Court opinions regarding third-party legal opinions are rare, so when one is released it is worth taking a look at it.
The Ohio law firm of Purcell & Scott was accused of fraudulently inducing the plaintiff to invest in its client's securities because of an opinion letter the firm issued in connection with the stock offering. Needless to say, the company tanked soon after the securities offering.
The letter broadly opined that the execution of the stock purchase agreement and the issuance of preferred stock would not violate "any statute, law, ordinance, rule or regulation of the United States of America or the State of Ohio...." (a "no violation of law" opinion). Nevertheless the court found that this opinion did not include federal or state securities laws for two reasons. First, the opinion letter incorporated the ABA Legal Opinion Accord (which excludes federal securities and state Blue Sky laws from the "no violation of law" opinion unless explicitly included).
The second reason is more intriguing. The court concluded that the "no violation of law" opinion like the one in this case, even one given in a legal opinion letter that does not incorporate the Accord, was limited to the execution of the stock purchase agreement and the issuance of the preferred stock, and was not a guarantee of overall compliance with the law. The misleading statements were in the offering materials and the financial statements, not the signing of the agreement or the ministerial act of issuing the stock.
I do not often run across legal opinions based on the Accord, and we do not use the Accord in our firm, but we always specifically exclude state and federal securities laws. Based on In re National Century Financial Enterprises, Inc., 2008 U.S. Dist. LEXIS 39931 (May 5, 2008), maybe that is overkill.
-Marc Ward
Comments