Opinions Matters
Implicating Implicitness
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This article considers the subject of opinions implicit within other opinions. The topic is not a new one, but my concern is that a principle that an opinion covers only the matters it addresses may have become over-broadly applied as “no opinion is implied in any other.” Although customary practice recognizes that some opinions should not be implied by others, many are and can be and, under appropriate circumstances, should be. An opinion that a note is enforceable must opine implicitly that it is not usurious (if that would affect its enforceability), and also that it is a binding obligation of the maker, meaning, in the case of an entity obligor, that the entity exists, has legal authority under applicable law and its organizational documents, has acted to authorize the transaction, and has executed and delivered the note. This example makes clear that it is not correct to conclude simply that customary practice provides that no implied opinion should be read into an express opinion. An opinion giver should proceed from the premise that all opinions essential to a legal conclusion of an opinion on a certain matter are included within it unless there is some well and carefully established principle or an expression that would make such inclusion unnecessary, unreasonable, or excluded.
Implicit Opinions Under the Real Estate Opinion Letter Guidelines
My most immediate interest in this subject arose in considering how the Real Estate Opinion Letter Guidelines (“RE Guidelines”) might be revised based on the Statement of Opinion Practices (“Statement”) recently adopted by the Committee on Legal Opinions of the ABA Business Law Section and the Board of the Working Group on Legal Opinions Foundation, which has also been approved by the ABA Real Property, Trust and Estate Law Section Committee on Legal Opinions in Real Estate Transactions.
The Statement updates the Legal Opinion Principles (“Principles”) in its entirety and changes certain of the Guidelines for the Preparation of Closing Opinions (“BL Guidelines”). At their creation, the RE Guidelines adopted the BL Guidelines and Principles and supplemented the BL Guidelines with additions considered germane to real estate secured transactions. Because of the effect of the Statement on the underlying premises for the RE Guidelines, a new look at them is essential.
On the subject of “implied opinions,” Section 7.1 of the Statement reads in relevant part:
A closing opinion covers only those matters it specifically addresses.
RE Guideline 1.5.a, an addition to BL Guideline 1.5, presently provides:
A legal opinion speaks only to the specific issues that it expressly addresses. Opinions as to other matters should not be inferred, but rather explicitly requested. Examples of opinions that in the real estate secured loan context should not be implied by a general enforceability opinion, and are not to be deemed to have been given unless expressly stated, include opinions regarding land use laws, environmental laws and other similar matters (see infra § 4.3.a).
The Statement refers to the opinion letter (a “closing opinion”) as a whole. The RE Guideline refers to a legal opinion, one or more of which are expressed in the opinion letter. Regardless of the terminology differences, the intent of the first sentence of the RE Guideline seems consistent with the Statement. In the RE Guideline, the second sentence is an application of the first. But what are “other matters” that could be inferred, and when must specific opinions be requested?
If RE Guideline 1.5.a means that all opinions must be expressed and none are to be inferred from any other, that is not consistent with other RE Guidelines - later, for example, in 4.0(b), there is an express recognition that a usury opinion is implied by an enforceability opinion. The Local Counsel Report describes a number of opinions that are or could be implicit within an enforceability opinion or by the assurances given to the generic enforceability qualification, and also recognizes some that should not.
The examples given in the third sentence of RE Guideline 1.5.a of opinions that are not implied (regarding land use, environmental, and similar matters) may express a desired practice of addressing certain subject matter discretely. As presented in RE Guideline 1.5.a, however, they are related only to an enforceability opinion. Are any of the specific matters “addressed” by an enforceability opinion? Would a “no violation of law” or a “no governmental approvals required [to execute and deliver][and perform the covenants in]” opinion also implicitly include these subjects – or are they so inherently special that an express opinion must be given about them? Or does the non-implicitness rule apply only to an enforceability opinion? How obvious are these examples, and how did they acquire their special nature?
There are a few resources that provide interpretive context for understanding RE Guideline 1.5.a and Statement 7.1. These sources inform us that the proper means of addressing concern about implied opinions is not to deny they exist but to exclude them, either explicitly or, as a matter of articulated customary practice, implicitly.
Precedent About Implicit Opinions – The Accord
At the time the RE Guidelines were developed, the real estate bar had adapted the ABA Business Law Accord Report (the “Accord”) as a model for real estate secured transactions opinion letters, and the BL Guidelines seemed to also follow the Accord expression of customary practice. The content of RE Guideline 1.5.a had been more fully but succinctly expressed in the Accord:
§18 Opinions by Implication. An Opinion deals only with the specific legal issues it explicitly addresses. Accordingly, an express opinion concerning a particular legal issue does not address any other matters. An express opinion includes an implied opinion only if it is both essential to the legal conclusion reached by the express opinion and, based upon prevailing norms and expectations among experienced lawyers in the Opining Jurisdiction, reasonable in the circumstances. Even if this presumption against opinion by implication is overcome, a legal issue specified in §19 is covered by the Opinion only if and to the extent it is explicitly addressed in the Opinion Letter. (Emphasis added.)
