Preserving the Management Company’s Security – part I | Beit Din Eretz Hemda - Gazit | Beit Midrash

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Case: The plaintiffs (=pl) are the sixty families of a kevutzat rechisha (a group that buys land and builds a housing project together), organized by a management company (=def2). Pl all signed two agreements: 1) A management agreement between them and def2; 2) A partnership agreement, signed by all of pl, in which their obligations as partners are spelled out. At the time of adjudication, pl were close to completing, after many years, the project. Def2 claimed outstanding fees (approximately 2.5 million shekels) from pl, and pl are planning a major countersuit against def2 for mismanagement. Pl are trying to receive outside funding to continue the project, which is now unfeasible because their lawyer (=def1) created a he’arat azhara (=he’az; an encumbrance) on behalf of def2, preventing pl from taking legal actions on their property, including putting a lien on it to a financial institution. Def2 is willing to remove the he’az only if pl put in escrow the amount of money def2 is suing for. Pl argue that def1 did not have a right to create the he’az for def2, as it was authorized only to be in def1’s name, as pl’s lawyer looking out for their interests against the possibilities of a partner not fulfilling his obligations to them.

Ruling: [The first part of the presentation focuses on jurisdiction. The agreements specify that adjudication of disputes is at Eretz Hemdah. However, pl plan to sue def1 and def3 (owner and CEO of def2) personally and since they have personal liability insurance and their insurance companies are not included in the arbitration clause, def1 and def3 say that if they demand personal liability, that part should be in civil court. This prompted pl to say that under this circumstance, they want to adjudicate with def2 as well in civil court and only deal with lifting he’az in beit din. Def2 wants everything related to it adjudicated in beit din. Originally, def1 also wanted to keep the he’az until his legal fees were paid or guaranteed, but pl and def1 reached a compromise based on a formula the sides had arrived at a year earlier.]

The present adjudication, on the he’az, needs to be taken care of swiftly, whereas the rest of the adjudication is highly complex, the countersuit is not yet complete, and there is a disagreement about the venue of the adjudication [ed. note – it was later decided by court ruling]. Yet, the two adjudications are connected. Def2’s claim to rights for the security of a he’az or an escrow are stronger if there is already a finding that they are owed the money. Since pl demands that this be done immediately and separately, the only way for us to rule on the he’az is if we work with the worst-case-scenario assumption for pl. In other words, can we force def2 to give up the he’az even if pl collectively owe def2 the full amount def2 demands?

We will see the answer to that question next time.