Report on Third-Party Remedies Opinions - 2007 Update
Report on Third-Party Remedies Opinions - 2007 Update

Table of Contents

I. Executive Summary

II. Introduction: How to Use This Report

A. What Is a Remedies Opinion?

B. Reasons for this Report

C. How to Use this Report

III. Threshold Question

IV. Customary Opinion Practice

V. Customary Practice for the Remedies Opinion

VI. California "Enforceability" Issues

VII. Exceptions

VIII. The Generic Exception

IX. Conclusion

Endnotes

Appendices

I. Executive Summary

Too much time, effort and money are expended on third-party legal opinions. The main contributor to this excess is the remedies opinion, i.e., the opinion provided at the close of a business transaction by one party's counsel to another party that a contract in the transaction is valid, binding and enforceable against the opinion giver's client.

The remedies opinion, like third-party legal opinions generally, can serve as an important part of the opinion recipient's "diligence" about the transaction. There can be, however, significant time, financial costs and other burdens placed on the transaction by the inclusion of a remedies opinion. In many transactions, that burden is justified. In many others, it is not.

The purpose of this report is to make the opinion process more efficient and to reduce significantly the burden on lawyers and their clients related to remedies opinions, by addressing several key matters:

  1. As a threshold matter, what factors should be considered in determining whether to request or give a remedies opinion in a particular transaction? A remedies opinion should not routinely be requested without careful thought, just because it shows up on someone's checklist. It is too expensive (in time, effort and money) for that. This report (Section III below) provides a cost-benefit framework for determining the appropriateness of requesting a remedies opinion in a transaction.
  2. This report explains the concept of "customary practice" (Section IV below) and shows how that concept can be used to ease the risk and burden of giving remedies opinions (Section V below).
  3. By using the concept of customary practice, this report (Section V below) 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 is comprised of 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).
  4. Whatever other support there may have been for the difference between the "California view" and the "New York view," this report (Section VI below) concludes that it is not supported by any meaningful difference between the laws of California and New York.
  5. This report (Section VII below) provides a framework for analyzing the "laundry list" of exceptions often included in opinion letters with remedies opinions. This framework is based on analysis of California law applicable to common contractual provisions. It divides these provisions into several categories and analyzes whether separately stated exceptions to the remedies opinion are required when these provisions are present in a contract.
  6. This report (Section VIII below) provides an approach to using the "generic exception" in non-real estate transactions.

The Business Law Section urges all lawyers involved in giving or receiving remedies opinions to use this report to make the opinion process a more effective communications tool and to reduce the opinion-related burdens on themselves and their clients.

II. Introduction; How to Use This Report

This report of the Business Law Section of the State Bar of California summarizes the work of its Opinions Committee1 (the members of which as of September 2004, and as of May 2007, are set forth in Appendix 2) on remedies opinions2 in third-party opinion letters. It is intended to contribute to the process of achieving national uniformity in the preparation and interpretation of remedies opinions.

The Section has for many years published reports to provide guidance to California opinion givers and California lawyers representing opinion recipients. The first was a comprehensive report on opinion letters published by the Corporations Committee of the Section in 1982; that report was revised and updated in 1989 and 2005, and was in the process of revision in July 2007.3 The 1989 Report addressed, among other things, the remedies opinion. In a different context, that discussion was supplemented by the Section's 1992 Report, which was issued in response to the ABA's Accord. The 2005 and 2007 Reports do not address the remedies opinion.

Drafts of the of the original version of this report were circulated broadly to relevant Committees of the Section and other practitioners in California and elsewhere for comment, and that version was approved by the Section Executive Committee for publication as a report of the Section. Although the Section does not take responsibility for the accuracy of this report at any particular time after its issuance, it is intended to be a "living document," to be updated from time to time as required to reflect changed circumstances and views (the first such updating, reflected in this version, was completed in 2007). This update is, and future updates will be, available from the Business Law Section at www.calbar.ca.gov/buslaw. Paper copies of this report and its appendices may be ordered from the Business Law Section at that website.

