What is a Legal Opinion Letter
An opinion letter is what a lawyer generates for a client to ‘opine’ or in the lay person’s language, to render an opinion. This is specifically regarding a certain matter or issue associated or relating to the client and/or the client’s interest. The purpose of a legal opinion letter usually accompanies the client at the time of a closing for some type of real estate transaction. Lawyers produce this letter, which goes into the client’s file, and it is now a record that is there to support the opinion issued by the lawyer. Opinion letters are critical to a legal practice because successful issues and matters can be carried on by the opinion expressed there in and alternatively, great harm can result by bad opinions and sloppy work performed by the lawyer issuing a subpar legal opinion letter, or failing to properly support the opinion expressed. Essentially, an opinion letter will contain legal opinions as to the laws in any certain area. The lawyer issuing the opinion must conduct investigation and research relating to the scope of the opinions issued in order to render a proper legal opinion. In fact, the lawyer can be liable for instances of negligence in doing so. The investigation a lawyer does to support the opinion issued, that is contained in an opinion letter, depends a great deal on the facts of the situation. For example, if the issue resides in real property, then the lawyer conducting the opinion will examine the chain of title to get a good idea of whether the property is subject to any adverse interests and/or rights. Factors such as adverse possession, prescriptive easements, other clouds on title, unfair business practices , and/or fraud are examined, among many other issues in order to render a full and proper legal opinion as is warrantied. Legal opinion letters are often issued as a formal response to a request for a legal opinion that was delivered by a client or a third party that seeks to obtain advice from an attorney on a certain legal issue. A legal letter issued by an attorney will advise about the result that likely will be shown if the issue in question is attempted to be litigated, or if a lawsuit is brought regarding any particular situation. There is also a contractual agreement or form that a lawyer may enter into with a requesting party of a legal opinion letter. This is known as a legal opinion, agreement, and/or engagement letter. Essentially, an opinion agreement is a contract entered into by the parties wherein one party, typically the lawyer, agrees to issue an opinion letter to the requesting party that deals with a specific matter that is agreed upon [in the opinion agreement or letter]. These type of letters are often acted upon by insurance companies, brokers and other agents, accountants, and even construction contractors who seek opinions from lawyers about a certain matter or issue. For example, a construction contractor may seek a legal opinion from a lawyer as to the following matters: an examination of the claims that are asserted against a surety or any re-insurer issuing a bond; whether a particular contractor or agent might be compelled to honor a bond or to defend claims against that particular bond; whether the contract, or what is contained in a particular contract, between two parties would be enforceable by law.
Essential Elements of a Legal Opinion Letter
A legal opinion letter usually consists of three fundamental components: a prefatory section that states the legal opinion; a section providing the legal opinion itself (in sentence or paragraph form); and a third section (or sections) reciting the facts, relevant law and legal inquiries considered by the lawyer in reaching the opinion.
The prefatory portion usually consists of two parts. First, it identifies the parties, subject matter and relevant documents. Second, the prefatory section makes certain factual assumptions or other fundamental statements on which the opinion is based or qualified "to the extent not expressly stated in this Opinion."
The second part of a legal opinion letter, the opinion, may take a number of forms. In some cases, a proposal may be made to the client that the opinion statement set out the conclusions reached (with or without conditions) and provide a reference to the body of the opinion as the source of legal reasoning.
The legal analysis, comprising one or more sections, usually adopts either a checklist approach or a paragraph approach.
The checklist approach sets out subheadings for each area and numbers each (such as 1, 2, 3, etc.). Within each area, the lawyer then lists, in a single paragraph, each opinion. Every opinion under every subheading, therefore, is visible and identifiable. After the opinions, the lawyer often states or incorporates any assumptions on which the opinions rest. For example:
Article 10 Authorization.
Assuming that (a) each of Articles 10 and 11 have been properly authorized by the Board of Directors, (b) each of Articles 10 and 11 have been executed in substantially the agreement as heretofore delivered to you, (c) each of Articles 10 and 11 has been filed with the Secretary of State of Illinois and countersigned by the Secretary of State, and (d) the Company has paid all associated fees and expenses, we are of the opinion that, a the date hereof and assuming the foregoing:
The paragraph approach may be preferred where the lawyer decides to incorporate or refer to factual material or pertinent law or legal questions in the text of the opinion. The legal headings are, as a result, rarely numbered. When the lawyer does use this technique to incorporate other information, however, it should be explicitly explained (preferably within brackets) in the relevant paragraph. For example:
Legal Proceedings.
