As I’m no longer compelled to talk my book (in fact, I actually don’t have a book), I can now talk critically about legal opinions.  Not to bury the lede, but I am of the view that much of our transactional opinion practice is pretty silly and counterproductive.  But, on the other hand, I’m also compelled to conclude that it will never change.  Don Quixote, where’s my horse?  

It’s not that legal opinions have no value.  We’ll get to the benefits of these opinions in a moment, but let’s start by talking about something which seems to be regularly overlooked; that is, how much legal time and energy is wasted negotiating, or in fact wordsmithing, these things.  What are we paying for ?  One might (cynically, of course) take the view that legal opinions are more the playthings of junior associates looking for something to do (and without much at stake) and the excessive fascination of the denizens of “opinion committees” who lost sight of the forest long before they met their first tree.  I do know a significant player in our space which, years ago, conducted a study of loss in their loan book and concluded that they could not find any material losses attributable to a failure to accurately describe the law in a related legal opinion.  Hmm.  Not suggesting that becomes the rule, but the question is worth asking, isn’t it?  What do we get out of all the sturm und drang of our opinion practice?

Legal opinions are fundamentally a dyad.  In one part, they speak to the law.  Duh.  After all, we call them opinions.  Second, they function as a diligence protocol.  They really don’t do the former terribly well and are an inefficient way to achieve the latter.

Let’s start with the law, since that’s what we all tend, being lawyers, to obsess about.  As to questions of law, there are two types of opinions; the first are the opinions that we can give which are largely content free, and the second are the opinions that are content rich but we can’t give.  The first is the opinion that everyone gives and takes, day in and day out that generally result in almost no changes in the allocation of legal risk.  In a typical borrowers’ counsel opinion, we see “opinions” on organization, authority, violation of law, conflicts, the binding nature of the documents… blah, blah, blah.  Absurd wordsmithing aside, everyone’s opinion looks like everyone else’s.  The views expressed in these opinion letters are as common as dishwater.  The views are shared opinions of the giver and the receiver (or they certainly better be).  

The second type of opinions are those we can’t give.  These are opinions on points of unsettled law and, unless we are permitted to give a highly reasoned opinion, no opinion is possible.  In other words, you can opine where there is no doubt about the law and where the giver and recipient share that view and you can’t (or shouldn’t) give an opinion where there is real doubt.  Catch 22…you can only see Major Major when Major Major is not in.  (Heller is worth a rereading if you haven’t read it since school days…particularly in this time and place).  Look, if an opinion is covering a point of law of material uncertainty on which the transaction will rise and fall; a point which is both in doubt and substantively important, then, let’s face it, the transaction probably shouldn’t happen (or get materially changed so that one of those easy opinions can be given).  There’s a big difference between making a good argument when litigation has ensued (Hail Marys are fine) but constructing a transaction on the back of something which is both material and legally unsettled, is not .  There’s rarely enough economics in a transaction to take on the risk of legal uncertainty about something important and there’s surely not enough dollars in legal fees for a law firm to wrap ambiguity with certitude.  

And how truly labryinthally inauthentic are these missives!  Conditions, limitations, qualifications and assumptions abound.  Do you need to know anything more about opinion practice beyond the fact that the actual opinions are often contained on a single page, or even a paragraph, while the conditions, limitations, qualifications and assumptions run dozens and dozens of pages?  As a practical matter, successful litigation on points of law in legal opinions is rare.  This, some might argue (“you might very well think that, but I couldn’t possibly comment” as Urquhart would say in the original English version of The House of Cards, not the lame US version), is the point.  Conditions, assumptions, qualifications and limitations are designed to provide the giver with little or no legal exposure.  That, indeed, is the lodestone of opinion practice.  

No one should accept an opinion on a matter of law that they would be unwilling to give.  I know it’s done and there’s some opinions which some law firms simply won’t give, and then it’s off to the opinion discount store to check the box.  Is this really what we want to see in a transaction?  Counterparties’ counsel should always agree on the law that’s relevant to the transaction.  If there is material disagreement on the law, it should be back to the whiteboard.  Are there better ways to achieve this concurrence than our current opinion practice?  Indeed, there are.  Keep reading.  

In my mind, the opinions that I gave without material risk were the ones that are called Opinions on the first page and contain that rotundity of limitations, conditions, qualifications and assumptions.  The opinions that matter are the ones I would give all day long through email, on the phone or at meetings with clients.  You can hardly stop in the middle of a discussion of the applicability of the risk retention rules to quote-dump 20 single-spaced pages of conditions, limitations, qualifications and assumptions.  We provide legal advice to our clients, day in and day out.  It’s what we do.  

Now to give the devil its due, opinions are a medium for the transmittal of diligence.  Sure, the counterparties generally provide factual certifications, both for the benefit of the other party and for the benefit of their counsel writing these opinions, but there’s arguably something to be said for the lawyer, giving their professional duty of care to confirm critical, factual assumptions that underpin the transaction.  That’s real and valuable.  But is that really the stuff of opinions?  Is it really relevant that my legal opinion is that my entity is duly formed and organized if I’m looking at documents stipulating that the entity is duly formed and organized and backed by a factual certification from the client that it’s duly formed and organized?  Opinion?  More like a confirmation that I read pretty well.  

