CHAPTER 15.05. The Remedies Opinion

• Jurisdiction: United States

15.05. The Remedies Opinion

[1] Overview of the Remedies Opinion

The "remedies opinion," often referred to as the enforceability opinion, is the key opinion for most real estate financing transactions. An example of the remedies opinion is:

The transaction documents are enforceable against the Borrower in accordance with their respective terms.⁹⁶

This opinion tells the opinion recipient that the transaction documents are enforceable against the borrower.⁹⁷ But what does "enforceability" mean in the context of opinions? When applied to the transaction documents, "enforceability" provides certain assurances that, under the terms of the document and the law of the jurisdiction stated in the opinion, a remedy is available for a breach by the borrower of an undertaking in that document.⁹⁸

Some hold the view that the remedies opinion need not be given, and should not be requested, in purely intrastate transactions.⁹⁹ This view is not uniform, however, and while a request for a remedies opinion in an intrastate real estate financing transaction should not be necessary and is disfavored, it is not an unreasonable request.

The remedies opinion may often state that the transaction documents are "legal," "valid," "binding," and "enforceable" against the borrower. Opinion practice varies with respect to these word choices, but customary practice is that no words other than "enforceable" are necessary for the remedies opinion.¹⁰⁰ Some commentators have observed that the "valid" or "binding" opinion is actually a separate opinion that is, for the most part, governed by the laws of the jurisdiction governing the borrower, while the "enforceable" opinion is governed by the laws of the jurisdiction chosen by the parties in the transaction documents.¹⁰¹ While that view may not be shared by most opinion givers, it is true that the concepts of valid and binding support the assurance that a contract has been formed.

It is important for the opinion giver to keep in mind that while the remedies opinion will almost never¹⁰² be implied in an opinion letter merely because of the inclusion of the so-called "building block" opinions,¹⁰³ a remedies opinion implies the issuance of the building block opinions. If the opinion giver is not intending to give each of these opinions, the opinion giver should expressly assume the particular opinions not given.

Opinion authorities disagree over the scope of a remedies opinion. At the risk of oversimplification, there are two broad views of the scope of a remedies opinion. One view, held by those subscribing to the so-called "Tribar" approach, believe the remedies opinion means that "each and every" provision of a transaction document is enforceable as written.¹⁰⁴ The other view, held by those subscribing to the so-called "California" approach, believe the remedies opinion means that the "essential provisions" of a transaction document are enforceable.¹⁰⁵ In the author's estimation, the prevailing view taken in Delaware is the Tribar "each and every" provision approach recommended in the 2012 Real Estate Report.

That said, the author believes the preferable view of the scope of a remedies opinion, at least with respect to opinions in real estate financing transactions, is that it covers the essential provisions in the transaction documents, and not each and every right and remedy. Certainly this represents the correct approach in the cost-to-benefit analysis described in the authoritative opinion guidelines.¹⁰⁶ However, in the absence of clear guidance either nationally or for Delaware, an opinion giver should cautiously approach this issue of the scope of a remedies opinion.

Although the remedies opinion provides assurance that the contractual provisions are enforceable under applicable laws, thereby affording the legal right to pursue a given remedy, the remedies opinion does not address procedural actions necessary to enforce a remedy.¹⁰⁷ For example, the remedies opinion does not address the need for the opinion recipient to take certain actions to comply with applicable court rules or laws at the time of exercising a remedy.

[2] The Elements of the Remedies Opinion

The remedies opinion implicitly includes three elements: (i) a contract has been formed, (ii) a court will give effect to the stated remedies (the Tribar approach), or the essential remedy (the California approach), in the event of a breach by the borrower of at least essential undertakings, and (iii) certain laws will qualify the extent to which a court will enforce those remedies.¹⁰⁸

First, the opinion giver must be satisfied that the contracts represented by the transaction documents have been formed.¹⁰⁹ Of course, this means that the remedies opinion should only be given with respect to transaction documents that are in the nature of contracts. As discussed elsewhere, some documents—U.C.C. financing statements, certificates, affidavits, and the like—are not contracts and therefore not the proper subject of certain opinions.¹¹⁰ Accordingly, the opinion giver will analyze the relevant laws governing whether a contract has been formed under Delaware law and whether, based on the facts expressed or assumed, those legal requirements have been satisfied.

Second, the opinion giver must be satisfied that a court will give effect to the remedies stated in the transaction documents if the borrower breaches at least the essential undertakings in those transaction documents. Accordingly, the opinion giver will review the stated remedies and make a legal determination of whether those remedies will be available against the borrower.

Third, as discussed further below, the remedies opinion addresses the scope to which remedies will be enforceable. The remedies opinion will be limited by certain qualifications, both expressed and implied, that may render an undertaking or a remedy contained in the transaction documents unenforceable by a court.

The remedies opinion for the Delaware opinion letter is generally given on the basis of Delaware law, but that does not mean the opinion giver must consider every law in effect in Delaware on the date the opinion is given. Keep in mind that the laws in question are those that lawyers who render legal opinions with respect to the type of transaction involved would reasonably recognize as being applicable to transactions of the nature covered by the transaction documents and the role of the borrower in the real estate financing transaction. As discussed elsewhere, certain types of laws are generally excluded in this analysis, and others will be included only under certain circumstances (e.g., the borrower is a regulated entity, such as a public utility).¹¹¹

Some laws, however, are implicitly excluded from the scope of an opinion of Delaware counsel unless such laws are specifically addressed in the opinion letter.¹¹²An opinion recipient should consider whether under its particular circumstances it requires coverage in an opinion as to the impact of any excluded law. However, an opinion recipient should only request comfort regarding implicitly excluded laws that is reasonable under the circumstances. If such coverage is required by the opinion recipient, the opinion giver should exercise diligence and do what is reasonably necessary to provide coverage of requested excluded laws, including consultation with lawyers with relevant experience or expertise, as appropriate, in cases where the opinion giver does not otherwise have the expertise to render such opinions. The opinion giver should not generally be required to seek guidance from experts in every specialized field of law that might be implicated by the undertakings in a...