A client of mine is currently engaged in a major bank loan transaction. I’m helping my client with the transaction. One of my main tasks is to draft and provide to the bank an “opinion letter.” If, in your business, you engage even occasionally in transactions involving significant financial stakes, you should have at least a basic understanding of these letters.
Here’s what you need to know:
Most substantial financial transactions involve at least a couple of major legal issues, and some involve many. For example, if you’re involved in borrowing substantial money from a bank, the bank will need legal advice from your lawyer about the following questions:
■Have you formed your business entity (which I’ll assume here is a New Hampshire LLC) in a manner that complies with the New Hampshire LLC Act?
■Is your LLC in good standing with the State of New Hampshire?
■Does your LLC have authority to comply with the terms of the bank loan agreement and other bank documents?
■Have your LLC’s members and managers complied with LLC statutory and operating agreement requirements authorizing it to take the loan?
■Do the people who will sign the bank documents for your LLC have the legal authority and authorization to do so?
■Will the bank’s documents be enforceable against your client?
To advise the bank on these questions, your lawyer will have to possess significant factual knowledge about your LLC but also very substantial knowledge about LLC statutory law and about your operating agreement.
In addition, in order to review the relevant bank documents on your behalf as a basis for responding to the above enforceability question in her opinion letter, your lawyer will also need to have substantial knowledge about New Hampshire contract law, about the New Hampshire law governing lenders’ rights, and potentially about a lot of other New Hampshire and federal law. And, unavoidably, she will need to devote several hours to her document review to ensure that her review is competent.
However, the bank won’t want just your lawyer’s advice about the above questions; it will want her opinions about them, as set forth in her letter to the bank, universally called an opinion letter. This letter will contain a formal and binding opinion about each of these questions — that is, an opinion on the basis of which, if your lawyer turns out to be wrong, the bank can sue her and her law firm. This suit may result in money damages from your lawyer’s malpractice insurance and, if necessary, from the assets of her firm and her personal assets. However, if your lawyer doesn’t provide the opinion letter the bank wants, the bank won’t make the loan. This, too, could result in a lawsuit against your lawyer — this time, by your company.
A sound opinion letter will often include as many as ten distinct sections. These will include, importantly, a section in which your lawyer will make clear which potentially relevant legal issues she is not addressing. Clients don’t always appreciate these exclusions.
Here are two lessons to draw from the above paragraphs:
■Not only for her own sake but also for yours, your lawyer must possess all of the expertise necessary to write her opinion letter. Before she begins her letter, make sure she does. If, for example, the bank asks your lawyer to give opinions in her opinion letter about intellectual property law questions and if your lawyer lacks the relevant expertise, hire an intellectual property lawyer to address those issues.
■Whenever your LLC is engaged in a major transaction proposed by a third party, consider requiring that party to have its lawyer provide you with an opinion letter — a letter that, above all, contains an enforceability opinion.
John Cunningham is a lawyer licensed to practice law in New Hampshire and Massachusetts. He is of counsel to the law firm of McLane Middleton, P.A. Contact him at 856-7172 or lawjmc@comcast.net. His website is llc199a.com. For access to all of his Law in the Marketplace columns, visit concordmonitor.com.
Law in the Marketplace is a legal advice column. It runs every week in the Sunday Business section. The author is a lawyer in Concord and not a member of the Monitor’s staff.