Sample California Third-Party Legal Opinion for Business Transactions By the Opinions Committee of the Business Law Section of The State Bar of California

 Sample California Third-Party Legal Opinion for Business Transactions1 (With Footnotes)

Please note: Items in brackets such as [Name of Borrower] and [Date] are intended to provide guidances for you to customize the document for your purposes.

[Date] 2 [Name of Lender], a National Banking Association [Address of Lender] 3


Ladies and Gentlemen:

We have acted as counsel to [Name of Borrower], a California corporation (the "Borrower"), and [Name of Guarantor], a California limited liability company (the "Guarantor") in connection with the [Name of Agreement] (the "Loan Agreement"), dated as ________, of between the Borrower and [Name of Lender], a National Banking Association (the "Lender"). 4 This opinion is delivered to you pursuant to Section ___ of the Loan Agreement. 5 The Borrower and the Guarantor are sometimes referred to in this letter individually as a "Loan Party", and collectively as the "Loan Parties." Each capitalized term that is defined in the Loan Agreement and that is used but not defined in this letter has the meaning given to it in the Loan Agreement.

A. Documents Examined 6

We have examined the following documents:7

(i) the Loan Agreement;

(ii) the Promissory Note;

(iii) the Guaranty;

(iv) the Articles of Incorporation of the Borrower, certified by the California Secretary of State as of and certified to us by an officer of the Borrower as being complete and in full force and effect as of the date of this opinion;

(v) the Bylaws of the Borrower, certified to us by an officer of the Borrower as being complete and in full force and effect as of the date of this opinion;

(vi) records certified to us by an officer of the Borrower as constituting all records of proceedings and actions of the board of directors [and the shareholders] of the Borrower relating to the Loan; 8

(vii) a Certificate of Status__Domestic Corporation with respect to the Borrower, issued by the California Secretary of State on_____9;

(viii) the Articles of Organization of the Guarantor, certified by the California Secretary of State as of____ and certified to us by an [officer] 10 of the Guarantor as being complete and in full force and effect as of the date of this opinion;

(ix) the Operating Agreement of the Guarantor dated as of , and certified to us by [an officer] of Guarantor as being in full force and effect as of the date of this opinion;

(x) records certified to us by [an officer] of the Guarantor as constituting all records of proceedings and actions of the [manager(s) and members] 11 of the Guarantor relating to the Loan;

(xi) a Certificate of Status __ Domestic Limited Liability Company with respect to the Guarantor, issued by the California Secretary of State on

(xii) a certificate of the [Chief Financial Officer, General Counsel or other appropriate officer] of the Borrower identifying certain agreements and instruments to which the Borrower is a party or by which the Borrower's properties or assets are bound (the "Certificate Relating to Agreements");12

(xiii) a copy of each of the agreements and instruments identified in the Certificate Relating to Agreements, certified to us as being a true and correct copy of the original ("Material Agreements");

(xiv) a certificate of the [Chief Financial Officer, General Counsel or other appropriate officer] of the Guarantor identifying certain agreements and instruments to which the Guarantor is a party or by which the Guarantor's properties or assets are bound (the "Guarantor's Certificate Relating to Agreements");

(xv) a copy of each of the agreements and instruments identified in the Guarantor's Certificate Relating to Agreements, certified to us as being a true and correct copy of the original ("Guarantor Material Agreements"); and

(xvi) a certificate of each of [the Chief Financial Officer, General Counsel or other appropriate officer] of the Borrower and the Guarantor as to certain factual matters relevant to this opinion.13

Each of the documents identified in items (i) through (iii) above is sometimes referred to herein as a "Loan Document."

We have also examined such other documents and made such further legal and factual examination and investigation as we deem necessary for purposes of rendering the following opinions.14

B. Certain Assumptions

We have assumed, for purposes of the opinions expressed herein that:15

(a) the Lender is (i) a subsidiary of a bank holding company (as such terms are defined in Section 3707 of the California Financial Code) or is a bank organized under the laws of the United States or any State thereof (ii) a foreign (other nation) bank described in Section 1716 of the California Financial Code meeting the criteria for exemption set forth therein, (iii) licensed under the California Finance Lenders Law (Cal. Fin. Code § 22000 et seq.), or (iv) a lending institution otherwise belonging to an exempt class of persons and, as a result thereof, that the Lender is exempt from the restrictions of Section 1 of Article XV of the Constitution of the State of California relating to rates of interest upon the loan of money;

(b) the Loan will be made by the Lender for its own account or for the account of another person that qualifies for an exemption from the interest rate limitations of California law; and

(c) there is no agreement by the Lender to sell participations or any other interest in the Loan to be made under the Loan Agreement to any person other than a person that qualifies for an exemption from the interest rate limitations of California law.16

C. Opinions

Based on the foregoing, and subject to the qualifications set forth in Section E below, it is our opinion that:

1. The Borrower is a corporation validly existing and in good standing under the laws of the State of California. 17

2. The Borrower has the corporate power to enter into and perform its obligations under each of the Loan Documents to which it is a party. 18

3. The Borrower has taken all corporate action necessary to authorize the execution and delivery of, and the performance of its obligations under, each of the Loan Documents to which it is a party; and the Borrower has duly executed and delivered the Loan Documents to which it is a party. 19

4. The Guarantor is a limited liability company existing in good standing under the laws of the State of California.20

5. The Guarantor has the limited liability company power to enter into and perform the Guaranty. 21

6. The Guarantor has taken all limited liability company action necessary to authorize the execution and delivery of, and the performance of its obligations under, the Guaranty; and the Guarantor has duly executed and delivered the Guaranty. 22

7. Each of the Loan Documents to which the Borrower or Guarantor is a party is a valid and binding obligation of the Borrower or the Guarantor, as the case may be, enforceable against it in accordance with its terms. 23

8. All consents, approvals, authorizations or orders of, and filings, registrations and qualifications on the part of the Borrower or the Guarantor with, any United States federal or California state regulatory authority or governmental body required to execute and deliver, and perform their obligations under, the Loan Documents have been obtained or made. 24

9. The execution and delivery by Borrower or the Guarantor of the Loan Documents to which it is a party do not, and the performance by them of their respective obligations under those Loan Documents will not: 25

(a) violate the Articles of Incorporation or the Bylaws of the Borrower or the Articles of Organization or the Operating Agreement of the Guarantor;

