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Presenting a live 90-minute webinar with interactive Q&A

E-Signatures and Electronic Loan Documentation: Complying with ESIGN/UETA, Interplay With the UCC

Navigating Issues of Enforceability, Authentication of E-Signatures and Admissibility

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific THURSDAY, SEPTEMBER 14, 2017

• J. Sharon Kim, Esq., Burr & Forman, Atlanta

Ed Snow, Partner, Burr & Forman, Atlanta

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The Legal Challenges in e-Signatures: Key Pointers to Ensure Validity

September 14, 2017 Sharon Kim Associate Burr & Forman shkim@burr.com Ed Snow Partner Burr & Forman esnow@burr.com

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What We Will Cover Today

I. Introduction to ESIGN and UETA II. Electronic Signatures--What Are They?

• III. “Pre-Electronic” Signature Law—Ensuring Validity
• IV. Electronic Signature Law--Provisions and Practices to

Ensure Validity V. Electronic Signature Law--Third Party Documents and Evidentiary Considerations to Ensure Validity VI. Relevant e-Signature Case Law Update

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• I. Introduction to ESIGN and UETA:

A Brief History of Electronic Transactions Law

• With the rise of e-commerce, states were going to make their
• wn electronic signature laws.
• Circa 1999, National Conference of Commissioners on

Uniform State Laws drafted the Uniform Electronic Transactions Act (“UETA”) to avoid non-uniformity and urged the states to adopt it. States started adopting UETA, but often with changes, making the law less uniform.

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A Brief History of Electronic Transactions Law

• Some states (NY, IL, and WA) insisted on their own laws

rather than follow NCCUSL.

• Concerned that state e-commerce law was not going to be

uniform enough, the federal government enacted in 2000 the Electronic Signatures in Global and National Commerce Act (“ESIGN”)

• ESIGN pre-empted state e-commerce laws that varied in

certain ways from UETA.

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UETA and ESIGN Main Points:

1. A record or signature may not be denied legal effect or enforceability solely because it is in electronic form. 2. A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation. 3. If a law requires a record to be in writing, an electronic record satisfies the law. 4. If a law requires a signature, an electronic signature satisfies the law. 5. In a proceeding, evidence of a record or signature may not be excluded solely because it is in electronic form.

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Exclusions under UETA and ESIGN

• Laws regarding wills, codicils, and testamentary trusts
• The UCC, except Section 1-107 (Waiver of Renunciation of

Claim or Right After Breach), Section 1-206 (Statute of Frauds for Kinds of Personal Property Not Otherwise Covered), Article 2 (Sales), and Article 2A (Leases)

• Other laws (e.g., notice of the cancellation or termination of

utility services; certain notices of default, etc., in consumer transactions; notice of the cancellation or termination of health or life insurance benefits; and notice of the recall of a product, or material failure of a product, that risks endangering health or safety, among others)

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UETA, ESIGN and Commercial Loan Closings?

• While the law has permitted electronic commercial loan

closings since the late 1990s in most cases, commercial banks have yet to fully embrace electronic closings, with today’s “dual track closings” with emailed PDFs to fund followed by wet signatures embracing the new law so long as it is backstopped by older law.

• Why haven’t banks fully embraced electronic commercial loan

closings?

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UETA, ESIGN, and Loan Documents

Some reasons for not closing commercial loans solely by electronic means:

• Some banks won’t fund without an inked promissory note

(even if Article 3 of the UCC is irrelevant).

• Some lenders must physically pledge an inked note to a

funding source as collateral.

• Borrower’s counsel may not be ready to give closing opinions
• ver electronic documents.
• Fear that courts will not find electronic signatures

attributable to the party to be charged.

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• II. Electronic Signatures: What Are They?

The heart and soul of UETA and ESIGN are these two points: 1. A signature, contract, or other record relating to a transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form. 2. A contract relating to a transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.

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• What is “electronic”?
• Relating to technology having electrical, digital,

magnetic, wireless, optical, electromagnetic, or similar capabilities.

