eSignature and ePayment News and TrendsAchieving Digital Transformation and Securing Digital Assets
Today’s ever-shifting business environment means that consumers, businesses, employers and employees all expect to transact digitally. To remain efficient and competitive, companies must digitally transform their businesses. Successful transformation and maintenance require careful planning and up-to-date knowledge to ensure smooth integration with existing business technology, positive customer experience and ongoing regulatory compliance.
This newsletter includes legal insights and brief summaries of recently enacted federal and state laws, federal and state regulatory activities, fresh judicial precedent and other important news to keep you up to date in the ever-evolving electronic environment.
If you’d like to discuss one of these items, or a project you’re considering, please reach out to one of the editors – and, if there is a subject matter you’d like us to cover in a future Insight, we’d love to hear from you.
Terms of service are instrumental in determining rights to digital assets – the holding in Celsius Network LLC
By Margo H.K. Tank, R. David Whitaker, Liz Caires, and Emily Honsa Hicks
On January 2, 2023, the US Bankruptcy Court of the Southern District of New York issued a Memorandum Opinion and Order Regarding Ownership of Earn Account Assets in the Celsius Network LLC Chapter 11 bankruptcy case.
At issue were various versions of the Celsius website Terms of Service that addressed ownership of Earn account assets and were used by Celsius to contract with its customers. The court held that these Terms of Service were drafted, presented and accepted by Celsius customers, and subsequently amended by Celsius, in such a manner as to form a valid and binding contract which dictated that title to and ownership of the $4.2 billion of assets in the 600,000 Earn Program accounts was transferred to Celsius upon deposit into the Earn account, thereby making the assets part of the debtors’ bankruptcy estate. Effectively, this relegated the customers’ claims to the Earn account assets to those of general unsecured creditors under US bankruptcy law. Read More.
SEC issues new guidance on electronic recordkeeping requirements. The Securities and Exchange Commission (SEC) recently issued two new FAQs relating to the recent amendments to Rule 17a-4 electronic recordkeeping requirements applicable to broker-dealers, security-based swap dealers and major security-based swap participants. The recent amendments became effective on January 3, 2023, with a compliance date of May 3, 2023. In the first FAQ, the SEC stated that a broker-dealer may elect to utilize the audit trail alternative to the “write once, read many” (WORM) storage requirements. In the second FAQ, the Commission confirmed that a broker-dealer can switch from using a designated third party to using a designated executive officer for purposes of promptly furnishing the Commission with information necessary to access and download records kept on the broker-dealer’s electronic storage media.
IRS proposes rulemaking to permanently permit remote witnessing and remote notarization of spousal consents. The IRS issued proposed regulations on December 30, 2022 that would make permanent COVID-19-related accommodations allowing retirement plans to accept electronic and remotely witnessed or notarized participant elections and spousal consents. Remote witnessing has been permitted as temporary relief but was set to expire on December 31, 2022. The IRS indicated that the proposed regulations may be relied upon until final regulations are effective, and public comments on the proposed regulations are due by March 30, 2023. Under the proposed regulations, plans choosing to allow remote or processes for spousal consent must ensure that the spouse’s signature is witnessed via live audio-video technology and that any electronic process used satisfies the basic requirements for online participant elections. Those basic requirements include the following: individuals must be able to effectively access the electronic medium; the electronic system must be reasonably designed to ensure that only the appropriate individuals (eg, the participant or the spouse) are able to make the election; the electronic system must provide individuals with a reasonable opportunity to review, confirm, modify or rescind the terms of the election before it becomes effective; and individuals must, within a reasonable time, receive written or compliant electronic confirmation of the effect of their election. Where the witness is a notary, state notary laws must also be followed. Where the witness is a plan representative, additional requirements apply.
