ABA Section of Business Law

ABA Section of Business Law
Business Law Today
November/December 1999

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It’s time to streamline opinion letters

The chair of a BLS committee speaks out

By DONALD W. GLAZER

Glazer, advisory counsel to Goodwin, Procter & Hoar in Boston, is chair of the Section’s Committee on Legal Opinions

The next millennium may not be the Age of Aquarius, but for closing opinions it promises to be the dawning of a new era. As the 21st century approaches, the stars in the legal opinions firmament at long last have come into alignment, creating a uniquely favorable environment for simplifying opinion forms and streamlining opinion practice.

To understand where we are and how we got there, a little history is in order.

The way things were — For most of the 1970s and before, legal opinions were more a matter of lore than of learned analysis. Not much in the way of published materials was available, and what was, written principally by a New York lawyer named James Fuld, raised — by design — more questions than it answered. Standard opinions tended to be phrased the same way, but lawyers could not be sure that others (even others in their own firms) shared their understanding of the meaning of the opinions they were rendering.

Like nature, bar associations abhor a vacuum. Soon after publication of the Fuld article, New York bar associations began to work independently on the questions he had raised. By the late 1970s, the three largest had joined forces, and in 1979, under the auspices of the TriBar Opinion Committee, published a landmark report in The Business Lawyer . The TriBar Report quickly became the benchmark for legal opinion practice, providing lawyers across the country guidance on the preparation of closing opinions and the meaning of standard opinion clauses.

The TriBar Report had a New York focus. That focus left the door open for bar associations in other states to weigh in with their own reports. Enough did so that by the late 1980s the problem lawyers faced was not too few sources of guidance but too many. Moreover, as with any body of work written at different times by different authors with different experiences, the various reports were not always consistent, creating an unsettling uncertainty among opinion givers and opinion recipients alike.

Perceiving discord among the states, in 1989, the leadership of the ABA Business Law Section convened the now legendary Silverado Conference for the avowed purpose of forging a national consensus on legal-opinion issues. High-minded objectives, however, soon confronted the reality that positions staked out by California and New York on a key issue — the coverage of the so-called remedies opinion — were not readily reconcilable. That left those at Silverado (who became the charter members of the Business Law Section’s Committee on Legal Opinions) with no choice but to adopt an approach that did not require them to take sides.

The bar reports from individual states purported to speak ex cathedra, to cover all opinion letters within their states, whether or not the letters referred to them expressly. The ABA, by way of contrast, adopted a consensual approach, providing opinion givers and recipients a contractual mechanism for bringing themselves into accord on the meaning of standard opinion language and the work required to support it.

That mechanism, which the ABA dubbed the "Accord," was a detailed set of rules that defined for those who chose to adopt them how an opinion letter should be interpreted, the laws it should be understood to cover, the factual investigation the opinion giver was expected to conduct and the meaning of several standard opinion clauses. (The ABA report also included Guidelines on good opinion practice that, like the state bar reports, purported to apply to opinion letters generally; the Guidelines are still referred to regularly in opinion negotiations.)

The Accord never caught on in major financial centers. The reasons were many. Some lawyers felt uneasy with the idea that opinion practice could, in fact, be codified. Others were concerned about the burden that they perceived the Accord placed on opinion recipients. Of all the reasons, however, probably the most important was inertia: The Accord was perceived to be a formidable document and busy lawyers proved to be unwilling to put in the time needed to master it and to draft the changes it required in existing forms and procedures.

Though failing in its central purpose, in a broader sense the Accord had a profound effect on opinion practice. Its intense definitional focus sharpened and deepened the understanding of standard opinion language. Moreover, in spelling out all the assumptions and exceptions that opinion letters ordinarily leave unstated, the Accord highlighted how much the meaning of standard opinion language depends on what is implicit as well as what is explicit.

Different firms responded to the Accord in different ways. Many, especially in New York, did little in the way of changing office forms. Many others, mainly outside New York, made more extensive changes. Picking up on the Accord’s treatment of knowledge, firms began adding a paragraph defining the term "knowledge" for purposes of the opinion and identifying whose knowledge counted among the lawyers in their firm. A few also began importing into their opinions, often by means of elaborate appendices, sections of the Accord on unstated assumptions, general exceptions and excluded laws.

The result was that opinion letters often became longer and negotiations too often more difficult. The added complexity, however, rarely made opinion givers feel more comfortable. Opinion preparers recognized all too well the impossibility of stating everything and worried that the more they stated, the more difficult it would be to claim that something unstated was intended to apply anyway.

In the meantime, state bar association reports continued to proliferate, some on the Accord alone, and others on both Accord and traditional non-Accord opinions.

The stars come into alignment — In 1998, three major projects, each of which proceeded independently, came to fruition almost simultaneously. In April, the American Law Institute approved its Restatement (Third) of the Law Governing Lawyers; in August, the Committee on Legal Opinions of the ABA Business Law Section approved its Legal Opinion Principles; and in the same month, the TriBar Opinion Committee signed off on a new report, Third-Party "Closing" Opinions, that updated and completely revised most of that committee’s previous reports (including its 1979 Report).

When taken together, these documents — prepared by three different bar groups — provide a comprehensive and internally consistent description of legal opinion practice as it exists today. As such, they constitute the best sources currently available on legal-opinion issues.

Chapter 4 of the ALI’s Restatement deals generally with the issue of lawyer liability and in Section 152 specifically addresses third-party opinions. Section 152 and the other more general sections of Chapter 4 indicate that an opinion giver is not a guarantor but, like any provider of professional services, is required to exercise the competence and diligence normally exercised in similar circumstances. The Restatement explains that the scope of the diligence an opinion giver is expected to perform — that is, what is normal in similar circumstances — is determined by custom and practice, as articulated in bar association reports, treatises and articles. The Reporters in a note then go on to point out that custom and practice permit abbreviated opinions that do not set forth all the assumptions and limitations on which they are based or the scope of the diligence that the lawyer has performed to render them.

