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DLA Piper – ESIGNATURE AND EPAYMENT NEWS AND TRENDS

May 24, 2018

 

WELCOME TO THE LATEST ISSUE

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

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 digital transformation requires careful planning to ensure regulatory compliance, a smooth integration with existing business technology and a positive customer experience.

This bulletin is the second 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, our Insight piece addresses the topic of whether a power of attorney (POA) can be electronically signed. In addition, we cover recently enacted federal and state laws, federal and state regulatory activities, fresh judicial precedent and other important news.

INSIGHT

MAY A POWER OF ATTORNEY
BE ELECTRONICALLY EXECUTED?

Consumer and commercial transactions sometimes involve the creation of, and reliance upon, a power of attorney (POA). For example, a POA may be used to grant authority to an agent in connection with consummation of the transaction, or to confer attorney-in-fact status to one of the transaction participants.

When the transaction documents are presented and executed electronically, a key question arises: may a POA may be electronically executed? The answer depends on a number of considerations. This edition’s Insight explores the relatively complex relationship between a POA, the Electronic Signatures in Global and National Commerce Act (ESIGN), the Uniform Electronic Transactions Act (UETA) and other state laws governing the use of electronic records and signatures. Read it here.

LEGISLATIVE DEVELOPMENTS

STATE LAWS

Blockchain

Arizona

On May 12, 2018, the governor of Arizona signed into law a bill (HB 2601) relating to intrastate crowdfunding exemptions and virtual coin offerings. Specifically, the new law rewrites the statutory exemption pertaining to securities transactions to include crowdfunding and virtual coin offerings, provided that they meet certain criteria. The new law defines a virtual coin as a value represented digitally that can be traded digitally and functions as a means of exchange, a unit of account and value, and it defines a virtual coin offering as an offer for sale of a virtual coin that either meets the definition of a security (as defined in Arizona) or that the issuer elects to treat as a security by complying with additional requirements. Further, the new law confirms that the term “security,” when used with reference to a virtual coin, should not be more broadly construed than either the securities act or pertinent federal regulation.

Also on May 12, 2018, the governor of Arizona signed into law a bill (HB 2602) that prohibits a city, town or county from restricting an individual from running a node on blockchain technology in a residence. The law defines running a node on blockchain technology as providing computing power to validate or encrypt transactions in blockchain technology.

eNotarization

Vermont adopts Uniform Law on Notarial Acts: On May 22, 2018, the governor of Vermont signed into law a bill (H.256) that enacts the Uniform Law on Notarial Acts. While this law creates certain standards for notarial acts and allows for the use of electronic notarization and remote notarization, neither electronic notarization nor remote notarization will be allowed until the Vermont secretary of state has adopted and prescribed rules in those areas. When adopting such rules, they may not require, or accord greater legal status or effect to, the implementation or application of a specific technology or technical specification.

Tennessee adopts comprehensive electronic notarization law, including allowing for the use of remote notarizations: On May 15, 2018, the governor of Tennessee signed into law a bill (SB 1758) that (1) amends Tennessee’s law to allow for electronic acknowledgements and electronic notarizations and (2) enacts the Online Notary Public Act, which only applies to online notarizations. Specifically, the bill revises the law to state that an electronic signature is a form of original signature and that the person providing the signature can appear before an officer via an interactive two-way audio and video communication that meets the online notarization requirements promulgated by the secretary of state pursuant to the Online Notary Public Act. Further, the Online Notary Public Act governs online notary public registration, use of electronic seal and record keeping. This bill takes effect upon becoming a law for administrative and rulemaking purposes and on July 1, 2019, for all other purposes.

Texas proposes regulations governing remote notarization: On May 4, 2018, the Texas secretary of state published proposed rules to implement HB 1217, which allows for remote notarization. The proposed regulations address (1) how to become an online notary public; (2) the online notarization process;l (3) detailed descriptions that methods of identifying the signer must meet (eg, standards that knowledge-based authentication and credential analysis must meet); (4) record-keeping requirements; and (5) an online notary public’s use of electronic seals and signatures. Comments must be filed by June 1, 2018.

eWills

Arizona passes law governing electronic wills: On May 16, 2018, the governor of Arizona signed into law a bill (HB 2656) that governs electronic wills and trusts. The law recognizes the legality of electronic wills and governs their creation (eg, requires the electronic signature of at least two persons), the use of qualified custodians, the access and destruction of electronic records, and certified paper originals.

