GIDEON FISHER & CO.: International Corporations in Israel Require Caution, as Cracks in the Proper Forum Doctrine Reveal09/13/2019
In Israel, countless class actions are brought before the court each year against a variety of respondents. In recent years, these claims have been brought not only against local businesses, and the forefront has expanded towards international corporations.
These class actions ignore the fact that the defendants are not located in Israel, and sometimes cannot even be said to operate directly (if at all) in Israel. Yet, once filed, an international corporation must face with a threat of a class action that might end up costing it a fortune.
While the common class action in Israel must first meet rather high standards by the courts to be approved, a class action involving an international entity is subject to even harsher threshold conditions, primarily the Israeli Civil Order Regulations with regards to serving the legal documents to the defendant. Complying with these regulations requires gaining the approval of the Israeli court to serve the documents outside of Israel, or to a proper local representative. After passing this process, the plaintiff will need to prove that the Israeli courts are indeed the appropriate forum for such a class action in a preliminary proceeding.
Despite the above, the current trend seems to be intensifying, as the Israeli courts declare louder and louder that there is a place for such class actions in their premises. And as these rulings become clearer – it will be easier for plaintiffs to file such class actions, building and adjusting their cases to fit between the precedents set by the courts' rulings.
The first milestone in this matter is the case of LG Display Co Ltd., decided by the courts in 2016, which defined the terms in which a class action involving a foreign respondent must be denied. In this class action, the plaintiff demanded reparation for damages caused by the five defendants, alleging price fixing of display panels. This plaintiff claimed that this price fixing caused a price hike for the common consumer, purchasing products including these said display panels.
The price fixing scandal was an international affair a few years prior to the submission of the Israeli class action. The Israeli court found that none of the defendants had operated in Israel, and ruled that any damage, if caused, to Israeli consumers was merely collateral. As of this, there was not enough legal ground to justify serving legal documents to the foreign corporations. Thus, the court set the first marker stone to these claims – direct influence.
The next marker stone was set by a class action filed against Facebook, for allegedly breaking Israeli Privacy Act; the claim demanded the corporation compensate each user a lump sum of 100$. This time – the direct influence was more apparent, and Facebook challenged the international authority of the Israeli court over its contractual relationship with its users.
Facebook relied on its EULA (End User License Agreement), which stated that such disputes be resolved in a Californian court. However, the court dismissed this rebuttal, stating that such a contract falls under Israeli Standard Contracts Law, which grants the courts the power to strike down any contract clause in so-called boiler-plate contracts, which are found to be prejudicial against the consumer. The court exercised its authority over the EULA, finding the foreign forum clause to be prejudicial, and thus paved the way for litigation in Israel. And so, we have a second marker stone – prejudicial foreign forum clauses may be stroke down, taking with them the protection they provided to such international entities.
The third marker stone was set just this April, this time in regards to a class action brought against Linkedin – for allegedly breaching Israeli Communication Act, which defines certain messages as action-able spam. This class action demands Linkedin compensate each and every Israeli user with 500$ (approx.), and an additional 40$ (approx.) for any Israeli ever to receive an unsolicited Linkedin invitation to their email.
This time, the breaching act allegedly took place on the servers of a third party –the email services providers, who are also, for the most part, situated outside of Israel. Yet, the court ruled that due to the global nature of the Internet – the fact that the email addresses are owned by Israelis is sufficient in order to justify the serving of the legal documents. Basically, the third marker stone says –online activity with Israelis may be counted as activity in Israel.
It must be said that with regards to these rulings – all are still pending final and concluding decisions by the courts, including the Israeli Supreme Court. However, in a recent brief filed by the state in the appeal regarding the aforementioned Facebook case – the state sided with the lower court's ruling, stating that EULA and other standard form contracts should not prohibit Israeli consumers from filing class actions against international corporations – as long as their acts influence said consumers directly.
Thus, even though these class actions still have ways to go before being held as binding resolutions, the path is set, and the courts clearly signal the relevant entities to prepare accordingly.
In the coming years, we should be seeing more and more class actions brought against international corporations, as the trend grows stronger. This will include class actions concerning international scandals, such as the one discussing the LG class action, but also more 'domestic' ones – such as the Facebook case.
However, it seems that the most challenging type will be those akin to the Linkedin case – where a rather obscure law (outside of Israel) becomes a quite large-summed lawsuit against an international corporation, who might not even know about the fine details of Israeli spam law. For that is the true power and temptation of class actions – taking a small matter, and enlarging it, demanding us, as representatives and counsels to international entities, to foresee and manage these potential crises.
Adv. Daphna Fisher, Adv. Zohar Drookman