Class Actions in Context
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Class Actions in Context

How Culture, Economics and Politics Shape Collective Litigation

Edited by Deborah R. Hensler, Christopher Hodges and Ianika Tzankova

In recent years collective litigation procedures have spread across the globe, accompanied by hot controversy and normative debate. Yet virtually nothing is known about how these procedures operate in practice. Based on extensive documentary and interview research, this volume presents the results of the first comparative investigation of class actions and group litigation ‘in action’, in the Americas, Europe, Asia and the Middle East.
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Chapter 10: The class attorney—an agent without a principal: The Israeli case of Shemesh v. Reichart

Alon Klement


Economic literature has taught us the importance of agency problems in class actions. Class litigation involves significant investments of time, effort and financial resources, in addition to the intrinsic risk of loss without reimbursement. While class action attorneys bear the entirety of costs and risk, they enjoy only part of the returns. This discrepancy leads the attorney’s interests to diverge from those of the class. Under the simple agency model, such divergence predictably results in suboptimal investments of time and effort by the attorney, and in excess motivation to settle too early and for too little. Nevertheless, examination of the prolonged Israeli class litigation case of Shemesh v. Reichart generates a more complex picture of the class attorney's agency. The case was filed as a securities fraud class action in 1995. By 2002, most defendants had settled for an aggregate amount of 10 million New Israeli Shekels (NIS). As of that date, only two defendants still declined to settle: one was insolvent and the other bore only indirect liability for the fraud charged in the case. Nevertheless, the class attorney persisted in litigating the case against them. In doing so he performed very skillfully, argued some of Israel's most significant precedents in securities litigation, invested significant time and effort, and consistently refused to settle the case for offers he deemed inadequate.

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