If you’re a local government attorney whose client is borrowing money, as the closing date approaches it’s likely the lender, or its attorney, will ask you to provide certain certifications or opinions for the benefit of the lender or other parties. Your own locality’s bond counsel, if you have one in the transaction, will also look to you for certain assurances. In addition, on installment financings, the Local Government Commission wants to see, early on, an opinion covering some specific matters that the LGC cares about. This post talks about why you might be asked for an opinion, and what your opinions might say (or shouldn’t say).
Why does anyone even want my opinion, anyway?
Legal opinions are part of the due-diligence process for the lender and the other lawyers in the transaction. Opinions from the borrower’s counsel are just as prevalent in commercial transactions as in local government financings. The lender needs to know that legal matters pertaining to the borrower have been properly carried out, because that directly affects the lender’s ability to enforce payment of the loan if that becomes necessary.
For example, did your local governing board followed proper legal procedures in adopting its authorizing resolution? Everyone in the transaction cares about that, and as the local government’s attorney you will be the lawyer in the best position to provide assurance to the other parties. Having your response in writing allows all the parties to be precise about what is being asked, and what is being answered.
Similarly, there are facts that affect the transaction that you as the attorney are in a good position to address. For example, you should be able to state whether there’s any litigation pending against your client relating to the project being financed or any aspects of the financing process. The lender cares about that, and it’s appropriate to ask you to make a certification.
But a legal opinion is not a guarantee. Legal opinions are statements of professional judgment, subject to a negligence standard. Being wrong isn’t enough to impose liability on you – you must also have been negligent. But if your negligence causes loss to another party who reasonably relied on your opinion, you will have liability regardless of who your client is, whether or not you have liability insurance, and whether you are a contract attorney for the local government or a full-time in house salaried employee. Also, this standard will attach whether the piece of paper you signed is called an “opinion” or a “certificate,” or if it’s on your letterhead or not.
When you deliver a legal opinion, you have a responsibility to deliver an objective opinion. That is, the opinion must set out your actual view of the laws and facts, without regard to your client’s business or other interests. It is not an advocacy document; you are neither required nor permitted to deliver an opinion that slants your view of the law and facts to help your client obtain a preferred outcome.
But how can I have responsibility to someone who isn’t my client? Doesn’t telling another party what I think violate my duty of loyalty to my client?
Rule 2.3 of the Rules of Professional Conduct governs legal opinions for use by third parties. The rule states that a “lawyer may provide 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; and the client so requests or consents after consultation.” When preparing an opinion for use by a third party, a lawyer “must be satisfied as a matter of professional judgment that making the evaluation is compatible with other functions undertaken on behalf of the client.” Likewise, a lawyer has a duty to advise the client of the implications and potential results of evaluation. This includes explaining to the client the lawyer’s responsibility to the third party.
The third party to which the opinion is given does not develop an attorney-client relationship with the lawyer delivering the opinion. But, the lawyer delivering the opinion has a duty to use care when the client has invited the third party to rely on their lawyer’s opinion. So long as these issues are considered, it is appropriate for you to prepare an opinion for another party to rely on even when you do not represent that party, and even though that third party now becomes an additional party to which you owe a duty of care.
Once you’re past these preliminary considerations, there are generally two types of opinions that folks will ask you for.
The LGC’s preliminary opinion from local counsel on a 160A-20 installment financing
As part of the application process, the LGC wants to see an opinion from you on certain matters that the staff thinks are important to get settled early on –- for example, that your client has complied with all relevant public bid laws, and that your project is one for which you client may legally spend money.
We have a separate blog post on this topic, which includes a sample form of opinion that is slightly different from the one in the LGC application package. The main issue we have with the LGC’s form is that it asks for assurance on matters that might not yet be determined at the time the LGC wants the opinion delivered. Our version tries to work through that potential conflict, and makes a few other tweaks. The LGC staff has readily accepted our opinions based on this form.
Two other quick points on this opinion:
(1) The LGC now accepts this opinion from bond counsel, and it seems to me most bond attorneys are happy to do it. In our case, we will check with the client to see if we should do this, or if the local attorney wants to handle it.
(2) When the LGC wants the opinion in hand before everything in it is true, the LGC staff will be satisfied by getting an unsigned draft along with a promise to provide the signed opinion once it can be properly delivered.
