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Class Action Law Memorandum (Amendment No. 16), 5784-2024

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Class Action Law Memorandum (Amendment No. 16), 5784-2024

9 May 2024

Dear Clients and Colleagues,

On April 21, 2024, the Class Actions Law Memorandum (Amendment No. 16), 5774-2024 (the “Memorandum“) was published for public comments. The deadline for submitting comments to the Memorandum is June 2, 2024.

This Memorandum aims to incorporate into legislation, inter alia, the recommendations included in the inter-ministerial team report that focused on proposing legislative amendments to the Class Actions Law, 2006 (the “Class Action Law“).

The proposed amendments address various difficulties and challenges identified over the course of almost 20 years since the enactment of the Class Actions Law with a focus on curtailing the current trend of the filing of baseless and frivolous claims. Additionally, the Memorandum includes further amendments to the Class Actions Law on a range of other issues.

In this update, we seek to present the main modifications outlined in the Memorandum. Due to the scope of these amendments, we only included those changes which are most significant.

 

1.The rise in the filing of frivolous class action claims

The Memorandum includes several specific provisions aimed at addressing a problem that has sparked both judicial and public criticism: the rising number of improper and baseless petitions for certification being filed.

Pre-filing notice obligation

Currently, the Class Actions Law does not impose an obligation on a petitioner to give advance notice to the defendant as a prerequisite for filing a petition for certification (“Pre-filing Notice Obligation“).

The matter of pre-filing notices was recently raised in a ruling by the Tel Aviv District Court [Class Action (Tel-Aviv) 52621-07-23 Ben-Or v. Aviv Investments Ltd. (January 22, 2024)], which held that in certain cases filed for a cause of action of a failure to publish an accessibility statement or failure to publish accessibility arrangements under the Rights of Persons with Disabilities (Adjustments for Accessibility to Services) Regulations, 2013, a pre-filing notice obligation exists.

In this context, the Memorandum proposes for the first time to incorporate into legislation, a Pre-filing Notice Obligation as a prerequisite for filing a petition for certification in the following circumstances:

  • A claim in an “adapted proceeding” – is a claim against a tiny business (a business that employs up to five workers or a business whose annual turnover does not exceed NIS 2 million) for one of the causes of action to be included in the Fourth Addendum to be added to the Class Actions Law as proposed in the Memorandum (the “Fourth Addendum“) (for example: Section 30a of the Communications (Bezeq and Broadcasting) Law, 5742-1982; Regulation 34 of the Rights of Persons with Disabilities (Accessibility Adjustments) Regulations, 5773-2013; Consumer Protection Order (Marking of Goods), 5743-1983; and others).
  • A claim against a small business (a business that employs between 5 and 20 employees, or whose annual turnover is between NIS 2 million and NIS 20 million); or a medium-sized business (a business whose annual turnover is between NIS 20 million and NIS 50 million) for one of the causes of action to be included in the Fourth Addendum.
  • A claim seeking a mandatory injunction order, an injunction order or a declaratory order only (“Claim for Injunction“), and not a monetary relief.
  • A claim against a tiny business for any cause of action.

According to the Memorandum, the Pre-Filing Notice Obligation will be incorporated as a temporary provision for two years, in order to examine its effectiveness.

Eliminating the option to approve a compensated withdrawal

Section 16 of the Class Actions Law currently grants the court the authority to allow the petitioner or the class representative to withdraw from a petition for certification or a class action upon payment of remuneration to the petitioner/class representative or attorney’s fees to their counsel. The Memorandum proposes to eliminate the court’s authority to award remuneration to the petitioner/class representative or their counsel upon withdrawal of a petition for certification or a class action.

Dismissal in limine of frivolous or vexatious claims

According to the Supreme Court’s ruling, the De Minimis defense (a defense that applies in cases where only minimal harm has been caused) does not apply to class actions (which ostensibly aim to address situations where many individuals have suffered minimal harm, but none of them would individually file a claim for their damage). The Memorandum seeks to change the current situation and grant the court the authority to order the dismissal of a petition for certification at any time if it finds that the claim is frivolous or vexatious claim or if it was filed on a trivial and minor issue, lacking public interest, and the class members on whose behalf the class action was filed suffered minimal harm.

Denial of remuneration and attorney’s fees

The Memorandum proposes to deny remuneration to the petitioner/class representative, and attorney’s fees to the petitioner’s counsel, in cases where the petition for certification or the class action itself has ended in a settlement without compensation for the class provided that the petition for certification or the class action was not filed as a claim for injunctive relief.

Imposition of costs on the petitioner or class representative or the petitioner’s counsel

According to the Memorandum, in cases where the court finds that the petition for certification or the class action was managed in bad faith, the court shall order the payment of “reasonable and fair” costs by the petitioner/class representative or the petitioner’s counsel. This provision aims to balance the competing interests of deterring petitioners from filing frivolous claims and discouraging class action petitioners from filing legitimate and justified claims.