A. What is a Remedies Opinion?

A remedies opinion is usually part of a more comprehensive third-party closing opinion delivered in a business transaction, as part of the opinion recipient's "due diligence" about the transaction. A remedies opinion is intended to provide assurances to its recipient concerning the enforceability of the contracts signed and delivered by the parties at or before closing. It addresses whether and subject to what limitations a contract is valid, binding and enforceable against the opinion giver's client.4 By customary usage,5 it means 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 effect6), and (iii) remedies in the contract will be given effect,7 unless, in the case of (ii) or (iii), expressly or implicitly excluded. The wording of the opinion varies somewhat, but its meaning is not dependent on the exact words used,8 although some believe it should at minimum contain the word "binding" or "enforceable."9

The remedies opinion is different from other related opinions often found in third-party opinion letters -- for example, existence of the opinion giver's client; its due authorization, execution and delivery of the contract; no violation of laws; and attachment or perfection of a security interest in personal property. These opinions sometimes relate to issues similar to, and some are predicates for, the remedies opinion. They should not be confused with the remedies opinion. If the contract has not been duly authorized, executed or delivered, the contract may not have been formed. If the contract violates a law that renders it invalid, it may not be enforceable. In order for a security interest in collateral to be perfected, among other things it must attach to the collateral; and, in order to attach to the collateral, among other things it must be enforceable against the debtor with respect to the collateral.

B. Reasons for this Report

In updating a portion of the 1989 Report, this report responds to long-standing frustration of lawyers and their clients, inside and outside California, over the time, energy and money spent in negotiating the remedies opinion. The timing of this report is dictated by the publication in recent years of excellent reports and literature in other jurisdictions discussing the remedies opinion, giving rise to the need to provide further guidance to California lawyers on this topic.10

Heavy Negotiation. Remedies opinions are often heavily negotiated, resulting in increased transactional costs and generating tensions and lost time in accomplishing the related transactions. Controversial issues include the necessity and importance of "laundry lists" of separately stated exceptions11 and the use of a generic exception,12 arising in part out of disagreement over the meaning and scope of the remedies opinion.

The Meaning and Scope of the Remedies Opinion. Two different leading views of the meaning and scope of the remedies opinion have been viewed historically as having a geographic base. The New York-based TriBar Opinion Committee is the primary advocate for the "New York view" that the remedies opinion covers "each and every" undertaking in the subject contract. The California Business Law Section has led the advocacy of the "California view" that the remedies opinion covers only the "essential provisions" of the contract. In light of this supposed geographic dichotomy, resolution of this issue has become progressively more important as more businesses and business transactions have become national in scope, and as more law firms have established offices in multiple jurisdictions. This report concludes that the dichotomy is no longer relevant to opinion practice, and the dispute should be discontinued. Instead, opinion givers, opinion recipients and their counsel should focus on the competence and legal diligence customarily exercised by lawyers in the preparation and rendering of remedies opinions.13

While this report does not discuss every issue relating to the remedies opinion,14 it is designed to help reduce the foregoing tensions.

C. How to Use this Report

Initially, lawyers who deal with remedies opinions should read this report itself, but not necessarily all of its appendices. This is designed to be a free-standing report, with the appendices available to provide additional detail as necessary. Three of the appendices are especially useful and important.

Appendix 4: Report of the Threshold Subcommittee. This systematically analyzes the costs and benefits of a remedies opinion. Although Appendix 4 is summarized in Section III below, the issues in it are so fundamental that it merits special attention.

Appendix 8: Customary Practice for the Remedies Opinion. This is a significant departure from the approach taken in prior Business Law Section opinion reports. It provides a description of the legal diligence and competence customarily exercised to prepare and give remedies opinions. Lawyers should focus on conforming to these practices rather than debating whether the opinion covers "each and every" or "essential" provisions of the contract. Although Appendix 8 is summarized in Section V below, it merits special attention.

