A 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.
This bulletin is the fifth in a series aiming to help companies identify important and significant news and legal developments impacting digital offerings. Each issue will feature in-depth insight on a timely and important current topic. In this issue, we look at the state law requirements for those states that have enacted legislation governing remote notarization. In addition, we will cover recently enacted federal and state laws, federal and state regulatory activities, fresh judicial precedent and other important news.
REMOTE NOTARIZATION: AUTHENTICATION REQUIREMENTS, BY US STATE
Remote online notarization allows a notary in one location to notarize a document when the signer is in a different location, including in a different state.
Nine US states both recognize the legality of such notarizations and have created a regulatory framework to enable them.
While the basic components of each state's law are similar, of particular interest are the requirements for authenticating the signer. Here, we provide a simple chart setting out the remote notarization laws by state, along with their effective dates and a brief summary of the signer authentication requirements.
Find out more.
Delaware governor signs three bills addressing the status of blockchain records
On July 23, 2018, John Carney, governor of Delaware, signed into law three bills that address the legal status of blockchain records:
- SB 182, which updates the Delaware Revised Uniform Limited Partnership Act to provide specific statutory authority for Delaware limited partnerships to use networks of electronic databases (examples of which are described currently as "distributed ledgers" or a "blockchain") for the creation and maintenance of limited partnership records and for certain "electronic transmissions."
- SB 183, which updates the Delaware Limited Liability Company Act to provide specific statutory authority for domestic limited liability companies to use networks of electronic databases (examples of which are described currently as "distributed ledgers" or a "blockchain") for the creation and maintenance of limited liability company records and for certain "electronic transmissions."
- SB 194, which updates the Delaware Statutory Trust Act to further the state of Delaware's initiative to implement policies enhancing the state's position as a leader in the adoption of distributive electronic network and database technologies (including what is commonly referred to as "blockchain" or "distributed ledger technology") by providing that the registration of a beneficial interest in a statutory trust may be evidenced electronically, including by means of an electronic database or network, including distributed electronic networks or databases.
Ohio enacts law expressly recognizing electronic signatures and contracts executed using blockchain technology: On August 3, 2018, Ohio Governor John Kasich signed into law Senate Bill 220, which revises Ohio's Uniform Electronic Transactions Act to expressly state that electronic records and electronic signatures can both be accomplished using blockchain technology. Notably, this law does not define blockchain technology, unlike a separate bill (SB 300) that appears to have stalled.
Texas finalizes regulations governing remote notarization: On August 19, 2018, the Texas Secretary of State finalized revisions to its administrative rules governing Texas notaries to allow for remote notarizations. The new regulations address, in part, the minimum requirements for online notarization, including the requirements for credential analysis and the standards that the audio-visual communication must meet
The Department of Treasury released its report on nonbank financials, fintech and innovation: On July 31, 2018, the Department of Treasury released a report that was designed to identify improvements to the regulatory landscape to better support nonbank financial institutions, embrace financial technology and foster innovation. Of particular note, the Treasury Department (i) endorsed the OCC's plans for a FinTech charter; (ii) recommended creating regulatory sandboxes; (iii) recommended that states harmonize the existing patchwork of state licensing and oversight of nonbank financial services companies, including money transmitters, either through state-led efforts or by Congress; (iv) recommended that Congress enact legislation codifying the "valid when made"; doctrine; (v) recommended that the FCC adopt a reassigned number database and provide clear guidance on revocation of consent under the TCPA; and (vi) recommended that Ginnie Mae pursue acceptance of eNotes and that Congress appropriate funding to allow for FHA to improve the digitization of loan files. Notably, within that last recommendation, the Treasury Department cited an article written by DLA Piper partners Margo H.K. Tank and R. David Whitaker, Enabled by Lenders, Embraced by Borrowers, Enforced by the Courts: What You Need to Know About eNotes.