Limitation on the number of petitions for certification a petitioner can file in a calendar year

The Class Actions Law currently does not impose any limits on the number of petitions for certification that a specific petitioner can file. The Memorandum seeks to limit the number of petitions for certification that a petitioner can file in a calendar year to five petitions. This change is proposed, to address the prevalent trend of “serial petitioners.” The proposed limitation does not apply to the number of class-action petitions counsel can file.

 

2.Amendment of the Second Addendum to the Class Action Law

Addition of a cause of action for filing a petition for certification under privacy protection legislation

The Class Actions Law allows the filing of a petition for certification only under specific and defined causes of action, as determined in the Second Addendum to the Class Actions Law (the “Second Addendum“).

As part of the Memorandum, it is proposed to amend the Second Addendum to include several privacy causes of action under the Privacy Protection Law, that will allow to file a petition for certification in certain circumstances:

  • A claim based on a violation of privacy under Section 2 (paragraphs 1, 2, 3, 9-5, or 11) of the Privacy Protection Law, 5741-1981 (“the Protection of Privacy Law“).
  • A claim based on the management or holding of a database that must be registered contrary to Section 10(b2) of the Privacy Protection Law or contrary to a decision under Section 10(f) of the Privacy Protection Law (registrar’s decision on the suspension or cancellation of registration of a database).
  • A claim based on the violation of Sections 8(b) (prohibition on using information in a registered database, except for the purpose for which the database was established) and Section 11 (the obligation to inform a person of the inclusion of their information in a database accompanied by a notice specifying certain details) of the Privacy Protection Law.
  • A claim based on the violation of the Privacy Protection Regulations (Data Security), 5777-2017, which led to a serious security incident as defined in the above-mentioned regulations.

It should be emphasized that these proposed changes in the Memorandum are significant since they allow the filing of petitions for certification based on the privacy protection legislation even in cases where the defendant do not have a dealer-client relationship or any other relationship with the petitioner/ class representative as specified in the Second Addendum.

Establishing specific causes of action for filing petitions for certification against certain entities in order to apply the protections afforded to the “authority”

In class action against certain entities for unlawful collection, a question arises as to how to classify them – as “businesses” or perhaps as “authorities,” in which case the special defenses granted to an “authority” in the Class Actions Law apply.

The Memorandum seeks to apply the defenses granted to “authorities” to certain entities such as the Israel Land Authority, water and sewage corporations, local councils, and health maintenance organizations (“Kupot Holim”) in claims for the refund of unlawfully collected amounts of money.

To this end, the Memorandum proposes to amend the Second Addendum and include additional items that only according to them the filing of petitions for certification against the above-mentioned entities will be allowed, under defined causes of action, as further explained below:

  • A claim against the Israel Land Authority for the refund of amounts of money collected unlawfully by the authority in its activities according to the Israel Land Authority Law, 5720-1960.
  • A claim against a water and sewage corporation or a local authority for the refund of amounts of money unlawfully collected by them in their activities to provide water and sewage services, as defined in the Water and Sewage Corporations Law, 5761-2001.
  • A claim against health maintenance organizations (“Kupat Holim”), as defined in the National Health Insurance Law, 5754-1994 (the “National Health Insurance Law“), for the refund of amounts of money collected unlawfully by it in its activities according to Sections 7, 7A, and 8 of the National Health Insurance Law.

 

3.Long-term contracts in the insurance and pension sector

The Memorandum specifically address petitions for certification against an insurer or management company based on a violation of a “long-term contract” which is defined as a contract for an indefinite period or a contract for a period exceeding 20 years entered into by January 1, 2015.

The Memorandum suggests to incorporate into legislation several considerations for courts to consider when deciding whether to approve a petition for certification on the above-mentioned causes of action, including the existence of regulatory approval; the extent of the defendant’s harm if the petition is approved and the interest of the class members in its approval; the time elapsed since the contract was signed; the difficulty in bringing evidence; and relevant legislative and regulatory changes.

The Memorandum seeks to determine that the Attorney General shall have the right to respond to a motion to dismiss the petition for certification based on these considerations, provided that the Court does not find reason to dismiss the motion as mentioned above in limine.

4.Modified mechanism for determining remuneration and attorney’s fees

The Class Action Law allows parties to include in settlement agreements submitted for court approval a mutual recommendation regarding the amount of remuneration to be paid to the petitioner and attorney’s fees to be paid to the petitioner’s counsel. The Memorandum seeks to change the current situation and establish fixed and uniform rates within the framework of the Fifth Addendum proposed to the Class Action Law (the “Fifth Addendum“). According to the proposed arrangement, in class actions where compensation is awarded to the class, the remuneration and attorney’s fees awarded will be calculated on the basis of percentages of the compensation amount awarded to the class.

The Memorandum mentions that the court will have the discretion, to deviate from the fixed percentages in the Fifth Addendum, depending on the complexity of the proceeding, its public importance, the effort and risk involved in its submission, and the benefit to the class members.

