{"id":178,"date":"2016-12-05T15:32:09","date_gmt":"2016-12-05T15:32:09","guid":{"rendered":"http:\/\/www.sherby.co.il\/blog\/?p=178"},"modified":"2016-12-05T15:32:09","modified_gmt":"2016-12-05T15:32:09","slug":"the-israeli-long-arm-rule-on-steroids","status":"publish","type":"post","link":"http:\/\/www.sherby.co.il\/blog\/2016\/12\/05\/the-israeli-long-arm-rule-on-steroids\/","title":{"rendered":"The Israeli Long-Arm Rule \u2013 On Steroids"},"content":{"rendered":"<p style=\"text-align: center; background: white;\" align=\"center\"><span style=\"font-family: 'Arial','sans-serif';\">\u00a9 2016 Sherby &amp; Co., Advs.<\/span><\/p>\n<p>Israeli law regarding the exercise of personal jurisdiction has long been characterized by the dichotomy between the conservative approach dictated by the Supreme Court and the more liberal approach practiced by the lower courts.\u00a0 The recent decision in <em>IRS Group Ltd. v. Simon Katan et al<\/em> (Haifa District Court) seems to have taken that schism to a new level.<\/p>\n<p><em>IRS Group<\/em> involved an <em>oral<\/em> contract to distribute goods in the United States.\u00a0 The defendants were (a) an Israeli-Turkish citizen who resided in the United States, and (b) a limited liability company, established in the United States <em>after<\/em> the alleged oral contract was arrived at.<\/p>\n<p><strong>Background:<\/strong>\u00a0 Before describing the circumstances concerning the alleged oral agreement, we set forth a brief summary of the relevant portion of the (multi-prong) Israeli long-arm jurisdiction rule and some basic principles of Israeli jurisdiction:<\/p>\n<ul>\n<li>An Israeli plaintiff may not serve process upon a foreign defendant absent court permission;<\/li>\n<li>An Israeli court may exercise jurisdiction over a non-Israeli defendant with respect to a contract claim if that contract was \u201cmade\u201d in Israel (the long-arm does <em>not<\/em> use the term \u201csigned\u201d in Israel);<\/li>\n<li>A motion for such permission is routinely filed on an <em>ex parte<\/em> basis and granted on an <em>ex parte<\/em> basis \u2013 with the defendant\u2019s right to move for vacatur being reserved;<\/li>\n<li>In order for this prong of Israel&#8217;s long-arm to be met, there is no need that the intended place for performance be in Israel;<\/li>\n<li>Israel\u2019s Supreme Court has long held that any doubt as to whether the alleged conduct of the non-Israeli defendant falls within the scope of the long-arm rule is to be construed in favor of the foreign defendant.<\/li>\n<\/ul>\n<p><em>See Encyclopedia of International Commercial Litigation<\/em>\u00a0(Israel Chapter) \u00a7\u00a0A4.3-\u00a7\u00a0A4.9.<\/p>\n<p><strong>Analysis of Factual Allegations Relating to Jurisdiction:\u00a0 <\/strong>In <em>IRS Group<\/em>, the plaintiff asserted both a claim for breach of (an oral) contract and a claim for copyright infringement.<\/p>\n<p><em>The Breach of Contract Claim<\/em>:<\/p>\n<p>Both with respect to the circumstances of reaching the agreement and the terms of that agreement, the decision in <em>IRS Group<\/em> is sparse.\u00a0 The alleged oral agreement was arrived at in the Israeli office of an accounting firm (presumably the accountants of the plaintiff, IRS Group).<\/p>\n<p>The court added the following observation regarding the chronology of the contractual relationship (as per the plaintiff\u2019s factual contentions):<\/p>\n<blockquote>\n<p style=\"padding-left: 60px;\">The principles were agreed upon, in the presence of the parties, at a meeting . . . . [and] the defendant [Simon] requested to prepare the agreement in Israel due to costs considerations, and it was agreed to form a joint company in Dallas Texas for tax purposes.<\/p>\n<p style=\"padding-left: 60px;\">The parties began their cooperation, even though the defendant [Simon] put off the signing of the contract . . . .<\/p>\n<\/blockquote>\n<p>(Paragraphs 2.2-2.3)<\/p>\n<p>The above description \u2013 specifically the statement that the defendant put off the signing of a written contract \u2013 raises a fundamental question as to whether the execution of a written agreement was intended to be an integral part of the parties\u2019 alleged meeting of the minds.\u00a0 In essence, the court <em>raised<\/em> the issue but then <em>dropped<\/em> it \u2013 which seems inconsistent with the Supreme Court\u2019s admonition to construe all doubts in the defendant\u2019s favor.<\/p>\n<p>Moreover, the court in <em>IRS Group<\/em> glossed over the fact that the corporate defendant did <em>not even exist<\/em> at the time the alleged oral contract was made in Israel.\u00a0 In a case in which the lone jurisdictional basis is that an agreement was \u201cmade in\u201d the forum state, it is difficult (to say the least) to justify exercising jurisdiction over an entity that did<em> not <\/em>even exist at the time of such alleged agreement.<\/p>\n<p>Thus there are two grounds for questioning the court\u2019s conclusion that the \u201ccontract made in Israel\u201d prong was satisfied \u2013 (a) a serious doubt as to whether the parties intended there to be a binding contract absent a signed document, and (b) the lack of any basis for tying the corporate entity, which had not yet come into existence, to the oral contract.<\/p>\n<p><em>The Copyright Claim<\/em>:<\/p>\n<p>As indicated above, the plaintiff also asserted a claim for copyright infringement.\u00a0 The plaintiff claims to have sent photographs (for catalogue use) to defendant Simon, and both defendants are alleged to have used those photos to market goods <em>other<\/em> than those of the plaintiff. \u00a0From the description in the court\u2019s decision, it appears that the alleged acts of copyright infringement occurred entirely <em><u>outside<\/u><\/em> of Israel.