(2013/5774)
Rabbi A. Yehuda (Ronnie) Warburg serves as a Dayan in the Chassidic, Modern Orthodox, Sephardic and Yeshivah communities in the NY-NJ metropolitan area and is a resident of Teaneck, NJ. This article is an excerpt from his book, Rabbinic Authority: The Vision and the Reality (Urim 2013). In this work, R. Warburg presents ten rulings in cases of Choshen Mishpat [Jewish civil law] which he handed down as a member of a Beit Din panel. The transliteration and formatting have been modified to fit Kol Torah standards.
In this Beit Din case, there is a rendition of the facts of the case, followed by the claims of the Tovei'a [plaintiff], the reply of the Nitva [defendant] and any counterclaims. Subsequently, there is a discussion of the Halachic issues emerging from the parties' respective claims and counterclaims, followed by a decision rendered by the Beit Din panel. To preserve the confidentiality of the parties involved in these cases, all names have been changed and some facts have been changed or deleted.
Due to severe overcrowding conditions in their facility, Yeshivah Har Tzion sought land to build an additional building. Yossi Stein, a trustee on the Yeshivah board, is the sole owner of Century Realty Corporation, which owned a plot of land adjacent to the Yeshivah that was suitable for the Yeshivah’s needs. Mr. Stein persuaded his real estate broker to offer the plot to the Yeshivah, but neither Mr. Stein nor the broker disclosed Stein’s ownership of Century. The Yeshivah ultimately bought the plot for one million dollars.
Realizing that the Yeshivah required additional capital to finance the property purchase, Mr. Stein persuaded the board to sell a vacant lot owned by the Yeshivah to his nephew. The nephew agreed that should the sale materialize, he would use his political connections to arrange for his uncle’s appointment as a councilman on the municipal board. Again, neither Mr. Stein nor his nephew disclosed their familial ties to the Yeshivah, nor the nephew’s offer to his uncle.
The Yeshivah’s board voted to approve both the purchase of the property and the sale of the Yeshivah land. After the finalization of the sale, the Yeshivah became aware of Mr. Stein’s ownership of the real estate company, as well as the identity of the buyer of their property. In light of the circumstances, Mr. Stein was removed from his board position.
Tovei’a’s Claims
The Tovei’a, argues that this situation can be best described as “a self-dealing transaction” in which the Nitva, had a financial interest in the Yeshivah’s purchase. The Nitva was therefore obligated to exhibit transparency by disclosing his interest in the transaction. Moreover, the Nitva utilized his power of persuasion as a board member to purchase this land at a cost of one million dollars. Upon discovering the Nitva’s ties to the transaction, the board became aware that the fair market value of the property was $900,000. Consequently, the Tovei’a is suing for $100,000 from the Nitva.
Similarly, because the board was unaware of the fair market value of their property, the Nitva’s nephew was able to purchase the property at $150,000 below its market value.[1] The Tovei’a is therefore suing for an additional $150,000.
Nitva’s Counterclaims
If the purchase price of the property did not reflect the fair market value, it was the board who shirked its responsibility by failing to perform due diligence and leg-work that might have demonstrated that both transactions were not the good deals they seemed to be. Moreover, while other boards have the practice of requesting that its members read a conflict-of-interest policy, list any affiliations in which they have a financial interest, and recluse themselves from deliberation should a conflict arise, there is no such practice on the Tovei’a’s board. As such, the process of purchasing the land was not tainted, and the Nitva is exempt from any responsibility regarding this matter. Finally, the Nitva argues that his removal from the board was unjustified and he should be instated to his former position.
Last week we examined the need for transparency and the trustees’ status as either Dayanim or Shomeirim.
Discussion
The Trustee as an Apotropos
Public servants are empowered either by election or appointment by the constituency of their respective communities or voluntary associations to be entrusted as guardians over their assets.[2] The creation of these bodies and the responsibilities of the trustees vis-à-vis these constituencies are shaped and molded by Hilchot Apotropsut, the laws of guardianship.