(b) result in a breach of or constitute a default under any Material Agreement or Guarantor Material Agreement or result in the creation of a security interest in, or lien upon, any of the Borrower's or the Guarantor's properties or assets under any Material Agreement or Guarantor Material Agreement, but excluding in any such case financial covenants and similar provisions therein requiring financial calculations or determinations to ascertain compliance; 26

(c) violate any judgment, order or decree of any court or arbitrator [identified on Schedule__ to the Loan Agreement] [or] [applicable to either of them and known to us]27; or

(d) violate any law, rule or regulation applicable to Borrower or the Guarantor. 28

D. Confirmations

We are not representing the Borrower or the Guarantor in any action or proceeding that is pending, or overtly threatened in writing by a potential claimant, that seeks to enjoin the transaction or challenge the validity of the Loan Documents or the performance by the Borrower or the Guarantor of their respective obligations thereunder. 29

E. Certain Qualifications

Our opinions are limited to the federal law of the United States and the law of the State of California.30 Furthermore, we express no opinion with respect to compliance with any law, rule or regulation that as a matter of customary practice is understood to be covered only when an opinion refers to it expressly. Without limiting the generality of the foregoing [and except as specifically stated herein,] we express no opinion on local or municipal law, antitrust, environmental, land use, securities, tax, pension, employee benefit, margin, insolvency, fraudulent transfer, antiterrorism, money laundering, or investment company laws and regulations. 31

Our opinions are subject to the following additional qualifications:.

(1) Our opinions are subject to (a) bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws of general applicability relating to or affecting creditors' rights generally; and (b) general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, regardless of whether considered in a proceeding in equity or at law.32

(2) Where a statement is qualified by "to our knowledge" or any similar phrase, that knowledge is limited to the actual knowledge of lawyers currently in this firm who have been involved in representing the Borrower or the Guarantor in connection with the Loan Documents. Except as otherwise expressly indicated, we have not undertaken any independent investigation to determine the accuracy of any such statement, and no inference as to our knowledge of any matters bearing on the accuracy of any such statement should be drawn from the fact of our representation of the Borrower. 33

(3) We advise you that, on statutory or public policy grounds, waivers or limitations of the following may not be enforced: (i) broadly or vaguely stated rights, (ii) the benefits of statutory, regulatory or constitutional rights, (iii) unknown future defenses, (iv) rights to one or more types of damages, and (v) indemnities. 34

(4) [The enforcement of Section __ of [the Loan Agreement], relating to the payment of attorneys' fees and costs, is subject to the limitations of Section 1717 of the California Civil Code.] 35

(5) [We express no opinion regarding the enforceability of [Section .] of the [Loan Agreement], which purports to fix the venue of proceedings relating to the Loan.] 36

(6) [We express no opinion regarding the enforceability of [Section _] of the [Loan Agreement], which purports to waive the parties' rights to a jury trial.] 37

(7) [We advise you of California statutory provisions and case law to the
effect that a guarantor may be discharged, in whole or in part, if the beneficiary of the guaranty alters the obligation of the principal, fails to inform the guarantor of material information pertinent to the principal or any collateral, elects remedies that may impair either the subrogation or reimbursement rights of the guarantor against the principal or the value of any collateral, fails to accord the guarantor the protections afforded a debtor under Division 9 of the California Uniform Commercial Code or otherwise takes any action that prejudices the guarantor, unless, in any such case, the guarantor has effectively waived such rights or the consequences of such action or has consented to such action. While California Civil Code Section 2856 and case law provide that express waivers of a guarantor's right to be discharged, such as those contained in the Guaranty, are generally enforceable under California law, we express no opinion regarding the effectiveness of the waivers in the Guaranty. 38

(8) [We advise you that a court may refuse to enforce [Section __ of the Loan Agreement], which provides [for judicial review of arbitration awards/other reason]. We express no opinion regarding the effect of the inclusion of that provision in [the Loan Agreement] upon the enforceability of the parties' agreement to submit disputes to arbitration.] 39

(9) We express no opinion regarding the enforceability of [set out any provision of the Loan Documents determined to provide for a penalty, liquidated damages, acceleration of future amounts due (other than principal) without appropriate discount to present value, late charges, prepayment charges, or increased interest rates upon default that is determined to be unenforceable for a reason other than one included within qualification (1).] 40

This letter may be relied upon solely by the Lender for use in connection with the transactions contemplated by the Loan Agreement. No other party may rely upon this letter or the opinions expressed herein without our prior written consent. 41

Very truly yours, ABLE & BAKER LLP


Footnotes

1 This sample third-party opinion letter is based primarily on the reports of the Corporations Committee (the "Corporations Committee") of the Business Law Section of the State Bar of California (the "Business Law Section"), the Opinions Committee (the "Committee") of the Business Law Section and the Partnerships and Limited Liability Companies Committee (the "Partnerships and LLC Committee") of the Business Law Section, all of which reports are available at http://www.calbar.org/buslaw under the "Opinion Resources" tab. See Corp. Comm. of the Bus. Law Section of the State Bar of Cal., Legal Opinions in Business Transactions (Excluding the Remedies Opinion) (May 2005) (2007 printing) [hereinafter "Opinions Report"]; Bus. Law Section, State Bar of Cal., Report on Third-Party Remedies Opinions: 2007 Update (2007) [hereinafter "Remedies Report"]; Partnerships and Limited Liability Companies Comm. of the Bus. Law Section of the State Bar of Cal., Report on Legal Opinions Concerning California Limited Liability Companies (Feb. 2000) [hereinafter "California LLC Report"]. These reports, in turn, frequently refer to the TriBar Opinion Committee reports. See, e.g., TriBar Opinion Comm., Report: Third-Party "Closing" Opinions, 53 Bus. Law. 591 (1998) [hereinafter "1998 TriBar Report"]. See also ABA Comm. on Legal Opinions, Legal Opinion Princtles, 53 Bus. Law. 831 (1998) [hereinafter "Principles"]; ABA Comm. on Legal Opinions, Guidelines for the Preparation of Closing Opinions, 57 Bus. Law. 875 (2002) [hereinafter "Guidelines"]. This project was inspired in part by a report of the Boston Bar Association. See D. Glazer and S. Keller, A Streamlined Form of Closing Opinion Based on the ABA Legal Opinion Principles, 61 Bus. Law. 389, 393-398 (2005) (Boston form of opinion is reprinted).

