Court Opinion

ID: 5174811
Source: CourtListenerOpinion
Date Created: 2022-01-02 05:28:24.383667+00
Date Added: 2024-06-11T08:26:14.687263
License: Public Domain

J. JONES, Justice,
specially concurring.
I concur in the Court’s opinion but wish to make some personal observations with regard to the holding in Part V that an attorney may face liability for representations made in an opinion letter to a nonclient contracting party. While the holding extends potential liability to an arena where it may not have previously existed, I do not see the opinion as having wide-ranging application to attorney opinion letters.
During my years of private practice, I was occasionally called upon to sign an opinion letter that made legal representations to a party with whom my client was entering into some sort of transaction. This generally involved lending institutions that required the borrower’s attorney to sign an opinion letter making representations as to the borrower’s valid existence, its ability to legally execute the transaction documents, the priority of the lender’s mortgage or deed of trust, the absence of undisclosed claims against the borrower and the like. Generally, the contents of the opinion letter were not negotiable, which left the attorney with a dilemma — sign the letter, as is, so that the transaction could proceed, or refuse to sign and potentially jeopardize the client-borrower’s loan or other transaction.
Although I was never pressured by a client to make representations in an opinion letter that caused me discomfort, I could certainly see that potentiality where the client is desperate for the transaction and the transaction is contingent upon the opinion letter. Where the client is the party benefitted by the transaction, it does not seem that the attorney under those circumstances should solely bear the consequences for any improvident representations. Generally, the attor*341ney making the representations in the opinion letter may be compensated by his client for the work entailed but, while the client may receive consideration from the other contracting party in the transaction, the attorney is in a position of making representations to that party to facilitate the transaction, while receiving no consideration from that other party. So, where the party may place reliance on representations in the opinion letter, the attorney may incur substantial liability without much to show in the way of compensation for his or her opinions.
A further observation might be made regarding a represented contracting party’s reliance on representations made by the other party’s attorney. Presumably, the party seeking the opinion letter should also be getting and relying upon the advice of his or her own counsel. After all, there is a confidential and fiduciary relationship between the two and one would hope that the party requesting the opinion letter would not be relying solely upon it, especially for factual matters that may be within the knowledge of that party and his or her counsel. One might wonder whether Taylor was advised by his own counsel that a cursory review of the corporate books indicated the existence of no earned surplus and that the corporate documents did not authorize the use of capital surplus for the transaction. Those books and documents were apparently under Taylor’s control until the signatures on the transaction documents were inked. This may or may not be relevant to the issue, but it does provide some interesting food for thought.
Speaking solely for myself, I think the imposition of liability based on representations in an opinion letter would be more likely where: (1) the terms of the opinion letter are negotiable such that the opining attorney has a say in fashioning the representations and is not operating in a take-it- or-leave-it situation, (2) the party to whom the letter is addressed makes full disclosure of its objectives in the transaction and the means for accomplishing the same, and (3) any pertinent facts that may have an important bearing on the opining lawyer’s client’s ability to perform its obligations under the transaction documents are disclosed and not withheld.
When the facts are all known to the opining attorney, such as where all potential concerns are within the control of his or her own client, the chances for liability exposure are limited. Where, however, as in this case, important facts are within the knowledge or under the control of the party seeking the opinion, chances for a misstep are substantially increased.
In this case, the record appears to indicate that the terms of the opinion letter were negotiated between the opining lawyers and Taylor. That issue should certainly be explored on remand. On the other hand, it is not entirely clear whether the opining lawyers were made aware of pertinent facts that had a bearing on the legality of the Stock Redemption Agreement. That contract was not declared by this Court to be illegal per se but, rather, to be illegal based upon the factual situation present in the case. Taylor v. AIA Services Corp., 151 Idaho 552, 565, 261 P.3d 829, 842 (2011). We said:
Idaho Code § 30-1-6 authorizes a corporation to purchase its own shares but limits the corporation to using only earned surplus and, if authorized, capital surplus to make the purchase. Because AIA Services had no earned surplus and was not authorized to use capital surplus when it agreed to purchase Reed Taylor’s shares, the Stock Redemption Agreement violated the earned and capital surplus limitations of I.C. § 30-1-6. Based upon a review of the policy for the statute and the facts in this case, the Stock Redemption Agreement is thereby prohibited by law and is illegal.
Id. Presumably, had AIA Services possessed adequate earned surplus to meet its obligations to Taylor under the Stock Redemption Agreement, a different result may have obtained. Of interest in this regard is Taylor’s argument in that case:
Reed Taylor argues that the district court erred when it failed to consider the fair market value of AIA Services and asserts that the following evidence shows that AIA Services had sufficient earned surplus to redeem his shares: (1) appraisals from *3421995 and 1996 that value a minority interest in AIA Services at $2 million and $4 million respectively; (2) a 1994 appraisal valuing the whole company of over $19 million; (3) Reed Taylor’s valuation of the commissions and contractual relationships held by AIA Services at over $24 million in 1995; and (4) AIA Services’ projection of substantial earnings upon redeeming Reed Taylor’s shares and redirecting the company.
151 Idaho at 560, 261 P.3d at 837. While these arguments were determined to be specious and of no avail regarding the issue of earned surplus, if those arguments were communicated by Taylor to the opining attorneys or if information to the contrary was withheld from them, it may have bearing both upon the opining attorneys’ liability and Taylor’s reliance on representations that the transaction documents were sufficient to accomplish the purchase of the shares.
The foregoing is not intended as a comprehensive review of the opinion letter issue but, rather, an indication of some of the issues that might be subject to exploration in further proceedings on remand.