Danger Ahead Legal Opinions for Colorado Lawyers
| Publication year | 2009 |
| Pages | 25 |
| Citation | Vol. 38 No. 4 Pg. 25 |
2009, April, Pg. 25. Danger Ahead Legal Opinions for Colorado Lawyers
April 2009
Vol. 38, No. 4 [Page 25]
Business Law articles are sponsored by the CBA Business Law Section to apprise members of current substantive law. Articles focus on business law topics for the Colorado practitioner, including antitrust, bankruptcy, business entities, commercial law, corporate counsel, financial institutions, franchising, and securities law.
Coordinating Editors
Trygve E. Kjellsen of Kamlet Shepherd & Reichert, LLP, Denver-(303) 572-5645, tkjellsen@ksrlaw.com; David P. Steigerwald of Sparks Willson Borges Brandt & Johnson, P.C., Colorado Springs-(719) 475-0097, dpsteig@sparkswillson.com
About the Authors
Herrick K. Lidstone, Jr. is a shareholder of Burns, Figa & Will, P.C., and is the designated representative from the Colorado Bar Association to the American Bar Association's Working Group on Legal Opinions (WGLO). Information about the WGLO can be found at www.abanet.org/buslaw/wglo. He also is a contributor to the supplements to Holderness and Wunnicke, Legal Opinion Letters Form Book (2d ed., Aspen Law Business, 2003, supp. through 2009). Colleen R. Belak is a shareholder of Burns, Figa & Will, P.C.
Many attorneys give legal opinions to third parties when closing business transactions. The purpose of this article is to discuss customary practice among attorneys experienced in giving and receiving third-party opinion letters, to bring awareness to Colorado practitioners of the risks associated with giving third-party legal opinions, and to discuss the limited amount of Colorado guidance available to opinion givers and recipients.
Legal opinions are easy to identify-whenever an attorney gives advice to a client, a legal opinion usually is offered. Not all opinions contain the word "opinion" or "opine," and not all opinions are included in letters. Opinions may be given by e-mail, memorandum, casual correspondence, and other informal written and oral methods of communication and may, for example, include the following:
We have completed your licensing activities in Tennessee and, therefore, you may now conduct your business in the state of Tennessee.
Formal opinion letters are usually required by agreement at the closing of a transaction to which the client is a party. These are referred to as "closing opinions." An example of opinions generally included in a closing opinion are the followingWe believe you have meritorious claims that can be pursued in litigation.
It is our opinion that the company is duly incorporated and in good standing under the laws of the state of Colorado and that the transaction documents are enforceable against the company.
To minimize the risk in offering legal opinions, Colorado lawyers must be well-versed not only in their client's businesses and the attendant law, but also in custom and practice (also referred to as "customary practice") as defined by the available literature regarding third-party legal opinions, as well as the specific Colorado guidance on point. The purpose of this article is to discuss customary practice among attorneys experienced in giving and receiving third-party opinion letters, to bring awareness to Colorado practitioners of the risks associated with giving third-party legal opinions, and to discuss the limited amount of Colorado guidance available to opinion givers and recipients.
Customary practice among lawyers is incorporated into closing opinions. The American Law Institute's Restatement (Third) of the Law Governing Lawyers§ 95 (Reporter's Note to Comment c) states:
In giving "closing" opinions, lawyers typically use custom and practice to provide abbreviated opinions that facilitate the closing. Such opinions may not recite certain assumptions, limitations, and standards of diligence because they are understood between counsel.
The Reporter's Note adds that custom and practice covers the "meaning of the opinion letter including all such assumptions, limitations, and diligence standards." Customary practice includes specific Colorado guidance and more broadly applicable national literature. Any attorney not familiar with customary practice and issuing a closing opinion in a business transaction is entering dangerous territory.
