Aircraft Commission Dispute – Determination of Value of Aircraft for purpose of Commission

Posted on: January 15, 2013

In Simkovitz v. Jetran International, Ltd., 12-10228, 2012 WL 5458166 (11th Cir. 2012), an employee of an aircraft buyer and seller sued the employer for breach of agreement to pay sales commission.  Defendant, Jetran International, Ltd. (“Jetran”) bought and sold aircraft.  Plaintiff, Leonard Simkovitz (“Simkovitz”), was a senior vice president in Jetran’s aircraft sale and leasing department.  In 2003, Simkovitz assisted Jetran with negotiations for the purchase of a Boeing 707 (“aircraft 21368”) along with four spare engines and spare parts, from the Saudi Royal Family for $680,000.  Jetran agreed to pay Simkovitz a 3% commission for his efforts when aircraft 21368 was resold.  The contract however was silent on the issue of how to determine the value of the aircraft for purposes of arriving at the amount of the agreed upon commission.

Subsequently, Jetran entered into an agreement with Omega Air, Ltd. (“Omega Air”) to swap aircraft 21368 for another Boeing 707 (“aircraft 21092”) owned by Omega Air.   This swap agreement also provided that Jetran’s aircraft 21092 and another Boeing 707 owned by Omega Air (“aircraft 20919”) would be held together in storage for 18 months with plans to try to sell them to the government of Israel.  If, however, only one of the two 707s were purchased by the government of Israel, then Jetran and Omega agreed to share the net proceeds of the sale equally. 

Simkovitz was not paid a commission after Jetran and Omega Air entered into the swap agreement.

After the swap, Omega Air converted aircraft 21368, which Omega Air now owned, to an aerial refueling tanker and leased it to the U.S. Navy in 2007.  Omega also modified aircraft 20919 and sold it to the government of Israel for $8,000,000.  Jetran’s aircraft 21092 remained in storage.  In 2010, Jetran made an unsolicited offer to sell aircraft 21092 to the Israel Air Force for $8,500,000, but that offer was not accepted.

Simkovitz filed a Breach of Contract action in federal district court.  Jetran filed a motion for summary judgment arguing that the aircraft swap was not a “sale” within the meaning of the commission agreement between Simkovitz and Jetran.  The district court denied the motion for summary judgment concluding that the term “sale” in the commission agreement meant the transfer of property for either money or other consideration and thus Simkovitz was entitled to a 3% commission upon the swap of aircraft 21368 for aircraft 21092 as the latter constituted the other consideration received by Jetran. 

Subsequently, a bench trial was held to determine the value of the swapped aircraft and the amount of Simkovitz’s resulting commission.  At trial, each party presented expert testimony as to the value of the swapped aircraft.   The only dispute was as to value; the parties did not dispute that the consideration was (1) the aircraft 21092 and (2) 50% interest in the net proceeds of the sale of aircraft 20919. 

Plaintiff’s Expert: Plaintiff’s expert testified that fair market value of the two aircraft was $10,000,000 utilizing the “income capitalization method” which was based on the reviene the aircraft could generate over three years. 

Defendant’s Expert: Defendant’s expert was a certified airplane appraiser.  He testified that according to the Airliner Price Guide (“APG”), the fair market value of aircraft 21368 in 2005 was $770,000.  The expert further testified that while he usually would look at comparable sales, he was unable to do so in this case because of unavailability of maintenance records of comparator aircraft.  He further testified that his opinion of value was not of “an independent analysis”, but was based on APG’s calculations and his marketplace analysis. 

Both sides presented extensive testimony in support of their respective valuation approaches, all of which was noted at length by the district court.

The district court ultimately entered a final judgment, specifically finding as follows: “(1) “[t]he ‘market method’ of valuation, and not the ‘income capitalization method’ of valuation, is more appropriate for determining that value of the consideration received in connection with the swap agreement”; (2) “[b]ased upon the testimony and evidence presented, in particular Paragraph 6 of the swap agreement, and the Court's finding that the market value of the 21092 Aircraft is the appropriate measure for determining Simkovitz's 3 percent commission, … $500,000 is a fair and reasonable estimation of the value of the aircraft and Simkovitz is entitled to 3 percent of this amount, or $15,000”; and (3) “Simkovitz is also entitled to a 3 percent commission of Jetran's share of the net proceeds from the sale of the 20919 Aircraft to the Government of Israel.” The district court awarded Simkovitz $22,774.21 in damages, consisting of the $15,000 commission and $7,774.21 in prejudgment interest.”

On appeal, Simkovitz contends that the district court erred in finding that the fair market value of the 707 was $500,000.  The Eleventh Circuit Court of Appeal, finding no clear error in the district court’s findings, affirmed the lower court’s decision.  

The attorneys at Schecter Law are experienced at both ends of the spectrum highlighted by this case, namely, the transactional aspect and the litigation aspect. Our experience within both of these areas, positions us to provide exceptional legal services, and when combined with our detail-oriented approach to every case, the services we provide translate into invaluable work-product for all of our clients.