3 August 2021 • 13 minute read
Digital Transformation: eSignature and ePayment News and Trends - 3 August 2021
Achieving Digital Transformation and Securing Digital AssetsA fact of business today is that customers – both consumers and other businesses – and employees expect to transact digitally. To remain competitive, companies find themselves increasing their efforts to digitally transform their businesses.
Successfully implementing this transformation requires careful planning to ensure regulatory compliance, a smooth integration with existing business technology and a positive customer experience.
Each issue will feature in-depth insight on a timely and important current topic.
In this issue, for our Insights piece, we provide an analysis of the current state of remote online notarization in the United States, including analyzing a recent case out of New York. This issue also includes reports on other recently enacted federal and state laws, federal and state regulatory activities, fresh judicial precedent and other important news.
For related information regarding blockchain and digital assets, please see our monthly bulletin Blockchain and Digital Assets News and Trends.
INSIGHT
Remote notarization is here to stay
Margo H.K. Tank, R. David Whitaker, Liz Caires and Andrew W. Grant
Nearly all states without a remote online notarization (RON) law acted to adopt some form of remote notarization in response to the coronavirus disease 2019 (COVID-19) pandemic. Many of these states have now enacted permanent RON laws, or remote ink notarization (RIN) laws, while others ended their state of emergency without permanent adoption in place.
As of the date of this publication, 36 states have enacted RON laws, some of which include provisions also enabling RIN: Alaska, Arizona, Arkansas, Colorado, Florida, Hawaii, Idaho, Illinois (effective July 1, 2022), Indiana, Iowa, Kansas (effective January 1, 2022), Kentucky, Louisiana (effective February 1, 2022), Maryland, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Jersey (effective October 20, 2021), New Mexico (effective January 1, 2022), North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Vermont (requires regulations to become effective), Virginia, Washington, West Virginia, Wisconsin and Wyoming.
Additionally, two states have enacted standalone RIN laws: Alabama and South Dakota.
With respect to recent changes in Illinois, it is unclear whether the state supports any form of remote notarization. In June 2020, when the Illinois legislature adopted SB2135 approving the governor's executive orders enabling remote notarization, the bill incorporated remote notarization into the state's Electronic Commerce Security Act (ECSA) and made remote notarization effective for the duration of the COVID-19 emergency. However, on June 25, 2021, the Illinois legislature enacted SB2176 which repealed the ECSA in its entirety and replaced it with the Uniform Electronic Transactions Act (UETA). The Illinois UETA does not include any provisions enabling remote notarization. Now that the ECSA has been repealed and the last executive order permitting remote notarization expired without renewal or extension, the status of remote notarization in the state is unclear – although the Secretary of State still appears to support remote notarization as formerly permitted under the ECSA. This status will be clarified once SB2664 becomes effective in July 2022, enabling RON in the state.
Of the remaining 12 states, California and South Carolina never adopted any form of remote notarization during the COVID-19 pandemic. The remote notarization orders of Delaware, New York and New Hampshire lapsed or were terminated in June, apparently without renewal. The other seven states have continued their pandemic temporary adoption of remote notary through at least the end of this month – Connecticut, Georgia, Maine, Massachusetts, Mississippi, North Carolina and Rhode Island.
We are also starting to see case law supporting remote notarization. In Ryerson v. Ryerson, 2021 N.Y. Slip. Op. 21172, the Supreme Court of New York held that a notary acting under the state's temporary COVID-19 law enabling remote notarization acted in a sufficiently timely manner when executing the notarial certificate of acknowledgment within four days of the parties' execution of a separation agreement before the notary using Zoom technology. The parties also complied with some of the terms of the separation agreement before the defendant brought the pending motion seeking that the agreement be declared void because the parties failed to send a signed version of it to the remote notary using fax or email promptly after signing, as required by NY Executive Order No. 202.7.