Both sides have presumably looked at all the deal documents (and the opinion receiver might be the one to have drafted them), the organizational documents, the KYC and other diligence materials, looked at the title and looked at the UCCs.  The recipient presumably knows the relevant law, knows what legal limitations impact the transactions, knows the documents (again, probably having drafted them).  So… what’s to opine on?  

Perhaps what we ought to do is embrace some form of negative assurance, the type of NAL provided in connection with the issuance of securities.  Since we all know the documents and we all know the law, wouldn’t it be better if counterparties counsel could simply say something along the lines of “in the course of its representation of its client, he or she did not discover that the relevant documents were false or fakes, that he or she did not discover that relevant entities were bogus or not registered, that neither the borrower nor guarantor was in the FBI witness protection program, was not actively working for a small chubby dictator, religious zealot or wannabe conqueror?  Shouldn’t we really be saying that in the course of our representation, we didn’t notice any outstanding arrests warrants for financial crimes and miscellaneous skullduggery, that the signatories weren’t obviously dead when the documents were signed and that we did not see an invitation lying on the client’s desk for the next cartel bash in Mexico City.  Couldn’t we come up with NAL that made sense instead of these things nominally mischaracterized as opinions?  (And, by the way, for our opinion practice, we don’t typically outline in great detail the procedures undertaken in order to give the opinion, which is odd if you really think about it.)  Isn’t it more important that we asked the questions than struggle to transmogrify diligence into the stuff of opinions?  

Beyond these fundamental questions about the content of these opinions, why, oh why, do we let it become common practice to spend hundreds of hours wordsmithing these things, regularly releasing the dogs of war (e.g., associate) to mark these documents up resulting in endless negotiation over things which frankly rarely make much of a difference.  Sure, some comments need to be made…“Gee, I don’t think you can include an assumption that only people who are not parties to the transaction can rely on this opinion…”  But that’s not the bar, is it?  We nit, we wordsmith, we fiddle.  Current practice is, at a minimum, self-indulgent.  Are we really emotionally and intellectually committed to change each “that is important” to “which is important”?  The species of legal risk which is generally changed through the opinion negotiation practice could be inscribed on the head of a pin with a jackhammer.  

Could we, just for a moment, consider how to make our opinion and diligence practice a little less painful (expensive?) and unproductive?  Where the law is settled, opinions are fundamentally without much utility.  Couldn’t we substitute a clear statement of scope of inquiry for the diligence functions of these opinions?  Could we simply test any legal issues through, I don’t know, conversation between the deal parties to reach a common understanding of the applicable law?  If we’re going to stick with opinions, couldn’t we agree not to over-wordsmith these opinions and could we not agree to draft opinions which are not so horribly cumbersome and invite endless negotiations (I’m looking at one now where the limitation and qualifications run to nine pages and still fails to include that obviously critical assumption that the opinion does not speak to the instance where an asteroid strike wipes out all life on earth)?  Could we ask, in some cases, the question whether a traditional opinion is needed at all? 

In the spirit that motivates those who campaign for world peace, the restoration of the Gregorian Calendar and climate change, I feel compelled to stake out a position here.  Figuratively, I feel like I am locking arms, marching side by side cheering that media darling teenager from Scandinavia who bestrides the world in a private plane shouting at all of us and those disciples of the cause, you know, the serious people that glue their hands to artwork to show the depth of their passion, knowing that it will clearly bring those who sit in the heights of power to their own personal Saul of Tarsus moment.  In that spirit, I’d like to champion an opinion practice change.  There’s nothing wrong with embracing an almost certainly unsuccessful campaign, is there?    We tend to hold those in pursuant of lost causes in high regard (with some material historical exceptions).  Certainly, this is not a hill that I’ve ever been inclined to die on while practicing, but a real conversation about how and why of legal opinions is not outré, it’s not wildly irrational.  It’s a legitimate discussion which we rarely have.  This industry regularly decides to tilt at the windmill of standardized loan documents to create efficiency.  It’ll never happen, but as sometimes said, it’s the thought that counts.  Couldn’t we spare a moment to think about opinions in the same way?  

A modest proposal.  

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Richard D. Jones (“Rick”), Rick Jones is a capital markets and securitization practitioner highly rated by both Chambers, USA  and Legal 500.

A leader in the industry, a recipient of both the CREFC Founders Award and the Distinguished Service Award from the…

Richard D. Jones (“Rick”), Rick Jones is a capital markets and securitization practitioner highly rated by both Chambers, USA  and Legal 500.

A leader in the industry, a recipient of both the CREFC Founders Award and the Distinguished Service Award from the Mortgage Bankers Association (MBA) for his leadership.  Rick publishes widely and speaks on a wide range of issues effecting the capital markets and mortgage finance.  He is a past president of the CRE Finance Council; a founder of the Commercial Real Estate Institute (CRI); a member and past governor of the American College of Real Estate Lawyers and a former chair of its Capital Markets Committee; and a member of the Commercial Mortgage Board of Governors (COMBOG) of the MBA. Mr. Jones is a member of the Real Estate Roundtable, serving on its Capital and Credit Policy Advisory Committee. He also serves as the chairman of CRE Finance Council’s PAC.