A Streamlined Form of Closing Opinion (2019 Update)

by Donald W. Glazer and Stanley Keller

Practice Tips

At the closing of many business transactions, counsel for the company delivers to the other party – e.g., the investor, lender or acquirer – a letter, commonly referred to as a “closing opinion,” in which counsel provides that other party (the opinion recipient) legal opinions on various matters it has asked counsel to address.  Though each closing opinion must be tailored to the specific transaction, closing opinions in general tend to address many of the same matters in similar ways from transaction to transaction.

The meaning of opinions and the work required to support them are based on the customary practice of lawyers who regularly give and who regularly advise opinion recipients regarding opinions of the type being given in the transaction.  Customary practice allows opinions to be expressed in only a few words and permits the lawyers preparing them to rely on many unstated assumptions and limitations.  By amplifying the meaning of abbreviated opinion language, customary practice provides the framework for preparing and interpreting opinions, thus facilitating the opinion process.

As recognized in the Restatement (Third) of the Law Governing Lawyers, Section 95 (Reporter’s Note to Comment c), customary practice is described and discussed in bar association reports and scholarly writings.  In 1998, the Boston Bar Association’s (“BBA”) Legal Opinions Committee of the Business Law Section issued a statement in which it characterized the then new TriBar Opinion Committee’s report, “Third-Party ‘Closing’ Opinions,” 53 Bus. Law. 591 (1998), and the “Legal Opinion Principles,” 53 Bus. Law. 831 (1998), published by the American Bar Association’s (“ABA”) Legal Opinions Committee of the Business Law Section as providing a helpful description of the customary practice followed by Massachusetts lawyers in the preparation and interpretation of closing opinions.  In 2002, the ABA’s Legal Opinions Committee issued revised “Guidelines for the Preparation of Closing Opinions,” 57 Bus. Law. 875 (2002) (the “Guidelines”), and, following its 1998 report, the TriBar Opinion Committee supplemented that report with several additional reports.  In 2008, the “Statement on the Role of Customary Practice in the Preparation and Understanding of Third-Party Legal Opinions,” 63 Bus. Law. 1277 (2008) (the “Customary Practice Statement”), was published.  The Customary Practice Statement was approved by many bar associations and other lawyer groups, including the Boston Bar Association, and described the principal elements of customary practice that form the basis for legal opinion practice.

In its 1998 statement, the BBA had noted the desirability of a “more streamlined opinion letter” that omitted disclaimers, qualifications and assumptions which the Legal Opinion Principles made clear are understood to apply, as a matter of customary practice, whether or not stated expressly.  Subsequently, the BBA Legal Opinions Committee prepared a streamlined form of closing opinion that could be used by both opinion givers and opinion recipients.  That streamlined form, prepared under the supervision of this article’s authors and representing the work of lawyers in many Boston-area firms, was endorsed by the BBA as a useful document to facilitate the closing opinion process and enhance the efficiency of business transactions and was published in the January/February 2006 issue of the Boston Bar Journal.

Subsequently, effort was undertaken to develop a statement of opinion practices that could be endorsed by many bar associations and other lawyer groups as expressing a national consensus on key aspects of opinion practice based upon customary practice.  That effort produced the current “Statement of Opinion Practices” and related “Core Opinion Principles” which updates the Legal Opinion Principles in their entirety and selected provisions of the Guidelines.  The Statement and the Core Opinion Principles have been approved by many bar associations and other lawyer groups, including the BBA Council on March 19, 2019.  The Core Opinion Principles are derived from the Statement and can be incorporated by reference in or attached to a closing opinion by those who desire to do so.

The authors of this article have updated the BBA streamlined form of closing opinion to refer to the Core Opinion Principles and to reflect developments in legal opinion practice since 2006 (as updated, the “Streamlined Form”).

The Streamlined Form is not intended to be prescriptive.  Rather, reflecting a broad consensus on acceptable opinion practices, the Streamlined Form is designed to serve as a helpful starting point for lawyers in drafting closing opinions and as guidance on the opinions lawyers can advise clients to accept.  The Streamlined Form addresses an unsecured bank loan.  Attachment A to the Streamlined Form includes opinions that would typically be given on the issuance of stock.  The explanatory notes to the Streamlined Form, while intended to provide helpful information, cannot substitute for the extensive literature that exists on closing opinions.

