Class Action (Jerusalem) 42026-05-20 The Israeli Consumer Council v. Lotont Friends Club Ltd. - part 17

"S.K.H., but as far as the workers are concerned, the only employee.

1. I am the senior employee who is actually responsible for the proper management of the company.

S.K.H. Is there another senior employee besides you at the company today?

1. There is a personnel manager who is also the acting director of the [...]

S.K.H. Public Inquiries Manager and is there another position besides that?

1. No, not a senior position. There is no management."
2. It appears that as of the date of the Applicant's cross-examination, and even before that for a number of years, the ranks of the Israeli Consumer Council are sparse. There is no Director General in the Council, nor even a substitute for the Director General. The senior positions filled in the Council are the position of the Legal Advisor to the Council, which is filled by a filler, and the position of the Director of Personnel, which is staffed by someone who also serves as the Acting Director of Public Inquiries. The witness briefly summed up the current state of affairs with the following words: "There has been no managerial backbone in the Council since the beginning of September 24" (p. 165 of the transcript). And in another place she testified: "Sir, I was left here alone in the Council. This is the situation." (p. 156 of the transcript).
3. According to the witness, she does not make key decisions in the management of the lawsuit at hand, but rather transfers them to the council's board of directors, which handles these decisions when there is no council director general (pp. 164, 166 of the minutes). However, the council's board of directors, it turned out, did not function fully over the years.
4. Section 3 of the Israeli Consumer Council Law stipulates that the Board of Directors will have 11 directors, with the minimum composition of board members being five. The witness on behalf of the Applicant clarified that there were never 11 members of the Board of Directors (pp. 48,166 of the minutes), and that there were cases in which members of the Board of Directors resigned, when the background to the resignation was, to the best of her recollection, allegations regarding the conduct of the then-Chairman of the Board of Directors (p. 48 of the minutes).
5. The witness also stated that over the years there were periods in which fewer than five members served on the board. Thus, when the witness was asked why the Consumer Council refused to join the class action in the Balmas case in 2017, she replied that it may be because there was no quorum on the board of directors (p. 60 of the minutes). Similarly, when asked why they decided to file the class action in this case in 2020, and not in 2015, when the Attorney General published his position that the respondents' activity was illegal, she replied that "during this period we were without a board of directors for several years and could not file a class action" (p. 51 of the minutes). Even when she was asked why the agreement to finance the class action in this case was not brought to the Board of Directors for approval, she replied that this may have been caused by the absence of Qurum on the Board of Directors (p. 122 of the minutes).
6. It appears that the partial functioning of the board of directors in recent years has affected the functioning of the board. When Quorum was recruited to the board of directors, the board could have made decisions and initiated, for example, the class proceeding in question. However, when there were not enough directors to serve on the board, the council's activity was restricted: it was denied the opportunity to initiate class proceedings, and it may even have the possibility of auditing and ratifying financing agreements in which it engages.
7. According to the witness, there is currently a quorum on the board of directors, and there are 6 directors serving on it (p. 166 of the minutes). However, there is no permanent chairman of the board of directors, and at every meeting the members of the board of directors elect the chairman (p. 165 of the minutes).
8. The compilation shows that in recent years there has been managerial instability in the Applicant's ranks, which is expressed in frequent turnover of CEOs, resignations of senior executives, and the absence of senior management. The Board of Directors of the Council also recorded resignations of members, which led to the Board of Directors not meeting the quorum requirement for certain periods, which further limited the Council's ability to operate.
9. In this state of affairs, in the absence of senior management and with an unstable board of directors, there is a real concern that the Israeli Consumer Council is not prepared to manage the class proceeding effectively. This concern has a direct impact on its ability to ensure that the matter of the class members is represented and managed in an appropriate manner, as required by section 8(a)(3) of the Class Actions Law.
10. In these circumstances, I am of the opinion that the applicant should be replaced as a representative plaintiff, in accordance with section 8(c)(1) of the Law, which authorizes the court to approve a class action, even if the conditions stated in section 8(a)(3) or 8(a)(4) have not been met, if it finds that the fulfillment of these conditions can be ensured by way of the addition or replacement of a representative plaintiff or representative representative, or in any other way.