Insurance

Kansas revises its law regarding electronic delivery of insurance documents: On May 8, 2018, the governor of Kansas approved a bill (SB 348) that authorizes a health benefit plan to use electronic delivery as the standard method of delivery for the explanation of benefits and policy, including federally required summary of benefit and coverage documents, to a party when paper documents are readily available and notification has been provided to the party explaining the party’s option to receive paper documents via U.S. mail. The plan must deliver paper documents via US mail if the party notifies the plan of his or her preference for receiving the documents in such a manner. Further, the bill amends existing Kansas law related to the procedures for obtaining consent for electronic delivery of insurance documents, clarifying that the consent procedures are not applicable to a health benefit plan’s electronic delivery of the explanation of benefits and policy.

Power of Attorney

New Kentucky law allows electronic signatures on certain power of attorney documents: On April 26, 2018, the governor of Kentucky signed into law the Uniform Power of Attorney Act. As discussed in this issue’s Insight article, whether ESIGN or UETA renders a POA enforceable is not always clear. The act brings greater certainty for POAs within its scope. The act defines a “record” to include information “stored in an electronic or other medium and [that] is retrievable in perceivable form.” Further, signatures may be electronic. Therefore, if a power of attorney falls within the purview of the Act, which includes durable POAs but can exclude healthcare POAs, then it may be signed electronically provided that it complies with the rest of the Act.

Recording

Maryland enacts the Uniform Real Property Electronic Recording Act: On May 8, 2018, the governor of Maryland approved a bill (HB 1093) enacting the Uniform Real Property Electronic Recording Act (URPERA). Under URPERA, if a law requires, as a condition for recording, that a document be an original, in writing, on paper, or that a document be signed, an electronic document or signature satisfies the law. A requirement that a document or signature be notarized, acknowledged, verified, witnessed or made under oath is satisfied if the electronic signature and all other required information is attached to and logically associated with the document or signature. URPERA also allows a clerk of a circuit court to convert into electronic form any paper documents accepted for recording, and if the clerk of the circuit court accepts electronic documents for recording, the clerk must continue to accept paper documents and place entries for electronic and paper documents in the same index.

REGULATORY DEVELOPMENTS

STATE DEVELOPMENTS

NYDFS grants Bitlicense to Genesis Global Trading: In May 2018, the NYDFS granted Genesis Global Trading a Bitlicense. Genesis conducts over-the-counter virtual currency block trading of Bitcoin, Ether, Litecoin and other cryptocurrencies with counterparties on a proprietary basis. Prior to receiving the license, Genesis operated under a safe harbor provision.

NYDFS authorizes Paxos Trust Company LLC to offer a permissioned, blockchain-based post-trade platform settlement service: Paxos Trust Company LLC, formerly known as itBit Trust Company, was authorized by NYDFS to offer a permissioned, blockchain-based post-trade platform settlement service called Bankchain. As itBit, Paxos was the first cryptocurrency company to receive a charter under the New York Banking Law.

FEDERAL DEVELOPMENTS

FCC seeks comments on TCPA in light of DC Circuit’s ACA decision: Following the DC Circuit’s decision in ACA International v. FCC (covered in our April Insight), the FCC released a Public Notice on May 14, 2018 seeking comment on several issues related to interpreting the Telephone Consumer Protection Act (TCPA). First, the FCC seeks comment on what constitutes an “automatic telephone dialing system” after the court set aside the FCC’s previous capacious interpretation as “beyond the agency’s zone of delegated authority.” Specifically, the FCC seeks comment on the following:

 

How to more narrowly interpret “capacity” to better comport with the congressional findings and the intended reach of the TCPA

What functions must a device perform to qualify as an automatic telephone dialing system, including whether “automatic” means without human intervention

Regarding the provision addressing a “random or sequential number generator,” if equipment cannot dial random or sequential numbers (eg, a predictive dialer), can that equipment still be an automatic telephone dialing system

What “mak[ing] any call…using any automatic telephone dialing system” means, and whether it appliesonly to calls actually made using an equipment’s automatic telephone dialing system capability.

Second, after the court vacated as arbitrary and capricious the FCC’s interpretation of the term “called party,” the FCC is seeking comment on how to interpret that term for reassigned numbers. The FCC is asking whether it should maintain its reasonable-reliance approach to prior express consent, and, if a reassigned numbers safe harbor is necessary, what is the FCC’s statutory authority for such a harbor.

Third, the FCC is seeking further comment on how a called party can revoke prior express consent (and the FCC is seeking such comment even though the court upheld the FCC’s prior interpretation of this issue). Fourth, the FCC is seeking comment on whether contractors acting on behalf of federal, state and local governments are “persons” under the TCPA. And fifth, the FCC seeks comments on prior TCPA orders related to debt collection. Comments are due by June 13 and reply comments are due by June 28.

