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TRANSCRIPT
SECTION OF BUSINESS LAW
OF
ALABAMA STATE BAR
Legal Opinions Standing Committee
July 13, 2017
Members of the Legal Opinions Committee
• Jeff Baker Burr [email protected] 205-458-5279
• Susan Doss Bradley [email protected] 205-521-8635
• David Dowd Burr [email protected] 205-458-5293
• John Dukes Helmsing [email protected] 251-434-0878
• Clark Goodwin Maynard [email protected] 205-254.1217
• Kevin Gray Bradley [email protected] 256.517.5150
• Tim Tracy Balch [email protected] 205-226-3456
• Herbert (Hal) West Cabaniss [email protected] 205-716-5209
Purpose of Legal Opinions Committee
Publish template legal opinions for business transactions governed by Alabama Law
• Purchase and Sale of Entity’s Assets
• Mergers and Conversions
• Sales of Real Property
• Debt Financing
• Issuance, Purchase and Sale of Equity Securities
Ancillary Purposes
Make us better lawyers for our clients
Avoid Erroneous opinions
Avoid opinions that should not be given
Claims for wrong opinions in a large transaction could be catastrophic for a law firm
Third-Party Opinion Letters
• A formal letter addressed and delivered to a third-party on behalf of a client
• Expresses a lawyer’s professional judgment on legal matters
Exclusions:
• Advice Letters, Memos, etc. to Clients
• Response Letters to Client Auditors
Opinion Classifications
• Unqualified opinion – opinion with customary exceptions
• Qualified opinion – opinion with non-customary exceptions
• Reasoned opinion – opinion with underlying legal analysis
• Local counsel opinions in multi-state financings
Anatomy of Opinion Letter
― Introduction
― Documents Reviewed
― Knowledge Definition
― Opinion Paragraphs
― Assumptions
― Exceptions and Qualifications
― Concluding Paragraph
Introduction
• Identify client (i.e., opinion giver is not counsel to opinion recipient; so a firm is not undertaking all duties it owes to a client)
• Use of “special” counsel (may be appropriate under certain circumstances to note your limited scope with your client or the transaction – e.g., tax opinions & local counsel opinions)
• Identify transaction
• Explain why the opinion is being given
• Disclosure matters (i.e., firm lawyer who is a director, officer or significant owner of client)
• Defined terms – typically incorporates defined terms from the principal transaction document - be careful not to inadvertently use broader terms (e.g., “law”)
Documents Reviewed
• General statement that opinion giver has reviewed organics, certificates of governmental agencies and certificates of officers and relevant law
• List of transaction documents covered by opinion – be careful how those terms are defined
Knowledge Definition
For purposes of this opinion, whenever a statement herein is qualified by the phrase “to our knowledge” or a similar phrase, it is intended to indicate that those attorneys in this firm who have rendered legal services in connection with the Transaction do not have a current actual knowledge of the inaccuracy of such statement; however, except as otherwise expressly indicated, we have not undertaken any independent investigation to determine the accuracy of any such statement, and no inference that we have any knowledge of any matters pertaining to such statement should be drawn from our representation of client.
Opinion Paragraphs
• Entity Formation, Existence and Good Standing • Qualification to do Business • Power • Authorization, Execution and Delivery • No Breach or Default • No Litigation • Enforceability • Governmental Approvals • Creation and Perfection – UCC Article 9 • Mortgages
Entity Formation, Existence and Good Standing
Client was duly formed as a limited liability company, and is existing and in good standing, under the laws of the State of Alabama. Meaning of “duly formed” (compare “duly organized”)
– Differences between corporations and LLCs (or other non-corporate entities)
– Organic documents complete under statute – Organic documents properly filed under statute – Organic documents properly signed under statute
“Duly organized” also includes the following: – Initial meetings of directors or other governing bodies – Selection of directors and officers – Ownership interests properly issued under statute and organics (including
certificated ownership interests) – Constitutional or statutory permissible consideration fully paid by owners – Initial capital contributions required under organics fully paid
Diligence Required for LLC Status Opinion
• Review AL LLC Act formation requirements (review the Act in effect at time LLC was formed)
• COF properly completed (obtain certified copy of COF from SOS)
• COF signed by authorized person
• COF properly filed
• No delayed COF effective date
• Certificate of Existence from SOS
• Certificate of Compliance from DOR (either define “good standing” for purposes of §40-2A-10 or use compliance language as used in such §)
• Operating Agreement (existence and status conditions)
• Officer’s Certificate
Qualification to do Business
Client is duly qualified to transact business as a foreign limited liability company in a specified State.
