Digital Transformation: eSignature and ePayment News and Trends - July 2023
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 topic you’d like us to cover in a future Insight, we’d love to hear from you.
INSIGHT
Delaware poised to join the 8 other states that adopted UCC Article 12
By Margo H.K. Tank, R. David Whitaker, Liz Caires, and Emily Honsa Hicks
As of July 24, 2023, 8 states have adopted the 2022 Amendments to the Uniform Commercial Code, including Article 12 regarding "Controllable Electronic Records" – Alabama, Colorado, Hawaii, Indiana, Nevada, New Mexico, North Dakota, and Washington. The Delaware legislature passed bill SB157 on June 30, adopting the 2022 Amendments to the UCC, and the bill is under consideration by the Governor. If signed into law, the 2022 Amendments would immediately come into effect in Delaware – triggering the interaction of the choice of law provisions in UCC Article 12 and the choice of law rules in current UCC Article 9. Read more.
REGULATORY DEVELOPMENTS
FEDERAL
Remote online notarization
Ginnie Mae extends use of RON. On June 14, Ginnie Mae issued All Participant Memorandum 23-09 announcing the agency will permit use of RON electronic signatures in circumstances requiring a Power of Attorney (POA). If an issuer uses RON for executing a POA, the issuer remains subject to the electronic signature and notarization requirements of the Ginnie Mae Mortgage -Backed Securities Guide.
STATE
Virtual currency
Florida and Indiana amend UCC to exclude CBDCs from "money." On May 4, Indiana Governor Eric Holcomb signed SB468 and on May 12, Florida Governor Ron DeSantis signed SB7054. Each of these laws explicitly exclude a central bank digital currency (CBDC) from the definition of "money" under the state's Uniform Commercial Code. Both states' laws define CBDC as only those CBDCs issued by the US Federal Reserve or any foreign government. For more information on this topic, see our prior article, Action on 2022 amendments to the Uniform Commercial Code – South Dakota governor vetoes act.
Texas regulates digital asset custody using segregated accounts. On June 9, Texas adopted HB1666 which, among other things, prohibits the commingling of funds by cryptocurrency trading platforms (referred to as "digital asset service providers") with funds of the service provider, or otherwise maintaining customer funds in a manner such that the customer may not be able to fully withdraw their funds. The law appears to be a reaction to the Celsius bankruptcy decision (for more information, see our prior article) and becomes effective on September 1. The law applies to digital asset service providers that hold a money transmission license in the state and either serve more than 500 customers in the state or has at least $10 million in customer funds.
Money transmission
Connecticut adopts framework for bitcoin ATMs. On June 27, Connecticut adopted HB6752 which authorized the Banking Commissioner to adopt regulations governing the business use of digital assets, including virtual currencies and stablecoins, establishing as money transmission the operation of virtual currency kiosks (otherwise known as bitcoin ATMS), and setting forth requirements applicable to owners and operators of virtual currency kiosks.
Nevada updates money transmission law. On May 24, Nevada adopted AB21, revising the state money transmission laws to model the Model Money Transmission Modernization Act approved by the Conference of State Bank Supervisors. The amendments define "monetary value" as a medium of exchange, whether or not redeemable in money. AB21 became effective July 1.
Texas amends laws on money services businesses. On May 29, Texas adopted SB895, the Money Services Modernization Act, which includes in the definition of "money" certain stablecoins pegged to a sovereign currency, redeemable into such currency, and fully backed by assets in reserve. The Act also supports use of the Nationwide Multistate Licensing System.
New Hampshire adds exemptions to money transmission laws. On May 19, New Hampshire adopted HB522, effective July 18, adding additional entities to the list of entities not required to obtain a money transmission license in the state.
Remote notarization
Colorado modifies RON and adopts rule amendments. On May 17, Colorado enacted SB 23-153, increasing the fee for remote online notarization (RON) to $25 per notary electronic signature and continuing RULONA in the state until September 2032. Additionally, on June 30, the Colorado Department of State permanently adopted amended notary program rules, including rules for RON.
Connecticut adopts RIN. On June 12, Connecticut adopted SB1040, effective October 1, permitting remote ink notarization (RIN) of tangible documents using communication technology. The state does not permit use of RIN in the conduct of a real estate closing. Connecticut joins Alabama and South Dakota as states that permit only RIN and not RON.