Commentary to Accord §18 provided this illumination:
For example, if violation of the usury law renders a loan agreement (or its interest provisions) void or voidable by the Client, an express opinion that the loan agreement is enforceable would include, on the basis of an analysis of what is essential and reasonable, an implied opinion that the loan does not violate the usury law. However - disregarding §19(d) for purposes of illustration - it would not be reasonable to consider that an express opinion concerning enforceability to include an implied opinion covering the antitrust implications of a tying arrangement in the loan agreement requiring the Client to use the services of the lender’s affiliate.
We also observe that Commentary to Accord §10 describing the meaning of the remedies (enforceability) opinion noted that a remedies opinion is based on certain underlying opinions that need not be separately stated, and, among other things, subsumes an opinion that the party about which the opinion is given exists in good standing in its jurisdiction of organization, all actions or approvals necessary to have it enter into a contract have been undertaken, and the contract has been validly executed. Clearly the Accord regarded the opinions on entity existence, authority, and authorized action as both essential and reasonably to be expected, and hence subsumed or implicit.
The Accord statement recognized that some opinions are inherent in others, but some should never be. The critically important limitation expressed in Accord §18 needs to be read into RE Guideline 1.5.a preceding its third sentence (which is companion to Accord §18’s last sentence). The limitation indicates that opinions will be implied when essential and reasonably expected in the circumstances unless opinions are on matters in a category that has been settled as never reasonable for implication and thus need to be addressed specifically.
The 1998 TriBar Report Consideration of Implicit Opinions
Similar thought was expressed in Third Party “Closing” Opinions, a Report of the TriBar Opinion Committee (“1998 TriBar Opinion Report” or “TriBar Report”), at Section 3.5.2:
Under customary practice, an issue is deemed to be covered by the remedies opinion only when it is both (i) essential to the particular conclusion expressed, and (ii) reasonable under the circumstances for the opinion recipient to conclude it was intended to be covered.
In discussing the ambit of the remedies (enforceability) opinion, the 1998 TriBar Opinion Report acknowledges that the analysis of what law should be recognized as applicable and covered is a complex one, made more difficult by exclusion of laws that lawyers would recognize as being applicable but not covered unless specifically addressed. The TriBar Report concluded that it is custom that a remedies opinion does not cover tax laws, insolvency laws, antitrust laws, securities laws, and the Exon-Florio amendment; but it also notes that if a party about which an opinion is given is regulated so that non-compliance with regulations would impair enforceability, it is expected as a matter of customary practice to cover the effect of regulation in an enforceability opinion. The same expectation is reasonable as to the effect of the Investment Company Act of 1940 when the party is a registered investment company or if the opinion preparer recognizes that the party’s activities may make it an inadvertent investment company.
In the course of its discussion, the 1998 TriBar Opinion Report presented specific subject matters that should never be implicit, but at the same time recognized that there are circumstances that would make opinions by implication appropriate. In this exercise, the TriBar Report sought to describe customary practice expectations. The TriBar Report concluded that when custom is unclear, by default opinions should be requested specifically and not implied, and it posited that the opinion preparer should not be burdened with creating a list of exclusions, which may never be sufficient even if – because of its recitation – it purports to be. This conclusion places the burden on the opinion recipient to ask for specific opinions if there is doubt about what is included. Although this is a clear resolution, it too depends on a common understanding of customary practice to determine why and when a recipient would regard the custom as unclear or have reasonable doubt about the customarily implied and excluded coverage.
Whether an enforceability opinion includes by implication a choice of law opinion may not be altogether clear. The 1998 TriBar Opinion Report concluded that an opinion on the effectiveness of a provision choosing the law of a jurisdiction other than the opinion jurisdiction governed the contract was implicit within an enforceability opinion, with which the RE Guideline 4.9 agreed. The Local Counsel Report, in recognizing that the opinion may be given implicitly, notes that the subject ought to be dealt with expressly.
