COMMITTEE REVISES 2007 MARYLAND OPINION REPORT
The Special Joint Committee of the Section of Business Law and the Section of Real Property, Planning and Zoning of the Maryland State Bar Association, Inc. recently revised its 2007 Report on Lawyers’ Opinions in Business Transactions, and the revisions were approved by the Section Councils of each of the sponsoring sections.
The 2007 Report, which is more than 260 pages long, includes four illustrative opinions and an illustrative certificate from a company officer to the opinion giver. The 2007 Report updated, revised, and added to the Maryland Opinion Report that was written in 1989 and published at 45 Bus. Law. 705 (1990). The 1989 Report was widely used by opinion givers and opinion recipients in Maryland because of its balanced approach, and the 2007 Report has been widely used for the past two years. The illustrative opinion letters in the 2007 Report are particularly user-friendly because they note to which of the specific opinions the assumptions and qualifications relate, and they include guidance to opinion givers in their footnotes. Maryland lawyers frequently referred to the 1989 Report, and they now refer to the 2007 Report, because of the Reports’ discussions regarding the due diligence that is necessary to render the various opinions that are addressed in them.
For preparing the 2007 Report, the Sections of Business Law and Real Property, Planning and Zoning received the Presidential Best Section Project Award from the MSBA in June, 2007.
The 2007 Report has been widely acclaimed by various opinion-related groups nationally, including the American College of Real Estate Lawyers (ACREL), and the Legal Opinions in Real Estate Transactions Committee of the Section of Real Property, Estates and Trust Law of the American Bar Association.
Earlier this year, Donald Glazer, one of the authors of Glazer and FitzGibbon on Legal Opinions, reviewed the 2007 Maryland Report in connection with a forthcoming supplement to his treatise. Although he praised the 2007 Report generally, he suggested that it should be changed in several ways. Mr. Glazer expressed a concern about the Report’s position that all opinion letters rendered under Maryland law should be interpreted in accordance with the provisions of the Report, regardless of whether the opinion letters specifically incorporate the Report by reference. Also, he recommended that this concept be addressed in a more conspicuous part of the Report.
The issue regarding the relationship of bar association reports with opinion letters rendered under the law of the states of those reports needs to be understood in context. After the issuance of the Maryland Report in June, 2007, twenty-eight bar association groups, committees, and associations approved the “Statement on the Role of Customary Practice in the Preparation and Understanding of Third-Party Legal Opinions,” which was published at 63 Bus. Law. 1277 (2008) (the “Statement”). Both the MSBA’s Section of Business Law and the Section of Real Property, Planning and Zoning approved the Statement. The Statement explains the role of customary practice in the interpretation of opinion letters as follows, “Customary practice permits an opinion giver and an opinion recipient . . . to have common understandings about an opinion without spelling them out.” The Statement concludes with the following language:
The Restatement [referring to Sections 51, 52 and 95 of the American Law Institute’s Restatement (Third) of the Law Governing Lawyers]treats bar association reports on opinion practice as valuable sources of guidance on customary practice. Customary practice evolves to reflect changes in law and practice.
Some closing opinions refer to the application of customary practice. Others do not. Either way, customary practice applies. 63 Bus. Law at 1278.
In light of the view of Mr. Glazer and the language of the Statement, the Committee deleted the language on page 173 of the Report that all opinions under Maryland law incorporate the Maryland Report by reference, whether or not they so specify, and it added a paragraph to Section B, “Statement of Policy” on page 6 of the Report. The new paragraph states that it is the Committee’s belief that the Report reflects customary opinion practice in Maryland. It also states that, to the extent an opinion letter under Maryland law uses language from the Report to express an opinion, assumption, qualification, or limitation, such language should be interpreted as set forth in the Report. However, the language added to the Statement of Policy does not provide that all opinions under Maryland law incorporate the Maryland Report by reference.
In connection with updating his treatise, Mr. Glazer made a number of other suggestions for changes to the Maryland Report, some of which were based on positions taken by other bar association opinion reports. The Committee considered all of Mr. Glazer's comments and agreed that some of them merited changes to the Report while others did not. As to the changes that the Committee did not make, it believed that certain of Mr. Glazer’s recommendations were not consistent with Maryland law or practice, and the Committee decided to take a different position from Mr. Glazer on other points.