Illinois adopts permanent RON regulations. The Illinois Secretary of State adopted permanent regulations, effective June 5, which authorize electronic notarizations and RON in the state. The regulations are more than 100 pages and make fundamental changes to notarizations in the state. The regulations permit traditional notarizations, remote ink notarizations (RIN – referred to as "remote notarizations" in the regulations) and RON (referred to as "electronic notarizations" in the regulations). Notaries performing RON are required to maintain a $30,000 bond, and RON platforms must be pre-approved for use in the state.
Maine adopts RON regulations. The Maine Department of the Secretary of State adopted emergency regulations governing RON and electronic notarizations in the state effective July 5. The regulations support Maine's adoption of the Revised Uniform Law on Notarial Acts (RULONA) which became effective on July 1.
Montana requires county clerks to accept electronically notarized documents. On May 1, Montana enacted SB330, which requires county clerks "to accept electronic notarizations [including RONs] completed in accordance with [state notarial law]."
North Carolina modifies RON. On June 23, North Carolina adopted S552, which modified the state notary law to clarify that RON recordings are not public records under state law, increasing the fee for RON to $25 per notarized signature, and making other changes.
Texas modifies notarial law to add RIN. On May 27, Texas adopted SB1780 which amended state notarial law to permit RIN in addition to RON.
UCC Article 12
Nevada, Alabama and Hawaii add UCC Article 12.
- On June 15, Nevada adopted AB231 adopting the 2022 amendments to the Uniform Commercial Code (UCC), including the adoption of Article 12 regarding controllable electronic records. The new law becomes effective October 1.
- Alabama adopted HB348 on June 14 which added to the state UCC Article 12 governing property rights of intangible digital assets as controllable electronic records.
- Hawaii adopted HB525 on June 30 to implement the 2022 amendments to the UCC, including Article 12.
eWills
Status of eWill adoption in the states. As of the date of this newsletter, the following US jurisdictions have enacted legislation expressly supporting electronic wills: Arizona, Colorado, District of Columbia, Florida, Idaho, Illinois, Indiana, Maryland, Minnesota, Nevada, North Dakota, Utah, US Virgin Islands, and Washington. The states of New Hampshire and Oregon expressly prohibit the execution of an electronic will by a testator. Iowa recently adopted HF397, effective as of July 1, which enables the use of communication technology to remotely execute tangible, paper wills and codicils.
CASE LAW
FEDERAL
ADA
New York District Court holds commercial website as place of public accommodation. In Chalas v. Pork King Good 2023 WL 3293639 (USDC SD NY May 5, 2023), the plaintiff alleged that a commercial website failed to operate with her screen reading software. The court found that Title III protections for disabled persons apply to stand-alone websites, without any brick-and-mortar store locations, as places of public accommodation, although the Second Circuit has yet to address the issue. The court determined that holding to the contrary "would severely hamper Congress' effort to protect disabled persons who want and need access to the growing number of online-only providers of goods and services. Such an anomalous result could not have been Congress' intention."
ADA claims survive when parties contest website compliance with WCAG. In Guerrero v. Ogawa USA Inc. 2023 WL 4187561 (USDC SD NY June 26, 2023), the plaintiff alleged that the defendant's website was not compatible with screen reader software. The defendant claimed it had updated its website to conform to WCAG 2.0/2.1 Levels A and AA, since receipt of the plaintiff's complaint. However, the plaintiff's expert later attested that website technical barriers persisted and that many of the identified issues violated WCAG 2.1. Due to the conflicting declarations, the court determined the plaintiff's claims were not mooted by the defendant's efforts to cure the website.
Telephone Consumer Protection Act (TCPA)
Single unsolicited call constitutes injury under the TCPA. The court in Dickson v. Direct Energy, LP, 69 F.4th 338, Ct.App. 6th Cir., Jan. 17, 2023, reversed the district court's dismissal of the plaintiff's lawsuit, holding that the plaintiff's receipt of one ringless voice mail call was sufficient concrete injury to constitute standing in case for violation of the TCPA, and remanded the case for further proceedings.
