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Harmonization of Opinion Practice: Part 1 - Starting Points

William B. Dunn

Summary

  • The background of modern opinion practice theory and exposition can be traced back to early inspiration of James J. Fuld.
  • Interest of the real estate finance lawyers in considering improvement of third party opinion practice began to be stimulated in the 1980s.
  • At its simplest point of divergence, the styles of opinion letter in the two practice areas are intended to be different.
Harmonization of Opinion Practice: Part 1 - Starting Points
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The organization, Working Group on Legal Opinions (a foundation originally created by the ABA Section of Business Law and the TriBar Opinions Committee to provide a national forum for the discussion of important issues relating to closing opinions, and referred to as WGLO), among its functions has provided a common ground for real estate opinion letter preparers and other business transaction opinion preparers to discuss matters of common interest and explore matters of uncommon interest. A product of these discussions is attention to how similar our views about preparation of opinion letters are and on where and why they may differ. The topic of “harmonizing” apparently differing viewpoints or practices has garnered much attention at WGLO, spawning argument on the subject and efforts to resolve concerns that are ongoing. How did we get here?

Background. The background of modern opinion practice theory and exposition can be traced back to early inspiration of James J. Fuld, but its development has followed independent paths in business and in real estate. The TriBar Opinions Committee responded to Mr. Fuld’s challenge in its first report about the meaning of language and the duties of a third party opinion preparer in business transactions; and reports of the TriBar Opinions Committee have proceeded steadily since to examine subjects and situations of opinions to advise and provide the reference points accepted as customary practice by the business bar. In general, the TriBar reports have considered transactions without reference to security interests in collateral.

Interest of the real estate finance lawyers in considering improvement of third party opinion practice began to be stimulated in the 1980s initially based on the first TriBar report among a few other resources. The real estate bar, through representatives of the (then-named) ABA Section of Real Property, Probate and Trust Law, participated with the Committee on Legal Opinions of the ABA Section of Business Law in considering and approving the content of the Third Party Legal Opinion Report including Legal Opinion Accord. Following publication of the Accord Report, the ABA Section of Real Property, Probate and Trust Law Committee on Legal Opinions in Real Estate Transactions and the American College of Real Estate Lawyers Attorneys’ Opinions Committee collaborated in producing a Report on Adaptation of the Legal Opinion Accord as the basis for preparing third party opinions.

The Accord itself was intended to serve as documented description of opinions as they should be understood and was to be referred to in closing opinions as the standard incorporated by reference. That concept was a factor in the Accord’s unpopularity, even among those who participated in its creation. While many lauded the Accord for its effort and intellect, it was criticized as too rigid and too giver oriented, the Accord did not serve an ongoing purpose for the business bar. Instead, TriBar interpretations and viewpoints expressed in its reports, along with some articles published in The Business Lawyer and certain treatises came to reflect (if not to shape and represent) customary practice.

The TriBar view favors the giving of shorter opinion letters, relying on knowledge and acceptance of customary practice by preparers and recipients to supply the content of what an opinion preparer was expected and not expected to do, and what the words expressed or not expressed meant.

But the real estate bar followed its Accord Adaptation Report by presenting an Inclusive Opinion Letter that set out in its text what the Accord had modeled, allowing a closing opinion to express in full the agreed upon (“accord”) terms of opinion, subject to such modifications appropriate to the circumstances in which the closing opinion was given. That Inclusive Opinion Letter also incorporated a generic qualification and a limited assurance to it. Although a true Accord opinion could be short because the usual exceptions (assumptions, qualifications, and limitations) “in the book” are incorporated in the closing opinion, the Inclusive Opinion Letter encouraged, perhaps required, expression of exceptions that would have been accepted as customary practice. The Accord influence on real estate finance opinion practice is demonstrated and reinforced by the Real Estate Finance Opinion Report of 2012 with which an updated Inclusive Opinion Letter was published as an Illustrative Opinion Letter.

At its simplest point of divergence, the styles of opinion letter in the two practice areas are intended to be different. The wisdom of either style in every circumstance is fair debate. Both practices endorse the concept of customary practice and the effort to identify broadly accepted national consensus of common principles of it, most recently updated in part by the Statement of Opinion Practices. The Statement notes that some exceptions (assumptions) ordinarily do not need to be stated in the opinion letter but stating them does not imply the absence of others that are unstated.

In itself, difference except on matters of substance can be productive. For example, successful use of the generic qualification and limited assurance found in the Illustrative Opinion Letter in REFOR may likely to lead to a modification of the enforceability opinion itself to express more precisely what is covered, thereby decreasing the perceived (or real) need to incorporate a broad list of exceptions as cautionary measure.

In at least one instance, a position taken by REFOR conflicts with a position of TriBar that is perceived to be substantive disagreement. In giving an opinion that the actor party is authorized to enter into and perform the transaction document does the opinion preparer need to review whether persons or entities that have an interest in the actor or its equity holders have acted to authorize action of the actor, or may the opinion be based, without further inquiry, on an assumption that any upper tier approval has been given as required. And should the assumption, if taken, be expressed or may it be unstated – in either case subject to limitations about giving a misleading opinion or one based on an improper assumption (known not to be true). And does a failure up the chain have any effect on enforceability of the obligation?

This example will be discussed in Part 2. In the meantime, if any of you have thoughts you would like to express on that subject, or harmonization in general, I would be happy to receive them.