In deference to long-standing custom, we style this letter as an "opinion" even though, in addition to legal opinions, it contains factual confirmations. We have suggested that any factual confirmation be presented in a separate section (here, Section "D"). This approach is already common in securities transactions, where "negative assurance" statements have traditionally been provided. See Task Force on Sec. Law Opinions, Comm. on Fed. Regulation of Sec., ABA Section of Bus. Law, Special Report: Negative Assurance in Securities Offerings (2008 Revision), 64 Bus. Law. 395 (2009) [hereinafter "Negative Assurance Report"].

As noted in the preamble to this sample opinion, the sample does not specifically state that it is to be interpreted in accordance with the customary practice of lawyers giving opinions under California law; however, regardless of whether or not such a statement is included the opinion, the opinion should be interpreted in light of such customary practice. If the opinion preparer nonetheless wants to include a reference to customary practice, one increasingly accepted method of doing so would be to refer to the Principles cited above. This could be done by including, either at the beginning or the end of the opinion, a statement such as: "This opinion letter shall be interpreted in accordance with the Legal Opinion Principles published by the Committee on Legal Opinions of the American Bar Association's Section of Business Law, 53 Bus. Law 831 (1998)." Back

2 By its nature, a third-party legal opinion speaks only as of the date it is issued. As such, it does not cover changes in law or fact that occur following the date of its issuance. See Principles, supra note 1, at 833.Back

3 The opinion will usually be issued in favor of an institution, rather than an individual, and will be addressed to the institution, and not to a specified individual at that institution. We have chosen to use an unsecured loan as our assumed transaction and we have identified our Lender as a national banking association; identifying the nature of the lender is relevant to compliance with California usury laws. See infra note 16. While beyond the scope of this sample opinion, illustrations of opinions appropriate in personal property secured transactions may be found in a report prepared by the Uniform Commercial Code Committee of the Business Law Section. See Uniform Commercial Code Comm. of the Bus. Law Section of the State Bar of Cal., Legal Opinions in Personal Property Secured Transactions (2005) [hereinafter "UCC Report"]. Back

4 This sample opinion assumes that the Borrower is a California corporation, and that the Guarantor is a California limited liability company. Opinions for limited partnerships (while not illustrated in the sample opinion) are discussed in a report prepared by the Partnerships and LLC Committee. See Partnerships and Limited Liability Companies Comm. of the Bus. Law Section of the State Bar of Cal., Report on Legal Opinions Concerning California Partnerships (February 1998.) This report is also available at http://www.calbar.org/buslaw under the "Opinions Resources" tab. Back

5 It is common to state the context in which the opinion is rendered. Here, as is often the case, delivery of the opinion is a condition to the closing of the transaction and reference is made to the provision in the Loan Agreement requiring its delivery. Back

6 The order in which the elements of a legal opinion are set forth varies from firm to firm. The order adopted in this sample follows basically that set out in the Opinions Report:

(1) introductory matters, such as the date, the identity of the opinion recipient, the role of the opinion giver giving the opinion, and the purpose for which the opinion is given; (2) a general or specific recitation of the documents and other factual and legal matters reviewed by the opinion giver, including in some instances a statement of reliance on various factual assumptions; (3) the legal conclusions expressed in the opinion, and any qualifications to the legal conclusions; (4) matters peculiar to the particular opinion, such as matters relative to opinions of local counsel in other jurisdictions and specific limitations on the use of the opinion; and (5) the signature of the opinion giver.

Opinions Report, supra note 1, at 21 (footnote omitted).

This form departs from this framework in one significant respect: it separates factual confirmations -- whether or not traditionally expressed with the legal conclusions __ from the legal conclusions by placing them in a separate section headed "Confirmations" immediately following the legal conclusions. See infra note 29. Back

7 Practice varies as to whether the opinion lists documents that the opinion preparers have reviewed for purposes of the opinion. See Opinions Report, supra note I, at 24-3 2, for an extended discussion regarding the description of an opinion giver's factual examination.

This sample opinion assumes that the Loan Agreement, Promissory Note and Guaranty state that they are governed by California law. For sample opinions specifically addressing the validity of a governing law clause in loan documents that select as the governing law the law of a state other than California, see the suggested language in note 23 below. Note that an enforceability opinion is understood as a matter of customary practice to cover __ unless explicitly excluded __ the enforceability of the choice of law clause. See Remedies Report, app. 10, at B-2. In commercial transactions involving not less than $250,000, a choice of California law is generally enforceable in California. See Cal. Civ. Code § 1646.5 (West 1985 & Supp. 2009). For transactions involving less than $250,000, the transaction must have a sufficient relationship to California to support that choice of law under the traditional analysis in Restatement (Second) of Conflict of Laws § 187 (1971), applied in Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 4th 459, 462 (1992). In the assumed transaction upon which this sample opinion is based, if the loan is for $250,000 or more, section 1646.5 will support the choice of California law; if the loan were for less than $250,000, the opinion preparers would analyze the relationship of the transaction to California. Here, the organization of the Borrower and the Guarantor in California should be sufficient to support application of California law. See Remedies Report, supra note 1, app. 10, at B-1, citing Application Group, Inc. v. Hunter Group Inc, 61 Cal. App. 4th 881, 899 (1998). Back

8 See Opinions Report, supra note 1, at 4 5-46, for a description of customary diligence with respect to the "duly authorized" opinion. While some opinion preparers may review the corporate minute books, others may rely upon a secretary's certificate as to the adoption of the relevant resolutions. Id. (citing Cal. Corp. Code § 314 (West 1990 & Supp. 2009) as to the legal effect of a copy of a resolution certified by a person purporting to be the secretary or an assistant secretary of the adopting corporation). Back

9See Opinions Report, supra note 1, at 26-28, for a description of the certificates of public officials customarily relied upon. As the Opinions Report concludes, at least in routine cases, customary practice requires neither that every certificate be dated the date of the opinion nor that the opinion state that it is based solely on the certificates listed, without telephonic or other update. Id.

