Self-Dealing in the Not-for-Profit Boardroom: Yeshivah Har Tzion v. Yossi Stein – Part One by Rabbi A. Yehuda Warburg


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’ais 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 recuse 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 reinstated to his former position.


The Requirement of Transparency

The Nitva’s argument is that a duty to refrain from self-dealing is predicated upon the signing of a conflict-of-interest questionnaire. If a board member signed such a document, he has an obligation to avoid self-dealing transactions, but if he did not do so, no such duty exists and there is no requirement to inform the board of his vested interest in any matter up for discussion or vote.

This argument is Halachically untenable. The board in question serves the interests of a Yeshivah whose ultimate goal is the inculcation and internalization of Halachic norms and Jewish education. Those same norms apply to the Yeshivah’s board irrespective of the existence or nonexistence of any contractual agreement executed by its members.

Halachah instructs us to not only be innocent, but also to appear in the eyes of our fellowmen as innocent. The Mishnah thus instructs that the person who enters the Temple office for the purpose of collecting donated half-shekels must act in a particular manner:

The collector may not enter dressed in a loosely-hanging garment [with sleeves in which money can be hidden], nor wearing boots or sandals or Tefilin or an amulet [in which money can be concealed]. . . For a person must be guiltless before his fellowman as before God, as the Torah states: “You shall be guiltless before God and before Israel.”[2]

In short, one must exhibit transparency in one’s relations with others. This imperative is not limited to an individual engaging in social interaction, but rather equally applies to a person who occupies public office. The identical Halachic requirement applies to a member of a board when he is serving his institution and when he is interacting with others in a social context.

Since the professional Halachic-ethics of a board is synonymous with the Halachic code of social ethics, we must analyze a trustee’s professional responsibility through the same categories that govern interaction with others in other contexts. We will therefore consider whether a trustee is to be viewed as a Dayan (judge), Shomeir (bailee), Apotropos (guardian), or Shaliach(agent). The trustee’s Halachic identity will determine how his conflict of interest will ultimately be viewed.

The Trustee as a Dayan

Numerous decisors have advanced the idea that the authority of the community and its public servants are comparable to and function like a Beit Din, with each and every municipal officer serving as a Dayan.[3] This conclusion extends by analogy to any communal, synagogue, or Yeshiva board.[4]

A Dayan may not judge any case that may benefit him in some way.[5] By extension, all self-dealing transaction involving individuals who are empowered to render communal decisions should be prohibited. Invoking the community leader-Dayan paradigm, Rabbi Yechezkel Landau argues:

Regarding taxation matters, they are interested parties, as explicitly stated by Rema 163, that for all communal needs. . . one must enlist all the taxpayers to preside on these matters.[6]

In other words, all communal matters, including tax concerns, are to be construed as vested interests of each and every board member, and therefore only the local citizenry may resolve these matters. Others have also subscribed to the view that all acts of self-dealing are prohibited for communal leaders.[7]

Public office holders should act at all times in a manner that demonstrates integrity, avoiding even the appearance of a conflict-of-interest, and thus serving as examples to fellow officers and the community. Given that the scenario described regarding Mr. Stein and the board may be characterized as a self-dealing transaction, such a potential sale should neither have been reviewed nor deliberated upon by the Nitva.

Was the Nitva precluded as well from involvement in deliberations regarding the sale benefiting his nephew, a sale from which he would derive no financial gain? A Dayan, and by extension a trustee, must equally distance himself from self-dealing that involves a non-financial interest. Regarding a witness or Dayan with a vested interest in a non-financial matter, Rambam rules:

If the witness finds that he has an interest in the testimony . . . he should not testify regarding it . . . Just as he shall not testify in this matter due to the possibility that he is an interested party, similarly he shall not judge this matter . . .[8]

The exclusion of a “Nogei’ah BeDavar” (an interested party) from involvement in deliberations has been extended to public servants, who are compared to Dayanim. Rabbi Yosef Ibn Lev (Maharival), for example, discussed a case in which a Chazan obligated himself to serve a particular community but then accepted a position in another community, claiming that the first community had breached the terms of the agreement. The members of the community claimed, on the other hand, that the Chazan remained obligated to serve them. Maharbil ruled that the testimony of the head of a Kehilah was not admissible; they were Nogei’ah BeDavar, as they wished to continue to benefit from the Chazan’s skill.[9] If the citizenry’s testimony is invalid in such a case, the leadership’s input regarding such a matter should certainly be discounted.

Consequently, our case, in which the Nitva persuaded the board to sell the Yeshiva’s vacant lot to his nephew in the hopes that his nephew would facilitate his appointment to the municipal board, is an example of self-dealing. Given that such a civil appointment would benefit the Nitva, the transaction is tainted.[10]

The question of the propriety of selling the Tovei’a’s land to the Nitva’s nephew is actually addressed in a Teshuvah of Rabbi Yosef Traniwho discusses whether a trustee of a charitable foundation may sell some of its assets to a relative.[11] Rabbi Trani contends that this would be a self-dealing transaction and is therefore prohibited. First, the factor of Chashad (suspicion) ought to preclude such an act.[12] Furthermore, it is unlikely that there will be serious negotiations and use of bargaining tactics in discussion with a relative of a board member. Finally, potential buyers with more attractive offers than the relative will abstain from the bidding process due to their assumption that the trustee’s relative has the sale “locked up.”