The parties met together at the marital residence and jointly conducted the Zoom audio-video conference with the notary, presented the notary with their driver's licenses and verbally confirmed they were in New York state. Additionally, the notary required each party to verbally confirm at that time that each party was comfortable signing the agreement, after which the notary watched each party sign the agreement on the Zoom video feed. Each party also verbally confirmed they signed it. However, the plaintiff then stated she did not have a document scanner or fax machine at the marital residence. While still on the Zoom conference, the notary instructed the plaintiff to mail the signed agreement back to him. The notary received the signed agreement by mail approximately four days thereafter and completed the notarial certificate of acknowledgment.
The court found no indication in New York notarial law or case law of any time limitation on the notary's execution of a certificate of acknowledgment. It determined that all requirements of the acknowledgement were met and the delay of delivery in this case was not sufficient to render the acknowledgment ineffective as a matter of law. The case appears to stand for the proposition that minor failures to strictly comply with remote notarization processes may not render the notarized document void so long as the underlying purposes of the notarial act are fulfilled.
To stay current on the status of remote notarization in the wake of COVID-19, see our alert, Coronavirus: Federal and state governments work quickly to enable remote online notarization to meet global crisis, which is updated monthly with recent developments.
REGULATORY DEVELOPMENTS
STATE
Money Transmission - ePayments
California Department of Financial Protection and Innovation releases two opinion letters concerning virtual currency:
- On May 25, 2021, the California Department of Financial Protection and Innovation (DFPI) issued an interpretive opinion regarding bitcoin ATM kiosks. The company operates kiosks in which customers can purchase bitcoin; the entity keeps the dollars inserted into the kiosk and sends the purchased bitcoin to the customer’s wallet. The transaction is between only two parties. The DFPI concluded that the sale and purchase of bitcoin from the company’s ATM did not meet the definition of “money transmission.”
- On May 27, 2021, the DFPI issued an interpretive opinion whereby it addressed whether a company that intends to offer services through a peer-to-peer marketplace for the purchase and sale of decentralized virtual currencies requires licensure. The company would offer four services and would not collect, store or transmit any digital or fiat currency for these services. Instead, the company has a custodial services agreement and a master virtual wallet. The four services are:
- P2P marketplace: The company’s marketplace would allow buyers and sellers of cryptocurrencies to connect and arrange for the direct settlement of purchases between users.
- Pay-with-[Company]: The company intends to use its marketplace to allow consumers to buy goods or services with cryptocurrencies from unaffiliated, third-party retailers.
- Facilitating stablecoin trades: The company intends to allow its customers to exchange certain cryptocurrencies for a stablecoin; the company will do so through a third-party trading platform. The company will not operate a stablecoin wallet nor will it provide custodial services.
- Remittance: The company intends to facilitate the remittance of funds in different currencies through its marketplace. A company’s customer will buy cryptocurrency in one currency and sell the cryptocurrency to another company customer, who will buy the cryptocurrency with a foreign currency. The company will use trade bots to match the relevant parties. The company will not hold or take receipt of any cryptocurrency or fiat payments used in the remittance process.
CASE LAW
FEDERAL
Electronic signature and contract formation
Court upholds electronically signed arbitration agreements: In Slade v. Empire Today, LLC, 2021 WL 2864813 (S.D. Cal., July 8, 2021), the court granted the defendant’s motion to compel arbitration because it concluded that no reasonable fact finder could find for the plaintiff based on the evidence presented. Such evidence included technical details of the employee onboarding system along with an arbitration agreement signed by the plaintiff and an audit log showing when the plaintiff took the necessary actions to sign the arbitration agreement.