The Office of the Comptroller of the Currency accepting applications for its fintech charter: On July 31, 2018, the OCC stated that it will accept applications for national bank charters from nondepository fintech companies engaged in the business of banking. In so doing, the OCC released a Policy Statement, in which it stated that companies "engaged in the business of banking should have a path to become a national bank, provided they meet the rigorous standards necessary to become and succeed as a national bank." The OCC also released a Licensing Manual Supplement, which "provides detail on how the OCC would evaluate applications for a special purpose national bank charter from fintech companies." The Conference of State Bank Supervisors (CSBS) recently stated that state financial regulators will renew their litigation efforts against the OCC because of this decision.
Bureau of Consumer Financial Protection joins the Global Financial Innovation Network: On August 7, 2018, the BCFP announced that they are working in collaboration with 11 financial regulators and related organization to create the Global Financial Innovation Network (GFIN). The goal of the GFIN is to provide a more efficient way for innovative companies to interact with regulators. This effort is organized around a draft Consulting Document, which sets out three main proposed functions for the GFIN:
- act as a network of regulators to collaborate and share experience of innovation in respective markets, including emerging technologies and business models
- provide a forum for joint policy work and discussions and
- provide firms with an environment in which to trial cross-border solutions.
The BCFP is seeking feedback on the Consulting Document by October 14, 2018.
Bureau of Consumer Financial Protection announces director for the Office of Innovation: In July 2018, the BCFP announced that Paul Watkins would be the director for its Office of Innovation. The BCFP created the Office of Innovation to focus on encouraging consumer-friendly innovation. Watkins comes to the BCFP from the Arizona Office of the Attorney General, where he was in charge of the office's fintech initiatives.
Two senators urge the FCC to create a reassigned numbers database: Senator Ed Markey (D-MA), who was an author of the Telephone Consumer Protection Act of 1991, and Senator John Thune (R-SD) sent a letter in July to FCC Chairman Ajit Pai in which the senators requested that the FCC create a database for reassigned numbers. They are asking the FCC to consider the following features: (i) comprehensiveness, (ii) accuracy, (iii) accessibility, (iv) security, (v) efficiency and (vi) a safe harbor.
NYDFS allows two companies to offer a "stablecoin" pegged to the US dollar: On September 10, 2018, the NYDFS announced that it has authorized Gemini Trust Company LLC and Paxos Trust Company LLC, both of which were earlier issued a limited purpose trust company charter by the NYDFS, to offer a price-stable cryptocurrency (a "stablecoin") pegged to the US dollar. As part of its approval, NYDFS established conditions that require the companies to maintain robust policies and procedures regarding anti-money laundering, anti-fraud and consumer protection measures.
Arizona regulator accepting sandbox applications: In early August, the Consumer Protection Section of the Arizona Attorney General's Office announced that it would begin accepting applications for its FinTech Sandbox. To read more about the legislation that enacted the FinTech Sandboxes, see our earlier report.
SELF-REGULATORY ORGANIZATION DEVELOPMENTS
The World Wide Web Consortium announced that WCAG 2.1 is now its recommendation: Recently, the World Wide Web Consortium (W3C) announced that the Web Content Accessibility Guidelines (WCAG) 2.1 is the recommendation for website accessibility guidance. Previously, WCAG 2.0 was the recommendation. WCAG 2.1 provides updated guidance for users of mobile devices, users with low vision and users with cognitive, language and learning disabilities. W3C notes that WCAG 2.0 remains a recommendation and that 2.1 is backwards compatible with 2.0, so websites that conform with WCAG 2.1 will also conform with 2.0. You may also enjoy our article Is your website ADA compliant?