The TriBar Report sought to describe conceptually what would always be excluded from inference. The Accord in §19 presented a more specific list of never-implied-always-will-need-to-be-expressed-if-covered opinions that was advanced as customary practice (prevailing norms and expectations among experienced lawyers in the Opinion Jurisdiction) as not reasonably to be implied in the circumstances. Accord §19’s list of exclusions was not for the purpose of expression in an opinion letter but a statement of recognition that customary practice was clear in excluding implicit opinions within expressed opinions on certain matters unless those matters were explicitly addressed in the opinion. The Illustrative Opinion Letter of the Local Counsel Report carries forward in its Paragraph 4.6 the content of Accord §19 with additional matters considered as appropriately excluded from implication for real estate secured transactions including those mentioned in RE Guideline 1.5.a. However, rather than presenting these matters as implicitly excluded by customary practice to be covered only when addressed explicitly in the manner intended by the Accord and the TriBar Report, by listing some always-excluded-unless-explicitly-addressed matters and opening the door to others, the Illustrative Opinion Letter by its style encourages recital of a list. The list may not be sufficiently inclusive, and it is often over-inclusive. Although a list adds context to the concept of what should be excluded as a matter of custom, the list approach is considered by some to constrain thoughtful practice.
When this subject is considered in context of misleading opinions, it acquires further dimension. Misleading opinions are discussed in Section 1.4(d) of the 1998 TriBar Opinion Report:
In determining whether an opinion will mislead, the opinion preparers need only consider what the opinion letter (i) states and (ii) omits to state that is relevant to what is stated. . . . The question the opinion preparers must consider is whether under the circumstances the opinion will cause the opinion recipient to misevaluate the specific opinion given.
In Section 1.4(d), which forms the basis for Section 12 of the Statement, the TriBar Report notes that common exceptions – those unstated as a matter of customary practice – may mask problems that are different or more serious than matters they are commonly understood to be excluded, and that appropriate disclosure should be made. Such a disclosure may take the form of a non-standard exception or assumption. This advice does not consider the effect of stating what is considered as a “standard” assumption or exception as favorably addressing the risk of a misleading opinion, but stating exceptions and assumptions makes it clear that they apply.
Conclusion
The point of all this is that opinions necessary for other opinions are implicit within them unless they are excluded by customary practice (prevailing norms and expectations among experienced lawyers in the Opinion Jurisdiction) or otherwise (expressly). Although the 1998 TriBar Opinion Report advanced the proposition that when there is no recognized customary practice, no opinion should be implied (and when in doubt an opinion must be requested), this cannot be construed to say that by customary practice there are no implied opinions in an express opinion.
There is no logic that ab initio could lay down a rule that some opinions are implied and some are not and determine what those opinions are. Logic would demand that an opinion (legal conclusion) as to any matter affecting the legal conclusion expressed by another opinion must have been formed and is implied by it. The practice of third party opinions has determined that this is too dangerous a rule as to some things for reasons not fully articulated (what takes them beyond the pale?) but that are accepted as a matter of custom in practice. Some matters, such as those detailed in the 1998 TriBar Opinion Report, in Accord §19, and in RE Guideline 1.5.a, have been accepted as beyond the reasonable expectations of an opinion recipient to be covered by – hence otherwise implicit within – a non-specific opinion, even one that would include that subject by simple logic. Enforceability must be a non-specific opinion – as to some things but not to others. What qualifies as a specific (in contrast to non-specific) opinion that does imply content? Will a “no-violation of laws” opinion in a real estate secured transaction involving new construction cover violation of any land use, zoning, building code, or other law that would be implicated by the covenants of the loan documents? And even though an enforceability opinion must be based on the power, authority, and action of the party as to which the opinion is given, customarily those building blocks to enforceability are either requested and stated specifically or assumed expressly to exist. Are they going to be subsumed or not?
Determining what rightfully should be expected is a product of developed standard (customary) practice to some extent described by the Accord, the 1998 TriBar Opinion Report, the RE Guidelines, and in later reports, such as the Local Counsel Report. Reasonable expectation is an uncertain measuring tool, and depends on standards of opinion jurisdictions that may not be appreciated beyond their borders. Despite the efforts of bar reports and treatises, there is yet no single viewpoint of customary practice to define what is to be considered essential and reasonably expected and in what circumstances. The Statement continues the pursuit of a national expression but leaves much unsaid.
If read or applied literally, without the caution of Accord §18 or of the TriBar Report, the first two sentences of 1.5.a give unsafe advice. As a whole, a guideline such as 1.5.a should be an expression of customary practice in real estate secured transaction opinions, that some things like land use and environmental opinions (and title opinions (see 4.0(c)) should be on the list of never-to-be-implied-by-enforceability-or-any-other-non-specific opinions as beyond reasonable expectation. That’s a much narrower, and more defensible, proposition.