We have been informed by the Company that there are no actions, suits, investigations or other legal proceedings pending or threatened before or by any Governmental Authority, an Affiliated Person or any holder of any shares of capital stock of the Company, to our knowledge, against or affecting the Company or any of its Subsidiaries that (i) in the reasonable good faith judgment of the Management, would be material to the Company or any of its Subsidiaries or (ii) in the reasonable good faith judgment of the Management, would materially adversely affect the legality of the transactions contemplated by the Agreement or the ability of the Company or such Subsidiary, as applicable, to perform its obligations thereunder.
How to Write a Legal Opinion Letter
Generally speaking, the steps to drafting an opinion letter will be as follows:
Step 1: Understand your client’s request
Before you jump into producing a legal opinion letter for your client, be sure that you understand exactly what they are asking of you. For example, is your client asking for one opinion letter on a singular or narrow issue? Or are they asking for you to provide them with multiple opinion letters concerning several issues? Will they need that opinion letter as a general legal reference, or will they need it as an enforceable attachment (such as an exhibit to a pleading in upcoming litigation)? These are all critical questions that you should have clearly defined before you begin drafting an opinion letter.
Step 2: Conduct & scribe legal research
Next, you will want to conduct a legal research on the matter for which you’ll be providing an opinion letter to your client. In general, you will want to use a similar process to the one in which you utilize to create legal research memos. The notion is that you will answer the legal research questions, disseminate the information in a concise and clear manner, and limit the amount of extraneous and unnecessary information you include to the minimum possible to achieve those ends. It is important that you are diligently and carefully legal researching the issues for which you’ll be providing your professional and objective opinions on, as an opinion letter’s purpose is to serve as a third-party legal analysis of the issue(s) at hand. This letter should summarize your current legal knowledge of the issues you’ll be providing in your legal opinion (as well as providing citations to the applicable law for which your comments apply to), rather than being a single point of heavy legal research.
Step 3: Draft the opinion letter
The next step to drafting a legal opinion letter is to draft the letter itself. This again should be similar to the mechanics of a legal research memo, but of course done in a way that is actually revealing of your legal opinion on the matter. Your legal opinion should start with a legal summary of the overarching issue(s), as well as the current, relevant law. You should then include any pertinent law that pertains to the exact issue(s) at hand. Be sure to avoid repeating many of the facts of the case, as the goal of a legal opinion letter is to be concise and focused on the legal issues at hand, rather than being verbose and being a lengthy, stream-of-consciousness narrative that goes through every detail of the underlying situation. An opinion letter can be a bit shorter and more succinct than an actual legal research memo, as a legal research memo focuses on a more folio basis of thought and reasoning, while the goal of a legal opinion letter is to be concise and present opinions with as little extraneous information as possible (and without repeating the stating of facts). An opinion letter should be divided as you would with a legal research memo, by numbering or labeling certain conclusions or sub-legal opinions. You may actually add a few more issues to the opinion letter so as to demonstrate your legal opinions on related issues, but in most situations that extra step is not needed, as an opinion letter should be focused on the primary issues at hand.
Step 4: Review your legal opinions
The final step in creating a legal opinion letter is to review your legal opinions for the letter, and that of the letter itself. You should be sure that you’ve covered all legal issues, and have clearly only included legal opinions that you have obtained through many years of experience or legal knowledge. You of course must also be licensed and have jurisdiction over the legal issue(s) that you are discussing.