STATE CASE LAW
Court finds that emails do not satisfy the statute of frauds where attorney did not have authority to execute contract: On August 10, 2018, in Stonewall of Woodstock Corp v. Stardust 11TS, LLC and Oliver Block, 2018 WL 3805823, the Supreme Court of Vermont held that in the absence of any signed writing establishing that the vendor's attorney was lawfully authorized to execute a real estate sale contract on behalf of vendor, the attorney's emails did not satisfy Vermont's statute of frauds. The case arose when the plaintiff, a failed purchaser, brought an action against the defendant, Oliver Block, alleging a breach of contract and seeking specific performance. The plaintiff had entered into negotiations with Mr. Block to purchase a commercial property. On the defendant's side, the negotiations were carried out, in part, by the defendant's attorney. At one point, the defendant's attorney sent the plaintiff, via email, an unsigned contract, requesting that the plaintiff return an executed version. The attorney typed his name at the end of the email. The plaintiff later sent the defendant's attorney a signed contract and a $25,000 deposit. The attorney acknowledged receipt, but never sent back a contract signed by the defendant. Shortly thereafter, Mr. Block sold the property to the other defendant, Stardust, and returned the $25,000 deposit to the plaintiff. The plaintiff then brought suit.
The plaintiff argued, in part, that the defendant's original email in which he typed his name at the bottom along with the unexecuted contract constituted a signed writing under Vermont's statute of frauds. Vermont's statute of frauds, however, requires that authorization to execute sales of land on behalf of another must be in writing as well. So, while an earlier court held that the attorney's typed name constituted his signature, the state supreme court said it did not need to decide that question because no writing existed that authorized the attorney to execute the sale of land on behalf of the defendant. Absent that writing, the statute of frauds could not be met.
FEDERAL CASE LAW
Ticket-purchasing website deemed not ADA compliant: On July 23, 2018, in Long v. Live Nation Worldwide, Inc., 2018 WL 3533338 (W.D. Wash. 2018), the United States District Court for the Western District of Washington partially granted the plaintiff's motion for summary judgment because the court concluded that the defendant's original website violated both the Americans with Disabilities Act (ADA) and the Washington Law Against Discrimination (WLAD). The court reached this conclusion because the original website did not provide enough information to determine which tickets were for wheelchair accessible seats, which meant that the plaintiff was excluded from enjoying the stadium's services because of his disability. To reach this decision, the court determined that the website was a place of "public accommodation" because the stadium at issue was a brick-and-mortar place and the website was a service that allowed persons to purchase tickets to that stadium. The court, however, denied the plaintiff's other summary judgment motion because genuine issues of material fact exist as to whether the current versions of the defendant's website, which show wheelchair-accessible tickets, violate the ADA. Also see our article Is your website ADA compliant?
Court concludes that context and surrounding circumstances indicate that customer intended to conduct transaction electronically: In Beatty v. Esurance Property and Casualty Insurance Company, 2018 WL 3453882 (N.D. W.V. July 2018), the United States District Court for the Northern District of West Virginia concluded that the actions of the plaintiffs, Virgil and Melissa Beatty, when signing up for car insurance demonstrated that they intended to conduct the transaction electronically. The case began after one of the plaintiffs got into an accident and learned that the defendant had not provided them with underinsured motorist coverage because they never returned the UIM form, which had been delivered via email. Virgil and Melissa Beatty sued Esurance, alleging in part that sending the UIM forms via email was improper because there was no express agreement to send these documents electronically. Under West Virginia's Uniform Electronic Transactions Act, if the parties agree to conduct a transaction electronically, then any information that is required by law to be provided in writing can be delivered electronically instead. Whether a party agreed to conduct a transaction electronically is determined by the context and surrounding circumstances. Here, the actions indicating that the plaintiffs did not want to receive disclosures electronically – which was the record of policy activity – occurred after the defendant had sent the UIM forms. The court concluded that even though the plaintiffs did not execute an agreement to conduct business electronically until well after the UIM forms were sent (and after the plaintiffs changed their settings indicating that they wanted to receive paper notices), the plaintiffs' actions when signing up for insurance were more than sufficient to demonstrate that the plaintiffs agreed to conduct the transaction electronically. Specifically, the court noted that the plaintiffs completed an online application, created an online account, electronically signed a credit card authorization that referenced email communications and did not protest when the telephone representative repeatedly stated that they would receive the UIM forms by email.
