eSignature and ePayment News and Trends

Achieving Digital Transformation and Securing Digital Assets

eSignature and ePayment News and Trends

eSignature and ePayment News and Trends

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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.

Each issue will feature in-depth insight on a timely and important current topic.

In this issue, we analyze recent case law to demonstrate the importance of proper authentication and record integrity processes in ensuring the validity of an electronic signature. In addition, this edition 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

Electronic signature hygiene – taking steps to help ensure that your electronic signature process allows you to enforce a disputed signature

By Margo H.K. Tank, R. David Whitaker, Andrew W. Grant and Liz Caires

It is a common misperception that an entity only needs to have a person electronically sign a document for such document to be valid. While no electronic signature may be held invalid solely because it is in electronic form, an electronic signature’s validity can be attacked on other grounds. Two recent cases show the importance of developing an electronic signature process that (1) authenticates the person signing before he or she signs, (2) captures the person’s intent to sign the document, and (3) ensures record integrity. Failure to develop adequate processes regarding these elements of an enforceable electronic signature process will negatively impact an entity’s ability to prove that a particular signer created the signature and signed the document in the event of a dispute.

First, in Malone v. Hoogland Foods, LLC, 2020 WL 6158201 (W.D. Wis. Oct. 21, 2020), the court could not conclude that the plaintiff intended to sign the document in question. The plaintiff was hired by defendant and, as part of the employee onboarding process, the plaintiff had to create a user ID and password. However, the plaintiff stated that an employee of defendant was the person in front of the computer and she slid the keyboard to him and asked him to (1) create his user ID and password, and (2) later enter in the same but without clicking any button. The plaintiff stated that he did not read what was on the computer and did not realize that by entering his user ID and password, he was signing the employment contract. The defendant produced a signed agreement with the plaintiff’s username in the signature field. The court stated that commentary to Wisconsin’s Uniform Electronic Transactions Act stated that an “intent to sign” was relevant to determining the existence of an electronic signature, including in a click-through transaction. The court stated that even if the plaintiff’s act of typing his password created a signature, that by itself does not establish that he intended to sign the employment agreement and leaves it open to dispute. 

Second, in Read v. Eastside Medical Center, LLC, 2020 WL 5659436 (N.D. Ga. Sep. 23, 2020), the court denied the defendant’s motion to compel arbitration because even though the agreement contained a typed electronic signature, the defendants did not offer any evidence that plaintiff personally placed the electronic signature on the agreement. The court noted that just because plaintiff was admitted to a facility, and that signing the agreement was a precondition to entering the facility, that fact did not establish that plaintiff was the person who signed the arbitration agreement. Further, the court stated that under the Federal Rules of Evidence, there must be something more than the appearance of the item to authenticate it - particularly regarding documents that can be easily altered such as those generated by a computer.

Therefore, while the courts did not expressly say so, being able to introduce into an evidence a tamper-evident signed document, a tamper-evident audit log that contains specific elements of the signing process, and evidence regarding how such documents are made tamper-evident such that any alteration would be detectable would likely help allay judicial concern regarding whether the document presented before the court has been altered since it was signed. To read more on the importance of audit logs, please see the following article: Audit logs: key to enforceable electronic signatures.

REGULATORY DEVELOPMENTS

FEDERAL

Blockchain

Legislation introduced to amend the ESIGN Act for blockchain and smart contracts.On October 6, Representative David Schweikert (R-AZ) and Representative Darren Soto (D-FL) of the Blockchain Caucus announced their introduction on October 2 of HR8524the Blockchain Records and Transactions Act of 2020, which modifies the Electronic Signatures in Global and National Commerce Act (ESIGN Act) to expressly state that smart contracts and records created and stored using blockchain may not be denied legal effect or validity solely due to the underlying technology. Specifically, the Blockchain Records and Transactions Act:

  • Amends the definition of electronic records to expressly include records maintained using blockchain technology
  • Amends the definition of electronic agent to expressly include smart contracts
  • Defines each of blockchain and smart contracts and
  • Requires states to give legal recognition to blockchain records and smart contracts.