The Trustee as a Shomeir

Halachah recognizes that obligations may be created by parties undertaking duties based upon oral or written agreements, whereby each party establishes a claim against the other that the latter is obligated to honor. Thus, a Shomeir (bailee) is obligated by dint of agreement with the Mafkid (bailor) to safeguard the asset entrusted to his safe-keeping. In effect, a communal officer who is entrusted with dispensing, investing, and dealing with public funds has the status of a Shomeir.[13]

As Talmud notes, a Shomeir is precluded from involvement in self-dealing transactions:

If one deposits fruit with his neighbor and it spoils. . . he [the Shomeir] may not touch it – this is Rabbi Meir’s ruling. But the Sages maintain: He provides a solution for them by selling them pursuant to the Beit Din’s direction, and he must sell it to strangers, not to himself.[14]

Even though the transaction has been approved by a Beit Din of experts (Mumchin),[15] the asset may only be sold to a third party. If we were to allow the Shomeir to buy it himself, others would be suspicious that he lowered its value prior to acquiring it for himself. Moreover, even though the purchase received Beit Din approval, people would be unaware that there was a Beit Din appraisal or that a Beit Din may execute such an appraisal, and they would thus assume that the Shomeir deceived the Beit Din regarding the asset’s market value.[16] Should the bailment be sold to the Shomeir, the sale, although executed under the auspices of Beit Din, is null and void.[17] In short, a Shomeir has no right to engage in a self-dealing transaction, and even Beit Din review cannot validate a Shomeir’s purchase.

In our case, the Nitva, a public servant, is considered a Shomer and was therefore proscribed from purchasing the property for himself under the guise of an offer advanced by a real estate broker.

[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]. Shekalim 3:2.

[3]. Teshuvot HaRashba 3:411; Teshuvot HaRivash 214, 249; Teshuvot Rashbash 566; Teshuvot Maharik, Shoresh 17; Teshuvot Re’em 53, 57; Chazon Ish, Bava Kama 4:8.

[4]. Yerushalmi Pei’ah 8:6 and Rash Sirilio ad loc.; Piskei Din Rabbanayim (hereafter: PDR) 7:225, 250, 261.

[5]. Teshuvot HaRashba 1:642; Teshuvot Terumat HaDeshen 354; Shulchan Aruch (hereafter SA), Chosen Mishpat (hereafter CM) 7:12, 37:19; Shach, CM 7:10.

[6]. Teshuvot Noda BiYhudah, Mahadurah Kama, CM 20.

[7]. Teshuvot Rashbash 568.

[8]. Mishnah Torah, Hilchot Eidut 16:4–5. See also SA, CM 37:21; Shach, CM 37:10.

[9]. Teshuvot Maharival 1:36. See also Teshuvot HaMabit 1:81.

[10]. Had it been unclear that such an appointment would materialize, the Nitva’s input regarding the transaction would not be tainted. See Teshuvot Terumat HaDeshen 354; SA, CM 37:10. Moreover, if the nephew were to explicitly state that the civil appointment was a gift rather than remuneration for facilitating the transaction, the trustee may accept the civil office. See Rashi, Ketuvot 98b, s.v. SheYeish; Teshuvot HaRashba HaMeyuchasot LeRamban 60.

[11]. Teshuvot Maharit, CM 2:1.

[12]. See Shabbat 23a–23b; Sefer Yerei’im, commandment 340; Sefer HaChinuch, Mitzvah 349; Teshuvot Chesed Avraham, Orach Chayim (hereafter OC), 21; Iggerot Moshe, OC 2:40, 4:82.

[13]. Teshuvot Maharam Schick, CM 12; Teshuvot Ba’ei Chayyei, CM 1:217; Machaneh Ephraim, Hilchot Shomeirim 17; Pitchei Teshuvah, CM 301:9.

[14]. Bava Metzia 38a; see SA, CM 292:19.

[15]. The Beit Din is required either to appraise the bailment or to sanction the Shomeir’s right to execute a sale, which is beyond the mandate of his bailment.

[16]. Pesachim 13a; Rashi, Bava Metzia 38a; Tosafot, Ketuvot 98a, s.v. DeAmrei; Mordechai, Bava Metzia 428; Perishah, CM 290:15.

[17]. Mishnah Torah, Hilchot She’eilah VePikadon 7:5; SA, CM 292:19.

Self-Dealing in the Not-for-Profit Boardroom: Yeshivah Har Tzion v. Yossi Stein – Part Two by Rabbi A. Yehuda Warburg

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