Michigan suspends FTX money transmitter license. On January 10, 2023, the Michigan Department of Insurance and Financial Services (DIFS) issued an Order Accepting Stipulation against West Realm Shires Services Inc. dba FTX US and FTX Lend Inc. finding that the money transmission license for FTX US has expired for non-renewal and the regulatory loan act license for FTX Lend Inc. was suspended immediately and indefinitely. Both entities must demonstrate compliance with provisions of the appropriate state laws to be able to again be licensed and operate in the state. Additionally, the DIFS found that the continuation of the companies’ business operations under the above licenses “presents an imminent threat of financial loss or imminent threat to the public welfare.”
Remote online notarization
Texas interprets RON notary services and fees. On December 15, 2022, the Attorney General of Texas issued an Opinion Letter concluding the following under Texas law:
- A notary may, under Texas law and rules, include additional information in a notarized document, such as a barcode to identify a document in the notary's storage
- A notary may charge "optional" fees provided that, to the extent such fees are for services included in the performance of an online notarization (eg, identity verification and secure storage of the journal entry), the total of all fees charged for the online notarization does not exceed the $25 statutory maximum
- A notary may convey a copy of the notary's journal entry for a RON; however, before providing a copy of the recording of the audio-video communication, the notary must either:
- Redact from the recording all images of a principal's identification credentials and biometric information or
- Have obtained the consent of the principal to the release of the recording without redaction.
Electronic signature and contract formation
Typed name constitutes signature. In Wisener v CMH Homes, Inc., et al. (2022 WL 17839010 USDC ND Ala. December 21, 2022), the court granted the defendants' motion to compel arbitration of an agreement to purchase a new, manufactured home. The purchase agreements consisted of a Sales Agreement and a Binding Dispute Resolution Agreement which were executed on the same day using electronic signatures. The Wiseners admitted that, upon signing the Sales Agreement, they entered into a valid contract with defendants; however, they disputed whether the Binding Dispute Resolution Agreement was valid and enforceable. Despite the Wiseners' assertion that the electronic signatures were merely "words typed on the signature lines," the defendants presented to the court a copy of the signed Binding Dispute Resolution Agreement and a DocuSign Certificate of Completion demonstrating that the Wiseners adopted the electronic signatures affixed to the Binding Dispute Resolution Agreement. The Wiseners offered no evidence that the electronic signatures on the Sales Agreement were theirs, but that the same electronic signatures under the Binding Dispute Resolution Agreement were not. The court found that, under applicable state law, the Wiseners' electronic signatures on the Binding Dispute Resolution Agreement proved their assent to its terms.
Whether email attachment not subsequently distributed was part of agreement found to be issue of fact. In Mystic Retreat Med Spa & Weight Loss Center, PLLC (“Mystic”) and Misty Sinclair, M.D., v Ascentium Capital, LLC, Zeltiq Aesthetics LLC, and Allergan USA, (Slip Opinion, Case No. 1:21CV00515, 2023 WL 362814 (USDC MD N.C. Jan. 23, 2023)), a case which involved a contract dispute over whether an arbitration agreement referenced in a Sales Order will apply, the court was presented with an initial email between the parties containing two proposed MSA Sales Orders, each with Attachments A, B and C (one for the purchase of one system and the other for two). “Attachment A: Terms & Conditions of Sale,” referenced in both proposed MSA Sales Orders, was three pages long and contained an arbitration provision. However, a single-page MSA Agreement (with references to Attachment A but without the attachment) was later presented for execution at a subsequent in-person meeting, and only the single-page MSA Agreement was signed and circulated electronically. Defendants moved to stay proceedings and compel arbitration, which the trial court denied without prejudice because “Defendants [ ] failed to produce admissible evidence that there was an arbitration agreement” and determined that the motion must be decided by a jury. The appellate court agreed, finding that defendants did not establish an agreement to arbitrate as a matter of law because it was not clear that Attachment A was intended by the parties to be part of the contract.