Some lawyers obtain a good standing letter from the Franchise Tax Board certifying good standing with that agency and thereby confirm that no suspension for nonpayment of taxes is imminent. The Committee believes that, absent some particular concern about tax delinquencies, customary practice does not require that a Franchise Tax Board letter be obtained in order to opine on the good standing of a California corporation. The Secretary of State's good standing certificate would reflect whether or not as a result of a tax delinquency the corporation's charter had been suspended or forfeited. See Opinions Report, supra note 1, at 42. Back

10 The certificate could come from a member, manager or officer depending upon the management structure of the LLC. See generally California LLC Report, supra note 1, at 2 (noting different permitted management structures of LLCs). Back

11 Who will need to take action on behalf of the LLC will be a function of its Articles of Organization and Operating Agreement. The California LLC Report states that the opinion giver is entitled to assume, without so stating, the legal capacity of natural persons who are members, managers and officers, as well as the fact that any entity member, manager or officer has taken whatever internal entity proceedings (i.e., proceedings internal to that member, manager or officer) as are necessary to permit it to act on behalf of the LLC. See California LLC Report, supra note 1, at 11-13. Back

12 Loan documents sometimes include a schedule of the Borrower's material agreements; in that case, the opinion giver commonly foregoes the receipt of a Certificate Relating to Agreements, and refers instead to the agreements and instruments identified on the relevant schedule. If the Borrower is an SEC reporting company, the opinion may instead refer to the material contracts filed as exhibits to the Borrower's most recent annual report on Form 10-K, together with any subsequent reports on Forms 10-Q or 8-K. Back

13 This certificate addresses factual matters relevant to the Borrower and the Guarantor if not known to the opinion preparers. These can include matters such as the absence of dissolution proceedings and the absence (or identification) of pending litigation. Some opinion preparers omit this certificate and instead rely on the general statement about the making of "further legal and factual examination" to cover any such matters. Back

14 Some opinion preparers include a statement to the effect that they have not conducted a search of the docket of any court or other tribunal. According to the 1998 TriBar Report, no such disclaimer is necessary (and no such search is required in connection with a "no litigation" confirmation). 1998 TriBar Report, supra note 1, at 664. See also Opinions Report, supra note 1, at 64 n.195 (concurs with TriBar). See Section D of this opinion concerning the "no litigation" confirmation. Back

15 The 1998 TriBar Report takes the view that express assumptions should be kept to a minimum. For example, the following assumptions, relating to facts that "are common to transactions generally and are customarily assumed as a matter of course," are understood to be applicable whether or not stated:

  • Legal capacity of individuals.
  • That copies of documents furnished to the opinion givers conform to the originals.
  • That the original documents furnished to the opinion givers are authentic.
  • That the signatures on executed documents are genuine.
  • That the agreement being opined upon is binding on the other parties to it.

1998 TriBar Report, supra note 1, at 615.

Similarly, it is not necessary to separately state as an assumption that those who have approved an agreement have satisfied their fiduciary obligations and have disclosed any interest in the transaction; 1998 TriBar Report, supra note 1, at 629, or that contracts covered by the "no breach" opinion that by their terms are governed by the laws of another jurisdiction whose law is not being covered in the opinion are being interpreted in accordance with their plain meaning, 1998 TriBar Report, supra note 1, at 660. All of these assumptions may be relied on and left unstated so long as they are not known to be false or reliance on them in the particular circumstance is unreasonable. 1998 TriBar Report, supra note 1, at 610.

The Opinions Report endorses the approach of the 1998 TriBar Report. Opinions Report, supra note 1, at 21 n.85. See also Remedies Report, supra note 1, app. 10, at 15 n.38; TriBar Opinion Comm., The Remedies Opinion -- Deciding When to Include Exceptions and Assumptions, 59 Bus. Law. 1483, 1486-1489 (2004) [hereinafter "TriBar Remedies Opinion Report"]. Nevertheless, many California opinion givers continue to set out these assumptions. Back

16 The listed assumptions are frequently made by a California opinion preparer with respect to loans made by an institutional lender. Some opinion preparers omit (b) and/or (c) on the ground that the matters they address may be reasonable to assume without expressly stating them. For examples of other assumptions or qualifications relevant to a personal property secured loan, see the UCC Report, supra note 3, app. B. The Opinions Report also addresses other assumptions or qualifications that may be appropriate in given situations. See Opinions Report supra note 1, at 33-34.

Depending on the facts of a particular transaction, it may be possible to rely on an exemption from the California usury laws based on the nature of the transaction or borrower under the California Corporations Code, rather than the exempt status of the lender. See Cal. Corp. Code § § 25116-25118 (West 2006). For example, section 25118 exempts a transaction involving one or more evidences of indebtedness aggregating at least $300,000 under certain circumstances. Id. If an exemption from usury laws is based on one of these statutory transaction exemptions, the opinion preparers would replace the assumptions in paragraphs (a)-(c) of the text of the sample opinion with assumptions supporting the basis for the chosen exemption.

If no exemption from the California usury laws is available, the opinion should at a minimum state that no opinion is expressed with respect to compliance with usury laws or the effect of non-compliance on the Loan.

Parties, since absent any such reservation, an opinion that a loan is enforceable includes an opinion that it is not usurious. That exception should ordinarily be included even if the stated interest rate does not exceed the usury ceiling because of the possibility that charges or other consideration together with the stated interest may exceed the usury ceiling. However, were the opinion preparers to conclude that, in their professional judgment, the loan is usurious, the opinion preparers should consider whether giving any enforceability opinion at all is appropriate. See, e.g,. Opinions Report, supra note 1, at 20. Back

17 See generally Opinions Report, supra note 1, at 40 (reporting that practice has moved toward giving the "validly existing" opinion and away from the "duly incorporated" opinion). While one might debate whether a "due incorporation" opinion should require the opinion preparer to review the corporate law in effect at the time of incorporation and determine compliance with it, customary practice in California permits a "duly incorporated" opinion to be given based solely upon a certified copy of a California corporation's articles of incorporation; the California Corporations Code provides that the articles, certified by the Secretary of State, are "conclusive" evidence of the corporation's formation. Cal. Corp. Code § 209 (West 1990). As a result, the "due incorporation" opinion adds little of practical value to the "validly existing" opinion. A "duly organized" opinion, by contrast, encompasses not only incorporation, but also appointment of the initial board of directors, the adoption of the corporation's bylaws, the election of officers, and the original authorization and issuance of shares, all in the context of the laws in existence at the time of incorporation. Opinions Report, supra note 1, at 41. Thus, conducting the necessary due diligence with respect to any corporation other than one that was recently formed can be onerous. The Opinions Report concludes that it "would be appropriate for an opinion giver to decline to give" such an opinion with respect to a given entity unless the opinion giver incorporated the entity__and notes that, even then, opinion givers more commonly give the much more limited "due incorporation" opinion. Id.