Appendix 10: Report of the Exceptions Subcommittee. Many opinion givers and lawyers for opinion recipients feel trapped by the ever-lengthening "laundry list" of separately stated exceptions in remedies opinions. Which exceptions need stating and which do not? Appendix 10 provides a framework for analyzing, shaping and reducing the "laundry list" of separately stated exceptions, with particular reference to California law.

When developing or responding to a request for a remedies opinion in a particular transaction, this report could be especially helpful if used in the following manner.

First, read this report (but not the appendices), for an overview.

Second, if it is not clear from Section III below whether a remedies opinion is justified for the transaction, read Appendix 4 to help reach a decision.

Third, read the description of customary practice in Appendices 7 and 8 and apply that approach to the remedies opinion and relevant contracts.

Fourth, develop an appropriate list of exceptions that need stating, using the approach described in Section VII below and Appendix 10.

Fifth, decide whether a "generic exception" is appropriate, based on Section VIII below and Appendix 11.

III. Threshold Question: When Should a Remedies Opinion be Requested

Despite numerous reports on third-party opinion practice, little has been published on the threshold question: When should a third-party remedies opinion be requested and given? Implicit in reaching any conclusion on this question are answers to a series of additional questions: What benefits does the opinion recipient expect from a third-party remedies opinion? Are these benefits realizable? Do these benefits justify the costs of obtaining the opinion? Do negative consequences flow to the opinion giver's client or to the opinion recipient from a remedies opinion? Does the recipient have acceptable alternatives to a third-party remedies opinion? For example, would the opinion recipient do just as well or better with advice from its own counsel?

Appendix 4 is a report of the Threshold Subcommittee of the Opinions Committee appointed to address these questions. It concludes that, while receipt of a third-party remedies opinion certainly has benefits in many transactions, in many transactions those benefits are not sufficient to justify the costs (economic and other) that the preparation of the opinion entails. While remedies opinions continue to be included in many larger financing and merger and acquisition transactions, the incidence of their delivery has declined over the past decade, as parties and their counsel have recognized that the opinion is not cost-effective in a variety of transactions.

Ordinarily, the principal goal of a remedies opinion is to assist its recipient in evaluating legal risks in a transaction. However, where the recipient does not in fact rely on the opinion, the request for and issuance of a remedies opinion increases transaction costs without providing any real benefit. In such cases, a third-party remedies opinion should not be requested or given and the opinion recipient is better served by relying upon advice from its own counsel.

On the other hand, in many transactions a recipient may not be able to rely solely on the advice of its own counsel. This is often true, for example, in transactions with multiple parties, or in which the parties (or their counsel) are from different jurisdictions, the opinion recipient is not represented by separate counsel, or the opinion giver's client is a non-commercial or regulated entity. Additionally, in transactions involving complex or unusual structures, obtaining a remedies opinion from the opinion giver can provide comfort to the opinion recipient that the parties view the matter the "same way." Other factors affecting the analysis, such as the need for specialized knowledge, may be present in a particular transaction. Furthermore, with the advent of readily available access to the capital markets for securitization of various asset-backed financings, opinions have become the norm in certain types of transactions due to rating agency requirements. Thus, in many situations a third-party remedies opinion can provide cost-effective benefits. Even in those situations, however, it may be appropriate to limit the scope of the opinion.

The Threshold Subcommittee's report explores these issues and analyzes the types of costs and benefits involved in issuing third-party remedies opinions, so that practitioners have the tools to evaluate whether, and under what circumstances, the opinion should be sought and given. Clients (the opinion recipient, in discussion with the opinion giver's client) usually are the ultimate decision-makers concerning whether a third-party remedies opinion (or indeed any third-party opinion) will be requested. Lawyers should assist their clients to reach a sound decision by applying this cost-benefit analysis to the particular circumstances of their transaction.

IV. Customary Opinion Practice

Customary practice is the unifying tenet of recent literature discussing third-party closing opinions.15 It is used to provide guidance to lawyers in the negotiation, preparation giving and receiving of opinion letters, and includes such factors as customary competence, customary diligence and customary usage. No other clearly articulated general standard is broadly accepted in opinion practice.16 As a result, opinion practice requires sensitivity to the need for a common understanding of the applicable customary practice by all lawyers involved in the process, as well as opinion recipients.

