Appendix 3: Statement of The Business Law Section of The State Bar of California1 (2001)
The Business Law Section of the State Bar of California and its committees have issued several important reports providing guidance to California lawyers rendering third party legal opinions2 on California law and lawyers advising recipients of California opinions. These reports include3:
- Report Regarding Legal Opinions in Personal Property Secured Transactions (1988) (the "UCC Report")
- 1989 Report of the Committee on Corporations Regarding Legal Opinions in Business Transactions (1989) (the "1989 Report")
- Business Law Section Report on the Third-Party Legal Opinion Report of the ABA Section of Business Law (May 1992) (the "1992 Report")4
- Report on Legal Opinions Concerning California Partnerships (1998) (the "Partnership Report")
- Report on Legal Opinions Concerning California Limited Liability Companies (2000) (the "LLC Report")
The 1989 Report and the UCC Report, as well as two reports of a joint committee of the California Real Property Law Section and the Real Property Section of the Los Angeles County Bar Association,5 were collected and distributed in a blue booklet entitled 1990 California Opinion Reports. At the time of issuance of this Statement, the booklet is under revision to add the 1992 Report, the 1995 Real Estate Report6, the First Supplement to the 1995 Real Estate Report7, the Partnership Report and the LLC Report.
Other resources. Portions of the 1989 Report and the UCC Report are out-of-date and do not fully reflect such factors as changes in law, possible changes in opinion practice, and the impact of more recent opinion literature; other portions continue to provide useful guidance. Standing committees of the Business Law Section are reviewing these reports, and likely will issue updated reports.8 The Partnership Report and the LLC Report are more current, but rely on the 1989 Report for guidance on opinion issues beyond partnership and limited liability company issues.
The Business Law Section encourages California practitioners to use the California Reports,9 but to do so in conjunction with other recent resources. In this connection, the Section draws attention particularly to the following:
- The American Law Institute's Restatement (Third) of the Law Governing Lawyers (2000) (the "Restatement"),10 particularly §§ 51, 52 and 95
- Legal Opinion Principles, issued by the Committee on Legal Opinions of the American Bar Association Section of Business Law, 53 Bus Law. 831 (1998) (the "ABA Principles")
- Guidelines for the Preparation of Closing Opinions, in the process of issuance by the Committee on Legal Opinions of the American Bar Association Section of Business Law in January 2001 (the "ABA Guidelines"), replacing Certain Guidelines for the Negotiation and Preparation of Third-Party Legal Opinions, contained in the ABA Accord Report11
- Third Party Closing Opinions, issued by the New York TriBar Committee, 53 Bus Law. 591 (1998) (the "TriBar Report").
Customary practice. Among other things, these other resources emphasize the importance of customary practice in the preparation,12 negotiation and interpretation of third party legal opinions in business transactions. The Business Law Section concurs with their position that customary practice is and should be a very important guiding consideration for both opinion givers and recipients.
The Restatement is likely to become a very important source for determining the duty of care owed to recipients by opinion givers, and therefore its references to customary practice are particularly noteworthy. The Restatement cites13 the ABA Principles and the TriBar Report in its discussion of third party legal opinions (including several references to customary practice). The ABA Principles, the ABA Guidelines, and the TriBar Report discuss specific aspects of customary practice. Although local practices have differed in the past in certain respects and may continue to differ,14 these publications provide a helpful description of customary practice as understood and followed by a large segment of U.S. practitioners.
Customary practice, as described in the Restatement and the TriBar Report, recognizes that opinion letters need not recite disclaimers, qualifications or assumptions that are customarily understood to apply even when they are not expressly stated. Different lawyers have followed different practices with regard to how much to state expressly in their opinions. The Business Law Section believes that the omission of customarily understood disclaimers, qualifications and assumptions is desirable, and endorses the trend toward more streamlined opinion letters.
Any attempt to identify and articulate general standards for opinions necessarily involves some uncertainty. Examples of this uncertainty in relation to customary practice include: 1) how a practitioner knows or can determine what customary practice is with respect to a particular point, 2) whether the opinion giver and the opinion recipient (and its counsel) understand customary practice the same way, and 3) where customary practice varies, which practice should be followed. This should not, however, discourage the effort to achieve uniformity.
