Process for issuance of legal opinions

Process for issuance of legal opinions

a. Scope

i. A law firm should define the scope of its process for issuing legal opinions. Generally, the process should be applicable to all written communications that purport to express a legal conclusion and are given to third parties at the request or on behalf of a client of the law firm. ii. Traditional third-party closing opinions delivered in connection with financing and other corporate transactions are some of the most common forms of opinions that are subject to opinion review processes. Third party opinions are also delivered from time to time in other areas of a law firm’s practice, and the law firm’s review process should apply to these types of opinions as well.

b. Key factors in determining the necessary scope of review

i. An opinion review process will often require review for opinions that meet any of the following criteria:

(1) The opinion authorizes third persons who are named or otherwise identified (in terms of their relationship to the client) in the opinion to rely upon the opinions rendered, and it is known or reasonably anticipated that the opinion will be relied upon by such third persons. Often there is a dollar threshold for such opinions.

(2) The opinion is issued in connection with a public offering of securities.

(3) The opinion is a “covered opinion” subject to IRS Circular 230.

(4) Usually law firms will have separate processes for responses to auditors’ requests for information.

c. Issuance of opinions

i. Typically there is partner who is responsible for writing the opinion. The responsible partner should determine in the first instance whether the law firm should issue an opinion

. ii. If the decision is made to issue the opinion, the partner should arrange for the necessary research, backup work and documentation, and for the opinion review process to the extent required.

 d. Review process

i. For more significant opinions, review of an opinion is a consultative process that can involve two or more attorneys.

ii. Certain types of opinions may be subject to a higher level of review. These opinions include situations where:

 (1) The opinion is likely to be challenged.

(2) The opinion involves a transaction or subject matter likely to result in litigation.

(3) The opinion involves the prediction of the outcome of specific litigation.

(4) The opinion is given to or for the benefit of public investors or a rating agency.

(5) The opinion involves issues or a transaction likely to become the subject of public notoriety.

(6) The opinion is a “covered opinion” subject to IRS Circular 230.

(7) The client or another party to the transaction is known to be financially troubled.

(8) The client is controversial, has experienced unusually rapid growth or decline, or has had a recent unplanned change of management or outside auditors.

(9) The client is not meeting its obligations to the law firm.

 (10) There is a special relationship between the client and a member of the law firm.

 (11) The circumstances are such that the partner or firm is under unusual pressure to issue a favourable opinion.

iii. Attorneys will be appointed to review the opinion. Attention should be given to identifying attorneys with the proper areas of specialization.

iv. A frequent problem in issuing opinions is last minute changes dictated by various circumstances.

(1) Where the partner signing the opinion is physically separated from the law firm, fax and e-mail should be used to enable last minute review in compliance with the opinion review process.

(2) If last-minute substantive revisions in a previously reviewed opinion are needed, approval should be obtained by telephone, fax or e-mail prior to release of the opinion. Clients and third parties should be informed of the time required to make changes in opinions to avoid unexpected delays.

(3) Where appropriate, a partner should obtain advance approval or guidance for the issuance of an opinion with a range of alternatives as to the final form of the opinion.

v. Compliance with firm policies is vital to maintaining the quality of a law firm’s opinions. There is also a benefit to the attorney issuing the opinion. Full compliance, including preparing complete file documentation, is the best assurance that the law firm will stand behind the attorney if there is a problem with the opinion at some point in the future. e. Procedure for issuing opinions

 i. As a rule, it is best for opinions to be issued in written form on law firm letterhead and bear a manually affixed signature.

ii. Although e-mail is suitable for transmission of an opinion, i.e. as a PDF attachment, the rendering of an opinion warrants a formality that generally is inconsistent with the use of electronic formats as a medium for the rendering of an opinion itself.

f. Further guidance

i. It should be noted that in the case of opinions rendered to parties other than a client, Rule 2.3 of the ABA Model Rules of Professional Conduct provides:

(1) A lawyer may undertake an evaluation of a matter affecting a client for the use of someone other than the client if the lawyer reasonably believes that making the evaluation is compatible with other aspects of the lawyer’s relationship with the client.

(2) When the lawyer knows or reasonably should know that the evaluation is likely to affect the client’s interest materially and adversely, the lawyer should not provide the evaluation unless the client gives informed consent.

(3) Except as disclosure is required in connection with an evaluation, information relating to the evaluation is otherwise protected by the confidentiality requirements of Rule 1.6. g. Covered Federal Tax Opinions under IRS Circular 230

i. New requirements for Federal tax opinions generally apply to opinions rendered after June 20, 2005 under amendments to regulations governing practice before the Internal Revenue Service (“Circular 230”). The new regulations contain general requirements for all written advice concerning Federal tax issues that are generally consistent with existing ethical standards. The new regulations also contain detailed new requirements for the form and content of certain identified types of Federal tax opinions (called “covered opinions”).

 ii. The new Federal regulations define “written advice” very broadly to include e-mail messages as well as memoranda and letters. As a result, most law firms add a disclaimer to every e-mail message stating that it is not subject to the “covered opinions” requirements.