There are uncertainties inherent in the practical use of this standard. Customary practice where? Customary practice by whom? Do the lawyers involved in the transaction and the opinion recipient understand customary practice the same way? What resources can be used to determine customary practice?17 To provide a context for following portions of this report, Appendix 7 provides a discussion of customary practice as a general standard for legal opinions, and offers some suggestions on how to resolve these uncertainties.

In light of the volume of interstate transactions in which closing opinions are given, the Business Law Section supports further movement toward a uniform national customary practice for the remedies opinion and encourages California lawyers to find guidance on customary practice regarding closing opinions in reports and other literature published in California and elsewhere.18

V. Customary Practice for the Remedies Opinion

For many years lawyers supporting the "California view" and those adhering to the "New York view" have disagreed over the meaning and scope of the remedies opinion. The California view, historically espoused by the California Business Law Section, is that a remedies opinion addresses the enforceability of only the "essential provisions" of a contract;19 the New York view, advocated by the New York-based TriBar Opinion Committee, is that it addresses "each and every" undertaking.20

The California view has at its base special concerns by some California opinion givers about liability for the remedies opinion,21 as well as concerns about burdensome transaction costs and risks of a damaged reputation. Those opinion givers believe that the "each and every" interpretation of the remedies opinion imposes an unduly burdensome legal diligence requirement either to know or to research the applicable law relating to the enforceability of every undertaking in the subject contract.22 Some of them also believe that California courts have an unusual tendency not to enforce literally the provisions of contracts.23 In addition to embracing the "essential provisions" approach of the California view, some of these lawyers also seek to include in closing opinions long "laundry lists" of exceptions to the remedies opinion,24 or a generic exception,25 or both.

On the other hand, many opinion givers that adhere to the New York view not only advocate the "each and every" approach, but also include few separately stated exceptions in their opinions. They conclude that many exceptions taken by others need not be separately stated because the issue has been avoided by redrafting one or more contractual provisions or restructuring the transaction or, based on their understanding of customary usage, the legal concern (1) arises under a body of law that is generally understood not to be covered by the opinion, (2) is generally understood to be covered by the equitable principles limitation or bankruptcy exception, or (3) is of a nature that opinion givers customarily do not address, as in the case of an economic remedy.26 The New York view and these practices are also supported by many opinion recipients and their counsel, who feel it appropriate to ask for an opinion on every provision and to receive "streamlined" opinions in fulfillment of their diligence needs.

The Business Law Section believes that disagreement about the California view and the New York view has occupied an undue amount of time and energy, and the debate should stop. Appendix 8 explains why and provides a different approach to analyzing the liability, reputation and cost concerns that are the primary issues. It concludes that liability based on a breach of the duty of care is quite unlikely to be determined by whether the remedies opinion is interpreted to cover each and every provision of the contract or only the essential provisions. Rather, liability for breach of the duty of care owed to the opinion recipient will be determined by whether the opinion giver has complied with customary practice in preparing and rendering the remedies opinion.27

It appears that most experienced opinion givers, regardless of their geographic location or adherence to one or the other view, exercise similar customary practice in preparing and giving remedies opinions. That customary practice is described in Appendix 8. Remedies opinions prepared and given in accordance with this customary practice are usually cost efficient, and should satisfy the legitimate diligence needs of opinion recipients for an informed professional judgment.

VI. California "Enforceability" Issues: Are California Courts Different?

One explanation for the historical difference of approach between the California view and the New York view is a perception by some California opinion givers that California law is significantly different from the law in other states (especially New York). Some have argued that California courts have an unusual tendency not to enforce contract provisions literally when confronted with concerns about harsh or inequitable results. They claim that California courts are much quicker than others to apply such principles as an implied covenant of good faith and fair dealing and exceptions to the parol evidence rule in order to "do justice" in the face of contrary written contractual provisions. As a result, they argue, it is harder to rely on the written words in agreements governed by California law, and thus to give an opinion that each and every contractual provision is enforceable in accordance with its terms.