Writing Legal Opinion Letters: Best Practices
Clarity is one of the most important components of a legal opinion letter. The stated assumptions, qualifications and limitations, as well as the factual recitation, must be clear and be consistent with the conclusion. The conclusion should also flow logically from the stated assumptions, and the opinion should clearly state the reasons for the opinion. Providing too little factual detail, or absolutely no factual detail, can have a detrimental effect on the persuasiveness of the letter. Conversely, the opinion may be argued to be too "overly-protective" when there are too many assumptions and qualification that seem to "hedge" the opinion. A balancing act must be struck between providing enough detail to convince the reader of the soundness and correctness of the opinion, while not providing so many facts and qualifications that the normal reader has difficulty understanding the opinion. One factor you can control that can assist you in this balancing act is the structure of your opinion letter. Drafting the opinion letter in a manner that flows naturally, and using clear English, will help the reader follow your thought process and conclusions. As with most writing, keeping it simple is often the most difficult yet most effective policy. Another best practice is to avoid "legalese" as much as possible. This maxim is perhaps the most difficult to adhere to in an opinion letter because we, as lawyers, like to use legal terminology in the construction of our opinions. We think it demonstrates our expertise when we use legal terms of art, but the casual reader may not appreciate what we have done. Also, it has been our experience that some clients and/or other non-legal letter recipients may feel less likely to challenge the results of an overly-technical opinion. But, whether they are not lawyers or not particularly sophisticated in legal matters, these people can also be the people who have the most direct impact on us. It is already difficult enough to get a deal done, so why add to the difficulty by drafting an opinion that is not easily understood? It is also extremely helpful to provide both a brief introduction and a executive summary of the opinion letter. This gives the reader a quick-reference to determine if all of the issues they are interested in were addressed. Again, this extra effort should make it easier for the reader to focus on the pertinent sections of the opinion letter. Finally, be sure to format your opinion letter in a manner that clarifies the result(s) referred to in your letter. Use bold type, headings, bullet points or tables as necessary to drive home your results. We have had cases where we have labeled an opinion as either favorable or unfavorable on the cover page, and how important that label became to the parties!
Common Pitfalls in Writing Legal Opinion Letters
The first mistake is more of a general error that may occur when writing any kind of formal legal document: overly complicated or convoluted language. For example, "there are no judgements against the corporation" is a much better sentence than "there is not present and outstanding against the corporation or any other affiliated company, any judgement, award, writ, injunction or lien." Use clear, concise, easy-to-understand language whenever possible.
The second common error is a lack of research into applicable law . The opinion letter is one of the few documents that isn’t just a legal summary but also a type of legal advice, so it should at least attempt to demonstrate that the attorney issuing the opinion has examined the relevant statutes, case law, and codes. Don’t write an opinion letter as if you’re Data from Star Trek and just have all relevant information uploaded directly into your brain.
The third and final common error is using ambiguous language or making unsupported conclusions. If you’re going to conclude that certain actions "may not necessarily constitute fraud" and that other actions "may not necessarily constitute fraud" you’re not helping anyone. Be as clear as possible and only issue an opinion on the items outlined in the agreement.
Legal Opinion Letter Sample Analysis
We will be using our D&O representation with JQ Corp as an example document. Here is a sample JQ Corp Opinion Letter: This legal opinion letter (herein "Opinion") is provided by Wormwood & Dubious, hereinafter referred to as "Opinion Author", in connection with JQ Corporation’s registration statement on Form S-3 (hereinafter "Registration Statement") filed with the Securities and Exchange Commission on ______________, 20XX. Opinion Author is counsel and represents the Board of Directors of JQ Corporation (hereinafter "Company") in a matter related to the __________________ transaction (hereinafter "Transaction"). Opinion Author presents the following legal analysis and reasonable basis for the issuance of the Opinion and refers to numerous sources of law that are relied upon and made part of this letter: Under the laws of the State of Delaware, the filing of a document (in this case with the Secretary of State) for the purpose of creating a corporation, in this case the formation of "JQ Corporation", is to be carried out according to the procedural and substantive requirements of the State. The procedure for creating a Delaware corporation is set out in Section 101 et. seq. of the Delaware General Corporation Law. In addition, the statutory authority for the certificate of incorporation of JQ Corporation is set forth at Section 102 of the Law. The statute requires that a specific form of language be utilized within the certificate of incorporation, or articles of incorporation, and that these articles be filed with the Secretary of