The "valid existence" opinion means that the corporation has not dissolved or ceased to exist and that no dissolution proceedings have been initiated. Id. (also discussing the basis for giving this opinion). The "good standing" opinion means that the corporation's charter has not been suspended or forfeited. See Id., at 42.

This sample opinion omits the opinion that the Borrower is qualified to do business and is in good standing in any other jurisdiction. If given, this opinion is customarily based solely on a certificate from the foreign jurisdiction(s) in question, id., and would take the form of "The Borrower has qualified to do business and is in good standing in the state[s] of " [insert specific jurisdictions covered]. As such, the opinion adds little if anything to the information conveyed by the certificates themselves. The Opinions Report also notes that "[i]t is generally accepted that an opinion giver should not be asked for an opinion that the [entity being opined upon] is qualified to do business as a foreign corporation in all jurisdictions in which its property or activities require qualification or in which the failure to qualify would have a material adverse effect on [it]." Id., at 43. See also Guidelines, supra note 1, at 879. Back

18 This sample opinion omits two common references in the "corporate power" opinion: the references after the words "corporate power" to "and authority," and the reference to the power of the Borrower to "own and operate its assets." The Opinions Report notes, with respect to these references:

Historically, the corporate power opinion included a reference to "authority" in addition to "power." Because of concerns that a reference to "authority" could lead to a more expansive interpretation of the "corporate power" opinion, current practice appears to be moving away from including "authority." However, the "corporate power" opinion is generally understood to have the same meaning whether or not "authority" is included and, to the extent that the word "authority" is included, it is generally understood to be limited to "corporate authority" even without the modifier "corporate" immediately preceding the word "authority." In addition, the corporate power opinion has historically included an express opinion that the subject corporation has the corporate power to own and operate its assets. Current practice seems to be evolving away from this form of opinion in favor of limiting the "corporate power" opinion to the Company's power to carry on its business as it is currently conducted.

Opinions Report, supra note 1, at 44 (footnotes omitted).

Note that, if the corporate power opinion is written to extend beyond entering into and performing an agreement to the "power to carry on its business as it is currently conducted," the opinion should be based on (in addition to review of the Borrower's articles of incorporation, which are reviewed to confirm the absence of any limitations on corporate powers) an officer's certificate or disclosure document describing that business. Id.

Note that, if the corporate power opinion is written to extend beyond entering into and performing an agreement to the "power to carry on its business as it is currently conducted," the opinion should be based on (in addition to review of the Borrower's articles of incorporation, which are reviewed to confirm the absence of any limitations on corporate powers) an officer's certificate or disclosure document describing that business. Id. Back

19 See generally Opinions Report, supra note 1, at 45-48. This formulation of the due authorization and due execution and delivery opinion is not intended to have any meaning different than the formulation in the Opinions Report (i.e., "[t]he Agreement has been duly authorized by all necessary corporate actions on the part of the Company and has been duly executed and delivered by the Company"). The opinion means that the execution, delivery and performance of the relevant agreements have been authorized, and they have been executed by duly authorized officers or agents. "Giving an opinion that a document has been 'duly delivered' generally means that the opinion giver is present at the delivery of the signed agreement or otherwise satisfied as to the implementation of procedures for actual delivery." Id. at 46. The opinion should omit the words "and delivered" if the opinion giver is not able to satisfy the requirements discussed in the Opinions Report with respect to the "duly delivered" opinion. Back

20 See California LLC Report, supra note 1, at 2-5; TriBar Opinion Comm., Third-Party Closing Opinions: Limited Liability Companies, 61 Bus. Law. 679, 683-687 (2006) [hereinafter "TriBar LLC Report"]. This sample opinion does not track the language in the California LLC Report exactly. That report includes the words "duly formed" prior to the words "limited liability company." California LLC Report, supra note 1, at 2. Rather, like the "due incorporation" opinion (see supra note 18), this opinion omits the phrase "duly formed" for the same reason that the valid existence opinion for the Borrower omits the words "duly incorporated." See Cal. Corp. Code § 17050(c) (West 2006) ("[A] copy of the articles of organization duly certified by the Secretary of State is conclusive evidence of the formation of a limited liability company ...").

Note that this opinion omits the word "validly" before "existing." The California LLC Report states that the word "validly" is used in the corporate context to distinguish "de jure" from "de facto" corporations: the corporate opinion means that the corporation is a "de jure" corporation. See Opinions Report, supra note 1, at page 41, California LLC Report, supra note 1, at 4.

The California LLC Report further states that giving an "existence" opinion for a California LLC as is done here requires confirmation that the articles of organization have been filed, that the members have entered into an operating agreement, that no certificate of cancellation has been filed, and that the LLC has not merged or been converted into any other entity. California LLC Report, supra note 1, at 4. The California LLC Report notes that the California LLC statute does not use the phrase "duly organized," and so the report states that there would be no difference between a "duly formed" and a "duly organized" opinion for a California LLC. Id. at 3. Back

21 See California LLC Report, supra note I, at 5-9; TriBar LLC Report, supra note 20, at 687-689. The LLC Report notes that the wording "power and authority" is commonly requested and given in California opinion practice. California LLC Report, supra note 1, at 9. Although the words "and authority" __ for the same reasons as stated supra note 18 with respect to the corporate authority opinion __ are omitted from the sample opinion, addition of the words "and authority," if requested, will not change the meaning of the opinion. As in the numbered opinion 3 above, the sample opinion here omits the "power to conduct business" opinion. The California LLC Report, supra note 1, at 5-9, contains an extensive discussion of the "power to conduct business" opinion with respect to a California LLC, which opinion if requested can be given by adding the words "and to carry on its business as it is currently conducted." Note that if the opinion is expanded to include the power to conduct business (as opposed to simply the power to enter an agreement) the opinion preparers will establish that the business is of a type that can be conducted by a LLC. See Id. at 9-10. This sample opinion omits from the "power to conduct business" opinion reference to ownership of "property" or "assets" for the same reasons those references were omitted for corporations. See supra note 18. Back