The Streamlined Form seeks to address opinion issues in a balanced way. Some noteworthy features are:

  • The language used to incorporate definitions from the underlying agreement is more precise than language often used in closing opinions.
  • The form avoids the use of the phrase “to our knowledge,” which courts have not consistently interpreted as a limitation. Note 23 suggests a formulation that makes clear that this phrase, if used, is intended as a limitation.
  • The introductory paragraphs sharpen the description of the factual investigation undertaken, thus avoiding the suggestion that the opinion preparers conducted a broader investigation than actually performed. The description also makes clear that the opinion preparers may have relied on certificates of public officials for legal matters.
  • The corporate status opinion does not use the terms “duly incorporated” or “duly organized,” both of which require a more detailed investigation than many transactions require. The elimination of these terms has been widely accepted for many transactions.
  • Paragraph 5 contains a more precise formulation of the no violation of law and no breach or default opinions than appeared in the original form.
  • Note 18 provides an analysis of the Restatement approach, which has been adopted in Massachusetts and many other states, for determining when the governing law provision in an agreement should be given effect.
  • Note 19 addresses opinions on the enforceability of forum selection provisions that are sometimes requested in cross-border transactions.
  • The form proposes a formulation of the no-litigation “opinion” that is narrower than the one often used in the past. (The “opinion” is a factual confirmation and therefore more accurately referred to as a no-litigation confirmation). The narrower formulation is offered as an alternative to declining to cover litigation at all, although the omission of any statement regarding litigation in closing opinions has gained increased acceptance.
  • The form includes a provision, often referred to as the “Wachovia provision,” that makes clear limitations on the right of assignees of notes to rely on a closing opinion.
  • Attachment A addresses opinions on a corporation’s outstanding capital stock and rights to acquire stock. It also includes a form of opinion that the issuance of the stock does not require registration under the Securities Act of 1933.
  • The form leaves space for exceptions rather than identifying particular exceptions that are commonly taken.

No form can accommodate every factual situation or eliminate the need for lawyers to exercise care in preparing closing opinions. Nevertheless, attorneys who have treated the streamlined form of closing opinion as a starting point in drafting their closing opinions have found that it improves the efficiency of the opinion process. We are hopeful that its approach will continue to gain acceptance to the mutual benefit of both opinion givers and opinion recipients.

Donald W. Glazer is Advisory Counsel to Goodwin Procter LLP and co-author of the treatise, Glazer and FitzGibbon on Legal Opinions.  Stanley Keller is a Senior Partner in the Boston office of Locke Lord LLP.


Until Death Do Us Part(ition)

by Elizabeth Sillin and Colin Korzec

Case Focus

On January 8, 2019, the Massachusetts Supreme Judicial Court issued Ciani v. MacGrath, 481 Mass. 174 (2019), which clarified certain provisions of the Massachusetts spousal elective share statute, G.L. c. 191, § 15. Specifically, Ciani held that the surviving spouse’s elective share of the deceased spouse’s real estate is a life estate in possession, not simply an income interest for life.  A right to partition (and sell) the real property is now borne – a right that may severely disrupt the estate plan of the testator.  Additionally, the SJC again urged the Legislature to update the elective share statute due principally to the fact that the statute is “woefully inadequate to satisfy modern notions of a decedent spouse’s obligation to support the surviving spouse or modern notions of marital property,” Bongaards v. Millen, 440 Mass. 10, 21 (2003).

Background

Raymond Ciani died testate in 2015 survived by his wife, Susan, and his four adult children from a prior marriage.  Raymond did not make any provisions in his will for Susan.  Susan timely filed for her elective share of Raymond’s estate in accordance with G.L. c. 191, § 15.

Raymond died with personal property valued at just under $40,000 and with multiple parcels of real estate valued at just under $638,000.  Susan brought partition actions seeking to force the sale of real estate in order to monetize her interest therein. Raymond’s children claimed she did not have a right to force the sale, and that she had the right only to receive income produced by the real estate.

The Massachusetts elective share provisions are found in G.L. c. 191, §§ 15 and 16 (the Elective Share statute).  The Elective Share statute was enacted to prevent spousal disinheritance, either by inadvertence or design. It provides a mechanism by which a surviving spouse can waive the provisions of a deceased spouse’s will and take instead a statutorily prescribed share of the decedent’s estate.

The Elective Share statute provides a formulaic approach to determining the amount of the surviving spouse’s claim.  The formula depends on whether the deceased had issue and/or kindred, as well as on the dollar amount of the deceased’s estate.  The Elective Share statue provides, in part:

[I]f the deceased left issue, [the surviving spouse] shall thereupon take one third of the personal and one third of the real property . . . ; except that . . . . if [the surviving spouse] would thus take real and personal property to an amount exceeding twenty-five thousand dollars in value, he or she shall receive, in addition to that amount, only the income during his or her life of the excess of his or her share of such estate above that amount, the personal property to be held in trust and the real property vested in him or her for life, from the death of the deceased.  G.L. c. 191, § 15.