The loan closing opinion
This is where the discomfort often arises for the local attorney. You will typically be presented with a sample opinion, either from your bond lawyer or the lender’s counsel, that you are assured is “standard” and which must be, absolutely must be, delivered in precisely the form presented. Sometimes, you as the local attorney will believe that some material in the opinion is either not true, or is not appropriate for you, as the attorney, to deliver. And unfortunately, sometimes you won’t see the requested text of the opinion until approximately 6 minutes before someone wants the signed copy in hand.
Here is a download to a standard form closing certification we ask our local government attorneys to sign. This is shorter and simpler than most you’ll see, but this hits the points that we, as bond counsel, want to see covered, and it’s clear as to the level of diligence the attorney has done – and we think in most cases the level we’ve described will be appropriate. It’s not to say these are the only appropriate certifications, and (for example) if the lender wants you to say that your client is a duly existing city or county of the State of North Carolina, there’s no worry about saying that. We just think in most cases there’s no real reason anyone needs an attorney’s opinion on that. (This form is written for a county installment financing, but the same principles apply to other types of financings).
Here are some things you shouldn’t have to cover in your opinion –
** If you have a bond counsel involved, I don’t think you should deliver any opinions as to whether a contract is “enforceable” against the County. That’s really one of the two main legal areas the bond counsel should be covering (along with tax). If there isn’t a bond counsel involved, you may receive more pressure to provide an enforceability opinion. I still think a bank should be able to live without it, but you’ll have to have that discussion.
** Anything about the tax-exempt status of interest
** That a deed of trust or a UCC provides a “first lien.” There are just too many ways that something that’s recorded first could turn out to be not the first lien. For real estate, that’s what the title policy is for. For personal property, it’s trickier to get the lender to where they want to be, but you can’t offer assurance that the law doesn’t provide. The best you can do is have your client certify that they have granted any voluntary security interests in the property, and you can say there are no other UCCs on file (assuming, of course, that those statements are true).
** Anything about your client’s financial status
** Anything as to non-legal matters that you can’t objectively verify, and even then only if you are the person best situated to make the verification
Now, we all have clients who want to get the loans closed, without regard to your view of “legal technicalities.” There will also be times when the attorney really is the person associated with the locality who knows the most about some factual issue. The best advice here is to be clear in your own mind about your basis for your own opinions, and not to go beyond your actual knowledge and expertise.
Here are a few more practice tips for your opinion practice:
Ask for the text early on. If your client is involved in a financing, make sure your bond counsel or your key locality staff members know that you need to see whatever it is that someone wants you to sign sooner, rather than later. There’s no reason that the lender or other lawyers can’t give you at least a preliminary draft at the beginning of the financing process.
If you think something in the requested opinion is not true, or not fair to ask, talk to the person requesting the opinion. For your opinion to serve its true due diligence function, then working through any issues is more useful to the opinion recipient than your just signing any old thing that’s put in front of you. Ask the requesting party about the purpose of the request, so you can frame your discussion in terms of how best to provide the assurance in terms that reflect the lawyer’s role (or perhaps determining that the assurance should come from someone else).
If you care about who your opinion is addressed to, that’s fine, but raise that point early. At our Firm, we are more in the camp of not hesitating to add as recipients just about anyone who asks. This is based on our view that in the case of an actual dispute related to the opinion, an aggrieved party would still have to prove causation and actual reliance. If you want to address your opinion only to your client and the lender, that should usually be fine as well. As discussed above, it’s both appropriate for the lender to ask for the opinion to be addressed to the lender, and for you to meet that request.
You can never state every actual assumption or limitation in your opinion, but if there are some that are important to you, put them in there. For example, some folks want to be sure to note they are only licensed in North Carolina. Some want to say explicitly that the opinion does not address matters of tax or securities laws. Some want to limit their statements on litigation in the fashion of “matters on record in local superior court or for which Unit has been served with a summons.” By raising your planned limitations early, then you and the party requesting an opinion can work out whether they really need you to do more work to give them the comfort they really need.
We believe that the negligence standard of the reasonableness of reliance will cover most general exceptions (for example, as to what law the opinion covers when the documents are governed by North Carolina law). It is probably more beneficial to focus on issues that may be more specific to the transaction (such as how you want to describe your knowledge of litigation).
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For our previous post on how the local attorney can be an effective, participant in the local government financing, click here.
Please see our disclaimer, click here to learn more about our public finance practice, and send us an email at info@shlawgroup.com if you want to talk more about local counsel opinions or any other aspect of public finance.