Phone subscriber suffers injury if phone receives unsolicited texts when phone is used by another. In Hall v. Smosh Dot Com, Inc., 2023 WL 4281815 (Ct.App. 9th Cir. June 30, 2023) the court held that the owner and subscriber of a cellphone who had listed the number on the Do-Not-Call (DNC) Registry suffers an injury in fact sufficient to support a TCPA claim when the phone receives unsolicited text messages – even if the communications are intended for or solicited by another individual, and even if someone else is using the phone at the time the messages are transmitted. In Hall, the plaintiff, parent of a minor child, was the phone subscriber and owner, and registered the phone number on the DNC Registry prior to providing the phone to the minor child for his use. The court left for trial the issue of whether the minor child had consented to receive the texts, and whether such consent was sufficient for the defendant to avoid liability under the TCPA.
Unsolicited offers to purchase which include ancillary services can violate the TCPA. In Pepper v. GVG Capital LLC dba WeBuy-Homes-4Cash.org, 2023 WL 3914291 (USDC SD Tex. June 9, 2023), the defendant moved to dismiss the plaintiff's claims that the defendant violated the TCPA by making unsolicited calls to the plaintiff to offer to buy her home. The court acknowledged that unsolicited calls consisting of offers to purchase are not prohibited by the TCPA; however, the plaintiff presented sufficient evidence that the defendant's offers to purchase her home were, in substance, offers to sell services. The plaintiff's amended complaint included allegations that the defendant provides the services associated with a real estate transaction and the seller effectively pays for those services through receipt of payment of a discounted purchase price.
Termination of contract for breach does not release contractor from indemnity obligations for TCPA violations. In Moore v. Torchlight Technology Group, LLC, 2023 WL 3863354 (USDC ND Ill., June 7, 2023) a marketing service provider obtained partial summary judgment which compelled its contractor, a supplier of lead generation call center services, to provide indemnity against consumer complaints alleging the contractor's violation of the TCPA. The agreement between the contractor and the marketing service provider included a provision requiring the contractor to provide indemnity against breach of its representations that (i) all consumers whose calls were forwarded gave express written consent to receive telemarketing calls and (ii) the contractor would retain records of consents for five years. The court found that the marketing service provider's actions in terminating the agreement for the contractor's material breach and failing to remit the last payment due did not negate the contractor's indemnity obligations, which survived such termination.
Electronic signature and online contract formation
- Acuity Insurance, as subrogee of Gary Borchert and Zeina Abdallah v. Vivint Incorporated et al., 2023 WL 4186303 (USDC D. Minn. June 26, 2023): The court found a valid and enforceable arbitration clause based on a two-page agreement presented and signed by the customer on an iPad owned by the vendor's on-site installation technician, with the executed agreement emailed to the customer after signature. The first page of the agreement set forth the following above the signature line in bold and all caps "DO NOT SIGN THIS AGREEMENT BEFORE YOU READ IT ... YOU ARE ENTITLED TO A COPY OF THIS AGREEMENT AT THE TIME YOU SIGN IT ... THE TERMS OF THIS AGREEMENT ARE CONTAINED ON MORE THAN ONE PAGE. READ THEM BEFORE YOU SIGN BELOW." The second page of the agreement were contractual terms in small font with large margins, including an arbitration clause in all caps with the following header underlined: “ARBITRATION CLAUSE AND CLASS ACTION WAIVER—PLEASE REVIEW CAREFULLY AS THIS IMPACTS YOUR LEGAL RIGHTS.”
- Bold Limited et al. v. Rocket Resume, Inc. et al., 2023 WL 4157626 (USDC ND Calif. San Jose, June 22, 2023): In a case alleging copyright infringement, unfair competition, and breach of contract under New York law with respect to illegal copying of data behind a website login, the court determined that reasonably conspicuous notice of the website's Terms of Use was provided, and the user took action to manifest assent to the Terms of Use, thereby forming a contract. Users had to click the button "Create My Resume" to access the website data. Underneath the button was the phrase "By clicking create My Resume, you agree to our Terms of Use and Privacy Policy
," which included hyperlinks to the documents indicated in blue underlined font.
- Childs v. Fitness International LLC dba LA Fitness, 2023 WL 3594180 (USDC ED Penn. May 22, 2023): Unenforceable "browsewrap" agreement found where website terms and conditions were only displayed by hyperlink at the bottom of a web page, and no other evidence was presented to indicate the website user had notice of the hyperlinked terms or assented to the terms.
- Design With Friends, Inc. and Design With Friends, Ltd. v. Target Corp., 2023 WL 3434013 (USDC D Del. May 12, 2023): This case alleges copyright infringement and breach of contract; the plaintiff alleged that its website browsewrap agreement was viewed by a representative of the defendant ("actual notice") or was sufficiently conspicuous to put the defendant on "inquiry notice." The plaintiff's allegations were held sufficient to survive dismissal of the complaint.