The dispute in this case centered on the nature of a Susan’s interest in a Raymont’s real property where the income-only limitation applies, i.e., where Susan’s share of Raymond’s personal and real property, taken together, exceeds $25,000 in value. Susan contended that she held a life estate in an undivided one-third of each parcel of real property and that Raymond’s children were tenants in common subject to her life estate.  Raymond’s children contended that Susan’s interest in real estate is limited to an income interest for life, not a life estate.  The issue was one of first impression. The judge in the Superior Court reported the ruling to the Appeals Court and the SJC granted direct appellate review.

The Ciani Decision

The SJC construed the Elective Share statute by first looking at its plain language and then whether the legislative history supported the Court’s interpretation. The SJC declared:

[W]e read the statute this way:  the first clause (“only the income during his or her life”) limits the surviving spouse to an interest in the “income only,” and the second clause (“the personal property to be held in trust and the real property vested in him or her for life”) describes how that limitation is to be achieved for each type of property — the personal property is to be held in trust and the real property is to be vested in the surviving spouse for life.

Ciani, 481 Mass. at 180-81.

Next, the SJC considered the legislative history of the elective share concept to test its statutory interpretation. Id. at 183-85. The first iteration of the Elective Share statute simply provided for a widow’s right to waive the provisions made for her in her husband’s will and afforded her a life estate in a prescribed portion of her husband’s real property.  In 1833, the statute was revised to afford the widow a limited claim to a deceased husband’s personal property.  The statute was reworked in 1854 to allow the spouse to take instead an intestate share of his estate, along with a $10,000 limitation on the personal property.  Around 1861, the concept of the income-only interest in the personal property was introduced.  Subsequent revisions around 1900 brought the statute to what it largely looks like today, including the expansion of the statute to include surviving husbands.  An additional revision in 1964 adjusted the $10,000 figure to the current $25,000. Id.

The SJC found that the history of the statute demonstrated that the Legislature consistently and intentionally treated personal and real property differently from the outset. Id. The income-only limitation initially applied only to the decedent’s personal property. It was not until 1900 that the real property limitation was enacted.  And even then, the SJC held, the real property limitation was characterized as “vested” and not as an “income only” limitation.  Id. at 186. The fact that the Legislature did not enact an analogous provision for the management of the real property, but instead instructed that the excess of the surviving spouse’s share thereof would be “vested,” supported the Court’s conclusion that the Legislature intended for the surviving spouse to take an ownership interest in the excess.  Id. The fact that the Legislature simultaneously anticipated that the surviving spouse’s share would be “set off” for the duration of his or her life also supported the conclusion that the Legislature intended to convey a life estate. Id.

Ultimately, the SJC found that (i) Susan holds an estate in possession, for life, in her share of the real property, and (ii) Raymond’s children hold an estate in possession, absolutely, in the remaining property, as well as an estate in remainder in Susan’s share.  As a result, the parties are tenants in common as to their estates in possession and each has a right to a partition.  Instead of simply having the right to live in the house, Susan has the right to force a sale of the property and realize a monetary sum upon the sale.  Indeed, Raymond;s children also now have the right to partition as well – possibly forcing Susan out of the house in which she wishes to continue to live.  This right has the potential to disrupt a well-intended estate plan by allowing the forced sale of the family residence over the objections of certain members of the family.

Postmortem – My Kingdom for a Postnuptial

The Court noted parenthetically that the Elective Share statute, which has been around in some form since 1783, is “unwieldy and perplexing to apply” and “decidedly gendered” and “in desperate need of an update” by the Legislature to conform with modern notions of spousal support obligations and marital property. Ciani, 481 Mass. at 187 n.12. Indeed, as the Court noted, a similar appeal to the Legislature was made in 1984 in Sullivan v. Burkin, 390 Mass. 864 (1984), some 35 years ago.  Id. Several attempts have been made over the years by various bar association committees to address the spousal elective share.  To date, no consensus has emerged in Massachusetts about modernizing the elective share law.  Until such time as it does, estate planners must continue to take advise clients as to the pitfalls of the current law and to give further consideration to prenuptials or postnuptials as part of the estate planning process.

Elizabeth Sillin, Esq. is a partner at Bulkley, Richardson and Gelinas and is a member of the Massachusetts Ad Hoc Elective Share Study Committee.  Colin Korzec is a National Estate Settlement Executive at U.S. Trust, Bank of America Private Wealth Management and was also a member of the Massachusetts Ad Hoc Elective Share Study Committee.