Summary of Selected Recent Business Law Section Legal Opinions Committee Community Discussion Activity: January 2020 – June 2020

This summary of Business Law Section Legal Opinions Committee Community Discussion activity among its members does not necessarily represent the views of that Committee or the Committee on Legal Opinions in Real Estate Transactions, but rather reflects views of individual members of the Business Law Section Committee on Legal Opinions on current practice topics. The comments referred to below may be viewed by members of the Business Law Section Legal Opinions Committee at that Committee’s “Discussion” web page.

1. Massachusetts Usury Opinion. Robert Gordon, Southfield MI, reported that he was told that the “standard” Massachusetts usury opinion is “Provided Lender files a notice with the Attorney General of the Commonwealth of Massachusetts prior to the date the Loan is made, and maintains the same, all in accordance with Massachusetts General Laws, Chapter 271, Section 49(d), the Loan Documents are not subject to the usury laws of the Commonwealth of Massachusetts.” He also reported that the opinion giver declined to provide an opinion to the effect that “if the interest and expenses, in the aggregate, do not exceed 20%, the usury laws would not be violated,” and providing the notice is standard practice for lenders that do not qualify for an exception provided by paragraph (e) of Section 49.

Paragraphs (a) and (b) of Section 49 make it a criminal offense to charge interest and expenses in excess of 20% per annum. Paragraph (c) of Section 49 further provides that any loan that exceeds the 20% cap may be declared void by the court. Paragraph (d) of Section 49(d), which is referenced in the “standard” opinion, however, provides that paragraphs (a) through (c) shall not apply to a person who notifies the attorney general of an intent to engage in a transaction or transactions which would otherwise violate paragraph (a). Paragraph (e) of Section 49 provides “The provisions of this section shall not apply to any loan the rate of interest for which is regulated under any other provision of general or special law or regulations promulgated thereunder or to any lender subject to control, regulation or examination by any state or federal regulatory agency.”

John Whitlock, Ettore Santucci, and James Smith, all of Boston, MA, replied that Massachusetts practice is as described by the original poster. Mr. Whitlock explained that it is not common for a Massachusetts usury opinion to opine with reference to the 20% cap because it provides no real guidance. He noted that the definition of interest is broad and how one-time charges are to be amortized. He also pointed out that a lender who makes a loan before the notice is filed is not protected and that a notice is effective for only two years. Mr. Smith clarified that any lender that is subject to any state or federal regulatory agency may qualify for the exception provided by paragraph (e) and stated that the general practice is to make a filing where the lender is not a regulated financial institution.

2. Disclosure of Legal Opinions. Jacqueline Brooks, Baltimore, MD, wrote that she receives requests to allow lender’s counsel, auditors, and regulatory agencies to be provided a copy of the opinion letter. She asked for thoughts about a request to allow disclosure, but not reliance, in relation to legal proceedings in connection with the opinion.

Robert Grauman, New York, NY, commented that while the request may be broader than is customary, as a practical matter, if the litigation is by a regulatory agency with subpoena power, the lender is likely to have to provide it (which may also be the case in private litigation). John Burton, Santa Fe, NM, provided some typical language permitting disclosure, but not reliance: “(x) in response to an order or other legal process of any court or other governmental agency; and (y) in connection with the defense of any proceeding to which the Addressee is a party and in which this Opinion Letter is relevant and necessary.”

Ettore Santucci, Boston, MA, questioned whether the letter should (a) state that “nobody can rely on this opinion other than its addressee” and (b) be silent on who can see a copy. He commented that expressly permitting disclosure could only weaken the position of the opinion giver when (not if …) the opinion is disclosed in strange contexts away from the closing table.

Alan Dubin, Washington, DC, reported that he has generally abandoned describing limitations on disclosure in opinions for securitized loans. If the loan will be securitized, the opinion generally will include a statement that it can be “made available to or by any rating agencies as required by Rule 17g-5 under the Securities Exchange Act.”

3. Rights Under Opinion May Be Asserted only in a Single Proceeding. Paul Forrester, Chicago, IL, prompted a discussion of including, in a legal opinion for a syndicated loan, language such as “Furthermore, all rights under this letter may only be asserted in a single proceeding by and through the Administrative Agent or the Required Lenders.” One set of responses, discussed in this item 3, dealt with the inclusion or omission of such language. Another set dealt with including alternative dispute resolution procedures and limitations of liability amounts in opinion letters. That latter are discussed in the following item 4.

