In 2006 the TriBar Opinion Committee, a group including lawyers who frequently participate in the delivering and receiving of legal opinions (the "TriBar"), released its report entitled, " Third-Party Closing Opinions: Limited Liability Companies " (the "Report"), which appears in 61 Bus. Law. 679. The Report speaks to opinions on status (the LLC's status as a limited liability company duly formed and validly existing in good standing), power (the LLC's power to enter into and perform its obligations under specified documents), action (the LLC's authorization, execution, and delivery of specified documents), and enforceability of LLC agreements.
The Report speaks in large part to the practice of issuing LLC opinions that purport to be limited to the relevant limited liability company act or statute - for instance, the Delaware Limited Liability Company Act, 6 Del. C. § 18-101, et seq. (the "Delaware LLC Act"). Such opinions follow the practice that has evolved regarding opinions delivered under the Delaware General Corporation Law, 8 Del. C. § 101 et seq . (the "DGCL"). But LLCs differ fundamentally from corporations for opinion purposes.
The Report expresses the view that status, power and action opinions on Delaware LLCs cover not only the Delaware LLC Act but also applicable contract law and case law, including cases applying fiduciary duty concepts, unless they are expressly excluded. While the TriBar did not reach consensus on whether such an express limitation effectively excludes from status, power and action opinions issues of contract law such opinions otherwise would cover, the Report notes that a literal reading of the coverage limitation (that is, exclusion of such contract law issues) would be at odds with the Delaware LLC Act's overarching deference to the terms of the operating agreement as superseding the default rules contained in the Delaware LLC Act.
Opinion preparers who cannot opine on Delaware contract law generally should not opine on the enforceability of LLC agreements. The Delaware LLC Act contains provisions - and deference to freedom of contract - without analog in the DGCL. While these can give rise to unique issues relevant to status, power and action opinions, they are perhaps most compelling in the context of enforceability opinions.
Section 1101(b) of the Delaware LLC Act provides that "It is the policy of this chapter to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements," and Sections 1101(c) and (d) expressly permit expansion, restriction, or elimination of certain duties (including fiduciary duties) and related liability. The Report finds that enforceability opinions of necessity embrace state contract law, covering as they do all provisions of the operating agreement and not merely those applicable to status, power, and action.
By reading and studying a statute we can begin to understand what it means. But that meaning is to be derived as well from case law. Where there is little case law directly on point, a court may properly analogize to other contexts or cases it finds instructive. The entire body of statutory and case law to which the court might properly turn is therefore relevant. Thus, opinion givers should consider that limitation to the Delaware LLC Act may not effectively limit their opinions as they intend, and opinion recipients should consider that an opinion effectively limited to the Delaware LLC Act provides little comfort on the matters addressed to the extent they go beyond the language of the Delaware LLC Act, particularly those relating to enforceability of the LLC's operating agreement.
Norman M. Powell is a Partner in the Delaware law firm Young Conaway Stargatt & Taylor, LLP, where his practice includes service as Delaware counsel to bankruptcy-remote Delaware alternative entities, delivery of perfection, priority, and other security interest opinions, and representation of trusts and trustees in financing transactions. This article originally appeared in the May/June 2007 edition of Business Law Today, a publication of the American Bar Association's Section of Business Law (Vol. 16, No. 5, page 50).