Legal Opinions in Corporate Transactions Affected by FCC Regulation: An Economic Approach
Quale, John C., Weimer, Brian D., Federal Communications Law Journal
In 1996, the Subcommittee on Legal Opinions (Subcommittee) of the Federal Communications Bar Association (FCBA) published a report on legal opinion practice in corporate transactions where a Federal Communications Commission (FCC) licensee is one of the parties.(1) The FCBA Report consists of suggested language for opinions, accompanied by commentary explaining the recommended interpretation of the language.
The Subcommittee's foreword describes the FCBA Report as an "attempt to reach a consensus on the scope and language of opinions in FCC-related transactions."(2) According to the Subcommittee, the FCBA Report is designed to facilitate negotiation and interpretation of legal opinions issued by communications lawyers.(3) "Inspired"(4) by the efforts of the Business Law Section of the American Bar Association (ABA) to develop the Legal Opinion Accord,(5) the FCBA Report cites the ABA Accord, particularly its assumptions and definitions, as "a very helpful guide for communications opinions."(6)
This Article responds to the Subcommittee's request for comments on the FCBA Report.(7) After a brief background on the role of legal opinions in corporate transactions generally, the major sections of the FCBA Report are analyzed, assessing whether it accomplishes its goals and comparing it to the ABA Accord and the more recent TriBar Report, which presents an exhaustive treatment of legal opinion customary practice. In carrying out this analysis, the Article argues that legal opinions add value to corporate transactions only when a lawyer is the least-cost provider of the information sought. Lawyers should not act as insurers or guarantors of corporate transactions;(8) to ask lawyers to do so unnecessarily raises the costs of consummating corporate transactions. The Article concludes that the FCBA Report diverges in many cases from the ABA Accord and the TriBar Report without adequate explanation and imposes opinion obligations in many instances where a lawyer is not the least-cost provider of the requested information.
II. LEGAL OPINION PRACTICE
A. The Purpose of Legal Opinions
Parties to business transactions frequently look to legal counsel for assurance that the transaction documents are enforceable and comply with applicable laws. Typically, a lawyer delivers an opinion to a party or parties to the transaction other than the lawyer's client. For example, where the lawyer represents the seller, the lawyer ordinarily gives a legal opinion to a buyer, underwriter, or investor. As such, legal opinions simply provide comfort to the parties to the transaction that the law will not prevent the transaction from being consummated.(9)
Given the highly technical nature of the FCC's regulatory framework, opinion recipients in FCC-regulated transactions often are not satisfied with a general opinion from the company's counsel, which ordinarily is assumed not to address specialized areas of law such as communications regulations. Instead, recipients seek specific assurance that execution, delivery, and performance of the transaction documents will not violate the Communications Act of 1934, as amended (Communications Act), and request that a communications practitioner deliver this opinion. Opinion recipients have also requested communications lawyers to opine on numerous other regulatory matters, such as the status of FCC licenses, FCC proceedings, and compliance by the company with FCC regulations. By their very nature, these opinions require extensive knowledge of factual matters (e.g., whether internal FCC procedures were properly followed when issuing a license or whether the company has violated any FCC regulations in operating its business) and may require the opinion giver to address matters that have little to do with his or her legal training. These requests for nonlegal (i.e., factual) opinions raise questions as to the underlying purpose of legal opinions. …