22 See California LLC Report, supra note 1, at 9-10; TriBar LLC Report, supra note 20, at 689- 690. As is the case in numbered opinion 3 with respect to a corporation, the opinion should omit the words "and delivered" if the opinion preparers are not able to satisfy the requirements discussed in the California LLC Report, supra note 1, at 13, with respect to the "duly delivered" opinion. Back

23 The Remedies Report addresses the meaning and scope of this opinion. The Remedies Report sets forth the customary understanding of the meaning of the remedies opinion, which is that "(i) a contract has been formed, (ii) a remedy will be available in the event of a breach of the undertakings in the contract (or the undertakings will otherwise be given effect), and (iii) remedies in the contract will be given effect, unless, in the case of (ii) or (iii), expressly or implicitly excluded." Remedies Report, supra note 1, at 3. Of course, in establishing whether or not a contract has been formed, the opinion preparers will need to confirm or assume the necessary predicates of that opinion, many of which are, by customary practice, assumed without so stating (as in the case of capacity of individuals) or covered, as they are in this sample opinion, in other opinions that typically accompany a remedies opinion, such as (in the case of parties who are entities) the opinions addressing power and authority and due authorization.

The Remedies Report goes on to note:

[T]his report ... concludes that the long-standing supposed continental divide over the meaning and scope of the remedies opinion - the "New York view" that it covers "each and every" provision of a contract versus the "California view" that it covers only the "essential provisions" - should no longer be of concern in opinion practice. Instead, the focus should be on customary practice. Customary practice comprises customary diligence (particularly the legal diligence customarily undertaken in giving a remedies opinion), customary competence, and customary usage (the customarily understood meaning of terms used in third-party legal opinions).

Remedies Report, supra note 1, at 1.

Rendering a legal opinion in general __ and giving an enforceability opinion in particular - requires that the opinion preparers conduct factual and legal diligence. A good discussion of customary factual diligence cited by the Remedies Report can be found in Article II of the 1998 TriBar Report. 1998 TriBar Report, supra note 1, at 608-6 19. Customary legal diligence, addressed in Appendix 8 of the Remedies Report, begins with a review by competent opinion preparers of the entire relevant contract or contracts. Remedies Report, supra note 1, app. 8. If a question about the enforceability of a particular provision of a relevant contract is identified, the preparers must determine whether the opinion covers the issue. If it does, they must determine whether the issue can be resolved. If the issue cannot be resolved, they should include an appropriate exception in the opinion. See Remedies Report, supra note 1, app. 8, at 7-8.

While the Committee notes that some opinion givers are of the view that no remedies opinion should be given when the documents in question select as their governing law the law of a state other than California, the Committee believes that practice "now greatly favors permitting the primary opinion giver to render an opinion to the effect that, if the law of the State of California were held to apply to the agreement, notwithstanding the choice of law of another jurisdiction, the agreement would be enforceable." Remedies Report, supra note 1, app. 10, at B-I (endnote 1). See also Remedies Report, supra note 1, app. 4, at 12 (also supporting the use of this so-called "as if" approach). If such an opinion is given, (assuming, for illustrative purposes, that the Loan Documents are governed by New York law), the lead-in to the enforceability opinion would be modified to read substantially as follows: "If a court were to apply the law of California to the interpretation and enforcement of the Loan Documents, rather than the law of New York as provided therein, the Loan Documents would be..." In addition, while not required, in such an event many lawyers modify the statement about the law covered by this opinion (which appears at the beginning of Section E of this sample) by adding to it the following:

We note that the [Loan Documents] provide that they are to be governed by New York law. We express no opinion herein on New York law or the enforceability of the [Loan Documents] under New York law.

The "as if" remedies opinion does not cover the enforceability of the choice of law clause since it assumes that the choice of law clause is not enforced. See Tribar Remedies Opinion Report, supra note 15, at 1497 n.70 ("[The "as if' remedies] opinion has the same meaning as any other remedies opinion except that it does not address the enforceability of the chosen law provision."). While some opinion givers take an exception to the coverage of an "as if' remedies opinion if the remedies opinion is not intended to address the enforceability under California law of the chosen law provisions of the Loan Documents, this is not required. If an express exception is desired, it may be done in a variety of ways, including by adding to the statement above a statement that no opinion is expressed on "the enforceability under California law of the choice of New York law in the Loan Documents."

If there are sufficient contacts or bases to support the parties' selection of the chosen law, and the Lender requests a specific opinion on the choice-of-law provision, a form for such an opinion follows:

In a proceeding in a court of the State of California for the enforcement of the Loan Agreement, and based on [describe contacts or bases for choosing law of chosen state], the court should give effect to Section [choice-of-law provision] of the Loan Agreement, except to the extent (i) that any provision of the Loan Agreement is determined by the court to be contrary to a fundamental policy of the state whose law would apply in the absence of that Section, and (ii) that state has a materially greater interest in the determination of the particular issue than does the state whose law is chosen.

See Opinions Report, supra note 1, at 88-91; Remedies Report, supra note 1, app. 10, at B-1 - B-6.

This opinion could be given as a supplement to the "as if' remedies opinion. This opinion could also be given as a stand-alone opinion, without any remedies opinion, if the Lender does not request an "as if' remedies opinion. See Opinions Report, Part VI, Section A.2, at pages 90-91. Back

24 According to the Opinions Report:

This opinion is intended to give the opinion recipient comfort that the [Borrower] has obtained all necessary consents, approvals and orders and has made all filings and obtained all registrations and qualifications required on its part or for it to consummate the transaction. To a considerable extent this opinion overlaps the "no violation" opinion as it relates to applicable laws and the remedies opinion, if given.

Opinions Report, supra note 1, at 61 (footnotes omitted). Back

25 See generally Opinions Report, supra note 1, at 48-64, for an explanation of the opinions set forth in this list. Some opinion givers prefer to avoid reference to "performance" out of concern that the term could be construed to cover a broad range of future acts that may become necessary to comply with an agreement (e.g., making required governmental filings, such as SEC reports were they required for a particular transaction, that may well themselves require future corporate approvals); these lawyers often refer instead to "consummation of the transaction" or, in a case such as the loan transaction considered in this sample opinion, "incurrence of the obligations under the Loan and application of the proceeds as contemplated by the Loan Documents." However, as a matter of customary practice, "performance" is understood not to address whether (i) the Borrower's future performance of its obligations under the Loan Documents will satisfy all conditions in the Loan Documents, (ii) facts may exist at a future time that could make the Borrower's future performance of its obligations a violation of the Loan Documents, or (iii) changes in the law that could make the Borrower's future performance of its obligations a violation of the Loan Documents. See Opinions Report, supra note 1, at 49, 52, 54. Back

26 It is preferable to give this opinion based on an agreed list of reviewed documents (as here), rather to make reference to a vague or insufficiently defined universe (as in "all agreements known to us"). The latter formulation is less certain and more susceptible to later disputes.

