Top Lawyer's Abusive Language Costs Client $20,000 in Court
The Israeli Supreme Court has ordered businessman Eli Kahana and two companies he owns to pay 75,000 shekels (approximately $20,000 USD) in legal costs due to "abusive statements" made by his senior lawyer, Gilad Waxman, against a lower court judge. Waxman, a prominent litigator, had accused the Tel Aviv District Court judge, Yardenna Sarusi, of bias and of making decisions solely to dismiss the appeal.
The case originated from Kahana's sale of his company, Eisenberg, which dealt in electronic microscopes, to Philips Electron Optics in 2014. The sale involved two agreements: $3.3 million for the company's operations and $2.2 million for Kahana's three-year non-compete agreement. Kahana argued the latter payment was a capital gain taxable at 25%, while the tax authority classified it as ordinary income subject to a 50% marginal tax rate.
Judge Sarusi had rejected Kahana's appeal, ruling that the non-compete payment was indeed ordinary income and questioning the authenticity of splitting the sale into two transactions. Kahana appealed to the Supreme Court, where Waxman initially defended his language, claiming it was based on statistical data. However, Supreme Court Justices Yigal Kosher, Yael Vilaner, and Deputy President Noam Sohlberg strongly criticized the remarks.
Justice Kosher stated that such arguments were "shameful" and intended to "blacken the judge's face," violating civil procedure rules against "insulting, demeaning, or abusive" filings. Despite the harsh criticism, the Supreme Court decided not to dismiss the appeal outright, citing Waxman's apology. However, they imposed the significant cost penalty and warned against future occurrences.
While the Supreme Court upheld the tax authority's classification of the non-compete payment as ordinary income, Justice Kosher's ruling differed from Sarusi's on the issue of the sale's artificial splitting, finding it was not necessarily artificial. He based his decision on established Supreme Court precedent, explaining that a non-compete clause restricts only the "fruits" of one's labor, not the "tree" (i.e., the fundamental ability to earn a living), thus qualifying as ordinary income.