State. Article Fourth of the articles of incorporation appears to meet the requirements of Sections 101 et. seq. of the Delaware General Corporation Law. The article reflects that its purpose is to set forth the authorized capital stock of a Delaware corporation and that this statement complies with all relevant provisions of the law. The above Article Fourth of the Articles of Incorporation complies with the requirements of the Delaware General Corporation Law. Wormwood & Dubious hereby opines: The shares of Common Stock issuable upon issuance of shares meet all requirements of both the Securities Act and the Exchange Act of 1934. Below are some highlights from the above hypothetical opinion letter: Opinion Author provides a clear purpose for the letter and identifies the party for which it is being provided, including the date that the letter will be signed and provided. Opinion Author carefully avoids using opinion language and is careful to interpret the language of JQ Corp’s Articles of Incorporation precisely as stated therein. Opinion Author also appropriately referenced and applied the Delaware General Corporation Law and specifically identified sections 101 et. seq. of the law and section 102 of the law. Opinion Author appropriately and effectively defined the scope of this legal opinion letter by limiting Opinion Author’s opinion to the above referenced Delaware Corporation. Opinion Author appropriately states when and how they became involved in the transaction they are opining and the scope of their involvement in the transaction, specifically cross referencing and identifying the provision of the Registration Statement at issue being found in Article Fourth. Opinion Author properly limits their opinion to the formation of JQ Corp and the issuance of its shares successfully performed by its Board of Directors, as stated above.
When to Request a Legal Opinion Letter
Navigating the complexities of the law often requires more than just advice – it sometimes necessitates a legal opinion letter. But when is the right time to request one?
Opinions in Corporate Law Matters: Legal opinions are commonly sought by companies seeking funding from venture capitalists, lenders or other institutional investors. Venture and institutional investors may require the company to obtain a legal opinion confirming that it is properly organized and in good standing to do business in its state of incorporation and the states in which it does business, and that its organizational documents (such as its articles of incorporation and bylaws) are in full force and effect.
Opinions in Loan Agreements: At closing of a loan transaction, the lender may require the borrower and its affiliates to obtain an opinion to confirm that each loan document has been duly authorized, executed and delivered, and constitutes the legal, valid and binding obligation of each party.
Opinions and Regulatory Compliance: A company may seek an opinion to confirm that its debt and equity instruments are in compliance with a specified regulatory body.
Opinions in Dispute Resolution: Private parties can seek to avert litigation through one or more forms of Alternative Dispute Resolution (ADR). Legal opinions are often a precondition to issuance of arbitration awards or confirmation of judicial decisions by courts.
The Impact of Legal Opinion Letters on Decision Making
Legal opinion letters serve as a strategic tool in helping clients make informed decisions about their business ventures. This is especially true in real estate deal-making, where the sheer number of quickly-moving internal and external pressures on transaction participants can be overwhelming. And for many clients, third parties will be relying on their counsel’s legal opinion letter in determining whether or not to proceed with a given transaction.
For example, banks and other lenders often demand legal opinions from borrowers as a closing condition to their lending commitments. For these borrowers, if the transaction does not deliver a positive opinion of counsel, this would mean that they are unable borrow from the lender. In turn, this would mean that the deal would essentially be dead in the water. So whether or not a borrower desires a legal opinion at all can have important business implications for their transaction.
Therefore, sometimes the real estate attorney’s job is to persuade clients in some way that their business objectives may be best achieved by obtaining or passing on a legal opinion of counsel for a real estate transaction . The factors that weigh into this decision can vary among clients and transactions. For example, this could be based on a desire for third-party comfort on performing under a deal, a competitive advantage, a desire to streamline the due diligence process, or in a situation where an opinion is necessary to comply with financing-related conditions imposed by lenders.
Ultimately, legal opinion letters are intended to bring some degree of comfort to those who are relying on them. At its core, a legal opinion letter is intended to communicate counsel’s professional evaluation as to the validity of a particular transaction or contractual instrument, based on, among other things, due diligence into the facts underlying the transaction and analyses of the relevant law. Therefore, these communications cannot be entirely customized for every single client’s commercial needs. Rather, they reflect long-established and fundamental US legal principles grounded in contract and agency law, with some modifications to meet a client’s specific needs. By itself, a legal opinion of counsel may not be able to protect against any potential risks, nor do they identify or address every possible litigation (or other business) risk.