This opinion has been understood to cover financial covenants contained in any covered agreements. However, in the 2007 revision of the Opinions Report, the Corporations Committee concludes that evaluating compliance with such covenants is beyond the professional competence of lawyers. Accordingly, opinion preparers often will (i) include an express assumption to the effect that the financial covenants will not be violated, or (ii) include an express qualification disclaiming any opinion regarding the financial covenants, or (iii) rely on an officer's certificate to the effect that the financial covenants will not be breached by the [Borrower's] entry into the [Loan Documents]. See Opinions Report, supra note 1, at 51-52 n.161. Given this practice, the Committee suggests the exclusion noted at the end of clause (b) in the text. Back

27 The Committee believes that the trend in practice is toward the first formulation of this opinion, though the latter formulation is not uncommon and, with the statement (appearing in Section E of this sample opinion) as to what constitutes "knowledge" for purposes of this opinion, is also appropriate. Back

28 By customary usage, this opinion is limited to the law of the jurisdiction(s) expressly covered by the opinion, and excludes both local laws and certain regulatory laws. See generally Opinions Report, supra note 1, at 55-57. See also Remedies Report, supra note 1, app. 10, at 13 (Further Notes, Law Covered by the Remedies Opinion). Within that sphere, the opinion is further limited to laws reasonably recognized to apply to transactions of the type covered by the opinion and that are not otherwise understood to be excluded, even if applicable, unless referred to expressly, such as securities and tax laws. Opinions Report, supra note 1, at 56 n. 168. See also Principles, supra note 1, at 832; infra note 30. Consequently, it is not necessary to expressly include language limiting the statement to "U.S. Federal or California Law" or stating that only laws "typically applicable" to transactions of the type of issues are covered. Back

29 In opinions rendered in many transactional contexts, including financing transactions, the opinion giver has traditionally been asked for a statement (based on the opinion giver's knowledge) as to the absence of litigation against the Borrower, except as otherwise disclosed. This statement often is limited to litigation that adversely affects the transaction or that could have a material adverse effect on the Borrower. Despite the fact that this statement is actually a confirmation of a factual matter, it is often requested to be included with the legal opinions. This statement has traditionally been formulated as follows:

To our knowledge, except as listed on Schedule [to the Loan Agreement] [to this opinion], there is no action or proceeding pending or threatened in writing against either the Borrower or the Guarantor that may adversely affect the transactions contemplated by the Loan Documents or that may have a material adverse effect on the Borrower or the Guarantor.

The statement in the body of the sample opinion is not this "traditional" formulation. Rather, the text in the body of the sample opinion limits the confirmation to matters being handled by the opinion giver (echoing, in this regard, the long-accepted scope limitation on audit letter responses). It does not cover "investigations" because of the difficulty in determining whether they are ongoing or, if they ever were ongoing, have concluded. See, e.g., D. Glazer and A. Field, No-Litigation Opinions Can Be Risky Business, 14 Business Law Today 6 (2005) [hereinafter "No-Litigation Opinions"]. It is also limited to matters that relate to the transaction at hand, rather than being a more general "status" statement about the Borrower or the Guarantor.

These limitations allow the opinion preparers to avoid the need to rely, at least as heavily, on the traditional, and less satisfactory, "knowledge" and "materiality" limitations. It also avoids the fundamental problem with the traditional formulation, which is that it is a factual confirmation that is dependent (almost exclusively) on information supplied to the opinion preparers by the Borrower (and, in our example, the Guarantor). If the recipient wishes a factual confirmation that is broader than that suggested in the text, it is recommended that, rather than give this confirmation in its traditional form, the opinion recipient rely on an appropriate factual representation from the Borrower and the Guarantor. The Opinions Report and the 1998 TriBar Report reach a similar conclusion. See Opinions Report, supra note 1, at 64; 1998 TriBar Report, supra note 1, at 663-665.

The Opinions Report describes the meaning of the litigation confirmation and customary diligence. Opinions Report, supra note 1, at 62-64. See also infra note 33 and the related text for a discussion of the "knowledge" qualification. Note that the "knowledge" qualification, while helpful, may still require that opinion preparers, when faced with a circumstance that creates some doubt as to the accuracy of the confirmation, conduct additional inquiry before giving the confirmation. See generally No-Litigation Opinions, supra. Further, while the "traditional" formulation in this footnote states that the confirmation does not extend to litigation other than litigation that "may adversely affect the transactions contemplated by the Loan Agreement or that may have a material adverse effect on the Borrower or the Guarantor," the Committee believes that it is inappropriate to ask opinion preparers to assess the materiality of any particular litigation. As a result, the Committee believes that if this common qualification is used, it too should be based on an officers' certificate and a statement that the opinion, insofar as it relates to materiality, is based solely on that certificate. For a discussion of reliance on officers' certificates, see Opinions Report, supra note 1, at 30-31.

To the extent a litigation confirmation in any form is required to be given, the confirmation __ since, regardless of where it appears, it is not a legal opinion __ is best set forth in a separate section of the opinion (as here), or in a separate letter.

This section "D" is where any other factual confirmation, such as negative assurance provided in connection with a securities offering, would be inserted if it is not provided in a separate letter. See, e.g., Negative Assurance Report, supra note 1. Back

30 By customary usage, the statement "[w]e express no opinion herein as to the application or effect of the law of any other jurisdiction" is understood even if not stated. Opinions Report, supra note 1, at 86-9 1; 1998 TriBar Report , supra note 1, at 631.