5.Anchoring specific provisions regarding authorities

As stated, the Class Action Law provides special protections to a public authority due to its unique nature as an authority subject to obligations that do not apply to private entities and considering the budgetary implications that may arise from approving a class action against an authority and the resulting harm to the public interest. Within this framework, the Memorandum seeks to embody several additional specific provisions regarding class actions filed against authorities, as follows:

  • Pre-filing notice obligation – The Memorandum seeks to establish a Pre-filing notice obligation to the authority before filing an administrative class action against it regarding amount collected in excess, including against the Israel Land Authority and water corporations, and local councils. This is to fulfill the main objective of ceasing the unlawful collection without resorting to legal proceedings and saving resources for all parties and the judicial system.
  • Eliminating the possibility of filing a third-party notice against the authority in a class action in cases where it is not possible to sue the authority directly The Class Action Law determined that a class action cannot be filed against an authority for compensation for damage caused by a third party, since the authority either exercised or did not exercise its supervisory, regulatory, or enforcement powers over them. However, courts have recognized the right of a defendant in a class action to file a third-party notice against the authority, based on the remedies imposed in the proceeding (i.e., even when a class action against the authority cannot initially be filed).

The Memorandum proposes to amend the Class Action Law to stipulate that a third-party notice against an authority cannot be filed in a class action where a direct class action against the authority is not possible. This is to maintain the delicate balance between the application of the Class Action Law to authorities and the protections granted to authorities in the Class Action Law, in order to preserve the certainty and stability of the public budget.

  • Providing special provisions when filing a petition for certification for refund against the Tax Authority – when a class action is filed against the Tax Authority in relation to amounts collected in excess, the defenses provided in the Class Action Law shall apply. However, in cases where the Tax Authority collects taxes through another entity that transfers the tax to the Tax Authority, the defenses provided for the authority in the class action law shall not apply to the Tax Authority.

The Memorandum seeks to apply the protections to the Tax Authority even in cases where the Tax Authority is not the direct defendant (in cases where a private entity collects the tax and transfers it to the Tax Authority). The Memorandum proposes to stipulate that in any case where a class action is filed regarding tax refund, fee, or other mandatory payment that the Tax Authority is in charge of collecting, indirect tax according to the Indirect Tax Law; and unlawfully withheld tax, and the provisions of the proposed section 9a apply to it, the Court shall order that the petition should be served on the Tax Authority and that the Tax Authority will be entitled to join the proceedings as a party – thereby the protections preserved for the authority in the Class Actions Law shall apply, and the claim shall be transferred to the Administrative Court. If the Tax Authority notifies the defendant to cease collection, the class action against the Tax Authority shall not be certified. Likewise, if the defendant has ceased collection according to the notice from the Tax Authority, the Court will not certify the class action against the defendant.

  • Limitation of the restitution remedy in a class action and applying of defense against additional entities defined as “authority” – Due to budgetary considerations and understanding that harm to the public treasury essentially impairs the authority’s ability to fulfill its public roles properly, it is proposed to amend the Class Actions Law and stipulate that the period for restitution shall be limited to the preceding 24 months before the filing of the petition for certification only, and shall not include restitution for amounts collected at a later date, unless the petition was certified as a class action and the authority did not cease collection.

According to this proposed mechanism in the Memorandum, the authority may notify within 60 days from the date it received the decision certifying the class action whether it is ceasing collection. In addition, if the authority has not notified that it ceased collection, the Court may order the authority to pay restitution for the period starting from the date of approval of the class action, without imposing upon the authority to pay restitution for the period between the filing of the petition for certification and the certification of the class action. The Memorandum further proposes to determine that no further class action may be filed against the authority on the same grounds, and that anyone wishing to receive a remedy for additional periods beyond the period for which funds will be returned as stipulated in the proposed section, may only file an individual claim.

  • Attorney’s fees and remuneration – Since in cases where the authority notifies of a cessation compensation to the public is not awarded but rather the class action was not certified, the Memorandum requests to stipulate that in such cases the Court will determine the remuneration and attorney’s fees at its discretion and in accordance with the considerations proposed in the Memorandum regarding the determination of remuneration and attorney’s fees while taking into account that this concerns a public authority.

 

6.Additional provisions

  • The Memorandum seeks to eliminate the requirement imposed on an “organization” seeking to file a petition for certification to demonstrate that there is no individual (an actual human being or legal entity) with a personal cause of action who can file the claim. In order to prevent abuse of this option, the Memorandum proposes to amend the definition of “organization” and to add a condition that filing class actions is not the primary activity of the organization.
  • The Memorandum proposes that in cases where a settlement agreement is formulated within the framework of a mediation proceeding in which the mediator and the parties were exposed to data that served as the basis for the settlement agreement, the parties will attach a letter from the mediator that refers to this data.
  • The Memorandum seeks to expand the current publication obligation in the Class Actions Law and to stipulate that in cases where compensation to the class members is awarded by a court ruling or settlement agreement, the Court will order the publication of the notice regarding the provision of the compensation on the defendant’s website and through any other digital communication means that the defendant has with its clients (e.g., social networks).

 

Herzog’s Litigation Department will be happy to assist you with any questions or advice regarding the Memorandum, its applicability, and implications.

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