Court refuses to compel arbitration due to a dispute over electronically acceptance: In Mansour v. Kmart Corp., Inc., 2018 WL 3575062 (D. Md. July 2018), the court denied a motion to compel arbitration and granted limited discovery regarding the online system used by the defendant during new employee orientation. The defendant put forth a declaration stating that new employees were required to log into a portal using a unique ID and password, and, once logged in, may accept the arbitration agreement. The defendant also provided a screenshot indicating that the plaintiff accepted the arbitration agreement. The plaintiff countered that she did not remember completing any arbitration forms, that she was never given the forms, and that she has difficulties with English – because of that, she said, the defendant may have completed the forms on her behalf. The court stated that granting arbitration was not appropriate at this stage and that discovery was needed to better understand the plaintiff's use of the defendant's online orientation procedures.
Federal courts continue to uphold the validity of electronic signatures. In the following cases, courts upheld the validity of electronic signatures, usually with minimal discussion:
- Gomez v. Rent-A-Center, Inc., 2018 WL 3377172 (D. N.J. July 2018) – finding that (i) an electronic signature rather than a physical signature does not create a genuine factual dispute as to whether plaintiff signed the agreement; (ii) a bare allegation that "anyone" could have signed the arbitration agreement is insufficient; and (iii) the defendant submitted uncontroverted evidence that ample safeguards existed to prevent "anyone" from signing, including that the plaintiff needed to use a password known only to her to affix her electronic signature to the arbitration agreement.
- Trevino v. Acosta, Inc., 2018 WL 3537885 (N.D. Cal. July 2018) – finding that the defendant met its burden of authenticating that the plaintiff electronically signed the arbitration agreement, even though it only contained asterisks and did not have the plaintiff's name anywhere on it. The court reached its conclusion because of the declaration from the human resources manager that a system screenshot showing that the plaintiff completed the arbitration agreement could only have been generated after he completed the onboarding process, which required plaintiff to log on using his username and password and type his name to acknowledge the arbitration policy.
- Rock v. Solar Rating & Certification Corp., 2018 WL 3750617 (D. S.C. July 2018) – finding that the plaintiff signed the relevant agreement when he clicked an "I Agree" box.
- Garcia v. NRI USA, LLC, 2018 WL 3702293 (C.D. Cal. Aug. 1, 2018) – finding that the plaintiff assented to be bound to an arbitration agreement when she created an online user account, in which she created a unique username and password and then used the unique username and password to log in; moreover, the only way to access the arbitration agreement was to sign in; and, finally, the plaintiff had signed the arbitration agreement.
- Jaffey v. Del Taco Restaurants, Inc., 2018 WL 3997261 (D. Nev. Aug. 21, 2018) – finding that plaintiff's declaration that he did not remember signing the arbitration agreement was not sufficient when only the plaintiff had access to sign the contract through the online portal
- Boyton v. Xerox Commerical Solutions, LLC, 2018 WL 4001287 (W.D. N.C. July 31, 2018) – finding that the agreement to arbitrate is no less valid because the plaintiff signed using an electronic signature.
On June 20, 2018, Margo Tank and David Whitaker presented at the MERS User Conference in Reston, Virginia on "Enforceability of eNotes."
On July 13, 2018, David Whitaker discussed the keynote topic at the USFN 2018 Legal Issues in Mortgage Servicing Seminar, "E-Signatures and Electronic Loan Documentation in Real Estate Finance."
October 9 – 10 Margo Tank will be moderating a panel, "The Rise of Machines: Smart Contracts and Digitization of the Corporate Enterprise," at DLA Piper's Global Technology Summit on October 10 at the Rosewood Sand Hill in Menlo Park.
READ IT NOW
Ahead of DLA Piper's Global Technology Summit, Margo Tank discusses "Navigating Corporate Transformation through Digital Technology."
M. Tank and D. Whitaker, The Law of Electronic Signatures, Thomson Reuters (2018 Edition)