William Dunn, Grand Rapids, MI, Stephen Tarry, Houston, TX, and Kenneth (Pete) Ezell, Nashville, TN, identified the source of the provision as Mark Adcock, Gail Merel, & Reade H. Ryan, Jr., Legal Opinions-Who May Rely?, 69 Bus. Law. 957, 960 (2014). Mr. Dunn noted that the language is included in a discussion of reliance limitations in Local Counsel Opinion Letters in Real Estate Finance Transactions, 51 Real Prop. Tr. & Est. L.J. 167 (2016). Frank Garcia, Houston, TX, noted that the language has also been discussed in presentations by the Working Group on Legal Opinions (WGLO) and asked whether it has been accepted.

One of the co-authors of the initial article, Mark Adcock, Charlotte, NC, commented that primary purpose of the language is to avoid multiple suits, in multiple jurisdictions, by multiple lenders, but that lenders and agents object because they may want or need to bring more than one proceeding. Alternative language that is sometimes acceptable to both sides is: “Furthermore, all rights under this letter may be asserted only in one or more proceedings by and through the Agent or the Required Lenders and not by any individual lender.”

Ettore Santucci, Boston, MA, reported that his firm has used the language for some time and described it as a well-established way to control for the risk of “unconstructive” claimants, who may have acquired claims in a loan downstream, possibly in a distressed situation, by requiring that opinion-based claims be part of an orderly process managed, as opposed to free style.”

James Simpson, Troy, MI, Steven Tarry, Houston, TX, and Steven Chameides, Washington, DC, generally include the language, without objection, although occasionally with a bit of explanation. Paul Forrester, Chicago, IL, commented that his firm and some others will remove the language if requested, as it may not be a “standard” provision. Charles Menges, Richmond, VA, commented that limiting claims to those made by the administrative agent in a syndicated loan should be accepted, even though it may not be market (yet).

4. Enforceability of Certain Limitations Contained in Opinions. John Stockton, Harrison, NY, expanded the scope of the discussion of the single proceeding limitation and asked about the enforceability of that limitation or perhaps an alternative dispute provision requiring binding arbitration before three members of the ABA Business Law Section Legal Opinion Committee.

Herrick Lidstone, Jr., Greenwood Village, CO, referred to Ronald Garfield, Third Party Opinion Letters: Limiting the Liability of Opinion Givers, 42 Colo. Law. (CBA) no. 11 at 93 (Nov. 2013). That article discusses how opinion givers may attempt to limit liability for damages to non-client opinion recipients. The article provides an example of language that includes statements (a) limiting any assertion of a claim to only the law firm providing the opinion and not to any individual lawyer at the firm, (b) capping liability, (c) excluding punitive damages, (d) limiting liability only to the extent that it is covered by insurance, and (e) requiring nonbinding mediation of disputes prior to commencing any litigation, arbitration, or pursuit of any claim.

Daniel Welytok, Milwaukee, WI, and Marshall Grodner, Baton Rouge, LA, reported that their firms generally use limitation language like that suggested in Ronald Garfield’s article. When they sometimes receive pushback, it is usually limited to the removal of the liability cap. Mr. Welytok provided an example of his firm’s limiting language. Arthur Field, New York, NY, noted that insurance does not cover intentional acts and may be voided for a variety of reasons.

Patrick Daugherty, Chicago, IL, Stanley Keller, Boston, MA, Wallace Larson, Jr., Barry Hunter, Norfolk, VA, Marshall Grodner, Baton Rouge, LA, Herrick Lidstone, Greenwood Village, CO, and Norman Newman, Indianapolis, IN, discussed potential ethical issues being raised by an attempt to limit liability. They generally agreed that such ethical constraints apply only to a client and not to a third party such as an opinion recipient. Mr. Larson noted that the New York State Bar ethics committee concluded, in 2013, that a lawyer may ethically ask a client to indemnify the lawyer against potential malpractice or other claims by a third-party addressee of an opinion letter that, at the request of the client, is addressed to both the client and the third party.

Charles Menges, Richmond, VA, wrote of his belief that these sorts of limitations are likely to be objectionable to most opinion recipients. He noted that the fact that some opinion recipients do not push back on what may be an inappropriate limitation, does not, by itself, make the limitations appropriate, as often opinion letters are reviewed by lawyers who are just “checking the box” and may not understand the issue.