Court finds valid electronic signature under California law. In an order filed in Rizvanovic v United Parcel Service, Inc., (2023 WL 346800 Case No. 1:21-cv-01278-CDB, January 20, 2023 in the USDC E.D. Calif.), the court found that a valid arbitration agreement existed between the parties under state law and granted, in part, the defendant's motion to compel arbitration. The plaintiff was a seasonal employee who applied for her position using the defendant's employee portal. The portal required plaintiff to establish a "unique, secure password" associated with her login information and email address. Part of the application process included presentation of a document which included an arbitration provision. Although plaintiff claimed she did not agree to enter into the document and did not recall signing it, the defendant presented into evidence a declaration which described the portal application process and stated that the portal required plaintiff to check a box which stated, "I agree that my electronic signature is the legally binding equivalent to my handwritten signature. By my electronic signature, I acknowledge that I have carefully reviewed this Agreement and understand its contents." Additionally, the declaration asserted that plaintiff signed the document on October 11, 2019 and was hired several days later.
Electronic signature and contract formation
California court finds acceptance of terms by conduct after notice. In an unpublished opinion in Honor Finance LLC et al. v Spireon, Inc., (2023 WL 329415, Ct. of App., 4th Distr., Div. 3, Calif., January 20, 2023), the appellate court reversed and remanded the holding of the trial court that neither plaintiff nor the defendant signed the arbitration agreement. After discussing the various forms of online agreements, the appellate court explained that defendant could prove assent to the online subscription services agreement by showing it presented the subscription services agreement's terms to an authorized agent of the plaintiff, the agent was given sufficient notice of the terms and then accepted the terms through the agent's conduct. Manifestation of assent could be demonstrated by the agent clicking acceptance of those terms as a condition of creating an account.
South Carolina court accepts electronic signature where reasonable explanation existed for discrepancy in name. In Snow v Genesis Eldercare Rehabilitation Services, LLC, (2023 WL 371085 USDC D. SC, Columbia Div., January 24, 2023), the court accepted the recommendation of the magistrate judge to grant defendant's motion to dismiss and compel arbitration. At issue was whether plaintiff had e-signed the employment agreements, including a mutual arbitration agreement, based on the declaration of defendant's custodian of records. Plaintiff asserted that she did not remember signing the agreement and alleged fraud because documents displayed her married name although she signed it before she was married. However, the magistrate and the court accepted defendant's declaration, explaining that the name discrepancy resulted from functionality of the document storage system which automatically updated the name in the employee's signature block when an employee's name is changed in the system. Because plaintiff did not refute this explanation, the magistrate found that the agreement was enforceable, and the court accepted this finding and compelled arbitration.
Ohio court finds pro se party’s typed name insufficient for court filing. In Robinson v Lorain County Printing & Publishing Company (2023 WL 20982, Ct. of App. Ohio, 9th Distr. January 3, 2023), the court dismissed a pro se plaintiff's complaint, holding that a party's typed name on an amended complaint filed with the court did not constitute an electronic signature sufficient to meet the complaint signing requirements of the federal rules of civil procedure. The court noted that plaintiff's assertion – that Becker v Montgomery, 532 US 757; 121 S.Ct. 1801 (2001) supported the use of a typed name on a pleading to satisfy civil procedure requirements – was inaccurate; the case “explicitly states: ‘Without any rule change so ordering, however, we are not disposed to extend the meaning of the word ‘signed,’ as that word appears in Civil Rule 11(a), to permit typed names.’ Id. at 764, 121 S.Ct. 1801.”