In 2008, The Business Lawyer published a "Statement on the Role of Customary Practice in the Preparation and Understanding of Third-Party Legal Opinions" (Statement), which at that time had been adopted by twenty-five state bar association groups and the American College of Real Estate Lawyers and the American College of Mortgage Attorneys, among other groups.(fn1) Citing the Restatement, the Statement provides that "the role of customary practice in third-party legal opinion practice is well-established." The Statement goes on to say, "[c]ustomary practice evolves to reflect changes in law and practice." The one and one-half page Statement concludes that "customary practice applies" regardless of whether the opinion specifically "refer[s] to the application of customary practice." When interpreting closing opinions, the recipient of the opinion and any court interpreting the opinion should recognize the importance of customary practice and not merely interpret the opinion within its four corners.
The literature defines the meaning of terms used in a legal opinion, and sets forth the due diligence necessary to establish the foundation for the various legal opinions. The literature that defines "customary practice" is national and local, and extensive.(fn2) Colorado, however, (unlike many other states) has not adopted its own opinion report setting forth an interpretation of customary practice in the state and has no specialized rules governing third-party legal opinion practice, although there are two cases discussed below that address attorney liability for closing opinions.(fn3)
Colorado's only specific rules on the subject are included in Colorado's Rules of Professional Conduct (Rules). These Rules provide that:
An attorney may undertake an evaluation of a matter affecting a client for use by a person other than the client if the attorney believes that such evaluation is consistent with his or her duties to the client, and if requested by the client (Rule 2.3).
The lawyer must be competent in the facts, law, and customary practice to render the opinion (Rule 1.1).
The lawyer must preserve the confidentiality of client information and only make disclosure of confidential information with client consent (Rule 1.6).
The lawyer's conduct must conform to the requirements of the law and must be characterized by independent judgment and truthfulness in statements to others (Rules 1.2, 2.1, and 4.1).
There is a significant amount of literature available from other jurisdictions and the American Bar Association (ABA) setting forth views on customary practice. This literature is easily available and much of it can be found in the ABA's legal opinion resource center.(fn4)
The ABA's "Guidelines for the Preparation of Legal Opinions"(ABA Guidelines)(fn5) and "Legal Opinion Principles"(fn6) are among the most significant, as are the reports prepared by the TriBar Opinion Committee.(fn7) The TriBar Opinion Committee has been publishing reports about legal opinions and customary practice since 1979.(fn8) The 1998 TriBar Report(fn9) contains an extensive discussion of customary practice relating to giving and receiving legal opinions.
Notwithstanding the breadth of the literature, the definitions of "customary practice" are incomplete:
Customary practice permits an opinion giver and an opinion recipient . . . to have common understandings about an opinion without spelling them out. . . . By providing content to abbreviated opinion language, customary practice permits the omission from an opinion letter of the descriptions of the procedures that the opinion giver has performed and of many definitions, assumptions, limitations, and expectations.(fn10)
The 1998 TriBar Report defines "custom and practice" as having two components: (1) custom and usage; and (2) custom and diligence:
Custom and usage means that, in legal opinions, certain words and phrases expressing legal concepts have special meanings in the context of specific legal opinions-and the meaning may not be consistent with the dictionary definitions. For example, the phrase "legal, valid, binding and enforceable," when used in the context of a remedies opinion (such as in the opinion "The agreement is legal, valid, binding and enforceable."), has the same meaning as "enforceable" by itself.
Custom and diligence describes the extent of factual and legal due diligence that an attorney, giving an opinion, is expected to undertake to support an opinion. Opinion letters often state that the opinions given are based on a review of specific documents "and such other investigation as [the opinion giver] has deemed appropriate." Whether stated or not, custom and practice requires that the opinion giver perform the required legal and factual investigation.(fn11)
That is about as clear as "custom and practice" or "customary practice" gets. The practical application of customary practice is discussed throughout the remainder of this article.
Where a lender or other third party will require a legal opinion at the closing of the transaction, customary practice suggests that the requirement be announced early in the transaction and that the opinion giver and the opinion recipient negotiate the opinion as early as possible, in many...
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