An Apotropos charged with guardianship of an orphan must avoid any Chashad (suspicion) that he is mismanaging his ward’s funds. To be above suspicion, any profit derived by an Apotropos from a personal transaction with a third party concerning the orphan’s assets requires the prior scrutiny of a Beit Din,[3] which may determine that the sale is to the orphan’s financial benefit as well and therefore may validate the sale.[4]
The same conclusion would be applicable to a trustee, who has the status of an Apotropos. Rabbi Adas, Rabbi Ya’avetz, and Rabbi Elyashiv invoke this parallel, emphasizing that an overarching concern of an Apotropos managing a communal organization is to avoid suspicion when disbursing funds to needy individuals.[5] In other words, Hilchot Apotropos mandates that trustees comply with full disclosure of their vested interests and that a Beit Din or administrative body review any and all interested transactions by implementing “a fairness standard.”
In our case, to avoid the issue of Chashad in the public eye, the Nitva was required to disclose his ties to Century Realty Corporation and his familial relationship to the purchaser of the Yeshivah’sproperty. Validation of the two transactions would require a determination by the Beit Din or any administrative body, including but not limited to the board,[6] that the transactions and its terms have been arrived at through a rational and fair process, that the terms of the sale are fair and reasonable, and that these transactions are in the organization’s best interests.
If an Apotropos was appointed by a father for his child and there is corroborating evidence, such as the existence of witnesses, that testifies to the Apotropos’s self-dealing activities, he may be relieved of his duties.[7] According to some decisors, a Beit Din appointed Apotropos may be removed from his position even if he is only suspected of engaging in self-dealing,[8] while others argue that witnesses to his activities are required prior to removal.[9] Given the facts in our case, the Tovei’a certainly had well-substantiated grounds to remove the Nitva from his status as an Apotropos. Indeed, contemporary decisors have applied Hilchot Apotropos in mandating the removal of trustees from the board of a religious charitable foundation due to their improper behavior.[10]
The Trustee as a Shaliach
It is also possible to view the role of a board through the prism of Hilchot Shelihut, the laws of agency, as the board members must serve the best interests of their constituency. A Shaliah (agent) is proscribed from being in a conflict-of-interest with the person who appointed him. As Rambam states:
If someone appoints an agent to betroth a woman on his behalf, and he [the agent] proceeded to betroth her for himself, she is betrothed to the agent. But it is prohibited to act in such a fashion, and whoever acts in this manner and the like in other matters of commerce is called wicked.[11]
Although his act is not nullified due to his deviation from his mandate, the Shaliach’s self-dealing is viewed as inappropriate behavior.
At first glance, it would seem that Halachah frowns upon the recalcitrant Shaliah because he fails to fulfill the mandate of the one who sent him. In truth, however, Halachah is also concerned with the character and integrity of the agent himself. Thus, the Shulchan Aruch rules that if a person appoints a Shaliah to sell his field, the Shaliah may not buy it himself, even if his property neighbors the field and he therefore should, by right, be offered the land first (Mezran).[12] One of the reasons for this ruling is that we are concerned that there will be a Chashad that the agent acquired the field at a price below its fair market value.[13]
This same applies, by extension, to public servants.[14] The purpose of a board is to promote and foster the best interests of the organization; a board’s agenda epitomizes an agent’s mandate: “I appointed you for my benefit rather than detriment.”[15] Self-serving behavior undermines the institution’s goals, as well as its ideological and financial integrity, and it should thus be deemed unacceptable. As such, transparency and accountability for its activities is paramount.
Emerging from this discussion is that the board of the Yeshivah ought to have obligated all its members to read the organization’s conflict-of-interest policy and fill out an annual disclosure form enumerating the affiliations in which they have an ownership interest and, to the extent known, those affiliations of family members covered by the conflict-of-interest policy. The board could have passed a simple prohibition against all self-dealing, thereby reinforcing the fiduciary concept of loyalty and accountability. Alternatively, the board could have chosen to govern its members’ activities under Hilchot Apotropos, in which case a Beit Din, administrative panel, or the board itself would review any conflicts of interest that might arise and determine if the potential transaction complies with the fairness standard. Accordingly, we would have to consider whether the interested trustee complied with the full disclosure policy; whether the board environment was unbiased at the time the decision was made to engage in the transaction; whether there was due diligence in assessing the fairness of the transaction; and whether the transaction promoted the organization’s ideological, economic, and financial interests.