Fulfillment of the conditions for certifying the class action

240. After examining the arguments of the parties and the evidence brought before me, I find that the conditions required for the certification of the class action under section 8(a) of the Class Actions Law are met.
241. As stated therein, the court may approve a class action if it finds that it raises substantive questions of fact or law that are common to all the members of the class and there is a reasonable possibility that they will be decided in the action in favor of the class; that a class action is the most efficient and fair way to resolve the dispute in the circumstances of the case; that there is a reasonable basis to assume that the matter of all the members of the class will be represented and managed in an appropriate manner; and that there is a reasonable basis to assume that the matter of all the members of the class will be represented and managed in good faith.
242. As detailed at length above, the application raises substantive questions of fact or law that are common to all the members of the class – the claims of deception and the claim of illegality. As far as the claim of illegality is concerned, I do not believe that there is room to discuss this claim in the proceeding before me, for the reasons detailed above. However, with regard to the claims of deception, I have reached the conclusion that there is a reasonable possibility that they will be decided in the claim in favor of the group, and these raise questions common to all members of the group: Is information about the amount allocated as a commission and the amount allocated for the purchase of lottery tickets from the engagement funds material information to the consumer, and does refraining from presenting it constitute consumer misinformation? Are representations about the use of experts and statistical methods that improve the participant's chances misleading on behalf of the  lottery clubs?
243. I am also of the opinion that a class action is the most effective and fair means of resolving the dispute in the circumstances of the case. This is in view of the fact that the alleged deceptions are complex in nature and require professional clarification based on expertise, while the damage caused to each member of the class is not necessarily particularly high, so it is unreasonable to expect that an individual consumer will bear the costs involved in filing an individual claim. Moreover, it is doubtful to what extent the individual consumer is aware of the deception itself, and in any case the possibility of suing for it.
244. As to the conditions concerning the representation of the class members and the management of their affairs in good faith and in an appropriate manner, I am persuaded that there is a reasonable basis to assume that the matter of the class members will be managed in good faith. Admittedly, the Applicant's management of the claim raises practical difficulties during this period and raises the concern that the matter of the class members will not be represented in an appropriate manner. However, the Applicant's current weakness does not justify abandoning the group's interest in an action that appears to be well-founded, where the Applicant can be replaced by another class plaintiff. Therefore, and in accordance with my authority by virtue of Section 8(c)(1) of the Class  Actions Law, I accept the motion for approval so that it will be managed after an alternative class plaintiff has been identified.

In conclusion

245. The application for approval is rejected insofar as it relates to the claim of illegality, and since as far as respondent No. 4 is concerned, this is the only argument that is clarified in this proceeding, the motion for approval is rejected in its case.
246. The ground for which the conduct of a class proceeding is approved is consumer deception. Subject to the identification of an alternative representative plaintiff, a class action will be instituted against respondents 1, 2, 5, 6 and 7 for the two causes of deception. The action against respondent 8 will deal only with the first cause of deception; the action against respondent 3 will deal only with the second cause of deception.
247. The remedies for which the proceeding will be conducted are an injunction to stop the misleadingand to compensate the class members for their misleading by the respondents.
248. The class on whose behalf the claim will be conducted is, as defined by the Applicant in her application: "Any person who entered into an agreement with the Respondents or any of them in an agreement to participate in the Lottery lotteries, or paid the Respondents a subscription fee by virtue of such an agreement, from seven years prior to the filing of the application for approval until the filing of the class action after its approval."
249. In order to proceed with the proceeding, a class plaintiff must be located to replace the Israeli Consumer Council, and then a statement of claim will be filed. The Applicant's counsel will update you by January 1, 2026.
250. The Applicant will bear the expenses of Respondent 4 in the sum of NIS 10,000 together with VAT.
251. Respondents 1, 2, 3, 5, 6 and 7 will bear the Applicant's attorney's fees in the sum of NIS 25,000 together with VAT from each of them. Respondent 8 will not bear the Applicant's expenses, in accordance with the notice dated October 9, 2024.

The case will be brought before me on January 2, 2026.