Georgia Supreme Court upholds email agreement in criminal settlement. In State v Federal Defender Program, Inc., 2022 WL 17813458, SupCt Ga, December 20, 2022), the court affirmed the trial court's denial of the State's motion to dismiss based on sovereign immunity and concluded that an email exchange between a deputy attorney general and certain capital defense attorneys, including an attorney employed by defendant, constituted a written contract sufficient to waive sovereign immunity. After discussing a proposed Memorandum of Understanding multiple times over a two-month period, the deputy attorney general called the capital defense attorney to tell her that she would be receiving an email memorializing the terms of the agreement, and sent an email that explicitly asserted, in relevant part, “instead of a formal MOU, we will agree, and this email serves as the agreement, that...(details of agreement omitted).” The capital defense attorney replied to the email, adding others as addressees, and informed other parties of the agreement. In the same email thread, both those addressees responded seeking a clarification regarding the agreement, and the deputy attorney general replied that they had the correct understanding with respect to the timing of the execution orders, stating, “Yes, we confirm that’s the agreement.”
The court found that the email exchange clearly contained the essential elements of the agreement, and the recipient party unequivocally accepted the State's offer made via the State deputy attorney general. The court found that the email agreement also constituted a transaction under the Georgia UETA, noting that the State chose to enter into the agreement by email and the parties intended to be bound by the email agreement. Intent to be bound was sufficiently shown because the email was the result of months of negotiations that the State attorney general was aware of, the email was initiated by the state deputy attorney general and the capital defense attorney confirmed the email agreement by reply email. The court further found that the deputy attorney general's manually typed name at the bottom of the offer email constituted an electronic signature under the UETA, and the capital defense attorney's manually typed name at the bottom of her reply acceptance also constituted an electronic signature. Thus, the email agreement was fully executed.
Margo Tank and David Whitaker co-presented at the eSignRecords2022 Electronic Signatures and Records Association (ESRA) Annual Conference, held November 15-17 at the Washington, DC offices of DLA Piper LLP. Their presentations included the Legal Year in Review, an annual round-up of key legal developments affecting electronic signatures and records, as well as New UCC Article 12 – Its Purpose, Provisions and Potential Impact, focused on the provisions of the Amendments, and particularly UCC Article 12, that address gaps in existing law governing the transfer of property rights (including both ownership rights and security interests) in certain assets that consist of, or are evidenced by, electronic records. Andrew Gastworth, also of DLA Piper LLP, presented Real-World Blockchain Solutions for Business, which covered solutions designed to drive profitability through tokenization of real-world assets, managing supply chains, creating circular economies and supporting sustainability.
Margo Tank and David Whitaker were featured speakers at NACHA’s ACH Legal & Compliance Summit on November 30, 2022, where they discussed the intersection between ESIGN, the UETA, and the laws and regulations governing electronic fund transfers.
David Whitaker presented at a webinar hosted by MERSCORP Holdings, Inc. and ICE Mortgage Technology on electronic home equity lines of credit and the potential impact of proposed Article 12 of the Uniform Commercial Code on transfers of ownership. A recording of the presentation can be accessed here.
DLA Piper ranked in 2023 Chambers FinTech Guide. DLA Piper is pleased to announce that the firm's FinTech Legal practice has been ranked nationwide by the prestigious legal publisher Chambers and Partners. Margo Tank and David Whitaker both received individual FinTech rankings. Overall, the firm received 21 practice rankings and 16 individual lawyer rankings in the Chambers FinTech 2023 edition.
Cryptocurrency and Digital Asset Regulation, published by the American Bar Association and co-edited by Deborah Meshulam and Michael Fluhr, including chapters by Meshulam and Fluhr as well as by Margo H.K. Tank.
The MBA Compliance Essentials Remote Online Notarization State Surveys, developed by DLA Piper, provides a comprehensive look at RON requirements in each state that has enacted RON legislation. These fully editable surveys are organized by category of requirements, including registration, technology, seal and signature, certificates of RON acts, journal, authentication, session, recording and additional requirements. Companies can purchase the full package which includes surveys for all states that have enacted RON legislation along with a matrix summarizing state requirements, or companies can purchase information about individual states as needed. Read more.
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Our Global Tax Reform hub looks at the latest developments regarding US tax legislation.
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The editors send their thanks and appreciation to Marc Aronson and Raymond Janicko for their contributions to this and prior issues.