Israeli Ministry of Justice Refrains from Opposing Settlement in Teva Shareholder Proceeding Concerning Foreign Bribery

On October 7, the Israeli business journal Globes reported that the Israeli Ministry of Justice is not opposing a compromise settlement that was reached between Israeli pharma company Teva Pharmaceuticals and a Teva shareholder, who had filed a petition in Tel Aviv District Court stemming from the resolutions that Teva had reached with U.S. and Israeli authorities regarding foreign bribery.

In December 2016, Teva and its Russian subsidiary agreed with U.S. authorities to criminal and civil resolutions requiring them to pay criminal and civil penalties totaling nearly $520 million, in connection with schemes involving the bribery of government officials in Russia, Ukraine, and Mexico in violation of the U.S. Foreign Corrupt Practices Act (FCPA).  Thereafter, in January 2018, Teva agreed to pay the Israeli State Attorney’s Office NIS 75 million ($22.1 million) in fines relating to the same types of foreign-bribery activity, without being required to plead to criminal charges.

The Teva shareholder’s petition sought documents that would allow him to bring a derivative shareholder action.  Teva subsequently set up an independent claims committee and reached a compromise settlement with the shareholder.  Under the terms of the proposed settlement, the insurance companies for the Teva company officers against whom the shareholder sought to file his derivative action would pay $50 million “in exchange for final and absolute removal of all claims by the company against its officers and directors in connection with the bribery affair.”  The settlement also set legal fees for the lawyers representing the shareholder at $1.6 million.

Under Israeli law, Globes reported, the Attorney General’s opinion “is legally required before any compromise in class action and derivative proceedings can be reached.”  In this case, however, the Israeli Ministry of Justice took a highly deferential position with regard to the potential settlement, stating that

[i]t can be argued that the result of the settlement, in which the company will be responsible for defending the officers in the event of a future proceeding against them in the affair for which the derivative lawsuit was filed, involves a difficulty.

The Ministry went on to state that if the Tel Aviv District Court, which has jurisdiction of the shareholder action, “finds that in this case, exceptional and special circumstances existed in this case justifying the indemnification conditions in the settlement, it may not be unreasonable to refrain from intervention in the considerations of the company and the independent committee.”

With regard to the payment of legal fees, the Ministry responded:

It appears that the requested legal fees meet the criteria established in judicial rulings, but on the high side. It should be kept in mind that the sum is fairly high considering the efforts made by the lawyer in the proceeding. For this reason, the Ministry of Justice leaves the judgment on the legal fees to the court.

A number of public shareholders have already stated that they oppose the proposed settlement.  The judge hearing the case reportedly will have to weigh their objections and concerns, and has the authority to require the parties to make further changes to the settlement before he would approve it.

N.B.: This latest action is a reminder that even if public enforcement authorities seek to coordinate their resolutions of foreign-bribery cases, the ripple effects of such resolutions can last for years afterward.  In addition to Teva’s resolution of the U.S. and Israeli law enforcement investigations, earlier this year former Teva management officials and directors agreed to return a sum of $50 million to Teva, as part of a compromise agreement to compensate Teva for fines and damages that it incurred to settle the foreign-bribery charges.  No date has apparently been set for the judge’s decision regarding the settlement.

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