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 is our eighth bulletin for 2019, again 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 provide an analysis on the requirements for receiving an electronically signed 4506-T form, including the requirement that an independent party audit and ensure that all electronic signature requests meet the IRS requirements. In addition, we will cover 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.
IVES Participants – Are you meeting the IRS 4506T requirements?
To participate in the Income Verification Express Service (“IVES”) program using electronic signatures, all participants must ensure they meet the IRS 4506T requirements. IVES participants with audit findings that show a failure to meet all requirements will be prohibited from continuing to use electronic signatures. Read more.
Remote Online Notarization
- MISMO releases draft RON standards. On July 25, MISMO, the mortgage industry standards organization, released revised draft remote online notarization (RON) standards. The standards were open for public comment through August 12. Assuming that no substantive comments were received, the standards will be immediately moved to Candidate Recommendation status – indicating that they have been thoroughly reviewed and are ready for broad use across the entire residential mortgage industry. The standards include detailed recommendations for credential analysis, signer identity proofing, and audit and video requirements, as well as topics not currently addressed in various state RON enactments – storage of executed records and the creation and maintenance of detailed audit trails of the signing and storage process.
- CFPB settles with money transmitter in first enforcement action based on violations of the EFTA’s Remittance Transfer Rule. On August 27, 2019, the CFPB announced that it had reached a settlement with a money transmitter that provided remittance transfers to Mexico, Central America and South America. The CFPB found that the money transmitter violated the Remittance Transfer Rule when it stated that it would not be responsible for the errors made by its third-party payment agents when the Rule makes the money transmitter responsible. Further, the CFPB found that the money transmitter violated the Rule by using inaccurate language in its disclosures and by failing to maintain required policies and procedures.
Remote Online Notarization
- Ohio drafting RON regulations. As the September 18, 2019 effective date for Ohio SB263 nears, Ohio rushes to draft and enact regulations to support its enactment of RON in the state. The current draft of the regulations adopts significant portions of the draft MISMO standards for remote online notary credential analysis, identity proofing and audio/visual recording and maintenance.
- Status of RON enactments. As of August 30, a total of 22 states have enacted RON legislation as of the date of this publication. Those states are: Arizona, Florida, Idaho, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Montana, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia and Washington.
- Status of blockchain adoption. As of August 20, the following nine states have amended the state’s Uniform Electronic Transactions Act (UETA) to define "blockchain" or "smart contracts" and state that such constitute electronic records: Arizona, Arkansas, Nevada, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee and Washington. Additionally:
- Utah enacted laws related to money transmission and defined "blockchain";
- Vermont enacted a law providing that records created using “blockchain” are admissible into evidence as business records with an appropriate declaration; and
- Wyoming has enacted many laws related to the use of “blockchain”; however, those laws do not amend the Wyoming UETA or make records created using blockchain as enforceable as tangible documents.
- Blockchain implementation research coming to New Jersey. Governor Phil Murphy signed into law S2297 on August 8, establishing the New Jersey Blockchain Initiative Task Force. The task force will study blockchain technology, including:
- Opportunities and risks associated with using blockchain and distributed ledger technology;
- Types of blockchains, both public and private, as well as consensus algorithms;
- Projects and use cases currently under development in other states and nations, and how those cases could be applied in New Jersey; and
- How the legislature can modify current state laws to support secure, paperless recordkeeping.
Within 180 days of its initial meeting, the task force will issue a report, which will include the costs and benefits of government agencies utilizing blockchain technology and recommendations concerning the feasibility of implementation.
- Illinois creates Blockchain Business Development Act. On August 9, 2019, the Illinois governor signed into law HB2540, which creates the Blockchain Business Development Act. The Act provides for:
- The creation and regulation of blockchain-based limited liability companies as businesses that utilize blockchain technology for a material portion of their business activities;
- A public record blockchain study and report; and
- A blockchain insurance and banking study and report.
- 11th Circuit holds that one unsolicited text not sufficient for standing under the TCPA. In Salcedo v. Hanna, No. 0:16-cv-62480-DPG (11th Cir. Aug. 28, 2019), the court held that the receipt of a single unsolicited text message, sent in violation of the TCPA, is not a concrete injury in fact that establishes standing to sue in federal court. To reach this decision – which the court notes runs counter to the 9th Circuit – the court looked to its precedent, the judgment of congress, and history. Specifically, the court stated that when Congress enacted the TCPA in 1991, its concern over privacy centered on “‘intrusive invasion[s] of privacy’ into the home.” The court stated that a single text message does not always involve such an intrusion and that the plaintiff had not alleged that he was at home when he received the text message. Overall, the court stated that the plaintiff’s “allegations of a brief, inconsequential annoyance are categorically distinct” from the types of real but intangible harms contemplated by Congress when it enacted the TCPA as well as by the common law torts of intrusion upon seclusion, trespass and nuisance.
Online contract formation
- Court upholds electronic arbitration agreement without electronic signature. In Heb Grocery Company L.P. v. Perez, 2019 WL 3331466 (Tex. Ct. App. July 25, 2019), the court held that even though the defendant did not sign the arbitration agreement, the plaintiff provided "uncontroverted testimony" that the defendant had to review and consent to the arbitration agreement before submitting her work application. Specifically, the plaintiff put forward evidence that the defendant clicked "yes" to the question that asked whether the defendant agreed to, amongst other documents, the agreement to arbitrate.