The Opinions Committee appointed a subcommittee to study the issue of whether significant differences exist between the laws and courts of California and New York in the enforcement of contracts. Its report is attached as Appendix 9. After acknowledging the inherent limitations in a broad inquiry of this type, the subcommittee reports that it did not find support for the common perception of a wide gap between California and New York in the enforcement of contracts. In sum, the courts of both California and New York, in applying the laws of their states, show a similar strong proclivity to enforce contracts in accordance with their terms, subject to some important shared legal limitations.

VII. Exceptions

Opinion givers almost always include exceptions in remedies opinions. As noted in Section V above, some California lawyers include a long "laundry list" of separately stated exceptions, and also in some circumstances include a generic exception.28 These lawyers are usually motivated by concerns about liability, cost effectiveness and reputation issues, and the possibility that a court might interpret a remedies opinion as covering each and every provision of a contract, including some provisions that are not always enforceable. This practice contrasts with the tendency of many lawyers in other jurisdictions to use fewer separately stated exceptions, and with support found in Bar reports and other opinion literature for more streamlined opinions.29

An exception to a remedies opinion points out to the opinion recipient that the opinion giver has at least a significant uncertainty that one or more contractual undertakings are enforceable, and it limits the opinion's coverage of (and the opinion giver's responsibility for) those provisions.30 Whether a separately stated exception is required for a particular undertaking depends in part on whether, by customary usage (i.e., what words in the opinion are generally understood to mean31), the issue giving rise to the uncertainty is outside the opinion's coverage. For example, the equitable principles limitation is generally understood to exclude from the opinion the enforceability of remedies that may be specified in the contract in circumstances where a breach is immaterial or the party seeking enforcement is not acting in good faith, so that stated exceptions on these points are not necessary.

The Exceptions Subcommittee of the Opinions Committee addressed the question of the use of exceptions (except for the generic exception, which is discussed in Section VIII below), and the report of its work is set forth in Appendix 10.

Two exceptions almost always expressed in relation to remedies opinions are the bankruptcy exception and the equitable principles limitation.32 Appendix 10 explores the meaning and scope of these exceptions.

Appendix 10 also surveys many commonly found contractual undertakings and assesses whether an opinion on their enforceability should be limited or excluded from remedies opinions in separately stated exceptions. These "survey provisions" are drawn from other opinion reports33 and the 2001 Survey,34 and in general are found in a typical credit agreement.

The Exceptions Subcommittee first considered California law applicable to each of the survey provisions and assessed whether that review raised a significant enforceability question. If so, the subcommittee then evaluated whether that question is (or should be) customarily addressed by a separately stated exception. The subcommittee considered whether the legal issue that could give rise to the exception is as a matter of customary practice outside the opinion's coverage. Each survey provision was then placed into one of the following categories:

  1. "Equitable Principles Limitation": The survey provision generally is not enforceable as written. No separate exception is necessary, however, because, as a matter of customary usage, the equitable principles limitation is understood to include the principal basis that would cause the survey provision not to be enforceable.35
  2. "Generally Enforceable": The survey provision is generally enforceable.36 Consequently, a separate exception is not necessary and should not be taken.
  3. "Exception Sometimes Required": There may be limited circumstances in which courts will not enforce the survey provision as written; but only if those circumstances are present is it appropriate to take a separate exception.37
  4. "Exception Usually Required": The survey provision is generally unenforceable and is not within category 1 above. An exception, if deemed to be appropriate under the circumstances, should be separately stated.38
Equitable Principles Limitation Generally Enforceable Exception Sometimes Required Exception Usually Required
  • Waivers of obligations of good faith and fair dealing

  • Waivers of right to cure (where harm not material)

  • Exercise of remedies without consideration of materiality and consequences of breach

  • Exercise of remedies without considering impracticability or impossibility due to unforeseen circumstances
  • Choice of law