STATE
Electronic signatures and general online contract formation
Court finds that email sent without typed signature satisfies New York’s settlement law requiring that a settlement agreement be “subscribed” in writing: New York law requires that settlement offers are not “binding upon a party unless it is in a writing subscribed by him or his attorney.” In Philadelphia Insurance Indemnity Company v. Kendall, 2021 WL 2834536 (N.Y. Sup. Ct. July 8, 2021), the court concluded that the distinction between prepopulated and retyped signatures in emails reflected a needless formality – it is not the manner in which the signoff was created that indicates whether parties intend to reach a settlement through email, but the fact that the email was sent. The court reviewed New York’s Electronic Signatures and Records Act and determined that its broad definition of an electronic signature meant that, if an attorney sends an email intending to relay a settlement offer and the email account is identified as the attorney’s own, then it is not necessary for the attorney to have typed their own signature. The court noted that every email purporting to settle a dispute will not be unassailable evidence of a binding agreement as there may be issues of authentication or the email settlement may fail to set forth all material terms.
Court denies enforceability of online arbitration agreement: In Wollen v. Gulf Stream Restoration and Cleaning, LLC, 2021 WL 2878703 (N.J. Super. Ct. July 9, 2021), the court held that the hyperlinked terms and conditions, which contained the arbitration agreement, were not enforceable against the plaintiff. While the court noted that courts have reached varying results on the question of online contract formation via hyperlink, the court stated the courts consistently apply a “fact-intensive inquiry” to determine whether an internet user was placed on reasonable notice of the terms of an online agreement. Here, the court founds facts, such as the hyperlink only being in blue font against a white background with no underlining, bolding or enlarging of the terms, as one element in establishing that the hyperlink was not “clear and unmistakable.” Further, nothing in the hyperlink’s wording indicated that the plaintiff was required to read the terms and conditions before submitting her request for service. Instead, the statement that submitting the request for service meant the user agreed to the terms was beneath the submission button, meaning that a user could submit the request before seeing the terms. Finally, and, in the court’s words, “most significant,” was that the plaintiff did not need to affirmatively assent or even view the terms; the defendant did not require the plaintiff to open, scroll through or acknowledge the terms by clicking a box indicating that she had viewed them before clicking the submit button.
RECENT EVENTS
In the 2021 edition of Chambers Fintech, Chambers and Partners identified DLA Piper as “one of the foremost firms in the country for transactional FinTech matters.” Partners Margo Tank and David Whitaker were recognized individually for their work in fintech.
Partners Margo Tank and David Whitaker have each been named “Acritas Stars – independently rated lawyers” for 2021. Acritas Stars are client-nominated attorneys recognized for their stand-out performance in private practice.
The Financial Times has ranked DLA Piper second on its lists of Most Innovative Law Firm and Most Digital Law Firm in the FT North America Innovative Lawyers 2020 report. The Financial Times particularly noted our pro bono legal work on behalf of the UN’s World Food Programme, with which the authors of this publication assisted.
RECENT PUBLICATIONS
The Law of Electronic Signatures, 2020 - 2021 Edition (Thomson Reuters) is an essential guide to electronic signatures and records laws, including the context in which the laws were adopted and the ways in which the authors believe the drafters intended them to be interpreted. The publication is prepared by authors, including Margo Tank and David Whitaker, with more than 30 years combined experience that includes involvement with the drafting and passage of Electronic Signatures in Global and National Commerce Act (ESIGN), the preparation of the Uniform Electronic Transactions Act (UETA), the creation of the Standards and Procedures for electronic Records and Signatures (SPeRS™) and serving as counsel to the Electronic Signatures and Records Association. The insights they provide will be indispensable to anyone seeking to understand the impact of, and the liability associated with, using electronic signatures and electronic records.
These insights include:
- Details on the legal requirements for using electronic signatures and records, including delivery, presentation, signing and record retention
- Comprehensive tables itemizing the state variations to the uniform UETA language
- Special considerations for using electronic signatures and records in connection with emerging and evolving technology
- Using electronic records and signatures in specialized transactions and documents, such as securities, chattel paper and mortgages
- Analysis of the interplay between ESIGN, UETA and many other key laws and regulations
- Identification and summaries of recent legal developments and court cases impacting electronic signatures and records
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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Contacts
Learn more about our eSignatures and ePayments practice by contacting:
David Whitaker