Welcome back from the networking break! We continue our Securities Regulation Institute live blog with a panel entitled What You Need to Know About Legal Opinion Practice. This afternoon’s panel includes Julie M. Allen as moderator, along with Donald W. Glazer, Thomas J. Kim, Ettore A. Santucci, and John K. Villa (a Practice Center contributor). Here are this afternoon’s highlights:
SEC Guidance: Staff Legal Bulletin No. 19 by Thomas Kim
The purpose of the bulletin (http://sec.gov/interps/legal/cfslb19.htm) is to provide guidance on legality and tax opinions in registered offerings. The bulletin is an interpretive tool for attorneys providing legal opinions, and is to be a practical guide.
There is no requirement to acquire legal opinions for offerings. Reliance and assumption opinions are each acceptable to the SEC; the assumption approach being the more common approach today. Inside counsel can just as easily provide the legal opinion sought after. Prior to this bulletin, the SEC found certain opinions were too conditional. Instead of the SEC having to bend its requirements to fit an applicants internal requirements, the bulletin allows for legal opinions to better facilitate the needs of the companies.
Assumptions and qualifications are found in most if not all legal opinions. Determining if they are appropriate, the SEC has to work with subtle close reading of the opinions -almost like poetry. Almost. The more there are assumptions and qualifications, the more likely the SEC staff will issue a comment. There is no requirement of expertise or jurisdiction membership necessary to submit an opinion so long as the attorney drafting the opinion is admitted.
The law itself being opined needs to be actually addressed. The passage of time between submission of the opinion and when it would be in effect does not tarnish the opinion.
Legality Opinions in U.S. Offerings by Foreign Registrant by Ettore A. Santucci
A legality opinion under the law of the registrant’s jurisdiction of incorporation is required to be “in the same manner” as for a U.S. registrant. The opinion can be drafted by either a U.S. attorney or a foreign attorney so long as the counsel is “competent to opine on the applicable foreign law”.
Issues develop when terms carry definitions that differ under foreign law. The opinion must cover legally issued, fully pain and non-assessable under applicable foreign law – but as those terms are understood in the U.S. Opining counsel has the option of choosing understood meanings of a term under the foreign law rather than the U.S. term; dual coverage is not mandatory.
Litigator’s Perspective on Opinion Risk by John Villa
Cases have established the risks that are inherent in legal opinion practice. The singe most important risk factor for lawyers is the question of whether your client fails (files for bankruptcy). The liability of a lawyer is derivative or less than the liability of the client. Unless the client fails, law firms are usually not held with liability. When a client is still in existence and they have a problem with your opinion, they normally do not sue their lawyers. Why pursue a 2 part war or jeopardize the loss of confidentiality?
Opinions that are most often subject to claims are factual opinions as opposed to legal opinions. Factual opinions are easy for judges to note when there is a factual error, which results to a proximate cause for damages, hence making factual opinions far more dangerous than primarily legal opinions.
Reliance on literal interpretation of opinion language or disclaimers are historically unsuccessful. An express incorporation-by-reference of key terms is key to avoiding liability. Liability exists within private offerings. Issues such as negligence and fraud can be asserted under state law. Claims frequently filed in state courts or bankruptcy courts are frequently unreceptive to professionals’ defenses.
Significant take aways:
Staff Legal Bulletin No. 19 needs to be reviewed when drafting a legal opinion. However, also consider customary practice and bar rules and reports. Remember to consider and mitigate the risks – look beyond the opinion to the underlying contracts for enforceable provisions because the court will do so as well.
Stayed tuned for the final panel of the day: Developments in M&A Practice.
Tags: attorney liability, Donald W. Glazer, Ettore A. Santucci, foreign registrants, John K. Villa, Julie M. Allen, legal bulletin, legal opinion, PLI Securities Regulation Institute, SEC, Thomas J. Kim