“It’s not how long you make it, it’s how you make it long.”
We remain hopeful that our report and this addendum will continue to provide a stimulus to simplification and clarification of opinions. In particular it seems important for the lender or buyer to consider the practical relevance of detailed opinions. It is equally important for counsel for the borrower or seller not to assume without inquiry that a detailed opinion is required. An abbreviated form may be acceptable because it clearly conveys the relevant information. TriBar Opinion Committee, An Addendum-Legal Opinions to Third Parties: An Easier Path, supplementing Legal Opinions to Third Parties: An Easier Path.
Our profession has accepted the proposition that third-party legal opinions are prepared and understood in accordance with the customary practice of those who regularly give them and review them for recipient clients. As noted in Statement on Role of Customary Practice in the Preparation and Understanding of Third Party Legal Opinions, customary practice permits the opinion giver and opinion recipient to have common understandings of opinions without having to spell them out. These common understandings relate to what work an opinion giver is expected to do (diligence) to give the opinions expressed as well as what is meant by the words and phrases used (expression). Customary practice permits an opinion preparer to omit from the opinion letter those things that are already understood to be covered and not to be covered.
Identification of customary practice as defining standard of care grew from the recognition that third-party opinion practice was chaotic and without common ground, as observed by James J. Fuld in Legal Opinions in Business Transactions—An Attempt to Bring Some Order out of Some Chaos. In the years since, many state and local bar and some national bar committees (too numerous to catalog here, but many of which are listed in the ABA Business Law Legal Opinion Resource Center), commentators, and treatises have devoted and continue to devote studious and practical effort to describing custom in opinion practice.
By 1997, the Restatement of the Law, Third, The Law Governing Lawyers (“Restatement”) referred to customary practice in describing circumstances in which it would or would not be reasonable to limit or disclaim a duty to a third person (§51, Comment e) and in determining a standard of care (§52, Comment c, for which possibly national custom would be applicable, and Comment e, Illustration 2) in applying rules of lawyer civil liability. The Reporter’s Note to §95, relating to third-party opinion practice expressly, refers liberally to the sources of work on the subject in understanding customary practice; and the Note to Comment c refers to custom and practice as allowing for abbreviated opinions by omitting recitation of “certain” assumptions and limitations and descriptions of diligence. A significant resource for the Restatement Reporter’s observations was the work of the TriBar Opinion Committee, updated in Third Party “Closing” Opinions.
Although customary practice is a concept recognized by most lawyers giving or reviewing opinions in business transactions, no single standard has been developed on exactly how to practice within a framework described in conceptual statements applicable in all cases, or even accepted in all jurisdictions. The 1998 TriBar Report (§1.4(a)) noted, “[o]pinion givers must of necessity use their own judgment as to their conformity with customary practice in the circumstances they face.” Just what needs to be said and not said in an opinion letter involves an understanding of, among other things, what substantive matters a “typical” third-party closing opinion letter should cover, what is and what is not covered implicitly, and what should be “standard” assumptions, limitations, qualifications, and exceptions. Once those are understood, deeper questions attend, such as whether relying on implicit matters without stating them might cause an opinion to be misleading, and whether expressly stating them might imply some problem or put the recipient on notice to inquire. What influence should a state or local bar report of the opinion giver’s jurisdiction have on a recipient’s understanding of an opinion when the recipient is in a different jurisdiction? The need for common understanding is palpable.
Will the commercial transactions bar develop a nationally endorsed definitive statement of customary practice? Is the expression of ideas and analysis elucidated in the 1998 TriBar Report and its following reports and in notable treatises sufficient guidance (soft) or do we need a more codified version (harder), such as may have been once intended by the Third-Party Legal Opinion Report Including the Legal Opinion Accord, which allowed for a short opinion with incorporation by reference of a specific source for its meaning? Is there merit in working to develop an exemplar fully expressed illustrative opinion letter that serves as context for discussion, demonstrating customary expressed and un-expressed content that can form the basis of a crafted opinion letter (a middle ground)? A codified approach, such as the Accord with its behind-the-text expository of what the content means, or a fully expressed exemplar opinion letter form, each of which could provide greater clarity, has not been embraced generally in the past, but these formats often are found in the models of state reports and in reports on secured transactions. Abbreviated opinion forms, such as that appended to the 1998 TriBar Report and intended to be understood in the context of the discussion preceding it, have also not found broad acceptance.
