““The charter industry needs to become much more efficient…We need to take a page from the airlines’ code-sharing agreements…Part 135 charter [operators] could review each other’s schedules, use each other’s airplanes.” ”
Choosing your aviation lawyer
When you need legal help buying, owning, operating or selling an aircraft, whom do you call? Many people contact their regular business attorney. That can be a big mistake.
When Paul Fireman, founder of Reebok International, decided to buy a brand-new Gulfstream 450, he phoned a large Boston law firm known for its expertise in real estate and other areas. A recent review of the firm’s website and the 75 practice areas listed on a dropdown menu there shows no evidence of aviation expertise. Nevertheless, the firm referred Fireman to a staff attorney who allegedly described aircraft acquisitions as his specialty, though the firm’s website description of his practice makes no mention of aviation.
With the attorney’s help, Fireman’s company, Willowbend Aviation, LLC, acquired the G450 in 2009. Willowbend subsequently filed suit against the law firm, claiming it lost significant federal tax benefits and faced Florida use-tax liability because of the attorney’s failure to provide competent advice. The complaint, which has yet to be adjudicated, asks the court to award treble damages–almost $14 million plus attorneys’ fees–under the Massachusetts consumer-protection statute.
Lawyers have a hard time turning down business. Years ago, when I was in private practice, I got a request to represent a titan of industry who was buying a new Gulfstream–provided I had experience in basing and registering aircraft in the Bahamas. It was painful to say no, but I lacked that experience. Later, I asked the lawyer who eventually took on the matter about his Bahamas background, and he said something like, “Oh, I didn’t have any. I just figured it out as I went along.”
Some lawyers will exaggerate their business jet experience, taking on matters they’re unqualified to handle. The problem with hiring non-experts isn’t so much that they don’t know things, but rather that they don’t know they don’t know them (see box).
What to do? First, when your regular law firm claims to have expertise in business aviation, ask whether it employs an attorney whose practice is devoted to business aviation--not someone who once helped a client with a NetJets share or an aircraft loan, but someone who focuses primarily on business aviation. (Note that I said “business aviation.” An airline lawyer isn’t what you want unless you’re buying an airline.) Then look him up on the firm’s website. I recently did that for a supposed aviation attorney and found a whole series of practice areas listed, with aircraft transactions dead last. The best business aviation attorneys don’t dabble in this specialty; they live and breathe it.
Even within business aviation law, however, you should be mindful of specializations. Four come readily to mind: regulatory (FAA/DOT regulations and compliance), tax (business aviation taxes and tax writeoffs); registration (title, liens and security interests); and transactions (aircraft purchases, sales, leases and financings). Many of the best aviation attorneys have expertise in two or more of these areas, and some have varying degrees of expertise in all of them or are associated with a law firm or practice group that does. Further, be sure to retain a lawyer who’s well versed in your state’s tax issues. Aircraft-related taxes and tax strategies vary enormously among revenue-hungry states like California, Texas, Florida and New York.
You can get recommendations for aviation attorneys from consultants, brokers and other industry professionals. Remember, though, to consider the source of such recommendations; an aircraft manufacturer hoping to sell you an airplane is unlikely to recommend an attorney who will put the company through the wringer. On the other hand, if you’re buying an aircraft from a particular manufacturer, it is very important to retain someone with recent experience negotiating contracts with that company. I recommend interviewing several candidates and questioning them in detail about their expertise. Can they provide the aviation tax advice you need? Are they too busy to take on your project? Who else in their office can you talk to when they aren’t available? Does this lawyer seem like someone you will work well with?
If you’re buying an aircraft, the most important thing your aviation lawyer should do is structure its ownership and operation to 1) minimize liability, 2) comply with FAA and DOT requirements and 3) minimize taxes and maximize tax deductions. Dealing with these three issues in isolation is relatively easy; putting them together in a satisfactory package can be enormously challenging. This is where your lawyer’s depth of knowledge and experience will be most telling. But the truth is that you should consult your lawyer about any major developments involving the aircraft, such as a new loan, a new management company, changes in use, changes in law, damage incidents or changes in insurance needs. Of course, you’ll also need an attorney when you sell the aircraft.
Finally, when retaining a lawyer for a major project, ask what it will cost. Attorneys hate this question, because projects often appear deceptively simple. Negotiating a purchase agreement with an aircraft manufacturer, for instance, can seem to be a relatively quick job–until tax and regulatory structure issues emerge, you decide to finance the progress payments and the draft management agreement arrives. When you discuss anticipated costs, be as specific as possible about the tasks required in order to avoid unexpected legal bills.
Here are some of the legal blunders I’ve encountered over the years. Most resulted when big, high-priced law firms attempted to operate outside their area of competence.
• Aircraft registration proved invalid because the owning company’s president was a French citizen.
• A research project on Connecticut law to determine whether purchasing a jet there would be subject to sales tax concluded incorrectly that tax would be payable.
• A client who regularly chartered out his airplane discovered that his aircraft loan agreement prohibited charter flights.
• Aircraft was grounded at closing because the buyer’s attorney sent the pink copy of the registration application to Oklahoma City.
• Part 91 aircraft operations were illegal because the lawyer put them in a “flight department company.”