- Court upholds electronic arbitration agreement in part because of contemporaneous text from plaintiff admitting to receiving agreement. In Iliev v. Elavon, Inc., 2019 WL 3554309 (N.D. Ill July 31, 2019), the court concluded that the plaintiff signed the application, and therefore agreed to the arbitration clause, because of a contemporaneous text that the plaintiff sent to an employee of the defendant in which the plaintiff acknowledged that she had received the application. The plaintiff had attempted to argue that while she signed a screen, the screen did not contain the application and instead only contained a white box for her signature and no documents. However, the defendant produced a text that the plaintiff sent an employee of the defendant in which the plaintiff stated that "her e-mail address 'is incorrect in the application.'" The court combined that evidence with the defendant's standard practice of how a customer receives an application to conclude that the plaintiff saw a document that told her that by signing, she was agreeing to the arbitration clause.
- Court upholds electronic arbitration agreement where defendant alleged he thought he was signing a preliminary draft. In Delta Fuel Co., Inc. v. Abbott, 2019 WL 3810047 (W.D. La. June 14, 2019), the court held that the defendant electronically signed the agreement containing the arbitration clause even though the defendant alleged that he thought he was signing a preliminary draft. The court notes that the context surrounding the defendant's electronic signature – which includes logging into an electronic portal and clicking the buttons required to complete the prompts – demonstrates by a preponderance of the evidence that the defendant signed the agreement and agreed to the arbitration, regardless of whether the defendant read the agreement.
- Court upholds non-compete and non-solicitation provisions that were entered into electronically. In Keurig Dr. Pepper v. Chenier, 2019 WL 3958154 (E.D. Tx. Aug. 22, 2019), the court held that when the defendant logged in to the website using a credential personal to him and accepted the restricted stock unit awards by acknowledging and agreeing – which the defendant did by checking a box – that he would be bound by the covenant not to compete, solicit or interfere. The court noted that under Texas's Uniform Electronic Transactions Act, an electronic signature can include a checkbox.
- Court denies motion to dismiss on website accessibility case. In West v. Docusign v. Alibris Inc., 2019 WL 3843054 (W.D. Pa. Aug. 15, 2019), the court found that the plaintiff sufficiently pled that the defendant, Alibris, owns, operates and controls the website through which persons access its services. Further, the court concluded that the plaintiff sufficiently pled that she suffered an injury-in-fact when she was unable to access the website as a visually-impaired person.
- New York court determines cryptocurrency may not be "cash-like" under credit card agreement. In a recent decision, the US District Court for the Southern District of New York issued an Opinion and Order denying, in part, the defendant bank’s motion to dismiss, finding that plaintiffs’ purchases of cryptocurrency using a credit card arguably do not qualify as “cash advances” under the credit card agreement. The defendant bank had initially treated the plaintiffs’ cryptocurrency purchases as standard transactions to “buy goods and services” under the credit card agreement, but recently processed such transactions as “cash advances” subject to substantially higher interest rates and transaction fees. Plaintiffs alleged breach of contract as well as violations of TILA and Regulation Z. The court denied the bank’s motion to dismiss in part, finding that the purchase of cryptocurrency was not a “cash-like transaction” under the credit card agreement, and thereby not a “cash advance,” as asserted by the bank. Applying Delaware law in the interpretation of the credit card agreement, the court found plausible the plaintiffs’ interpretation of the term “cash-like transaction” as referring to cash consisting of physical, government-issued fiat currency, and those goods that have face monetary value and represent a legal claim to fiat currency, such as checks and money orders. The court further acknowledged that “cryptocurrency does not imbue its holder with a legal right to any government-issued currency.” With respect to the plaintiffs’ TILA claims, the court agreed that the credit card agreement’s ambiguity as to which transactions are “cash-like” was sufficient to allege a violation of TILA and Regulation Z’s clear and conspicuous disclosure requirement. Plaintiffs’ other claims of TILA violations were dismissed.
- New York Court upholds typed signature in criminal case. In People v. Adams, 2019 N.Y. Misc. LEXIS 4230, the Criminal Court of the City of New York, New York County, held that an electronically typed signature, applied on an electronic copy of a deposition by the deponent, constituted an "electronic signature" under the New York Electronic Signatures and Records Act (NYESRA). The court noted that "a person may validly subscribe a supporting deposition by placing one's signature upon it by electronic means, so long as the signature was placed with the intent to sign the supporting deposition." The court found proof of the deponent's intent though the application of the signature by the deponent herself.
M. Tank and D. Whitaker, Law of Electronic Signatures, 2019 Edition
M. Tank, D. Whitaker, and A. Grant, Remote Online Notarization is Here to Stay, ABA Banking Law Committee Journal – Summer 2019.
M. Tank and D. Whitaker, "So you want to go digital…", Intellectual Property and Technology News (North America), Issue 41, Q1 2019.
M. Tank and D. Whitaker, "The Effectiveness of Clickwrap for Legally Enforceable Agreements," a white paper for DocuSign.
M. Tank and D Whitaker, "Trends in electronic signatures: strategies for addressing risk using biometric data," a white paper for Wacom.
M. Tank and D. Whitaker spoke at the annual Electronic Signatures and Records Association conference on August 15, 2019, regarding recent regulatory and legal updates.