Reference in a third-party opinion letter that it is issued in accordance with currently conceived “customary practice” is as yet uncommon. It is not uncommon, however, for an opinion letter written by a lawyer in a jurisdiction with a legal opinions report to include a limitation to the effect that the opinion is to be construed under that report. These references may be useful in intra-state transactions, but are often unacceptable when the opinion giver and the opinion recipient’s counsel are in separate jurisdictions. Although some might rightly believe that local customary practice variants will not apply when the recipient’s counsel is not within that jurisdiction, there is no clear answer as to when a local practice at variance with a broadly accepted practice applies. Restatement §52, Comment c, indicates that “ordinarily” the professional community whose practices and standards are relevant in applying a rule of competence is that of a relevant jurisdiction “(typically, a state),” noting that a narrower locality is generally rejected. Has opinion practice in commercial transactions acquired a status as a “national practice with national standards” that would transcend state reports, whether or not expressed as a limitation? My answer is: not yet.
Although customary practice may rationalize shorter opinions, the goal may be better regarded as that of providing opinions with a scope of work and coverage that is commercially and legally acceptable. The 1998 TriBar Report (and other discussions of this subject) reminds us that short opinions can be too short if they are misleading. Customary practice enables more concise opinions, tailored to address the recognized issues of a commercial transaction that are accepted by custom as within, and not beyond, a reasonable scope. For example, even though a transaction may involve securities, taxation, or land use issues, a closing opinion is not supposed to cover those matters unless they are explicitly addressed. And omission of certain assumptions and limitations is acceptable because they should be understood.
As national corporate bar groups (notably the ABA Business Law Section Legal Opinions Committee with TriBar) have explored and summarized the concepts of customary practice, the national commercial real estate bar found that the Accord provided an accessible and cogent expression of what could be considered accepted customary practice–indeed, it was the product of a unique national gathering of the corporate bar. The (then-named) ABA Section of Real Property, Probate & Trust Law (“RPPT”) and the American College of Real Estate Lawyers (“ACREL”) adapted the Accord, providing additions and alterations necessary for opinions in real estate secured transactions.
National real estate bar groups eventually determined that implementing the real estate adaptation of the Accord for real estate secured transactions through the mechanism of a short form opinion incorporating by reference the Real Estate Accord Adaptation Report was not satisfactory as a matter of style (as it was not for the Accord itself). In 1998, a joint committee of the ABA RPPT Section and ACREL developed the Inclusive Real Estate Secured Transaction Opinion, an opinion letter that both set out expressly and inclusively the content of the opinion letter that resulted from application of the Accord as adapted by the Real Estate Accord Adaptation Report, with material believed customary for a financing transaction secured by real estate assets added. This was originally a demonstration project, showing the result of expressing within four corners that which was accepted customary practice, as reflected by the Accord, instead of incorporating an external source by reference (as intended by the Accord and the Real Estate Accord Adaptation Report) or simply relying on customary practice to provide the interpretative context (as intended by TriBar).
The content of the Inclusive Opinion Letter has been brought forward and expanded in subsequent reports of the national real estate bar: the Real Estate Finance Opinion Report of 2012, the report titled Local Counsel Opinion Letters in Real Estate Finance Transactions, A Supplement to the Real Estate Finance Opinion Report of 2012, and the report titled Uniform Commercial Code Opinions in Real Estate Finance Transactions. These reports each contain an Illustrative Opinion Letter, with each building on a prior version (beginning with the Inclusive Opinion Letter) by adding material relevant to the subject matter of each report. In most respects, the Illustrative Opinion Letter express provisions would be the same as those envisioned, expressly or implicitly, by TriBar.
The national real estate bar, which includes the American College of Mortgage Attorneys in addition to opinions committees of the (now-named) ABA Section of Real Property, Trust & Estate Law and ACREL, has pursued nationally acceptable statements of opinion practice and opinion letter meaning while recognizing that coverage of opinion jurisdiction law will be essential because of the inherently state-based law applicable to creating and perfecting a security interest in real estate collateral, to the legality of certain documentary provisions by application of state law pertain to matters such as usury, and to the availability of remedies in default. Real estate finance transactions implicate a list of concerns unique to real estate as collateral, among them: what is and is not defined as real estate under applicable law (for example, are room rates at a hotel rent or accounts?); what rights an encumbrancer of real estate has under what events (for example, in rents as an income stream; in leases before title to the leased real property vests); are unique words of encumbrancing and concepts of assignment of leases (absolute or as security) properly used? The Illustrative Opinion Letter expects opinion letters to cover them, and provides placeholders or suggested content for limitations, qualifications, and exceptions concerning local collateral subjects.