  • Time is of the essence

  • Forum selection/
    consents to jurisdiction

  • Appointment of attorney-infact

  • Severability

  • Prohibition of oral
    modifications

  • Self-help remedy provisions

  • Rights of setoff

  • Payments free of setoff,
    counterclaim or defense
  • Remedies cumulative

  • Provisions for penalties, liquidated damages, prepayment charges, late charges, and the like

  • Arbitration provisions

  • Indemnities/releases

  • Unconscionable provisions

  • Waivers of statutes of
    limitation
  • Covenants not to compete

  • Confessions of judgment

  • Waivers of (i) broadly or
    vaguely stated rights; (ii)
    statutory, regulatory, or
    constitutional rights, except as permitted; (iii) unknown future defenses; or (iv) damages

  • Changes/waivers of rules of evidence or method or
    quantum of proof to be
    applied in litigation

  • Appointment of receiver

  • Waivers of jury trials

  • Waivers of guarantor's
    defenses

  • Attorneys' fees to one party only

  • Indemnification for
    securities law liabilities

The subcommittee's categorization of the survey provisions is summarized in a table in Section III of Appendix 10, which is duplicated here for ease of reference. Please refer to Appendix 10 for an explanation of this table, including a full description of the survey provisions.

VIII. The Generic Exception

In addition to the equitable principles limitation, the bankruptcy exception and separately stated exceptions discussed in Section VII above and Appendix 10, a general exception known as a "generic exception" is sometimes included in closing opinions with remedies opinions. A customary formulation of the generic exception in transactions other than real estate secured loans39 is as follows:

The opinion regarding enforceability set forth above is subject to the qualification that certain provisions of the contract covered by this opinion letter may be unenforceable, but such unenforceability will not[, subject to the other exceptions, qualifications and limitations in this opinion letter,] render the contract invalid as a whole or substantially interfere with realization of the principal benefits provided by the contract.40

The Generic Exception Subcommittee of the Opinions Committee examined issues related to the formulation and use of the generic exception. Its report is attached as Appendix 11. The report includes a discussion of various problems raised by the formulation of the generic exception and the range of transactions in which it is customarily used. It also addresses a related issue - the request for an opinion giver to provide "general assurance" that, notwithstanding all the exceptions and limitations otherwise stated with respect to the remedies opinion, the opinion recipient has available to it "legally adequate remedies for the realization of the principal benefits intended to be provided" by the contracts covered by the remedies opinion.

In summary, the report reaches the following conclusions:

  1. A generic exception is customary with respect to remedies opinions in real estate secured loans and other complex asset-based transactions, and may be appropriate in other types of complex transactions.
  2. A generic exception is customary with respect to remedies opinions in real estate secured loans and other complex asset-based transactions, and may be appropriate in other types of complex transactions. 41
  3. Uncertainties are inherent in any formulation of the generic exception. The formulation of the generic exception stated above provides a method of balancing the concerns of opinion givers and opinion recipients in transactions in which a generic exception is used.
  4. It is neither customary nor appropriate to request or give "general assurance" language referred to above.

IX. Conclusion

Frustration over the burdens placed on transactions by third-party closing opinions, especially remedies opinions, is understandably high. By using the tools provided in this report, opinion givers and counsel for opinion recipients can make the opinion process a better communications tool and substantially reduce those burdens, for the benefit of themselves and their clients.

Endnotes

1 The Opinions Committee expresses its appreciation to James Burnett and Kimberly Taylor of Morrison & Foerster LLP for their editorial assistance in preparing this report. Back