• Obtain SOS certificate regarding authorization to conduct business
• Opinion regarding qualification to do business in every State where required – DON’T GIVE
Power
Client has the limited liability company power to execute and deliver the Transaction Documents and to perform its obligations thereunder.
• Avoid the use of the word “right”
• A typical additional opinion request includes the entity power of client to own and use its assets and to conduct its business
Diligence Required for LLC Power Opinion
• Differences between corporations and LLCs
• Operating Agreement (purpose and power limitations)
• Investment LLCs (caution – diversification and other limitations)
Authorization, Execution and Delivery
Client has duly authorized the execution, delivery and performance of the Transaction Documents to which it is a party, and has duly executed and delivered the Transaction Documents to which it is a party.
• Transaction Documents have been signed and delivered outside your presence
• Closing in another state – add assumption regarding compliance with such state law respecting execution and delivery
Diligence Required for LLC Action Opinion
• Basically the same as required for action opinion, but with important exceptions
• LLC flexibility • Operating Agreement – attention to various
internal management structures • Unique delivery requirements under state law –
handle through an opinion assumption • Lack of mechanical formalities in Operating
Agreement • Manager may be an entity
No Breach or Default
The execution and delivery by Client of the Transaction Documents to which it is a party do not, and the consummation of the transactions contemplated by the Transaction Documents by the Client do not, result in any: • violation of its certificate of formation and operating agreement • violation of any existing material generally applicable federal or state constitution,
statute, regulation, rule or law to which Client or its assets are subject [possible variations: statute or regulation known by us to be applicable to the Client or statute or regulation known by us to be generally applicable to [financing]transaction of the type contemplated by the Transaction Documents]
• to our knowledge, breach of or default under any material written agreements to which it is a party [inappropriate opinion request for local counsel should be avoided or limited for other counsel; see next slide]
• to our knowledge, creation or imposition of a contractual lien or security interest in, on or against its assets under any material written agreements to which it is a party (other than as contemplated by the Transaction Documents)[inappropriate opinion request for local counsel should be avoided or limited for other counsel; see next slide]
• to our knowledge, violation of any judicial or administrative decree, writ, judgment or order to which Client or its assets are subject [inappropriate opinion request for local counsel]
No Breach or Default (continued)
• Opinions with respect to written agreements other than the Transaction Documents should be
avoided when possible as overly burdensome and an expensive undertaking for counsel to give. They are almost always an inappropriate request for local counsel who is not familiar with a client’s agreements.
• Material written agreements – the safest approach when the opinion cannot be avoided is to identify by name or list the specific material agreements covered by the opinion on a schedule to the opinion
• Consider whether the second bullet above is a back-door enforceability opinion • Avoid the phrase “conflict with” • Consider in-house counsel opinion • Avoid the term “performance” • Could narrow “consummation of transactions” to “borrow, secure and repay the loan” • In “material agreements” part of opinion, avoid the clause “to which the client is otherwise subject
or bound” • Exclude from the scope of any opinion regarding any material agreement: the financial covenants
and agreements or documents incorporated by reference • If material agreements are not governed by Alabama, need to assume that such agreements are
governed by, and to be interpreted in accordance with, Alabama laws.
No Litigation
To our knowledge, there are no actions, suits or proceedings pending or overtly threatened against the Client before any court or arbitrator or any governmental body, agency or official in the United States or the State of Alabama which seek to enjoin, prevent the consummation of or otherwise draw into question the validity of the transactions contemplated by the Transaction Documents. For avoidance of doubt, please be advised that in rendering the confirmation we have made no independent investigation, including, without limitation, any search of court records, the files of our firm or the files of our client.
