DIGITAL LEGAL DOCUMENTS:

Jurisprudence Analysis and Relevant Cases

Monday, November 12, 2018

R. David Whitaker
Partner
david.whitaker@dlapiper.com
+1 312 368 2199

This presentation is offered for informational purposes only, and the content should not be construed as legal advice on any matter.

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Background
 Federal and state laws validate use and acceptance of electronic signatures
and electronic records
– Uniform Electronic Transactions Act (UETA) – 1998 (49 jurisdictions)
– Federal Electronic Signatures in Global and National Commerce Act
(ESIGN Act) – 2000
 Reasons for slow adoption
– Lack of regulatory guidance and judicial precedent
– Crisis de jour
– Interoperability
– Build v. buy
 2019 and beyond
– Customer demand/expectation for digital transformation at all-time high
– How to ensure enforceability and avoid regulatory missteps
– How to digitally transform

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Agenda
 A brief overview of US law on electronic contracting
 The key risks when presenting information in an electronic
environment to ensure enforceability and avoid unfair and deceptive
claims
 Emerging judicial and regulatory issues:
– Authentication
– Attribution and authority
– Presentation of terms
– Enforceability of terms
– Retention and audit trails
– Relying on third-party electronic signing processes
 Resources

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eSignature legal framework
 UETA - state solution
 ESIGN - federal solution
 Both laws act as overlay statutes
– Authorize replacing writings with electronic records
– Authorize replacing ink signatures with electronic signatures
– Require affirmative opt-in by parties
 The outliers
– New York, Illinois, Washington
– The really “out there” outlier – California
 Preemption
 Global framework
– Simple, advanced and qualified

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The five pillars
 A record or signature may not be denied legal effect or enforceability
solely because it is in electronic form
 If a law requires a record to be in writing, an electronic record satisfies
the law
 If a law requires a signature, an electronic signature satisfies the law
 If a law requires the preservation or production of an “original,” the
“original” requirement is satisfied by an electronic record
 Electronic records can satisfy writing and original requirements so long
as the electronic record:
– Accurately reflects the information in the record to be produced
after it was first generated in its final form, and
– Remains accessible for later reference

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The scope of the statutes
Both laws apply to the use of electronic records and signatures in virtually any
business-to-business or consumer transaction, unless specifically excluded:
–Certain “bad things are gong to happen to you” notices
–Statutes that are “special” – UCC Articles 4A, 5, 8 and 9
–Wills, codicils, testamentary trusts
–Governmental transactions
Covers (among many other things):
–Residential and commercial real estate transactions (subject to filing rules)
–Commercial and consumer loans and leases (equipment, aircraft, etc.)
–Contracts and licenses (employment, procurement, software, etc.)
–Sales and leasing of goods (retail installment sales, chattel paper, etc.)
–Insurance policies
–Most securities transactions
–Most tax documents
–Notarization and recording (generally)

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Definitions of an “electronic signature” and an
“electronic record” under ESIGN and UETA
 “Electronic signature” means:
– an electronic sound, symbol, or process
– attached to or logically associated with a record
– executed or adopted by a person with the intent to sign the record
 Includes:
– Traditional ink signatures
– Typed names
– A click-through on a software program’s dialog box combined with
some other identification procedure
– Biometric measurements
– A digitized picture of a handwritten signature

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Definitions of an “electronic signature” and an
“electronic record” under ESIGN and UETA

– A complex, encrypted authentication system

– Electronic voice transmission
– Recording may be required to establish proof (and possibly to
meet the “attached or logically associated” standard)
– Beware contract limitations on use of voice signatures

 “Electronic record” means a record created, generated, sent,

communicated, received or stored by electronic means

 A “record” is information that is inscribed on a tangible medium or

that is stored in an electronic or other medium and is retrievable in
perceivable form

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Electronic signatures and records are enabled: but
now what?
 Attribution, authority and intent are key to enforceability BUT specific
requirements are NOT addressed in ESIGN or UETA
 Record presentation, retention and integrity are key to enforceability
BUT specific requirements are NOT addressed in ESIGN or UETA
 Both ESIGN and UETA are self-effectuating laws, so where do you
look to fill in the gaps:
– Sector specific regulation/guidance
– Judicial decisions
– Rules of evidence
– Industry standards

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Doing business in an electronic environment: key risks
 Authentication, attribution and authority risk:
– The risk is that the signer says “that is not my signature”
– Is the signer who they say they are?
– Did the signer have the authority to sign?
– Was the signer’s signature created by someone else?
 Compliance risk:
– The risk is that the rules and regulations are not met
– Laws governing the underlying transaction
– Requirements of ESIGN and UETA
– Unfair and deceptive acts and practices (UDAAP/UDAP)

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Doing business in an electronic environment: key risks
 Enforcement risk:
– The risk is that the agreement or disclosure is not enforceable
– Was the agreement clearly presented?
– Clear and conspicuous
– Button labeling
– Deep linking
– Was the agreement effectively presented?
– Notice, intent and assent
– Placement of the signature “call to action”
– The absence of clarity or “ceremony”
– Intent to sign
– Was the signer given an opportunity to retain a copy?

