The Legal Opinions Committee of the American Bar Association’s Business Law Section and the Working Group on Legal Opinions Foundation have recently published their Statement of Opinion Practices and related Core Opinion Principles (together, the “Statement”).[2] The Statement is intended to supplement the ABA Statement on the Role of Customary Practice in the Preparation of and Understanding of Third-Party Legal Opinions[3] and derives from the ABA’s previously published Legal Opinion Principles[4] (“Principles”) and Guidelines for the Preparation of Closing Opinions (“Guidelines”).[5] The Statement updates and replaces the prior Principles in its entirety and updates selected provisions of, and should be read in conjunction with, the Guidelines.
The Statement represents the continuing excellent efforts of the ABA and the Foundation to establish a nationwide generally accepted framework for the provision, acceptance, and interpretation of third-party legal opinions. It is designed to provide a framework of protocols applicable to opinion providers and recipients for better understanding the assumptions and limitations underlying third-party legal opinions, as well as the scope of opinion providers’ undertakings in delivering such opinions. Many of the assumptions and limitations set forth in the Statement are often expressly set forth in law firms’ forms of third-party opinions, but the Statement makes clear that a number of these, such as bankruptcy and equitable principles limitations, should be understood to apply whether or not so explicitly enumerated.
In general, the Statement sets forth clear and what should be “common sense” practical interpretive principles for third-party legal opinions. It is beyond the scope of this brief article to discuss all of the provisions of the Statement and reference is made to the Statement for a more complete review. However, some highlights and more primary concepts are discussed in the following paragraphs.
First, the Statement adopts the “Golden Rule” for requesting specific opinions from an opinion provider. Simply stated, this rule contemplates that an opinion recipient should be guided by a sense of professionalism and not request the inclusion of a specific opinion which the recipient’s counsel itself would not provide under similar circumstances. In other words, “if you wouldn’t give it, don’t ask for it.” This addresses the often-occurring situation where a recipient (e.g., a lender in a commercial financing transaction) or recipient’s counsel demands from the opinion provider an exhaustive and sometimes onerous list of opinions covering virtually all aspects of the related transaction. Following this Golden Rule as a guiding principle would certainly assist in the resolution of what is appropriate to be given under the specific facts and circumstances, thereby avoiding protracted and costly negotiations over the opinion. In short, be reasonable; it will save time and legal expense for the respective clients.
Closely related to the foregoing, the Statement provides that both the opinion recipient and the opinion provider are entitled to presume the other is acting in good faith. Good faith is a somewhat amorphous concept whose meaning may vary somewhat or be defined more particularly depending on the nature of the specific transaction or matter at hand. Generally, though, it contemplates that all parties will deal with each other honestly and fairly in the conduct of their business. Section 1-201 of the Uniform Commercial Code also provides a specific definition that seems to fit well with the nature of legal opinion practice and within the context of the Golden Rule: “honesty in fact and the observance of reasonable commercial standards of fair dealing.” Adherence to this principle will also greatly assist in resolving potentially difficult opinion negotiations.
As a corollary to the reasonableness theme reflected in the Statement, the Statement makes clear that, while the opinion recipient may generally rely upon an opinion without verification, it may not do so where the recipient knows that the opinion is incorrect or its reliance on the opinion is “otherwise unreasonable under the circumstances.” Thus, an opinion recipient who insists on off-market or unusual opinions or opinions that require a legal stretch to achieve (including so-called “reasoned opinions”) may overreach to the point where reliance on the opinion is not reasonable under the circumstances. In such event, the opinion is of dubious value and the opinion provider is put at undue risk in defending its opinion, no matter how well limited or circumscribed. Further, the Statement requires the opinion recipient to either know, or seek advice of counsel regarding, customary practice as it relates to the opinion.[6] Such requirement should, at least in theory, restrain the efforts of an opinion recipient to demand non-standard or off-market opinions as to the underlying transaction.
All of the foregoing flows from a critical and sometimes overshadowed ethical consideration in opinion work that is encapsulated (and perhaps understated) in one simple sentence of the Statement: “The benefit to the recipient of a closing opinion and of any particular opinion should warrant the time and expense required to give them.”[7] While a third-party opinion is generally given at a client’s request to accommodate its specific transactional needs, it should be tailored to meet those needs and not become a separate transaction within a transaction requiring significant, protracted and unnecessarily costly negotiations over extended or tangential issues. To achieve this, the appropriate and reasonable opinion requirements should be determined early in the transaction and the parties should work in good faith to craft an opinion that achieves the target objectives and serves the bona fide needs of each client. To do otherwise fails to serve the best interests of either the opinion provider or the opinion recipient. The Statement makes clear that, when giving opinions, lawyers are subject to applicable obligations and rules governing their professional conduct.[8]
The Statement also expressly adopts the general liability principle applicable to opinion providers: “An opinion expresses the professional judgment of the opinion giver regarding the legal issues the opinion addresses. It is not a guarantee that a court will reach any particular result.”[9] This is an important point as opinion recipients may not fully understand what protections a third-party legal opinion affords. It is solely a lawyer’s best-informed professional judgment as to the particular matter covered by the opinion; it is not in any way a “guaranty” of that matter or of any aspect of the transaction generally. This perspective may often be under-appreciated or lost in the flow of the deal, and it is good to see the principle clearly highlighted by the ABA in the Statement.
Finally, the Statement includes the Core Opinion Principles derived from the principles in the Statement and suggests that these could perhaps be either attached to an opinion or incorporated by referenced. It remains to be seen whether either suggestion will gain market acceptance, particularly given the failure of similar approaches undertaken by practitioners to implement the now superseded “Silverado Opinion” developed by the ABA Section of Business Law and published as part of its prior Third-Party Legal Opinion Report.[10]
To date, the Statement has been approved by over 30 bar and lawyer groups, including numerous state bar associations and their practice area committees, the National Association of Bond Lawyers and the TriBar Opinion Committee. Presumably, it will continue to be approved by other legal organizations. The Statement provides an extremely useful supplement to and continuation of the ABA’s prior work in this area. Hopefully, it may achieve general acceptance as the definitive source of guidance in third-party opinion practice going forward.
[1] Mr. Malpezzi is a member of the Financial Services group of McNees Wallace & Nurick LLC and Chair of the Firm’s Opinion Committee
[2] The Business Lawyer, 74 Bus. Law. 807 (2019)
[3] The Business Lawyer, 63 Bus. Law. 1277 (2008)
[4] The Business Lawyer, 53 Bus. Law. 831 (1998)
[5] The Business Lawyer, 57 Bus. Law. 875 (2002)
[6] Statement, Section 8.1
[7] Statement, Section 4.3
[8] Statement, Section 3
[9] Statement, Section 4.1
[10] The Business Lawyer, 47 Bus. Law. 167 (1991)
