Academic journal article American University Business Law Review

Non-Party Interests in Closing Opinion Letters

Academic journal article American University Business Law Review

Non-Party Interests in Closing Opinion Letters

Article excerpt


What do transactional lawyers do when they issue third-party opinion letters in financial transactions? This descriptive question turns out to be quite complex1-so complex that the normative question of what lawyers should do when they issue opinions, as well as the practical question of what they could do, are difficult to answer.

This Symposium Article reflects upon third-party closing opinions as a central aspect of business law practice that can be opaque to outsiders. The ideas expressed here are exploratory. In the spirit of reflecting on what transactional lawyers do, this contribution considers deal lawyer strategies as potential tools for advancing the interests of non-parties affected by commercial transactions.

Many types of transactions call for opinions of counsel as a condition precedent to closing.2 This Symposium Article focuses on certain types of opinions to third parties-namely, closing opinions in commercial finance transactions. These opinions assure investors that, among other things, the transaction will be enforceable against the attorney's client at closing.

Attorneys commonly issue closing opinions to parties who have some relationship to the transaction; these are the third parties who request and receive opinions.3 But there are also other parties, with no relationship to the deal and who are not named recipients of any opinion, who can nonetheless take interest in the existence and forms of closing opinion letters. Typical non-parties interested in closing opinions include rating agents or accountants who assess transactions.4 After all, opinions signal that a deal conforms to legal standards and should be priced and accounted for as such.

This Symposium Article considers the scope of non-party interests in opinion letters, exploring new kinds of interests in these letters that nonparties could take. It presents-in a preliminary way-the possibility of opinions practice as .a site for expressing social or environmental commitments.5

Transactional representation, among other things, effectuates private ordering and governance. Deal lawyers translate the initiatives of market actors into legally enforceable contracts and conveyances. Private ordering involves commitment to industry social and environmental standards.6 Lawyers for corporations entering into transactions with social or environmental consequences, then, participate in the implementation (or not) of self-regulation or industry norms.

When a type of transaction affects non-parties-such as community or environmental groups-these groups often express their interests by pressuring transacting parties to adhere to their favored norms. These outsiders tend to focus on corporate reputation, creating pressure on companies to behave in accordance with the social and environmental commitments that they express publicly, but may not always implement.

What transactional lawyers do can be opaque to outsiders. This can result in lost opportunities for non-parties as they engage in strategic behavior to enforce industry norms that are central to contemporary, private governance.

For example, lawyers for non-governmental organizations ("NGOs") concerned with the consequences of transactions could develop forms of legal opinion. Organizations could demand of investors that they receive certain forms of opinion as a way of ensuring compliance with the organizations' standards. Failure to request or to obtain the opinion would signal to non-parties that a deal may be adverse to their interests. This type of exercise might enable interested non-parties to generate information about transactions with a level of specificity that they currently lack.

Part I briefly describes closing opinions in financial transactions. Part II describes non-party interests in closing opinions. Part III relates closing opinions to concepts of private lawmaking and of new governance. Part IV synthesizes the first three parts into a proposition that perhaps non-parties with normative agendas could make strategic use of opinions. …

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