This Public Notice comes on the heels of two requests to the FCC: (1) a petition for declaratory ruling authored by the Chamber of Commerce and other industry groups, which requests that the FCC clarify the definition of an automatic telephone dialing system; and (2) this letter from Democratic senators requesting that the FCC adopt important consumer safeguards surrounding the definition for an automatic telephone dialing system, reassigned numbers and revocation of consent.

CASE LAW

FEDERAL CASE LAW

Court finds that state agencies impermissibly refused to use electronic signatures: On May 10, 2018, in Stringer v. Pablos, the United States District Court for the Western District of Texas addressed whether defendants disenfranchised plaintiffs by their failure to use pre-existing electronic signatures for simultaneous voter registration applications for National Voting Rights Act-covered online driver’s license transactions. The NVRA requires, in part, that each state motor vehicle driver’s license application (including any renewal application or change-of-address) submitted to a motor vehicle authority must serve as a simultaneous voter registration application (or change-of-address notice) unless the applicant fails to sign the voter registration application. In Texas, to receive a driver’s license, each person must apply in person, and in so doing, that person signs a key pad that captures his or her electronic signature. The defendants then used the pre-existing electronic signature for simultaneous voter applications when the person applied for renewal/replacement/change of address in person or by mail, but did not do so when the person submitted it online. The defendants claim that the Texas Election Code does not allow for the use of previously captured electronic signatures for online transactions – even though these are already used for mail-in and in-person transactions. The court found that neither federal law nor state law (and specifically ESIGN and UETA) limits the signature requirement to handwritten signatures and that there is no legal impediment to using electronic signatures. Further, the court stated no law supports the defendants’ justification for limiting simultaneous voter applications for voters that renew or change their driver’s license online. The court therefore granted the plaintiff’s motion for summary judgment and denied the defendants’ motion for summary judgment.

Court holds that FTC staff letter addressing soundboard technology was not a “final agency action” subject to review under the APA: In 2016, the FTC issued a staff letter announcing that it would treat calls using soundboard technology – which allows live agents to communicate with callers using recorded audio snippets rather than the agent’s live voice – as robocalls under the Telemarketing Sales Rule. The Soundboard Association challenged that letter. On April 27, 2018, in Soundboard Association v. FTC, a divided panel for the United States Court of Appeals for the DC Circuit held that because the staff letter does not constitute the consummation of the FTC’s decision making process on its own terms and under FTC regulations, it is not a final agency action. Because the claims were pleaded as APA claims, and cannot proceed without final agency action, the court vacated the lower court’s ruling (which held that the letter did not violate the Administrative Procedures Act’s notice-and-comment requirements) and dismissed the case for failure to state a cause of action under that act. This means the FTC’s staff letter on soundboard technology remains valid guidance.

Texts not sent via autodialer because equipment did not have the capacity to store or produce telephone numbers using a random or sequential number generator. On May 14, 2018, in Herrick v. GoDaddy.com LLC, the US District Court for the District of Arizona granted the defendant’s motion for summary judgment because it determined that the defendant did not use an automatic telephone dialing system to send a text to the plaintiff. The court noted that the DC Circuit had recently set aside the FCC’s interpretation of an automatic telephone dialing system (covered in our April Insight). Because of this, the court not only did not defer to any FCC pronouncements regarding the capacity to store or produce numbers using a random or sequential number generator, it also declined to follow Ninth Circuit precedent that was based on such interpretations. In doing so, the court concluded that it would not apply a broad interpretation to this function. The court held that because the numbers texted could only be input by a preprogrammed list, the system could not randomly or sequentially generate those numbers by itself. The court further held that even if the above argument failed to disqualify the system from being an ATDS, the fact that the system was unable to dial numbers without human intervention would serve as a separate basis for disqualification.

COMING EVENTS

Tank, “Securing the Digital Mortgage,” MBA Secondary Conference, May 23, 2018

Tank and Whitaker, “eSignatures, Blockchain and Smart Contracts, Oh My! The New Landscape for Digital Transactions,” Clear Law Institute Webinar, May 31, 2018

Tank and Whitaker, “Building a Foundation of Knowledge: Communicating the Viability of eNotes to Your Legal Team,” at the MERS User Conference, June 20, 2018

Whitaker, “E-Signatures and Electronic Loan Documentation in Real Estate Finance,” Keynote Topic at the USFN 2018 Legal Issues in Mortgage Servicing Seminar, July 13, 2018

READ IT NOW

M. Tank and D. Whitaker, The Law of Electronic Signatures, Thomson Reuters (2018 Edition)

M. Tank, D. Whitaker, P. Fry, “Smart” Contracts, Blockchain & Commercial Law, Chamber of Digital Commerce (with contributions from A. Grant) (2018) – available soon


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