If the Borrower were a regulated entity, such as an investment company subject to regulation under the Investment Company Act of 1940, as amended, then the law addressed by the opinion would include federal or California laws regulating the Borrower, unless an exception were taken by the opinion giver (as is done in the text of this sample opinion). As stated in the Opinions Report:

Another type of qualification may be appropriate when the opinion giver is unwilling to take responsibility for certain laws. For instance, an opinion giver may expressly exclude compliance with laws affecting certain regulated industries __ such as the utility, telecommunications or banking industries __ from its opinion. If the opinion recipient wants an opinion that the opinion giver cannot give, special counsel often will be engaged to render it.

Opinions Report, supra note 1, at 34 (footnote omitted).

Many opinion preparers place the sentences in the first paragraph of this Section E at the beginning of the "Opinions" section of the opinion letter in the belief that they are more in the nature of scope limitations than qualifications. The placement of these sentences does not change their meaning. Back

31 See Opinions Report, supra note 1, at 24-31, 56, This sentence listing laws excluded from the scope of the opinion may be omitted without changing the scope of the opinion in transactions where the referenced laws would not generally be applicable. However, such applicability may not always be entirely clear. For example, one of the Loan Documents addressed by this opinion is the Promissory Note. Does the opinion therefore cover securities laws? Consequently, many practitioners include this statement, adapting it to the particular transaction and deleting references to laws as to which specific opinions will be given. Back

32 See Remedies Report, supra note 1, app. 10, at 3-9 (discussing the bankruptcy and equitable principles exceptions). Back

33 See generally Opinions Report, supra note 1, at 15-17, 32-34 (with respect to confirmations of fact and limitations on the basis of knowledge, respectively). Note that, if reference is not made to "knowledge" in numbered opinion 9(c) above, this definition of "knowledge" could be deleted from this opinion. Back

34 See Remedies Report, supra note 1, app. 10, at B-9 B-11 (endnote 6 discusses waivers of the types addressed in clauses (i) __ (iv) of the sample language); Remedies Report, supra note 1, app. 10, at B-26 __ B-3l (endnotes 23 and 25 discuss indemnities). Note that this, and any of qualifications (3), (4), (5), (6), (7), (8) or (9), should be included in the opinion only if contractual provision(s) of the type addressed by the qualification are actually included in the Loan Documents. Back

35 See Remedies Report, supra note 1, app. 10, at B-24 __ B-25 (endnote 21 discusses attorneys fee provisions). Back

36 See Remedies Report, supra note 1, app. 10, at B-13 - B-14 (endnote 13 discusses forum selection clauses and consents to jurisdiction). Back

37 See Remedies Report, supra note 1, app. 10, at B-15 __ B-16 (endnote 15 discusses jury trial waivers). Back

38 See Remedies Report, supra note 1, app. 10, at B-18 __ B-20 (endnote 18 discusses waivers of defenses available to guarantors). Back

39 See Remedies Report, supra note I, app. 10, at B-22 __ B-24 (endnote 20 discusses arbitration provisions). The enforceability of "judicial review" provisions is unsettled. Federal courts applying the federal arbitration act will not enforce them, see Hall Street Associates LLC v. Mattell, Inc., 128 S. Ct. 1396 (2008), but California courts may well, see Cable Connections, Inc. v. DIRECTV, Inc., 44 Cal. 4th 1334, 82 Cal. Rptr. 3d 229 (2008). Back

40 See Remedies Report, supra note 1, app. 10, at B-7 __ B-9 (endnote 3 discusses penalty provisions). The enforceability of these provisions generally turns on their reasonableness. Opinion preparers "should not be expected to determine whether a given economic remedy is reasonable, and . . . as a matter of customary practice a remedies opinion is understood as not extending to the reasonableness of such remedies." Id. Back

41 This sample takes the traditional approach to reliance: namely, only those to whom the opinion is addressed may rely on it. It does not limit the ability of the recipient to provide copies, however, to others. If a limitation on distribution of copies is intended, it should be added, using language such as the following:

Copies of this letter may not be furnished to any other party, nor may any portion of this letter be quoted, circulated or referred to in any other document, without our prior written consent.

See generally Opinions Report, supra note 1, at 2 1-22 (Addressee).

Opinion recipients may request that specified third parties (such as assignees) be allowed to rely on the opinion. As a general rule, careful attention should be given to whether parties other than the addressee should be allowed to rely on the opinion and/or any confirmation. See, e.g., R. Ryan, The Role of Lead Counsel in Syndicated Lending Transactions, 64 Bus. Law. 783, 790-91 (2009) (discussing reliance by assignees); Negative Assurance Report, supra note 1, at 405 n.57 (discussing restricting access to negative assurance confirmations). The preferred practice is to address the opinion to any persons (if known) who are allowed to rely on it, or, if not known, to clearly define the universe of such persons. An example of language allowing reliance by permitted assignees under the Loan Documents follows:

At your request, we consent to reliance on this letter by any future assignee of your interest in the loans under the Loan Agreement pursuant to an assignment that is made and consented to in accordance with the provisions of Section L_J of the Loan Agreement, on the condition and understanding that (i) this letter speaks only as of the date hereof, (ii) we have no responsibility or obligation to update this letter, to consider its applicability or correctness to other than its addressee(s), or to take into account changes in law, facts or any other developments of which we may later become aware, and (iii) any such reliance by a future assignee must be actual and reasonable under the circumstances existing at the time of assignment, including any changes in law, facts or any other developments known to or reasonably knowable by the assignee at such time. In no event may an assignee rely on this letter to any extent greater than could the original addressee.

Exceptions may also be requested when the opinion giver seeks to prohibit the sharing of copies as stated above. An example of language allowing additional parties to see the letter (but not to rely on it), follows:

Notwithstanding the foregoing, a named addressee hereof may furnish a copy of this letter: (a) to any applicable rating agency involved with, or institution providing credit enhancement, liquidity support or reinsurance in connection with, the transactions contemplated by the Loan Documents (the "Transactions"); (b) to the independent auditors and lawyers advising such addressee in connection with the Transactions; (c) to any governmental authority having regulatory authority over such addressee; (d) to the permitted assigns, participants and successors (both actual and prospective) of such addressee under the Loan Documents; or (e) pursuant to court order or legal process of any court or governmental agency or as otherwise required by applicable law; provided that none of the foregoing may rely on this letter (unless specifically authorized to do so herein) or further circulate, quote or otherwise refer to this letter (except with our prior written consent or as otherwise required pursuant to any court order or legal process of any court or governmental agency or pursuant to applicable law). Back

Sample Opinions - Intro / Sample Letter Without Footnotes