• Many opinion givers/firms resist giving this opinion on the basis that the opinion is not a legal judgment but a confirmation of a fact, provides no additional info than provided by the Client’s reps and warranties and relies in large part on info obtained from an officer of the Client (a view shared by the TriBar Committee). Sometimes the opinion cannot be avoided (e.g., HUD, Fannie Mae, Freddie Mac loans)
• ACREL/ABA Section of REPTEL views this type of opinion as almost always inappropriate for local counsel
• When the opinion is given, the opinion giver should review the Client’s reps and warranties and related disclosure schedules, obtain an opinion back-up certificate from a senior officer of the Client, and make inquiry to other lawyers in the firm that may have relevant information. See Dean Foods case
• Alternative variation – “which may have a material adverse effect on Client” – DON’T GIVE
• Alternative variation – “except as disclosed in Transaction Documents, we are not representing Client in any pending or overtly threatened litigation against Client that challenges the validly or enforceability of, or seeks to enjoin, Transaction Documents”
• Avoid the phrase “to which the client is otherwise subject”
• New suggestion – do not include as a separate numbered opinion paragraph but make this a separate stand-alone paragraph from the opinions
Enforceability
The Transaction Documents to which Client is a party constitute legal, valid and binding obligations of and are enforceable against Client in accordance with their respective terms. • This opinion covers each undertaking of client • This opinion addresses three matters:
- Each Transaction Document is an agreement formed - Remedies will be given effect by court - Court will enforce agreement provisions that are unrelated to a breach (e.g., governing law)
• Be careful – governing law of transaction documents may not be your state
Governmental Approvals
No consent, approval, authorization or other action by, or filing with, any governmental authority of the United States or the State of Alabama is required for Client’s execution and delivery of the Transaction Documents and for Client to close the Transaction (other than as contemplated by the Transaction Documents) that has not been obtained.
Creation and Perfection – UCC Article 9
The Security Agreement creates in favor of lender, as security for all loan document obligations of Client purported to be secured thereby, a security interest in such of the personal property described therein as collateral in which a security interest may be created under Article 9 of the UCC in effect in the State.
Creation and Perfection – UCC Article 9 (continued)
The lender, upon the filing of the UCC-1 financing statement in the UCC records of the SOS of the State, will have a perfected security interest in the debtor’s interest in the collateral described therein, to the extent a security interest in such collateral can be perfected under the UCC as in effect in the State by the filing of a financing statement with the SOS of the State.
• Pledges of certificated ownership interests should include delivery of such certificates for purposes of the perfection opinion
• Perfection opinions for financing statement filings in other states are permissible so long as (i) assume that the security agreement is governed by AL law (or that it is otherwise enforceable) and (ii) designated provisions of UCC in such other states are specifically identified, but with the exclusion of official state commentary, filing office rules and interpretative law
Mortgages
The Mortgage is in a form sufficient to create a mortgage on the real property described therein under the laws of State, in a form that is acceptable for recording in the probate office, is enforceable against mortgagor and creates a valid mortgage upon the real property described in Mortgage, and when properly filed for recording, together with payment of all taxes or other charges, constitutes a perfected mortgage upon such real property.