The changes that the Committee did make to the Report are as follows:
1. Pages 21 and 22, Section C.3.k. “Procedures / Foreign Law.” In connection with the discussion about rendering an opinion when the law governing the transaction documents is other than Maryland law (and the opinion giver is not admitted to practice in the jurisdiction of the governing law), the Committee added as an option that the opinion giver may be permitted to render an “enforceability” opinion with the assumption that the documents in question are governed by the law of Maryland (in addition to the assumption that the laws of the state chosen to govern the transaction are identical to the laws of Maryland). The Committee also revised the illustrative share issuance opinion of the Report to reflect this change.
2. Page 51, Section D.4. “Authorization, Execution, Validity and Enforceability.” The Committee revised the language of the “authorization” opinion to make it clear that this opinion means that all action has been taken at the entity level to authorize the company’s execution, delivery, and performance of the transaction documents (as opposed to action that may have been taken by any other person, agency, or authority). The Committee also revised the four illustrative opinions of the Report to reflect this change.
3. Pages 52 and 53, Section D.4. “Authorization, Execution, Validity and Enforceability.” The Committee changed the word “persons” to “individuals” in the commentary about the “execution” opinion to make it clear that opinion givers may assume that natural persons have the legal capacity to sign documents, but opinion givers may not make the same assumption about entities.
4. Page 65, Section D.5.1 “Equity Issuances / Corporation.” The 2007 Report stated that an opinion that shares of a corporation have been “duly issued” could be rendered without regard to whether the shares were issued in violation of preemptive rights of existing stockholders. The Committee changed the discussion on this matter to provide that preemptive rights may be covered by “validly issued” opinions. The Committee provided that if a corporation’s charter or bylaws restrict the issuance of stock that violates preemptive rights, a “validly issued” opinion cannot be rendered.
5. Page 145, Section D.9, “No Violations of Law.” In the Report, the Committee strongly discouraged the requesting and giving of “no violations of law” opinions. The Committee revised the commentary about “no violations of law” opinions to indicate that such opinions may be given if the opinion letters contain substantial limitations and appropriate qualifications.
6. Pages 155 and 156, Section D.12, “No Litigation.” The commentary to the Report stated that arbitrations and mediations were intended to be covered by “no litigation” opinions, but the form of “no litigation” opinion in the Report did not specifically refer to arbitrations or mediations. The Committee became concerned that opinion givers may inadvertently render “no litigation” opinions that implicitly include reference to arbitrations and mediations. Therefore, the Committee amended the form of “no litigation” opinion to explicitly refer to proceedings before arbitrators and mediators so that those who render “no litigation” opinions will be aware of the need to consider arbitrations and mediations. The Committee also revised the four illustrative opinions of the Report to reflect this change.
7. Pages 174 to 176, Section D.17, “Assumptions, Qualifications and Other Limitations.” The lead-in language to the “assumption” section of the illustrative opinion letters that appeared in the Report provided: “In reaching the opinions set forth below, we have assumed, and to our knowledge there are no facts inconsistent with, the following: . . . .” (Underscore added.) The effect of the underscored language was to provide the opinion recipient with an implied negative assurance about the matters that were being assumed, which include the representations and warranties in the loan documents. An example of the problem with the underscored language is that the term “our knowledge” is defined in the illustrative opinions that are part of the Report to include the knowledge of specified lawyers in the firm of the opinion giver; however, it may be that not all of those lawyers will have reviewed the loan documents. Therefore, the Committee deleted the underscored words. The Committee also revised the four illustrative opinions of the Report to reflect this change.
The 2007 Report and the 2009 revisions to it are posted at http://msba.org/docs/opinionmatters.asp. This site also includes separate postings of the four illustrative opinions and the illustrative certificate from the 2007 Report as revised in 2009. The 1989 Report is also posted at this site.
Edward J. Levin is a partner in the Baltimore office of DLA Piper LLP (US). He served as a member of the Steering Committee of the 2007 Report and its revision, and he currently serves as chair of the Special Joint Committee. He was a co-chair of the committee that wrote the 1989 Report. He chaired the Attorneys’ Opinions Committee of the American College of Real Estate Lawyers from 1992 to 1999, and he is the current chair of the Legal Opinions in Real Estate Transactions Committee of the Section of Real Property, Estates and Trust Law of the American Bar Association.