While espousing the benefit of customary practice for due diligence as well as for the meaning of words and the terminology of opinions and of standard assumptions and exceptions, and recognizing the impossibility of a single sufficient list describing all qualifications and exceptions, real estate finance opinion letters are likely to express standard as well as non-standard assumptions and limitations. The 2012 Real Estate Report (at 222-3) concluded:
…. [U]ntil customary practice that has established accepted and essential normative conduct in opinion practice has become so ingrained and judicially accepted that no arguable doubt can be cast on the effect of omission of an assumption or limitation, or unspoken limitation of diligence required to render an opinion, there is risk inherent—at least procedurally—in relying on customary practice to “fill in the blanks.” … Conversely, while supporting the use of somewhat longer opinion letters, the Committees recognize the opposite danger: that a lengthy opinion letter might give false comfort that it is completely comprehensive. As noted in the Customary Practice Statement, while an opinion letter might on the surface seem to be comprehensive, an opinion letter cannot express all of the gloss that customary practice will add to understanding an opinion letter.
The Illustrative Opinion Letter is not intended to serve as a template or model opinion letter. It is designed to present what the scope of the opinion letter in a real estate finance transaction might include, with words that are recognized to express it. The Real Estate Local Counsel Report recommends that local counsel tailor assumptions, exclusions, qualifications, and limitations to fit the scope of the opinion letter, which will differ with the role to be served by counsel. Local counsel opinions may cover party (entity) matters or documentary matters or both, and the Local Counsel Report urges the opinion giver to accept that “one size does not fit all.” The language suggested in the Illustrative Opinion Letter is considered appropriate when applicable.
The Illustrative Opinion Letter recites certain fundamentals recognized by customary practice as inherent to opinion letters, such as absence of a duty to advise of post-closing matters that would have a bearing on the opinions provided, the opinion speaks only as of its date, and the opinions are not guaranties, all of which are implicit. By its appearance in the Illustrative Opinion Letter, inclusion of specific language is not suggested as necessary but rather to note that its content is to be read into every opinion letter unless the letter provides otherwise. Nevertheless inclusion of such language should not be objectionable to a recipient, and it is often customary and comforting to provide the clarity it affords.
Qualification of an opinion on enforceability of every agreement is often included in opinion letters to limit the need for exhaustive lists of generally applicable rules of law. The Accord expressed (in §11) that certain qualifications, identified as bankruptcy and insolvency, equitable principles, and “other common qualifications,” applied to the enforceability opinion implicitly, and could apply to other opinions if that application was specifically stated. In §14, the Accord provided a list of “other common qualifications,” but noted in ¶11.2 (Commentary to §11) that a generic qualification to the effect that certain (unspecified) provisions of the agreement may be unenforceable was sometimes found in asset-based transactions, including secured financing transactions. The Commentary noted that the qualification was usually coupled with an assurance that such unenforceability did not affect the validity of the contract itself or interfere with the “substantial (or practical)” realization of the “principal” benefits purported to be provided by the contract. The 1998 TriBar Report observed (at 626), as had its predecessor, Special Report by the TriBar Opinion Committee – The Remedies Opinion, that the generic qualification with practical realization assurance was inherently ambiguous, but had been “encrusted with tradition” and become an aspect of customary practice, and recommended that its use be confined to lease and secured financing transactions.
The ambiguous nature of assurance following a broad qualification led the real estate bar to develop a better solution. For real estate secured transactions, the Illustrative Opinion Letter at ¶4.3 contains a generic enforceability qualification, but provides certain specific assurances that are considered in secured transactions to be the “principal” benefits of the secured loan. This avoids the ambiguity of the practical realization assurance. Ideally, use of a generic qualification with the suggested assurances, as applicable, should largely or completely eliminate any other express limitations to enforceability that do not affect the assurances, resulting in a shorter, unambiguous opinion letter.
If content essential to opinions expressed can by implied, the body of the opinion letter could be shorter. The extent of law that is or is likely to be implicitly covered by an express opinion–that which is essential to the conclusion and reasonably expected to be covered–will determine the scope of an opinion letter, and, hence, influence its length.