2 A glossary of terms used in this report is attached infra as App. 1. Back

3 Corp. Comm. of the Bus. Law Section of the State Bar of Cal., 1989 Report of the Committee on Corporations of the Business Law Section of the State Bar of California Regarding Legal Opinions in Business Transactions, 45 Bus. Law. 2169 (1990) [hereinafter 1989 Report]; Corp. Comm. of the Bus. Law Section of the State Bar of California, 2005 Report, The Corporations Committee of the Business Law Section of the State Bar of California Regarding Legal Opinions in Business Transactions (Excluding the Remedies Opinion ) (2007 printing) [hereinafter 2007 Report]. Other Section reports are listed in Business Law Section of the State Bar of California, Statement of the Business Law Section of the State Bar of California (2001) [hereinafter 2001 Statement], attached infra as App. 3. Reports on legal opinions by the Section, and by a joint committee of the California Real Property Law Section and the Real Property Section of the Los Angeles County Bar Association, were compiled and published by the California Business Law and Real Property Law Sections in the 2002 California Opinion Reports [hereinafter 2002 Compendium]. The 2002 Compendium may be obtained from the Business Law Section at www.calbar.ca.gov/buslaw. Other valuable resources published outside of California are briefly commented upon in the 2001 Statement. California practitioners will find all these reports and resources useful in their opinion practices. As of 2007, a new compendium was proposed. Back

4 See 1989 Report, § V.C; Bus. Law Section of the State Bar of Cal., Report on the Third-Party Legal Opinion Report of the ABA Section of Business Law (1992) [hereinafter 1992 Report], § III.A; The TriBar Opinion Committee, Third-Party "Closing" Opinions, 53 Bus. Law. 591 (1998) [hereinafter 1998 TriBar Report], § 3.1; Am. Bar Ass'n. Comm. on Legal Opinions, Third-Party Legal Opinion Report, Including the Legal Opinion Accord of the Section of Business Law, American Bar Association, 47 Bus. Law. 167 (1991) [hereinafter Accord Report], ¶ 10.3. In 2005, the Corporations Committee of the Section issued a report that revised and restated the 1989 Report, and as of August 2007 was issuing a revised version as the 2007 Report. The 2007 Report, however, does not address remedies opinions except by reference to this Report and its appendices, which collectively supersede the relevant portions of the 1989 Report. Back

5 See infra App. 7. Back

6 See infra § V for a discussion of a historic debate over whether the remedies opinion covers "each and every" provision of the contract, or only the "essential provisions." See also 1989 Report § V.C; Accord Report § 10; 1998 TriBar Report § 3.1 & n. 69. Back

7 Meaning (iii) was not expressly set forth in the 1989 Report. Back

8 1989 Report § V.C; Accord Report ¶ 10.1; 1998 TriBar Report § 3.1. Typically, the remedies opinion reads as follows: "The Agreement is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms." Back

9 1998 TriBar Report § 3.1. Back

10 See infra App. 3. Back

11 See infra App. 10. Back

12 See infra App. 11. Back

13 See infra § V; App. 8. Back

14 For example, this report does not address in detail issues relating to assumptions and factual diligence. Instead, the report focuses only on issues that have proven to be the most troublesome in practice. Back

15 E.g., Am. Bar Ass'n. Comm. on Legal Opinions, Legal Opinion Principles, 53 Bus. Law. 831 (1998) [hereinafter ABA Principles], § I.B; Am. Bar Ass'n. Comm. on Legal Opinions, Guidelines for the Preparation of Closing Opinions, 57 Bus. Law. 875 (2002) [hereinafter ABA Guidelines], at 875; 1998 TriBar Report § 1.4; RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 95 comts. b, c & e (2000) [hereinafter Restatement]; 2001 Statement. Back

16 An alternative to the use of the customary practice standard is to incorporate into opinion letters specific standards provided by an external source. This is the approach of the ABA Accord, but the Accord has not achieved wide use. Back

17 Appendix 7 infra includes references to opinion literature, experience of the lawyers in the transaction, and surveys as examples of sources for customary practice. Importantly, in its discussion of surveys, Appendix 7 refers to a survey about remedies opinion conducted by the Opinions Committee with many California law firms in 2001 [hereinafter 2001 Survey]. Appendix 5 infra is the form of the 2001 Survey, and Appendix 6 infra is a summary of responses received. References to the 2001 Survey are found in various appendices. Back