<\/p>\n<p>Yet as a general matter, an Israeli court will be very hesitant to exercise jurisdiction over a non-Israeli defendant for infringement that is alleged to have taken place entirely outside of Israel.<\/p>\n<p>Moreover there is no indication from the court\u2019s decision that the issue of use of the photos was a <em>term<\/em> of the alleged oral agreement (and even if it had been a term of the agreement, as noted above, the corporate entity could not have been a party to any agreement before it was incorporated).<\/p>\n<p>If the contract did not deal expressly with the issue of the use of the photos, then the plaintiff is left with a claim for copyright infringement against two non-Israeli entities relating to conduct entirely outside Israel.\u00a0 In other words, if the contract did not deal expressly with the photos, then the existence of an alleged copyright claim would not appear to salvage the jurisdictional problems relating to the contract claim.<\/p>\n<p><strong>Considerations of Convenience:\u00a0 <\/strong><\/p>\n<p>The court\u2019s jurisdictional analysis did not stop with the conclusion that the \u201ccontract made in Israel\u201d prong of the long-arm was satisfied.\u00a0 Rather, based upon case law from Israel\u2019s Supreme Court, the district court was required to, and did, consider whether Israel would be a convenient forum for adjudicating the claims.<\/p>\n<p>One of the factors to be considered regarding the issue of the convenient forum is the reasonable <em>expectation<\/em> of the parties as to the forum for the adjudication of disputes.\u00a0 On this issue, the court\u2019s analysis was remarkable:<\/p>\n<blockquote>\n<p style=\"padding-left: 60px;\">I accept the contention of [the plaintiff\u2019s owner] that he thought that he was doing business with an Israeli citizen, who has a close connection to Israel.\u00a0 The mother of [defendant Katan] had been living in Israel, and the defendant habitually visited her, and he also came here in order to sit <em>shivah<\/em> [the traditional Jewish seven-day mourning period] when she passed away.\u00a0 The defendant [Katan] told [the plaintiff\u2019s owner] that he gets dental treatments in Israel and comes [here] for that purpose every few months.\u00a0 It can be assumed that the reasonable expectation of the plaintiff was that the place for adjudication in the event of a dispute would be in Israel and that Israeli law would apply to a deal made in Israel.<\/p>\n<\/blockquote>\n<p>Although the Israeli dentistry industry might be flattered by such analysis, <em>IRS Group<\/em> is probably the first time that an Israeli court, in considering the appropriate forum for adjudicating a business dispute, relied upon sitting <em>shivah<\/em> <em>or<\/em> sitting in a dentist\u2019s chair.<\/p>\n<p>In deciding that the <em>personal<\/em> visits to Israel of Katan rendered it reasonable for the plaintiff to expect to litigate in Israel, the court essentially <em>ignored<\/em> all of the <em>business<\/em> factors \u2013 not the least of which were that (a) the parties agreed to establish a limited liability company in the United States, and (b) the territory for marketing the products was the US.<\/p>\n<p><strong>Take-Aways From This Case:<\/strong>\u00a0 Arguably the outcome in <em>IRS Group<\/em> was not surprising \u2013 Israeli courts hold plaintiffs to a relatively low evidentiary standard when deciding issues of personal jurisdiction. \u00a0But a low evidentiary threshold does not mean that factors weighing <em>against<\/em> the exercise of jurisdiction may be <em>ignored<\/em> \u2013 even when the court adjudicates a jurisdictional motion on an <em>ex parte<\/em> basis.<\/p>\n<p>As indicated above, a non-Israeli defendant is given the opportunity to seek vacatur of such an <em>ex parte<\/em> order after having been served with the court papers. \u00a0But that fact alone does not absolve a court from taking into consideration obvious factors that weigh <em>against<\/em> the exercise of jurisdiction over non-Israeli defendants.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u00a9 2016 Sherby &amp; Co., Advs. Israeli law regarding the exercise of personal jurisdiction has long been characterized by the dichotomy between the conservative approach dictated by the Supreme Court and the more liberal approach practiced by the lower courts.\u00a0 The recent decision in IRS Group Ltd. v. Simon Katan et al (Haifa District Court)<\/p>\n<p><a class=\"moretag\" href=\"http:\/\/www.sherby.co.il\/blog\/2016\/12\/05\/the-israeli-long-arm-rule-on-steroids\/\">Continue Reading&hellip;<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9,8,3,7,4],"tags":[],"class_list":["post-178","post","type-post","status-publish","format-standard","hentry","category-forum-non---","category-international-litigation-","category-israeli-litigation","category-jurisdiction","category-4"],"_links":{"self":[{"href":"http:\/\/www.sherby.co.il\/blog\/wp-json\/wp\/v2\/posts\/178","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.sherby.co.il\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.sherby.co.il\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.sherby.co.il\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.sherby.co.il\/blog\/wp-json\/wp\/v2\/comments?post=178"}],"version-history":[{"count":2,"href":"http:\/\/www.sherby.co.il\/blog\/wp-json\/wp\/v2\/posts\/178\/revisions"}],"predecessor-version":[{"id":180,"href":"http:\/\/www.sherby.co.il\/blog\/wp-json\/wp\/v2\/posts\/178\/revisions\/180"}],"wp:attachment":[{"href":"http:\/\/www.sherby.co.il\/blog\/wp-json\/wp\/v2\/media?parent=178"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.sherby.co.il\/blog\/wp-json\/wp\/v2\/categories?post=178"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.sherby.co.il\/blog\/wp-json\/wp\/v2\/tags?post=178"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}