• Need express exclusion of whether mortgage would need to be foreclosed in name of the agent lender or lenders
• The enforceability part of this opinion typically includes a reference to ACREL Statement of Policy on Mortgage Loan Enforceability Opinions
Regulatory Status Opinions
• Client is not an investment company
• Client is an exempt wholesale generator
Assumptions • Trend in customary opinion practice to omit certain implicit assumptions,
qualifications and exceptions • Be careful of taking a partial “kitchen sink” approach • General assumptions include (this excludes assumptions needed for creation and
perfection opinions): - Genuineness of documents and signatures - Authenticity and conformity of documents - Legal capacity of natural persons - Accurate books and records of Client - All reps and warranties of all parties (including Client) are true - If a transaction document designates a law other than your State, assume that
each such document would be construed and enforced as it would be construed and enforced under your State law
- Organization, existence, qualification, good standing, power, authority and enforceability of documents against other parties
- Compliance with Transactions Documents - Compliance with execution and delivery laws in a state other than your State - Special assumptions required for creation and perfection opinions - Compliance with fiduciary duties
Exceptions and Qualifications
• There are numerous exceptions required when delivering creation or
perfection opinions
• There are numerous exceptions for a variety of certain provisions in transaction documents, including indemnities, powers of attorney, releases, exculpation, subordination, and effect of oral amendments
• Securities and “blue sky” laws
• Federal, state and local tax laws
• Arbitration
• Usury (except to the extent of usury opinion coverage)
• Bankruptcy and equitable principles
• Practice limitation as well as an exclusion for local law
• Qualification to do business
• Jury trial waiver and venue
Concluding Paragraph
• Identify persons who may rely on opinion
• Assignees, participants and regulatory authorities
• Opinion speaks as of the date given
• No obligation to update if facts and law change. Be careful if you are aware of facts expected to change or law enacted but not effective
• No implied opinion
• With respect to reliance in context of financing transactions, see Local Counsel Opinion Letters in Real Estate Finance Transactions, 51 Real Prop. Tr. & Est. L. J. 167 (2016), at 234-237. Moody’s, S&P and other rating agency’s have confirmed that they do not require being an addressee or named as a reliance party of loan-level closing opinions in connection with the commercial real estate loans intended for securitization. Thus, a borrower’s counsel should resist such a request an inappropriate.
Avoid These Opinions
• Duly qualified as a foreign entity in each jurisdiction in which such qualification is required by law • General permitting • Title • Lien priority • No existing lien • Non-competition • Accuracy of client’s representations and warranties in Transaction Documents • No litigation that affects client • No breach of agreements/contracts (or if can’t be avoided, limit it) • Client compliance with law or that client is not in breach or default of law or its contracts • Practical realization • Consummation of Transaction Documents will not have an adverse effect on client • Choice of law • Enforceability of swaps or guarantees of obligations arising under a swap • Enforceability of EU bail-in legislation (that is now included in many syndicated credit agreements)
Recent Alabama Law Changes Affecting Legal Opinions
• American and Alabama Laws for Alabama Courts Amendment (Article I, §13.50 of Alabama Constitution)
• Compliance certificates issued by the Alabama Department of Revenue (§40-2A-10)
• Repeal of select provisions under Article XII of Alabama Constitution dealing with private corporations
Choice of Law Opinion
• Traditionally, many firms would give reasoned choice of law opinion that an Alabama court would enforce a choice of law provision in legal documents subject to various assumptions and exceptions
• With the enactment of Amendment 884, some firms no longer give such an opinion because of the profound ambiguity in the language of Amendment 884
Alabama DOR Compliance Certificates
• Prior to October 1, 2015, most firms would give a “good standing” opinion for domestic or foreign entities based on a good standing certificate issued by the Alabama DOR
• Since that date, the Alabama DOR no longer issues good standing certificates but instead issues certificates of compliance
Repeal of Select Constitutional Provisions Dealing With Private
Corporations
• §232-Foreign corporations doing business in Alabama
• §233-Corporations restricted to business authorized by charter
• §234-Issuance of corporate stock or bonds
• §237-Issuance of preferred stock
Recommended Source Materials
• Glazer and Fitzgibbon on Legal Opinions – Drafting, Interpreting and Supporting Closing Opinions in Business Transactions
• Legal Opinion Resource Center on the web site of the ABA Legal Opinions Committee, http://apps.americanbar.org/buslaw/tribar/. Published reports from the ABA Business Law Section, ABA Real Property Section and others are available.
• Collected ABA and TriBar Opinion Reports 2009 (ABA Section of Business Law)
• Florida Bar Report on Third-Party Legal Opinion Customary Practice (2011)
• Georgia Bar Report on Legal Opinions to Third-Parties in Corporate Transactions (1992)
• Neither Alabama nor Mississippi has a Bar Report on customary opinion practice