prima facie, to the extent that a transaction was presented by the same consultant that was acceptable to Unima and was executed (under more or less optimal conditions), the consultant would be entitled to brokerage fees.  In addition, a WhatsApp correspondence dated January 6, 2022 (three days after the brokerage agreement between Unima and the plaintiff was signed), was presented between Shachar and Matan in relation to a brokerage agreement with a broker named Rami Calderon (Court/110), in which there was also talk of brokerage fees of 3%-5%.  Shahar also claimed that a transaction was being negotiated on optimal terms, but was forced to admit that this condition was not written in the agreement with that broker (p.  320 of the transcript at paras.  28-29 and p.  321 at para.  1).  Therefore, the brokerage fee of 4% was not exceptional in relation to Unima's business, and it is not for nothing that no written claim was raised in real time in relation to the Unima brokerage agreement and the brokerage fees included therein.
108. It therefore follows from the aforesaid that the representatives of the Unima Board of Directors were aware of the Unima Brokerage Agreement and its terms before and after the incorporation of Unima, were aware of the Plaintiff's brokerage work through Katz and Haimi, signed additional brokerage agreements that entitle them to similar brokerage fees, and did not claim that the agreement does not bind Unima.
109. In these circumstances, the Unima brokerage agreement was implicitly approved by Unima, and is a binding agreement, even if it was not ratified in writing by it.

Was the plaintiff the "effective factor"

110. In accordance with the case law, it is not enough for the plaintiff to prove that there is only factual causation between his actions and the agreement that was concluded at the end of the day, but he must prove that he was an "effective factor" in the transaction. According to the Supreme Court in the Moskowitz case:

"The requirement of the case law is, as stated, that the action of the mediator will be the effective factor in the contractual engagement.  The test is a test of causality.  The realtor does not fulfill his duty by proving factual causation.  It is not enough that the mediator is a certain factor in the causal chain, in the sense of a cause-without-non-cause.  The demand is for the entity that is the most effective."

111. Clause 2 of the Unima brokerage agreement stipulates that: "Cober will present Unima to Pitkit and will act to assist Unima in conducting negotiations for a possible engagement for the acquisition of Pitkit and/or Pitkit's assets and/or control of Pitkit and/or any part thereof."
112. In other words, the plaintiff's role was to present Yonima to Pitkit and to assist her in conducting the negotiations with Pitkit, for the purpose of a possible engagement.
113. There is no dispute that the initial contact between Unima and Pitkit was made by the plaintiff through Katz and Haimi:

Katz, who was an acquaintance and business partner of Piron, offered Piron the deal, and Piron, who had an interest in Unima and acted on its behalf even before its formal incorporation, proposed the deal to Unima.