Class Action (Jerusalem) 42026-05-20 The Israeli Consumer Council v. Lotont Friends Club Ltd. - part 2

Respondent No. 2 - Mega Advanced Mathematical Methods Ltd., operates the "Mega Lottery" club (hereinafter also – Mega).

Respondent No. 3 – Point Marketing and Trade Ltd., operates the "Lotoodle" club (hereinafter also – Lotoodle).

Respondent No. 4 – LotCard Ltd., operates the "LotCard" Club (hereinafter also – LotCard).

Respondent No. 5 - Club 4 U - Business Development Ltd., operates the "Club 4 U" club (hereinafter also - Club 4 U).

Respondent No. 6 – Lotto Club Six Ltd., operates the "Lotto Club 6" (hereinafter also –  the Lotto Club Six).

Respondent No. 7 - A.D. Smart Maintenance Systems Ltd., operates the "Smart Winners" Club (hereinafter also - Smart Winners).

Respondent No. 8 - New Sport and Marketing Ltd., operates the "WinWin Lottery" club also known as "New Sport and Marketing" (hereinafter also - New Sport and Marketing).

6. The Applicant, the Israeli Consumer Council (hereinafter also – the Council), is a government company that operates by virtue of the Israel Consumer Council Law, 5768-2008. The Council is a recognized body under  the Class Actions Law that may file a motion to certify a class action, even if the request can be filed by a person who has a cause of action in the matter (section 4(a)(3) of the Law).
7. As stated, the Applicant refers to the Respondents claims of two types: first, claims concerning the illegality of the Respondents' activity, which constitutes, as alleged, the organization of lotteries illegally. The second is claims that concern the misleading of consumers, by act and omission, regarding the nature of the service or product provided to them by the Respondents.
8. These claims are made on behalf of the class members, which according to the motion include "any person who entered into an agreement with the Respondents or any of them in an agreement to participate in the Mifal HaPais lotteries, or paid the Respondents subscription fees by virtue of such an agreement, from seven years prior to the filing of this application until the filing of the class action after its approval."
9. According to the Applicant, the members of the class have causes of action against the Respondents by virtue of the laws of contracts, tort law and the laws of enrichment, and not in law. As claimed, these grounds entitle the clients to a number of remedies: declaratory and injunctions against the Respondents' activity, restitution of the subscription fees they paid to the Respondents, and compensation.

Preliminary Note – Parallel Proceedings and the Place of Respondents 3 and 4 in the present proceeding