18 See infra App. 3. Back

19 1989 Report § V.C. Back

20 1998 TriBar Report § 3.1. Back

21 See 1992 Report § III.G.2. A subcommittee of the Opinions Committee evaluated these concerns through legal research and surveys of insurance carriers and law firms. Its informal survey of insurance carriers of professional liability insurance indicated that, although carriers view opinion practice as a material source of risk as a component of a law firm's risk profile, legal opinions have not historically been a significant source of professional negligence claims. The subcommittee, however, drew no general conclusions regarding lawyers' liability for third-party legal opinions. In addition, recent anecdotal data seems to indicate that claims based on third-party legal opinions may be on the rise and that the magnitude of the claims can be quite substantial. In any event, California lawyers are not likely to change their practices in preparing and giving closing opinions, or their view of specific wording, based on a belief that the likelihood of liability for the opinion is slight. Back

22 See 1992 Report § III.G.2. Back

23 Ibid. Back

24 See infra § VII and App. 10. Back

25 See infra § VIII and App. 11. Back

26 1998 TriBar Report §§ 3.3-3.5. Back

27 There are of course other possible theories of liability for a remedies opinion, e.g., fraud, negligent misrepresentation, and aiding and abetting the wrong of another. Back

28 See infra § VIII. Back

29 See infra App. 3. See also The TriBar Opinion Committee, The Remedies Opinion -- Deciding When To Include Exceptions And Assumptions, 59 Bus. Law. 1483 (2004). Back

30 It is inappropriate to express an exception that does not relate to any undertaking in the contract opined on. ABA Guidelines § 1.3. Back

31 See infra App. 7. Back

32 It is customarily understood that the bankruptcy exception and equitable principles limitation are included with a remedies opinion, even if unstated. See infra App. 10 § I.A; 1998 TriBar Report § 3.3.1. Back

33 Accord Report § 14, "Other Common Qualifications," and 1992 Report § III.C.(c), "California Qualifications." Back

34 2001 Survey participants were asked whether they customarily express exceptions with respect to contractual provisions listed in the survey, and to identify other provisions as to which legal issues give rise to exceptions. See infra App. 5. Back

35 The reasons for which the survey provision is not enforceable do not depend upon the circumstances in which enforcement is sought. The survey provision, if given effect, would negate the application of a mandatory equitable principle--for example, it purports to permit a party to act in bad faith. Back

36 The survey provision, as written, is generally enforceable. Circumstances might arise after the agreement becomes effective, however, that would prevent the survey provision from being enforced as written. One such circumstance -- the subsequent bankruptcy of the obligor--is covered by the bankruptcy exception. Other such circumstances might make it inequitable to enforce the survey provision as written--for example, by reason of laches. Unenforceability for this reason is covered by the equitable principles limitation. (N.B.: "Generally Enforceable", in this context, also does not address reasons for which the survey provision might not be enforced that are beyond the scope of the opinion. See, e.g., infra App. 10, "Law Covered by Remedies Opinion," under "Further Notes.") Back

37 Although the survey provision is often enforceable, there exist circumstances under which a court might refuse to enforce the survey provision for reasons that, as a matter of customary usage, are understood not to be encompassed by either the bankruptcy exception or the equitable principles limitation, and, if an exception is believed to be appropriate under the circumstances, it should be separately stated. This does not mean that, in all cases, the inclusion of the survey provision in an agreement that is being opined upon should result in an exception being taken with respect to the survey provision. Back

38 The survey provision is generally unenforceable for reasons that, as a matter of customary usage, are understood not to be encompassed by either the bankruptcy exception or the equitable principles limitation, and not to be beyond the scope of the opinion. Back

39 The real estate bar has developed more specific formulations of the generic exception for use in connection with real estate secured loans. See infra App. 11 n. 3. Back

40 Infra App. 11 § I & n. 1. The bracketed language in this formulation of the generic exception is customarily understood, whether or not stated. Back

41 For discussion of the "essential provisions" view of the remedies opinion, contrasting it with the "each and every" view, see supra § V and infra App. 8. Back