Conclusion. The Business Law Section encourages practitioners giving and advising recipients regarding legal opinions on matters of California law to consult the California Reports, the Restatement, the ABA Principles, the ABA Guidelines, and the TriBar Report in their opinion practice. The Section supports the importance of following customary practice, as stressed in the latter four documents. In the case of the ABA Principles, the ABA Guidelines, and the TriBar Report, the Section also supports their effort to address the concerns in the preceding paragraph, and to promote uniformity, by describing important aspects of current customary practice. The Business Law Section believes it is important to continue this effort.
1 The Executive Committee of the Business Law Section appointed an Opinions Task Force in the Spring of 2000 to review Section's policy as embodied in the Section's reports on third party legal opinions, in light of recent publications and proposed updating of Section reports. The Task Force is comprised of John B. Power, Chair, R. Bradbury Clark, Nelson D. Crandall, Richard N. Frasch, Jerome A Grossman, Morris W. Hirsch, Henry Lesser, Carol K. Lucas, Steven J. Tonsfeldt, Benzion J. Westriech, and Steven O. Weise; ex officio members Twila L. Foster and Ann Yvonne Walker; and advisor Robert Thompson. This statement was adopted by the Task Force and approved by the Executive Committee in December 2000. Back
2 A "third party legal opinion" is addressed to a non-client at the request or with the consent of a client of the opinion giver. It is typically used by an opinion recipient in a business transaction as part of its "due diligence." Back
3 The reports listed below are referred to in this Statement as the "California Reports."Back
4 This report provides guidance for those adopting the ABA "Legal Opinion Accord" in California opinions (and includes valuable references to many relevant California legal authorities, as of its date). Adoption of the Accord in an opinion results in agreement that definitions, procedures and limitations provided by the Accord govern the opinion. The Accord is found in Third-Party Legal Opinion Report, Including the Legal Opinion Accord, of the Section of Business Law, American Bar Association, 47 Bus. Law. 167 (1991) (the "ABA Accord Report"). Although some lawyers adopt the Accord, it apparently has not achieved wide acceptance; however, many lawyers use the ABA Accord Report for the light it sheds on issues arising in opinion practice. See also 1995 California Real Property Legal Opinion Report, Joint Committee of the Real Property Section of the State of California and the Real Property Section of the Los Angeles County Bar Association, 13 California Real Property Jnl., No. 3, 1 (1995) (the "1995 Real Estate Report"), and First Supplement to 1995 California Real Property Legal Opinion Report, 16 California real Property Jnl., No. 1, 15 (1998) (the "First Supplement to the 1995 Real Estate Report"), providing guidance for lawyers adopting the Accord in opinions in real estate transactions (as well as useful legal analysis). Back
5 These reports are Legal Opinions in California Real Estate Transactions, 42 Bus. Law. 1139 (1987) and Joint Committee Report – an Addendum (1990). Back
6 See Footnote 4. Back
7 See Footnote 4. Back
8 The Opinions Task Force (see Footnote 1) proposes to review references to authorities in the 1992 Report to determine whether they need updating. See Footnote 4. Back
9 See Footnote 3. Back
10 The Restatement focuses on legal standards rather than practice matters. Back
11 See Footnote 4. The ABA Guidelines are expected to be published in the May 2001 edition of The Business Lawyer. Back
12 For example, legal and factual diligence and the form of the opinion. Significantly, these resources remind opinion givers of the importance and scope of diligence in the preparation of legal opinions. Back
13 Reporter's Note to Comment b to Section 95; Reporter's Note to Comment c (lawyer's duty to third-party recipient). Back
14 For example, in 1989, the Committee on Corporations of the California Business Law Section interpreted an opinion on the enforceability of an agreement as covering only compliance with California law that would invalidate any essential provision of the agreement (the 1989 Report, at p. 31); in 1998, the TriBar Committee reiterated its view that such an opinion covers each undertaking of the client in the agreement (TriBar Report, 53 Bus. Law., at 621). The Opinions Task Force or another committee of the Business Law Section is likely to study, in the near future, the question whether and to what extent customary practice in California and New York currently differs on this question. Back
Appendix 4 / Report on Third-Party Remedies Opinions