Substantive issues

Substantive issues

a. Literature.

i. Reference should be made to applicable literature on legal opinions. The literature increasingly reflects a nationwide practice toward legal opinions.

ii. In particular, the Tri Bar Opinion Committee’s 1998 report on Third-Party “Closing” Opinions, 53 Bus. Law. 591, is often referred to as defining customary practice. The 98 Tri Bar Report is the last major document from Tri Bar on opinions.

iii. Reference should also be made to the Tri Bar 2004 Report on the Remedies opinion, 59 Bus. Law. Law. 1483.

iv. There are other reports besides Tri Bar, such as the 1998 report on Legal Opinion Principles from the ABA, 53 Bus. Law. 831.

b. Due diligence

i. Due diligence is an integral part of the issuance of many legal opinions. Adequate processes must be established, followed and documented in the law firm’s files. The nature and scope of due diligence varies substantially depending upon the type of legal opinion required, and also upon the types of representations and warranties and indemnifications contained in the legal agreements.

ii. When a lawyer learns that a client’s representations are or may not be accurate or complete, the lawyer has an obligation to look into the representations if the representations are important in connection with the opinion. This is true even where the opinion explicitly states that it is relying on the representations.

 c. Follow the process

i. It is critical that a law firm follow the process that it has adopted for issuance of legal opinions.

ii. A law firm should be able to demonstrate after the fact that it exercised due diligence in issuing its opinion.

d. Dean Foods case

i. In December 2004, the Massachusetts Business Court, following a bench trial that lasted several days, held a Boston law firm liable to the recipient of a closing opinion, the acquiring company in an acquisition, for more than $9 million in damages and costs.

 Dean Foods v. Pappathanasi, 2004 WL 3019442 (Mass. Super.). The basis for liability was negligent misrepresentation stemming from the firm’s giving a no-litigation opinion without disclosing in the opinion a matter the court found the firm should have disclosed.

ii. The lawyers apparently missed clues that indicated their client may already have been a target of the investigation at the time it received the subpoena. In some circumstances, lawyers should consider whether they are aiding and abetting or otherwise participating in a fraud with their client. If so, they must resign the engagement unless the client permits disclosure.

iii. A lawyer should never give negative assurance on the accuracy of disclosure when the lawyer is aware of a matter that falls within the description of an item to be disclosed but has not been disclosed. The Dean case also illustrates the importance of exercising due diligence in the preparation of disclosure schedules to transactional documents.