In this sense, the Nitva is correct in stating that the board did not fulfill its duties in serving the community’s best interests, as it failed to issue or enforce conflict-of-interest guidelines and was certainly negligent in the realm of due diligence. However, the Nitva cannot claim that the board’s failure to address interested transactions gives him license to do whatever he wishes. As a member of a covenant-faith community, his actions must be transparent and above any and all suspicion. Consequently, the Nitva’s failure to disclose his relationship to Century Realty Corporation, his familial ties to the purchaser of the Yeshivah’s property, and their arrangement for the Nitva to receive a municipal office tainted the process, as well as the two transactions.[16] As such, the Nitva is monetarily liable for his actions.
Decision
The Nitva is hereby obligated to immediately pay the Tovei’a $250,000.
[1]. While the apparent complete ignorance of the board appears surprising in this case, it is not surprising for members of a group to adopt a view or views simply because another member or members endorse that position. This is known as the phenomenon of “groupthink,” which entails a desire to identify with the dominant position and label it as “fair” even when it is not without engaging in open group discussion and analysis of the matter. In effect, this leads to irrational decision-making, failure to seek information from outside sources, voting on matters without due diligence, and arriving at decisions which may undermine the institution’s best interests. Hence, groupthink may lead to the emergence of the validation of self-dealing. See Cass Sunstein, “Deliberative Trouble? Why Groups Go to Extremes,” 110 Yale Law Journal, (2000), 71. Consequently, it is unsurprising to find that the Nitva was able to pursue his agenda and receive group support, buttressed by the board’s failure to perform due diligence regarding his vested interest in two transactions.
[2]. In general, Hilchot Apotropus deal with persons who are incapable of taking care of their own affairs, such as minors or adults who are mentally impaired, but the institution of guardianship applies equally to a public servant. See Rashba and Ramban cited by Beit Yosef, Yoreh Dei’ah (hereafter: YD) 169 (end); Rashba cited by Beit Yosef, CM 128, 163; Teshuvot Maharit 1:117.
[3]. Ra’avad and Nimmukei Yosef, Bava Batra 67a; Beit Yosef, CM 290:15; Rema, CM 290:8; Perishah, CM 290:15. The Beit Din must evaluate the transaction to ensure that the Apotropos’s self-dealing does not endanger
the orphan’s assets. See Shach, CM 290:10; Sma, CM 290:26; Teshuvot Maharsham, CM 46, 349, 434.
[4]. Chelkat Mechokeik, Even HaEzer (hereafter: EH) 93:45.
[5]. Teshuvot Bikurei Asheir 2:53.
[6]. For a possible precedent allowing a layman to appraise a widow’s self-interested action relating to an orphan’s assets, see Mishnah Torah, Hilchot Ishut 17:14; Maggid Mishnah and Lechem Mishnah ad loc.
[7]. Mishnah Torah, Hilchot Nachalot 10:7.
[8]. Shach, YD 257:3; Aruch HaShulchan, CM 290:10.
[9]. Rema, CM 290:5.
[10]. See supra n. 22.
[11]. Mishnah Torah, Hilchot Ishut 9:17.
[12]. SA, CM 175:16.
[13]. Sema, CM 175:26. Cf. others who argue that as an agent, he is the “Yad,” the arm of the principal. Consequently, purchasing the field for himself is a Halachic impossibility; a person cannot sell something to himself. See Ketuvot 98a; Teshuvot HaRashba HaMeyuhasot LeRamban 44; Teshuvot HaRosh 105:2.
[14]. Teshuvot HaRashba 7:109; Teshuvot HaRitva 114; Teshuvot HaRashbash 573; Teshuvot Maharam Schick, CM 19; Teshuvot Mayim Amukim 2:63.
[15]. Mishnah Torah, Hilchot Sheluchin VeShutafim 1:2.
[16]. On the other hand, if the Nitva used the organization’s funds to give a gift to or fund a trip for his nephew in order to close the deal, such behavior would not be construed as deriving benefit from communal assets. See Piskei HaRosh, Bava Batra 8:55; Beit Yosef, CM 286:3; SA, CM 286:2; 290:4. Clearly, prior board authorization for such actions would be advisable.