Can one law firm serve as both bond counsel and the borrower's counsel in a tax-exempt municipal bond issuance?

Plain-English summary

A tax-exempt borrower asked its long-time law firm to act as both borrower's counsel and bond counsel for a conduit bond issuance by an industrial development agency (IDA). Prospective underwriters require a written bond-counsel opinion on the bonds' tax-exempt status and securities-law exemption. The committee was asked whether one firm may fill both roles. It recognizes a tension: bond counsel is expected to give an objective opinion for the benefit of bond purchasers, while borrower's counsel may be expected to act as a partisan advocate, for example by seeking aggressive tax positions.

The committee analyzes the question under DR 5-105. It first asks who bond counsel's client is. If the borrower is the only client (retaining bond counsel to deliver an opinion that investors may rely on), there is one client in both engagements and no DR 5-105 conflict, though the client must understand the firm's bond-counsel duty is solely to opine from a neutral perspective, which limits its ability to advocate. Alternatively, if the firm also represents another entity such as the IDA, there are two clients with differing interests (the borrower's interest in aggressive tax approaches versus the IDA's presumed interest in conservative ones), raising a conflict under DR 5-105(A).

Where there is a conflict, the committee concludes it is consentable in most circumstances under DR 5-105(C), provided bond counsel's role is limited to opining on the transaction and not negotiating the bond's terms (echoing N.Y. State 753's point that a lawyer may not negotiate "with him or herself"). Given the widespread acceptance of multiple representation in this practice area, the committee reasons bond counsel's judgment on the bonds' validity and tax status will not necessarily be affected by also representing the borrower, but consent from both clients after DR 5-105(C) disclosure is still required. It adds that any duties bond counsel owes to ultimate bond purchasers derive primarily from contract or tort law, not the Code.

In practice

The opinion holds, under the former Code as it stood at the time, that one firm may serve as both bond counsel and borrower's counsel in a tax-exempt bond issuance, subject to two conditions: bond counsel's role must be limited to opining on the transaction rather than negotiating the bond's terms, and where there are differing-interest clients (such as the borrower and the IDA), they must consent after full DR 5-105(C) disclosure. The committee treats the conflict as consentable in most circumstances and notes any duty bond counsel owes to bond purchasers arises from contract or tort law, not the Code.

Common questions

Q: Can one firm be both bond counsel and borrower's counsel?

A: Yes, with limits. The committee concludes a firm may fill both roles if bond counsel's role is confined to opining on the transaction and not negotiating the bond's terms, with the affected clients' consent after disclosure.

Q: When does serving in both roles create a conflict?

A: When the firm represents more than one client with differing interests, such as the borrower and the IDA. The committee identifies the borrower's interest in aggressive tax positions versus the IDA's presumed conservative interest as a DR 5-105(A) conflict.

Q: Is that conflict waivable?

A: In most circumstances, yes. The committee concludes the conflict is consentable under DR 5-105(C) if bond counsel only opines and does not negotiate the bond's terms, and the clients consent after full disclosure.

Q: What does bond counsel owe the investors who rely on the opinion?

A: The committee states that any duty bond counsel owes to ultimate bond purchasers derives primarily from contract, tort, or third-party-beneficiary law rather than from an attorney-client relationship under the Code.

Background and rules framework

The opinion interprets the former Code's conflict rule, DR 5-105(A) (differing interests; an analogue of ABA Model Rule 1.7) and DR 5-105(C) (the consent standard), and touches on the lawyer-as-evaluator situation addressed by Model Rule 2.3 (an evaluation for the use of someone other than the client). Canon 5 supplies the duty-of-loyalty framing.

Citations and references

Rules of Professional Conduct:

• MR 1.7 (concurrent conflicts of interest)
• MR 2.3 (evaluation for use by third persons)
• Former Code DR 5-105(A), (C); Canon 5

Other opinions cited:

• N.Y. State 753 (2002): a lawyer may not be placed in the position of negotiating with himself or herself
• N.Y. State 580 (1987): bond counsel's client may be viewed as the IDA
• New Jersey 658 (1992): bond counsel's duty to purchasers sounds in tort and third-party-beneficiary law, not attorney-client

See also

• NY State Bar Op. 818: Designated underwriters' counsel where the issuer pays
• NY State Bar Op. 807: Imputation and same-firm buyer-seller representation
• NY State Bar Op. 804: Conflicts among legal services corporation lawyers in private practice

Source

• Landing page: https://nysba.org/ethics-opinion-802/