10. This proceeding was originally heard by the Honorable Judge Forg in the Central District Court. Upon filing the motion for approval, the Applicant announced the existence of parallel class proceedings against some of the Respondents. This was a class action proceeding (Central District) 57758-05-16 Hagai Balmas v. Lotocard Ltd. [Nevo] (hereinafter – the Balmas case) and a class action proceeding (Jerusalem District) 14859-05-18 Aner Bar Ilan v. Point Marketing and Trade Ltd. [Nevo] (hereinafter – the Bar Ilan case).
11. In the Balmas case, a motion to certify a class action against respondent 4 was discussed. In this motion, claims were raised regarding misleading regarding the value of the lottery tickets purchased with the subscription fee, but no claims were raised regarding the illegality of the respondent's activity. In the Bar Ilan case, a  motion to certify a class action was heard against respondent 3. In this motion, it was alleged against it that it misleads its customers with regard to the value of its services, that it presents them with false representations regarding the chances of winning, that it prevents them from disconnecting from its services, and that it conceals from them that its activity is illegal.
12. On December 30, 2020, after hearing the arguments of the parties in the matter, the Honorable Justice Forge decided that the hearing in this proceeding would be transferred to the panel that heard the proceeding in the Bar Ilan case  in this court, in which the claim of illegality was also raised. This was in order to streamline the hearing and prevent contradictory decisions on the issue. It was also decided that with respect to Respondent 4, which is the defendant in the Balmas case, only the arguments relating to the illegality of its activity will be discussed in the present proceeding, while the arguments relating to the various grounds for deception will be discussed in the framework of the proceeding in the Balmas case.
13. In view of the decision of the Honorable Justice Forge, respondent 4 was not sued in the proceeding before me with regard to the claims of deception.
14. On April 28, 2021, a decision was made in this court by the Honorable Vice-President as she was then described as Kanfi-Steinitz, before whom the motion to certify a class action in the Bar Ilan case was heard. The decision granted the motion to certify the motion in connection with the allegation of a violation of the provisions of the Consumer Protection Law with respect to the manner in which the engagement  agreements with it were terminated, and the motion to certify a class action against respondent 3 in connection with the allegation of misleading regarding the value of the services was denied. As to the claim of illegality, the court noted that in view of the existence of a parallel proceeding, the current proceeding, in which a number of companies with similar activities are being sued, it is appropriate at this stage to refrain from deciding on the claim of illegality, and to leave the decision on this issue to the proceeding at hand. This is for reasons of procedural efficiency, in order to prevent contradictory decisions, and since in the current proceeding additional respondents are involved, it will be possible to hear their arguments as well, and in view of the absence of a detailed argument on behalf of the applicant on this issue in the Bar-Ilan
15. As to the reason for rejecting the claim of deception, the decision stated: "This argument was raised by the Applicant with reference to the Respondent's representations, without admissible evidence being brought in her case that could prove that the Respondent's representations were misleading. No expert opinion was even presented analyzing the chances of winning direct participation in the Mifal HaPais lotteries as opposed to participation through the Respondent, or personal participation as opposed to group participation. Needless to say, the assessments and speculations in this regard are not sufficient."
16. Respondent 3 argues that the court's decision in the Bar Ilan case on the issue of deception in relation to the chances of winning creates an act of court that prevents the Applicant from raising this argument in the present proceeding.
17. I do not accept this argument and accordingly this argument will be discussed on its merits in this decision.
18. Although the existence of a previous motion for approval that was rejected may serve as a basis for preventing the filing of new motions for approval on the same subject, it should be clarified, as clarified in class action (Hai District) 53332-04-22 Udi Mozes v. Shufersal Ltd. [Nevo] (November 14, 2022), that in such a case the claim "is not estoppel by virtue of the doctrine of the act of court, at least in the classical sense". This, inter alia, follows Civil Appeal 2505/06 Becker v. Cellcom Israel Ltd., paragraphs 16-17 [Nevo] (December 9, 2008), where it was stated that "since the dismissal of a motion for representation in limine does not create a court action, which blocks late requests for representation, a preliminary condition was set that was intended to filter motions based on claims that were discussed and decided, and thus prevent re-litigation."
19. In Civil Case (Tel Aviv District) 1043/00 Rosenfeld Yosef v. The Organization for the Implementation of the Convention on Social Security [Nevo] (October 24, 2002) (hereinafter – the Rosenfeld case), it was held, after analyzing a number of pieces of legislation (in the period preceding the Class Actions Law), "a decision rejecting a motion to certify a claim as a class action does not establish an act of court and does not block the possibility of filing an additional motion for certification in the same matter." At the same time, it was held, "At the same time, a similar matter has already been discussed and decided in a manner that rejects a motion to certify a claim as a class action, and this fact creates a special situation that justifies a preliminary, separate examination, in the framework of which the applicant must show what is the point of a renewed hearing on the same issue. In other words, in light of the judgment in the Malek case, the applicant is obligated to show that there is a difference between the claim here and the claim, whose approval was requested in the Malek case, and he must also show that this difference is so real and significant that the judgment that was given in the Malek case is not up to the challenge, even at the outset. [...] Therefore, if it turns out that the applicant used the right of access to the court for the purpose of raising a motion to certify his claim as a class action, without having any significance in comparison to the motion for certiorari that was rejected in the Malek case, then the motion filed by the opposing party can be regarded as harassment that is not acceptable, and in such a case it can be dismissed out of hand without discussing it on its merits" (ibid., at paragraph 9).
20. In the Udi Mozes case, the court presented the principles underlying a decision on whether to grant a motion for certiorari on a ground for which a motion for certiorari had been rejected in the past. This includes the purpose of the class proceeding; the "representative problem"; Fear of frivolous claims and abuse of a class proceeding. The tests it proposed for weighing the matter are the degree of difference in the factual basis; the period of time that has passed; and the reason for which the previous application was rejected, while a distinction must be made "between a situation in which the previous application was rejected for procedural reasons or for reasons that do not relate to a prima facie decision on the cause of action itself, and a situation in which the decision is the result of an in-depth discussion and a decision on the cause of action itself." In particular, it was argued that "the nature of the decision may also have weight. Sometimes the rejection is due to the applicant's failure to meet the prima facie burden of proving the cause. In such cases, it would not be correct not to allow another class plaintiff to bring the matter on behalf of the class to the court again, in the appropriate cases. This is in contrast to a situation in which the court discusses the cause of action and rejects it on its merits."
21. Taking into account these principles and the tests that have been proposed, it appears that in his case the conclusion is required that a proceeding against respondent 3 should not be prevented with regard to the claim of deception regarding the chances of winning.
22. In the case of respondent No. 3, the proceeding in the Bar Ilan case dealt mainly with the claim of deception regarding the value of the service and the commission taken from the subscription fee; the claim that the respondent is making it difficult for the applicants to disconnect from its services; and also with the question of whether the respondent's activity is illegal. As the Honorable Justice Kanfi-Steinitz noted in her decision in the Bar Ilan case of April 28, 2021, the claim of deception there regarding the improvement of the chances of winning "was raised by the applicant with reference to the respondent's representations without admissible evidence being brought in her case that could prove that the respondent's representations are misleading". The Honorable Judge also noted that no expert opinion was presented analyzing the chances of winning, and that "the assessments and speculations are not enough."
23. The situation in the present proceeding is different. In our case, this argument was argued as one of the main causes of action, while an expert opinion was presented explaining why the respondents' representations in relation to the preference of participation in lotteries through the respondents are prima facie misleading representations. The respondents also produced an expert opinion on the subject on their behalf. The proceeding at hand included a number of evidentiary hearings in which this question was examined in depth, and the issue was examined in a broad context in relation to a large number of companies engaged in the field, including in relation to the activity of respondent 3.
24. It seems that this was not the case in the Bar Ilan case, for there the argument was rejected because it was raised merely without sufficient support.
25. Such a reason does not justify that the door will be closed to class members later on as well. The manner in which a previous application for approval was conducted, when the matter is now being presented in a comprehensive and in-depth manner, and does not justify in the circumstances of the case the need for the application for approval in question against respondent 3 as well, and the previous proceeding does not establish a defense for respondent 3 against the present application for approval with regard to the claim of deception regarding the improvement of the chances of winning.
26. If this is the case with respondent 3, all the more so with respect to respondents 1, 2 and 5, who claim a court act and estoppel against them by virtue of the Bar Ilan case, even though they were not party to it at all. Moreover, there are differences between the respondents in the representations, which are the main parameters for examining the existence of deception.
27. The ruling to which counsel for respondents 1, 2 and 5 referred  , from which they sought to learn prima facie that a court action also applies to these respondents (e.g.,  Civil Appeal Authority 3765/01 Phoenix Insurance Company Ltd. v. Alexander Kaplan [Nevo] (28 January 2002);  Civil Appeal Authority 353/20 Cogito Capital S.I. Limited Partnership v. Meni Weizmann [Nevo] (May 18, 2020), relates to decisions to stay proceedings or to delay the clarification of a motion to certify a class action in the case of another action that is being conducted, and not to create a court action against a party that was not a party to the original proceeding. Even the decision in Civil Case (Tel Aviv District) 1464/05 First International Bank of Israel Ltd. v. R. On Investments Ltd.  (published in Nevo, January 30, 2007), to which counsel for the respondents referred, does not assist in accepting the argument, since there were two motions to certify a class action filed by the same plaintiff against the same defendant. Therefore, the argument of respondents 1, 2 and 5 regarding the creation of an act of the court in their favor by virtue of  the Bar Ilan case should not be accepted.