- Flores v. Coinbase, Inc. et al., 2023 WL 3564756 USDC CD Calif. April 6, 2023): Coinbase successfully compelled arbitration of claims because the plaintiff affirmatively clicked the blue button labeled "Accept Terms" under language directing users to "review and accept [the] updated terms and conditions to continue using [their] Coinbase account", with a scroll-box containing the full text of the updated terms. Additionally, Coinbase had earlier sent an email to plaintiff containing the updated terms, encouraging him to read them, and flagging the inclusion of changes to the arbitration agreement in the terms.
- Karin v. Best Buy Co. Inc, et al., 2023 WL 3801909 (USDC ND Calif. June 2, 2023): Defendant's motion to compel arbitration was granted based on the defendant's online order process. To complete the order process, the plaintiff had to click a yellow "Place Your Order" button, above which was the statement "By placing your order, you agree to our BestBuy.com Terms and Conditions
," which was in blue text and linked to the Terms and Conditions. The rest of the text was a dark color against a white background.
- Hooper v. Jerry Insurance Agency, LLC, 2023 WL 3992130 (USDC ND Calif. June 1, 2023): The court granted the defendant's motion to compel arbitration of this TCPA case, finding that the hyperlink to the defendant's Terms of Use containing the arbitration provision was reasonably conspicuous and presented on an uncluttered webpage, and that the plaintiff unambiguously manifested assent to the Terms of Use by clicking the required button. The plaintiff had visited the defendant's website, which required her to input her phone number for confirmation. Below the data entry field was a large gray button labeled "Continue" in white text, with the following dark gray text immediately below: "By clicking ‘Continue’ you agree to receive a 4-digit code from Jerry to verify this phone number, updates about Jerry products, the Jerry Terms of Use, and Privacy Policy. Message frequency may vary. Message and data rates may apply. Reply HELP for help or STOP to cancel.” The phrase Terms of Use, displayed in pink, was a hyperlink which resolved to a 12-page document containing the arbitration agreement.
- Wanless, et al. v. Peloton Interactive, Inc., 2023 WL 4086455 (USDC ED Calif. June 20, 2023): The court granted defendant's motion to compel arbitration based its on online enrollment process to create a Peloton account which the court found put users on inquiry notice of the arbitration agreement's existence and contents. The enrollment process required users to check a box acknowledging that "I have read and agree to the Peloton Terms of Service, Privacy Policy, and Membership Terms." The underlined phrase "Terms of Service" was a hyperlink to the full terms which, at the top of the first page, set forth a notice in all caps and in bold informing the user that the terms contained an arbitration provision. The embedded arbitration provision was also presented in all caps and in bolded font.
STATE
Uniform Electronic Transactions Act (UETA)
Email signature block constitutes intent to sign in Texas. In Perdido Properties LLC v. Devon Energy Production Company, L.P., et al., 2023 WL 3511234 (Ct.App. Tex. May 18, 2023), the court held that either a typed name or a signature block automatically attached to an email establishes intent to sign the email and is sufficient as a signature under the Texas UETA. In reaching this conclusion, the court noted that the signature block is created by the email user and the user sets up the user's email service to automatically attach the signature block to the user's emails.
Louisiana court applies state UETA send and receive rules. In Myers v. Houston Specialty Insurance Company et al., 2023 WL 2948126 (Ct.App. 1st Cir. Louis. April 14, 2023), the appellate court affirmed the decision of the lower court that plaintiff's claims should be dismissed for failure to file suit against the insurer within one year of the date plaintiff discovered or should have discovered the insurer's failure to include uninsured motorist coverage in plaintiff's policy. The court determined that the plaintiff should have discovered the error upon receipt of delivery of his copy of the policy. The insurer delivered the policy via email, which was permitted by state law provided that the email was sent in accordance with the Louisiana UETA. The defendant presented evidence in the form of the Microsoft Outlook email file which was addressed to the plaintiff's email address and attached a copy of the policy. Under the state UETA, a record is considered sent when it is properly addressed or directed to the recipient and the record leaves the control of the sender or comes under the control of the recipient. A record is received under the state UETA when the record enters the system the recipient has designated or uses and has access, in a form capable of being processed by that system.