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Doing business in an electronic environment: key
risks
 Repudiation risk:
– The risk is that the signer will question the record’s integrity
– “That is not the record that I signed or the disclosure that I received”
 Admissibility risk:
– The risk is that the electronic record is not admissible into evidence
– Introduction into evidence will require proof of integrity:
– Identification to original transaction
– Freedom from alteration
– Chain of custody

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Consequences of failing to address key risks
 Unenforceable transaction (arbitration, limitations on liability and
indemnification clauses fail, etc.)
 Loss of negotiability/devalued asset
 Liability for unauthorized transaction
 Choice of law
 Loss of IP
 Loss of control of data
 Statutory penalties
 Class actions
 Enforcement actions:
– CFPB, FTC, IRS, FDA, DOJ, FCC, OCC
– State AG

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Authentication risk: attribution and authority
 Legal sufficiency vs. attribution
– UETA and ESIGN answer the question “is it a signature?”
– Do NOT answer the question “is it your signature?”
 Attribution must be proven
– May be proven by any means, including surrounding circumstances or
efficacy of agreed-upon security procedure
– Burden of proof is on person seeking to enforce signature
 Authority must be established
– Individuals – watch out for contracting by minors and individuals with
“diminished capacity”
– Representatives
– Various strategies available
 Case illustrations:
– Mansour v. Kmart Corp., Inc., 2018 WL 3575062 (D. Md. July 2018)
– Stonewall of Woodstock Corp v. Stardust 11TS, LLC and Oliver Block, 2018
WL 3805823 (2018)
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Compliance risk
 ESIGN 101(c) for consumer transactions
 Transaction-specific legal requirements
– Timing issues – what to deliver when, and in what order
– Presentation issues – may need special colors, font sizes or positioning of
certain terms or provisions vis-à-vis other elements of the record in order to
meet requirements for clarity, conspicuousness, and fairness
– Retention – by both provider and recipient
 Guiding principle: do no harm – use the electronic medium to enhance, not
obscure, effective delivery
 Case illustration:
– Consumer Financial Protection Bureau v. TCF National Bank, Memorandum
Opinion and Order, Civ. No. 17-166 (US Dist. Ct. Minn. (September 8, 2017)

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Enforcement risk
 The effective presentation of terms and intent to agree must be established
– Agreement terms must be effectively presented
– Clearly identified
– Designed to call attention to
– Available prior to agreement
– Placed in a logical location
– Use of hyperlinks
– Reasonable opportunity to review and retain
– Need to establish an intent to agree
– Clearly labeled call to action
– Clearly associated with the terms being agreed to
 Case illustrations:
– Berkson v. GOGO LLC, United States District Court for the Eastern District of New
York. 97 F.Supp.3d 359 (E.D.N.Y. 2015)
– National Federation of the Blind v. The Container Store, Inc. 904 F.3rd 70 (1st Cir.)
(2018)

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 Repudiation and admissibility risk

 Preserving evidence of data integrity, screen shots and process flows is

essential
 Design document management systems with system and record protections in
mind (such as developing backup procedures, audit logs and encryption
methods to enable the demonstration that the records have not been tampered
with, data deterioration procedures, system security safeguards)
 Document that the policies and procedures were followed (who did what when
as a general matter)
 Audit document management for quality as part of ongoing continuous
improvement process
 Case illustrations:
– Lorraine v. Markel American Ins. Co., 241 F.R.D. 534, 538 (D.Md. 2007)
– In Re Vee Vinhnee, 336 B.R. 437 (9th Cir. BAP (Cal.) 2005)
– Adams v Superior Court [Adams v. Quicksilver, Inc.], no. G042012 (Cal.
App. 4th Div. Feb. 22, 2010) (unpublished)

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Accepting third-party electronically
signed documents

 Growing trend
– Companies look to accept documents that have been signed using third
party processes and are then presented to the company for acceptance and
reliance.
– Three general categories of electronic records that have been signed using
a third party’s electronic signature process:
– Records delivered electronically with a “flattened” electronic signature --
that is, without certain metadata (e.g., descriptive, structural and
administrative)
– Records that have been flattened by being printed out, and delivered to
the company on paper or sent by facsimile
– Records delivered electronically with “dynamic” attributes, including
metadata about the signing process and the integrity of the document

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Accepting third-party electronically
signed documents
 Procedures and training
– Eligibility and acceptance criteria to address the “key risks”
– May vary by document type
– May vary by transaction size or liability exposure
 Acceptance procedures
– Acceptable platforms/formats
– Training for intake employees
– What to look for:
– Stare-and-compare
– Inspection of metadata
– Inspection of accompanying audit logs
 Reps and warranties or certification
 Retention of transmittal communications

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Key resources
 Standards and Procedures for Electronic Records and Signatures
 The Law of Electronic Signatures, 2018 Edition, Thomson Reuters Publishing
 Enabled by Lenders, Embraced by Borrowers, Enforced by the Courts: What
You Need to Know About eNotes, MERSCORP Holdings, Inc. (2017)
 Electronic Retail Installment Sales Contracts in California, The Review of
Banking & Financial Services, Vol. 33, No.12 (December 2017)
 It’s the Message, Not the Medium!, The Business Lawyer, Vol. 60, No. 4
(2005)
 Special Considerations For Perfection Opinions Covering Electronic Chattel
Paper As Collateral, Journal of Equipment Lease Financing (Spring 2015)
 Smart Contracts Legal Primer, Chamber of Digital Commerce (2018)
 eSignature and ePayment News and Trends, monthly newsletter from DLA
Piper– available at www.dlapiper.com under Insights and at the DLA Piper
Linkedin Page

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 Questions?

R. David Whitaker
Partner
+1 312 368 2199
david.whitaker@dlapiper.com

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