Additional Preliminary Note – Developments Regarding the Representation of Respondents 7 and 8 and the Insolvency Proceedings of Respondent 8

28. Respondent 7 began the proceeding represented by Adv. Anshel, counsel for respondents 1, 2 and 5, who filed a reply on behalf of these four respondents. Adv. Anshel informed the court that at a relatively early stage in the conduct of the proceeding, contact with the representatives of respondent 7 was severed. At his request, the court released Adv. Anshel from representing respondent 7. However, in the absence of any other address, Adv. Anshel's address remained as the address for the submission of court documents to respondent 7, but there was no appearance on her behalf at the hearings. The result is that in practice the proceeding proceeded without the involvement of this respondent, and I will rule on the claims against her according to the material before me.
29. Respondent 8 began the proceeding with the representation of Adv. Koris. In July 2023, after a reply and affidavit were submitted on her behalf, Adv. Koris informed the court that the Respondent had informed him that she could no longer pay his fees. Accordingly, and with the consent of the Respondent, Adv. Koris requested to be released from her representation. Here, too, Adv. Koris's address remained the address of Respondent 8 for the purpose of producing court documents. However, on July 30, 2024, the Applicant's counsel informed the Court that insolvency proceedings had been opened against Respondent 8. Subsequently, the Applicant's counsel announced that on October 9, 2024, the court ruled in the insolvency proceeding that despite the existence of the insolvency proceedings against the Respondent, it is possible to continue the hearing of the motion for certification as a class action in this case, only until the decision stage in the motion to certify the class action. The Applicant's counsel also requested, in coordination with the Trustee of the Respondent's insolvency proceedings, that if the motion for approval is granted, no costs will be awarded against the Respondent. In light of the above, this decision also relates to this Respondent.
30. After the preliminary matters, I will discuss the arguments of the parties on the merits.

Grounds of illegality