Opinion Topics at the ABA Business Law Section Spring 2021 Meeting

The spring meeting of the American Bar Association’s Business Law Section, which occurred (virtually) on April 19-23, 2021, featured many topics for discussion on legal opinions of interest to real estate lawyers. This article summarizes those topics and the status of reports in process on those topics.

Joint ABA/IBA Task Force on Cross-Border Opinion Practice

The Legal Opinions Committee of the ABA Business Law Section (the “ABA/BLS Opinion Committee”) and the Legal Practice Division of the International Bar Association have formed a joint task force on cross-border opinion practice, which seeks to build upon work done by various bar organizations in a number of countries to improve the practices of lawyers giving, or advising the recipients of, closing opinions in cross-border transactions. The term “cross-border opinions” includes opinions given by U.S. lawyers in, for example, a loan transaction where the lender or lenders are based in the United Kingdom or other European countries and the borrower or certain of its subsidiaries guaranteeing the loan are organized in the United States or certain of the collateral for the loan is located in the United States. In these situations, the primary loan documents are usually governed by non-U.S. law, but the U.S. loan parties and the documents relating to guaranties or collateral pledges by the U.S. loan parties may be governed by U.S. law.

Perhaps most often cross-border opinion letters involve opinions as to a U.S. loan party’s entity status, due authorization, execution and delivery of loan documents to which it is a party, and perfection by filing under Article 9 of the Uniform Commercial Code. However, cross-border opinion letters will require the involvement of a real estate lawyer when a U.S. law firm is asked to provide an opinion as to the enforceability of, and other issues related to, a mortgage on real property in the United States to secure the loan made under loan documents governed by non-U.S. law. Because the recipients of such opinion letters based outside the United States are accustomed to opinion practice and to interpretations of legal opinions that may differ substantially from the practice and interpretations of U.S. opinion givers and recipients, it is important that U.S. lawyers recognize such differences and address them as necessary in their opinion letters.

The near term goal of the joint task force is to produce principles-based guidance on good practices for the giving of, and for advising on the receipt of, closing opinions in cross-border transactions. A draft of “Good Practice Principles for Cross-Border Legal Opinions” was distributed at the Spring meeting.

Survey of Law Firm Opinion Practices

A subcommittee of the ABA/BLS Opinion Committee that has undertaken the most recent survey of law firm opinion practices met at the spring meeting and also discussed the status of its work at the full committee meeting. A summary on the status of the survey and the upcoming report is discussed elsewhere in this issue of Opinions Matters.

TriBar Report on LLC Opinions

The TriBar Opinion Committee will soon publish a report on third party closing opinions on limited liability companies (“LLCs”), a draft of which was distributed at the spring meeting. The upcoming report will replace TriBar’s 2006 and 2011 reports on those opinions. The report on LLC opinions will discuss the following topics:

• opinions by non-Delaware lawyers on LLCs formed in Delaware;
• the so-called “status” opinion relating to formation, existence and good standing;
• opinions as to the power of an LLC to enter into and perform its obligations under agreements;
• the so-called “action” opinion as to due authorization, execution and delivery of agreements;
• opinions as to valid issuance of LLC interests;
• opinions on the admission of purchasers of LLC interests as members of an LLC;
• opinions on the obligations of purchasers of LLC interests to make future contributions; and
• opinions that certain purchasers of LLC interests have no personal liability to third parties.

Follow-On Legal Opinions in Commercial Finance Transactions

The ABA/BLS Opinion Committee co-sponsored with the Commercial Finance Committee of the ABA Business Law Section a program on “Amendments, Joinders and Reaffirmations: Follow-On Legal Opinions in Commercial Finance.” The topic is one that the ABA/RPTE Committee on Legal Opinions in Real Estate Transactions and the Working Group on Legal Opinions Foundation are also exploring in anticipation of a formal report to be published at some point. The topics covered by the seminar included the risk of re-issuing the original opinion, the types of loan amendments for which such opinions are usually given, the additional assumptions applicable to loan amendment opinions, the proper scope of the remedies (or enforceability) opinion, opinions as to both existing collateral and any new collateral, and novation issues.

When Should Borrower’s Counsel Give the Enforceability Opinion?

The ABA/BLS Opinion Committee has created a new task force on an old, and often debated, topic: whether borrower’s counsel in a loan transaction should give an enforceability opinion on loan documents that were prepared by lender’s counsel. Recognizing that historically in the United States, borrower’s counsel seldom, if ever, wins the argument that the lender should not expect borrower’s counsel to opine on the enforceability of documents prepared by the lender’s own lawyers, the task force nevertheless intends to examine the issue to see if changes in this customary opinion practice should be recommended. Aside from the obvious logic that lender’s counsel should be responsible for determining the enforceability of its own loan documents, the effort is also prompted, at least in part, by the perception that enforceability opinions, assumptions, qualifications and exclusions have become more standardized and are rarely challenged. Among other things, the task force will consider:

• Whether the issue should be handled differently in bilateral loans as compared to syndicated loans, or where there are rating agencies involved.
• What opinions the borrower’s counsel should give in any event—e.g., entity status, power, authorization, execution and delivery, no violation of other agreements, etc.
• Whether there are opinions in addition to enforceability opinions that should not be required of borrower’s counsel if lender’s counsel practices in the relevant jurisdiction(s)—e.g., creation and perfection of UCC security interests.