The opinion did not contain affirmative misrepresentations. The lawyer, however, did not inform the investor-lenders or their counsel that the proposed transaction would trigger a default with the bank. Immediately after their funds were wired, the default was declared. The principals of the company encouraged the lender-investors to talk to counsel. The scope of the attorney's duties, thus did not include informing investors of the financial stability of the borrower.
Efficiency requires a modicum of trust.
If every small investor had to nail down every source of information underpinning the representations made by the other side, lawyers might be extremely happy, but the business involved would ultimately be transacted at greater cost. Denying recourse to anyone who relies on factual misrepresentations by the other party's lawyer has a price attached, which must be absorbed by the market for capital. The Sixth Circuit vacated its decision and granted a motion to rehear the case in banc. These cases should compel us to rethink the principles applicable to the securities lawyer's professional responsibility and liability. One possible approach is for the legislators, the SEC and other agency rule makers to identify the specific disclosure documents and legal opinions whose integrity is essential.