What is the effect of a settlement agreement in a Class Action which was approved by the Court in California, U.S.A. on a Class Action which was filed in Israel by an Israeli claimant against the same defendant, based on the same cause of action?

The Israel Supreme Court dealt in April 2015 with this question (RCA 3973/10 David Stern vs. Verifone Holdings Inc. (2.04.15), and analyzed the issue of enforcement of foreign judgements in Israel.

In principle, unless a foreign judgement has undergone a process of enforcement or recognition by an Israeli Court, it has no standing, not for its execution nor for the creating of a res judicata, which may bar litigation of the same issues between the same parties.

The defendant, Verifone Holdings Inc. was sued in several Class Actions and Derivative Actions, and after the claims were united in the Federal Court, a settlement arrangement was approved by the California Federal Court (in re Verifone Holdings, Inc. Securities Litigation, Civil Action 07-6140MHP). The settlement applies to the Class members residing in USA and worldwide.

An Israeli shareholder of Verifone, filed in Israel a claim based on the same cause of action and sought its approval as a Class Action, on behalf of the Class – the Israeli shareholders of Verifone.

Verifone requested the Court to strike out or stay the proceedings in Israel, in view of the pending litigation in the US Court. The Plaintiff argued that the class’s right for a fair process in the US Court was breached as they were not part of the proceedings which led to the settlement agreement, they were not given an opportunity to opt out therefrom, and did not have proper representation during the foreign proceedings.

The Court did not allow the Israeli Plaintiff to escape the binding effect of the settlement by raising the same arguments re the Class representation which he had raised in the original Court. The Court also referred to a specific section in the Israeli Securities Law according to which where a claim relating to securities of a foreign entity was filed in Israel, the Court may stay the proceedings, if it realizes that in a foreign court a claim based on the same or similar cause of action was filed, until a final judgement is given in the foreign claim.  This provision reflects the tendency of the legislator to respect legal proceedings held in a foreign court concerning companies whose securities are traded both in Israel and abroad. However, where the proceedings in the foreign court were concluded by a judgement, the issues of recognition or enforcement of that judgement should be dealt with according to the Israeli Law for Enforcement of Foreign Judgements.

In this case, the Court actually recognized the foreign judgement during the process of the motion to certify a Class Action in Israel, as an ancillary issue. The Court checked whether the foreign judgement was given by a competent court, whether the foreign court has significant connections to the subject matter of the Class Action in Israel, and also whether or not the right of the Class members for a fair trial was breached. In view of the circumstances of the case, the Class Action filed by this Plaintiff was dismissed.

The Court expressed its dissatisfaction at the way the defendant company brought to the attention of the Californian Court, prior to the approval of the settlement, the difficulties ensuing from the fact that many investors in the company reside in Israel and only as a result of Plaintiff’s objection in the scope of the US hearings an additional publication of the arrangement was carried out in Israel, and the time for the filing of forms was extended.  However, as the Court in California finally dealt with these issues and determined it the way it did, there is no room for raising the same arguments again in Israel, by Plaintiff.

Finally, the motion for certification of the claim as a Class Action in Israel was dismissed and in view of the behavior of the respondent, no costs were imposed. In view of the fact that the Israeli proceedings were at the stage of the motion to approve the claim as a Class Action, a dismissal of the motion does not create a res judicata and may bind only the specific Plaintiff, as his claim is still an individual claim. Therefore, the effect of the recognition in the foreign judgment is limited to the applicant and not to the whole Class. The court commented that if another class member would file the same claim – the arguments re fair trial may be checked on their merits and also then, the court will give weight to the determinations of the Californian Court.