Third-party opinions have been the subject of only a few published decisions. In the absence of case law, judges can be expected to consult the Restatement for a description of applicable law. The Restatement makes clear that in interpreting legal opinions and deciding whether opinion givers have satisfied their duty of care, judges should not simply rely on dictionary definitions or evaluate in the abstract the diligence performed.

Instead, the Restatement refers judges to custom and practice and cites bar-association reports for their articulation of what custom and practice entails. In suggesting where judges might look for guidance, the Reporters in a note characterize the ABA Legal Opinion Principles and the TriBar Committee’s Third-Party "Closing" Opinions as the two "leading" bar-association reports.

The Legal Opinion Principles, prepared by the Committee on Legal Opinions of the ABA Business Law Section (published in the May 1998 issue of The Business Lawyer and reproduced in full in a sidebar to this article), serve as a bridge between the Restatement’s description of applicable legal standards and the extended discussion of legal-opinion practice in the various bar-association reports. In less than two pages, the Principles provide in simple and straightforward language guidance regarding the application of selected aspects of custom and practice (the Principles use the term "customary practice") to third-party closing opinions that do not adopt the Accord.

Like the Restatement, the Principles confirm that opinions are not guarantees but rather expressions of professional judgment and affirm the importance of customary practice in the negotiation, preparation and interpretation of third-party opinions. The Principles then consider the law covered by an opinion, the ways facts are established and the significance of an opinion letter’s date. The thrust of the Principles is that many limitations, qualifications and assumptions are understood to be applicable even when not stated expressly . The Principles are premised on the concept that customary practice, both as to law and fact, reflects the realities of what can reasonably be expected under the circumstances in which third-party opinions normally are rendered.

Third-Party "Closing" Opinions (published in the February 1998 issue of The Business Lawyer) covers much the same territory as the TriBar Committee reports it updates and supersedes. Its chapter on facts, however, is new, and at many points it refines earlier positions, reflecting further analysis and developments over the past 20 years.

Third-Party "Closing" Opinions begins with a general discussion of the opinion process, breaking the concept of customary practice down into the helpful categories of customary usage (the meaning of standard opinion language) and customary diligence (the work required to support standard opinions). In its opening chapter, the Report also makes the important point that a lawyer should not deliver an opinion letter that is technically correct if he or she recognizes that it will mislead the recipient with regard to the matters it covers.

In successive chapters, the Report then addresses the factual underpinnings of opinions, the coverage of the so-called remedies opinion, the law covered by opinion letters, reliance by opinion givers on opinions of other counsel, and the meaning of and work required to support standard closing opinions. The Report contains a glossary of opinion terminology and concludes with four illustrative opinions, two by outside counsel and two by inside counsel, that show how opinion responsibility might be allocated when more than one opinion giver is involved.

Since 1979, the TriBar Committee has expanded beyond its original New York base to include representatives from bar associations in Atlanta, Boston, Chicago, Delaware, Pittsburgh, Philadelphia, Texas and Ontario, Canada. Its new report expresses the consensus view, therefore, of lawyers from many of the major financial centers in North America. In replacing the committee’s earlier reports, Third-Party "Closing" Opinions has become the first place that many lawyers look when they have a legal-opinion question.

A new age dawning — The Restatement, Legal Opinion Principles and Third-Party "Closing" Opinions together create a unique opportunity for modifying traditional legal opinion practice without making the wholesale changes required by the Accord. Historically, lawyers have been concerned about the paucity of case law and the resulting uncertainty in the standards that judges might apply to legal opinions. The Restatement should dispel that concern, making clear that the rendering of a legal opinion is to be judged by customary standards of the profession. Those lawyers who previously have felt compelled to try to spell everything out in their opinions (recognizing all too well the futility of that task) now have a basis for relying instead on customary practice as described in published sources, such as the Legal Opinion Principles and new TriBar Committee Report.

The Legal Opinions Committee of the Boston Bar Association’s Business Law Section has adopted a statement (see sidebar) that characterizes the Legal Opinion Principles and Third-Party "Closing" Opinions as providing a helpful description of customary practice as followed by Massachusetts lawyers. The Council of the Pennsylvania Bar Association's Section of Corporation, Banking and Business Law and the Legal Opinions Committee of the Iowa Bar Association's Business Law Section have adopted similar statements endorsing the Principles. Many other bar associations are considering whether to take similar action.

The Boston Bar Committee in its statement has also addressed the desirability of jettisoning from opinion letters time-worn language that is understood to be implicit even if not included expressly. In making the transition to a more streamlined opinion form, the statement suggests that some lawyers may feel more comfortable including a cross-reference to the Principles in their opinion letters. Such a cross-reference, while technically unnecessary, would make clear that no change in substance is intended by the omission of familiar language.

Representatives of many of the larger Boston law firms are now in the process of developing a simple, unadorned opinion form to be used as a starting point when acting both as opinion givers and as counsel for opinion recipients. If successful, that effort should reduce substantially the wear and tear on lawyers and the cost to their clients of negotiating acceptable opinion language.

As the next century approaches, the legal opinion world is at a crossroads. An opportunity now exists to streamline — and in the process sharpen — traditional opinion practice. For those who take advantage of that opportunity, all involved — opinion givers, their clients, opinion recipients and their counsel — will benefit. For those who do not, the problem, as Cassius put it before the dawning of the last millennium, no longer will be in their stars but in themselves.