Electronic signature and online contract formation
- Macasero v. ENT Credit Union, 2023 WL 3238506 (Ct.App. Colo. May 4, 2023): The court concluded that the plaintiff had constructive notice of an updated membership agreement containing an arbitration agreement. The plaintiff opened an account by signing an application which included her agreement "to the acceptance of statements, notices and disclosures by means of electronic delivery" and a provision informing plaintiff that the membership agreement is "subject to change at any time… [,] [ENT] will notify you of any changes in terms, rates or fees as required by law[, and that] by utilizing your account… you agree to amendments to the terms of this Agreement which have been made available to you by mail, electronically on our website, or in person." ENT supplied the plaintiff with notice of her monthly statements by email. ENT then provided the plaintiff with email notice alerting her that her monthly statement was available and that ENT had updated its membership and account agreement and asking her to visit a specific URL link for more information. The link provided the changes to the membership agreement, including the arbitration agreement and its opt-out provision.
- Perez et al. v. Kaiser Foundation Health Plan, Inc., et al., 91 Cal.App.5th 645 (Ct.App. 1st Distr. Calif. May 16, 2023): The appellate court upheld the lower court's grant of the defendant's motion to compel arbitration based on an online employee health care enrollment process which used the employer’s laptops and required that employees access the portal and establish a unique password to select a plan and view the applicable plan healthcare disclosure containing the arbitration provision. The disclosure screen at the top required that the employee "must agree to the authorization agreement by clicking on the SAVE button" and below the disclosure was a notice "By clicking the SAVE button below, I understand that this action will serve as my electronic signature of agreement to the conditions provided in the [KFHP] and [KPIC] Arbitration Agreement (above).” Immediately below this notice, was the statement, “If you do not wish to accept the arbitration agreement above you must click on the CANCEL button below.” At the bottom of the web page are three buttons, “BACK,” “SAVE,” and “CANCEL.”
- Weissman v. Revel Transit, Inc., 2023 WL 3742960 (Sup. Ct. App. 1st Dept. NY June 1, 2023): The appellate court affirmed a lower court's ruling compelling arbitration of a dispute regarding operation of a moped leased using a mobile device. In order to lease the moped, the plaintiff was required to open an account using the defendant's app, which required the plaintiff to click a box acknowledging his awareness and agreement to the terms of service before proceeding to complete his account registration. The terms of service were presented using a hyperlink, providing inquiry notice of the arbitration provisions.
RECENT EVENTS
Margo H.K. Tank presented at NFT Legal Deep Dive: Copyright, trademark, and Uniform Commercial Code (Articles 2 & 12) [Part II], on May 17, 2023, with Mark Radcliffe and Gina Durham.
Margo H.K. Tank and David Whitaker co-presented at the Electronic Signatures and Records Association (ESRA) Spring Member Meeting, held April 25-26 at DLA Piper’s Washington, DC offices. They presented the Legal Update and Regulatory Review, a summary of key legal developments affecting electronic signatures and records, and which covered digital asset regulation, contract issues for digital assets platform providers, recent judicial and regulatory activity affecting digital assets, and state adoption of UCC Article 12.
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.
DLA Piper’s Commodities, Digital Assets, and Carbon Compliance and Enforcement team draws on decades of collective experience in the commodities and securities industry to help companies navigate new and complex commodities enforcement matters, including those related to agriculture, metals, energy, digital assets, and carbon/sustainable commodities, among others.
RECENT PUBLICATIONS
Emily Honsa Hicks co-authored the Electronic Signatures and Records chapter in the Consumer Financial Services Answer Book, 2024 edition, to be published by Practicing Law Institute in August 2023. If you are interested in purchasing a copy of the book, please contact Emily Honsa Hicks for more information.
Terms of Service Are Instrumental in Determining Rights to Digital Assets – The Holding in Celsius Network LLC, published in The Computer & Internet Lawyer, May 2023, by Margo H.K. Tank, David Whitaker, Liz Caires and Emily Honsa Hicks.
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
Transferring digital assets under UCC Article 8
In case you missed it
Read the latest issue of our bulletin Blockchain and Digital Assets News and Trends
Read the latest issue of our bulletin Consumer Finance Regulatory News and Trends
Contacts
Learn more about our eSignatures and ePayments practice by contacting:
The editors send their thanks and appreciation to Marc Aronson and Raymond Janicko for their contributions to this and prior issues.