For more information on the application of smart contracts and blockchain to ESIGN and state UETA statutes, see Chapter 2: "Smart Contracts, Blockchain, and Commercial Law" of the Chamber of Digital Commerce report, Smart Contracts: Is the Law Ready?, authored by Margo TankDavid Whitaker and Mark Radcliffe of DLA Piper, and published in September 2018.

Virtual currency

FRB and FinCEN issue proposed rule that would amend the Recordkeeping Rule and Travel Rule under the Bank Secrecy Act, including by clarifying that “money” includes convertible virtual currency: On October 27, 2020, the Board of Governors of the Federal Reserve System (FRB) and the Financial Crimes Enforcement Network (FinCEN) proposed a rule that would amend the Recordkeeping Rule and the Travel Rule under the Bank Secrecy Act (BSA) by reducing the threshold from $3,000 to $250 for international transfers. Further, the FRB and FinCEN propose that the term “money” as used in those rules apply to domestic and cross-border transactions involving convertible virtual currency, which is a medium of exchange that either has an equivalent value as currency or acts as a substitute for currency but lacks legal tender status.

STATE

Electronic records and signatures

California requires paper written opt-out to receive electronic disclosure instead under certain laws: On September 25, 2020, the governor of California signed into law two bills (AB 1551, AB 2471) that require a copy of various disclosures required under the PACE assessment program to be delivered in paper to property owners unless the person opts out by signing a printed paper document to receive the copy electronically in accordance with California’s Uniform Electronic Transactions Act.

Blockchain

NYDFS and CSBS to host techsprint on digital regulatory reporting for virtual currency companies: On October 15, 2020, the New York Department of Financial Services (DFS) announced that it would collaborate with the Conference of State Bank Supervisors to work towards a common goal of digital regulatory reporting, with the first area of focus being virtual currency companies.

CASE LAW

FEDERAL

Court finds that plaintiff did not electronically sign agreement but did electronically sign acknowledgment, thus binding plaintiff to agreement: In Reynolds v. NRC Environmental Services Inc. 2020 WL 6083112 (C.D. Cal. Aug. 24, 2020), the court held that despite defendant’s evidence regarding onboarding process for new employees, the defendant failed to show that plaintiff signed the agreement under California’s Uniform Electronic Transactions Act because the defendant could not show that the plaintiff took any act to execute the agreement. The agreement contained a blank signature field and no marks that could be construed as an electronic signature, thus there was no act to attribute to the plaintiff. With that said, the court found the plaintiff electronically signed the acknowledgment form, which incorporated the agreement and the arbitration provision by reference. Therefore, the court concluded that an enforceable agreement to arbitrate existed.

Court upholds arbitration agreement entered into electronically:

  • In Daniels v. Aaron’s, Inc., 2020 WL 5810018 (W.D. N.Y. Sep. 30, 2020), the court upheld the arbitration agreement to which the plaintiff agreed to electronically because failing to recall signing the arbitration agreement is insufficient to absolve plaintiff from his contractual obligations.
  • In Patterson v. Lear Capital, Inc., 2020 WL 6081897 (D. Utah Oct. 15, 2020), the court upheld an arbitration agreement entered into electronically, despite plaintiff’s claims that he had no time to review the documentation and that the transaction agreement was not available online when he signed it. The court noted that the agreement was two pages long, and that the plaintiff did not claim that he signed blank pages, meaning that the contents of the agreement were online for plaintiff to read before signing. 

RECENT AND UPCOMING EVENTS

Learn about upcoming events in the ESRA Digital 2020 Education Series, including webinars on mortgage eclosings, remote online notarization, and digital transformation in automotive selling and lending.

Margo Tank spoke at the MBA/ALTA Mortgage Boot Camp on Wednesday, August 19, 2020, regarding standards and practices required for both title insurance and lending on digital transactions.

RECENT PUBLICATIONS

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.

Margo H.K. Tank recently published an article in CoinTelegraph titled “Blockchain regulation: speedbumps, roadblocks and superhighways.” 

For more information

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Contacts

Learn more about our eSignatures and ePayments practice by contacting:

Margo H.K. Tank

David Whitaker