Reports have described areas of law coverage that should be considered as impliedly covered in an enforceability opinion and subjects that are not. The 1998 Tri-
Bar Report, at §3.5, discussed the ambit of the remedies opinion and noted that by custom a remedies opinion would not cover tax, insolvency, antitrust, or securities laws in the absence of language indicating the contrary. The 1998 TriBar Report elsewhere considered opinions such as usury and choice of law as implicitly covered by a remedies opinion. Section 3.5 of the Real Estate Local Counsel Report reviews seven opinions potentially implied by the remedies opinion: (i) the documents opined about are effective to achieve their purpose as a matter of form–not just an agreement but as sufficient in form to create and perfect a security interest (yes, but not as to actual creation or perfection); (ii) choice of law (likely yes); (iii) usury (yes, if the covered law applies to the obligation; otherwise unclear but should be no); (iv) contractual economic rights and obligations (yes); (v) title to collateral (never); (vi) legal compliance, government approvals (as to formation of contract and encumbering an asset (yes, but as to project related requirements expressed as covenants, should be no, but unclear); and (vii) remedial rights (yes, and would need to be limited to exercise in accordance with applicable law).
Clarity and certainty may recommend if not demand that subjects considered to be implicitly included or excluded be addressed expressly either as separate opinions or as limitations on opinions through assumptions or exclusions. This will serve to lengthen an abbreviated opinion letter.
The risk of relying on implicitness is demonstrated by objections made to the express assumption as to genuineness of signatures. Although genuineness of signature has been accepted as an implicit assumption as a matter of customary practice for many years, since the decision in Fortress Credit express inclusion of this assumption has been objected to by some recipients. Lawyer opinions about genuineness have little, if any, value. There is no recognized standard for giving them. Consider further that getting a request for comfort on genuineness when the opinion letter recites the assumption raises the question whether the recipient really recognizes or accepts that the assumption exists implicitly.
Obviously, circumstances such as the extent and nature of implicit and explicit opinions given and the role of the opinion giver (lead or local or special) directly relate to the content and, hence, length of an opinion letter. Extensive consideration of these and other circumstances is outside the more conceptual nature of this discussion, but is captured in specialty reports such as the Real Estate Local Counsel Report and the U.C.C. Real Estate Report.
The opinion letter may be over-relied on to address transactional issues better solved through other means. Other means exist to address subjects that could expand the length and cost of opinion letters.
As noted long ago in Fuld’s “Order,” in secured transactions involving real estate collateral, title insurance provides coverage as to title to collateral and to creation and priority of a lien, both of which real estate finance opinion letters exclude implicitly, but which are often the subjects of requested express opinions. The covered risks under the current American Land Title Association form of Loan Policy (2016) include creation, title, forgery, entity action, recordability and the effect of recordation, entity action, certain remedial rights, and other risks often either excluded from or covered by an opinion letter; and, with endorsements cover many other risks sometimes made the subject of legal opinions, such as zoning and land use. Reliance on title insurance – almost always obtained in a real estate finance transaction but not always in an asset-based lending or secured corporate finance–can shorten the opinion letter and the discussion about it regarding the insured interest in collateral. In some jurisdictions, a secured party may obtain a policy insuring similar risks as to Uniform Commercial Code security interests.
Assurance as to many subjects–land use, compliance with certain laws governing design, litigation, taxes, and liens among them–can be obtained from qualified specialists, and the due diligence can be handled outside the legal opinion process efficiently and effectively.
My experience is that while the principles of opinion practice can justify the use of shorter opinions, many opinion preparers prefer to avoid misunderstanding by stating what may be obvious to most but not to all, or maybe not obvious at all. The balance between giving a longer or shorter opinion letter is one created by equilibrium resulting from the particulars of the transaction and uncertainty of the success and the potential cost of litigating the argument that what the opinion letter did not say did not need to be said, the duty not to mislead, and the willingness to tailor content of the letter to the opinions requested and rendered.
There seems to be a legally practical reason to recite what everyone who practices in this area would recognize as customary: the opinion giver would have more confidence in the outcome of a dispute over the coverage of its opinions if words describing and conscribing the content are within the four corners of the document -- the opinion letter -- that may be at issue rather than in opinion reports of bar organizations. The Fortress Credit case demonstrates that. Although a recipient may question the appropriateness of an express limitation, if the words are there in plain language the scope of discussion is focused, and the participants are not left in doubt.
Author's Note: This article is an adaptation of a paper I prepared for a program on substantive issues in opinion practice at the Fall Seminar (2018) of the Working Group on Legal Opinions Foundation, the theme of which centered on the 20th anniversary of significant contributions to opinion practice of the TriBar Opinion Committee, the ABA Business Law Section Opinions Committee, and the ABA Real Property, Trust and Estate Law Section/ACREL Opinions Committees and included a look to the future. The specific purpose of the presentation was to address the balance between longer and shorter closing opinions.
