The WGLO committee has met and exchanged drafts and comments, including by video conferences through the COVID-19 period. A few issues that may be of particular interest to real estate lawyers:
1. Real Estate Report
The WGLO committee is mindful of the existing local counsel report, for the real estate bar, of the American Bar Association Section of Real Property, Trust and Estate Law, Committee on Legal Opinions in Real Estate Transactions, the American College of Mortgage Attorneys, Opinions Committee, and the American College of Real Estate Lawyers, Attorneys’ Opinions Committee. See Joint Drafting Committee, Local Counsel Opinion Letters in Real Estate Finance Transactions, 51 Real Prop. Tr. & Est. L.J. 167 (2016) (“Real Estate Report”).
The Real Estate Report includes general guidance as well as a detailed walk through an illustrative opinion letter. The presentation of the WGLO Report, however, will focus on general guidelines for third-party closing opinions of local counsel, with few specifics on either the formulation or appropriateness of particular opinions, as are found in the Real Estate Report.
2. Agency
The WGLO committee discussed the role of the lead lawyer as the client’s agent for the purpose of communicating to local counsel the client’s instructions and information needed to prepare and deliver the local counsel opinion letter. This reliance customarily is well founded because the duly appointed lead counsel is an agent of the client for this purpose. The committee discussed a concern which is interesting but probably more theoretical than actual.
If authorized by the client, then the client is bound by lead counsel’s retention of local counsel and instructions to take other actions to implement the engagement, since local counsel’s role in delivering the local counsel opinion letter is necessary to the client’s objective of closing the transaction. See Restatement (Third) of Agency § 2.02. However, limitations on local counsel’s access to the client may effectively preclude local counsel from verifying the actual authority of lead counsel, and, under the Restatement, there needs to be at least a “manifestation” by the client that lead counsel has authority to act to create apparent authority for lead counsel to retain local counsel to carry out the transaction. See Restatement (Third) of Agency § 3.03. “In some settings, the principal’s acts speak so loudly that explicit verbal communication is unnecessary. Similarly, an indirect route of communication between a principal and third party may suffice, especially when it is consistent with practice in the relevant industry.” Id. Comment b. Any risk that arises in relation to these issues may be mitigated by local counsel obtaining from the client an executed engagement letter or certificate that expressly or impliedly authorizes delivery of its local counsel opinion letter and reliance on lead counsel.
As alternative bases for local counsel to rely on communications from lead counsel regarding (i) factual matters related to the client and (ii) client’s consent to deliver the closing opinion on behalf of the client, the committee discussed local counsel’s reliance on facts provided by others for such factual matters (subject to unwarranted reliance) (see Stanley Keller & Steven O. Weise, Obtaining National Consensus on Key Opinion Practices: An Introduction to the Statement of Opinion Practices, 74 Bus. Law. 801 (2019), and Joint Committee, Statement of Opinion Practices, 74 Bus. Law. 807 at 809 (2019) (Section 5.2) (“Statement of Opinion Practices” or “Statement”)) and, subject to local rules of professional conduct, the consent of the client to deliver the local counsel closing opinion may be inferred from provisions in the transaction documents or other circumstances of the transaction (see Statement at 812 (Section 8.4)).
Even if rendering an opinion letter in general is authorized, local counsel (like all opinion givers) should not disclose, absent informed consent by the client, information that the opinion preparers “know” the client would not want disclosed, or as to which the opinion giver is under a duty of non-disclosure under applicable rules of professional conduct. See Statement at 812 (Section 8.4).
3. Whose Customary Practice?
Another issue discussed by the WGLO committee is whose customary practice applies to the local counsel opinion letter given that transactions with local counsel opinion letters inherently are multi-jurisdictional.
This issue may be mitigated to the extent opinion practice is the same in the jurisdictions involved or to the extent a national opinion practice is developing. The Explanatory Note to the Statement of Opinion Practices says the Statement could be widely endorsed “in order to establish a national basis for the preparation and understanding of third-party legal opinion letters….” Statement at 803. The Statement has been approved by many major bar associations and lawyer groups in the United States, including many real estate bar groups.
Questions do remain, however. For example:
- What differences remain across jurisdictions and practice disciplines, and what should be done about them?
- Where should a practitioner look for guidance on customary practice, whether nationally or between jurisdictions?
These and related issues would be worthy of further study. The WGLO Report on local counsel opinion letters will be a step forward.