• What is an “electronic signature”?
• An electronic sound, symbol, or process attached to
• r logically associated with a record and executed or

adopted by a person with the intent to sign the

• record. It includes a digital signature.

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• What is a “transaction”?
• An action or set of actions occurring between two or more

persons relating to the conduct of business, commercial,

• r governmental affairs
• What is a “record”?
• 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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What is a “Transferable Record”?

The term "electronic record" includes as a subset thereof a "transferable record" which is defined in UETA Section 16(a) as "an electronic record that:

• 1. would be a note under [Article 3 of the Uniform

Commercial Code] or a document under [Article 7 of the Uniform Commercial Code] if the electronic record were in writing; and

• 2. the issuer of the electronic record expressly has

agreed is a transferable record."

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What is a Transferable Record?

Following the lead of the drafters of UCC Section 9-105, the drafters of UETA provided in UETA Sections 16(b) and (c) that a party has "control" over a transferable record, granting such party with many of the rights of a holder in due course under UCC Article 3, if the conditions of UETA Sections 16(b) and (c) are met: (b) [General rule: control of transferable record.] A person has control of a transferable record if a system employed for evidencing the transfer of interests in the transferable record reliably establishes that person as the person to which the transferable record was issued or transferred.

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(c) ["Safe Harbor": specific facts establishing control.] A system satisfies subsection (b), and a person is deemed to have control of a transferable record, if the transferable record is created, stored, and assigned in such a manner that: (1) a single authoritative copy of the transferable record exists which is unique, identifiable, and, except as otherwise provided in paragraphs (4), (5), and (6), unalterable; (2) the authoritative copy identifies the person asserting control as: (A) the person to which the transferable record was issued; or (B) if the authoritative copy indicates that the transferable record has been transferred, the person to which the transferable record was most recently transferred; (3) the authoritative copy is communicated to and maintained by the person asserting control or its designated custodian; (4) copies or revisions that add or change an identified assignee of the authoritative copy can be made only with the consent of the person asserting control; (5) each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy; and (6) any revision of the authoritative copy is readily identifiable as authorized or unauthorized.

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Official Comment 6 to UETA Section 16:

“A transferable record under Section 16, while having no counterpart under Article 3 of the Uniform Commercial Code, would be an ‘account,’ ‘general intangible,’ or ‘payment intangible’ under Article 9 of the Uniform Commercial Code. “ Therefore, reading the UCC and UETA together it is clear that under UCC Article 9 a secured party may perfect against electronic records (including transferable records) by filing under UCC Section 9-312(a) because electronic records constitute either accounts or general intangibles.

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An "electronic promissory note" that is intended to have the benefits of being a transferable record rather than just merely an electronic record can only be created if the maker expressly agrees within the terms of such "electronic promissory note" that the same is issued as a transferable record. Per Official Comment 2 to UETA Section 16: [C]onversion of a paper note issued as such would not be possible because the issuer would not be the issuer, in such a case, of an electronic record. The purpose of such a restriction is to assure that transferable records can only be created at the time of issuance by the obligor. The possibility that a paper note might be converted to an electronic record and then intentionally destroyed, and the effect of such action, was not intended to be covered by Section 16.

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Questions under Official Comment 2 to UETA Section 16:

• What if the original inked promissory note is not forwarded to

counsel, with just the scanned version being sent, and the inked version is destroyed?

• What if the borrower does not sign the signature page of a

complete copy of a promissory note, but instead just the signature page thereof, and sends a scanned version of that, which is then printed by the recipient and attached to a complete copy and then scanned and sent?

• What if the original inked promissory note (or just the signature

page) is scanned by the borrower and a snapshot is taken of the signature itself, which electronic snapshot of the signature is then inserted into the signature block of an electronic version of the promissory note which is then emailed to counsel?

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UETA and ESIGN V. Contract Law

• UETA and ESIGN do not change contract law.
• They simply supplement contract law, to permit parties to

transact business electronically.

• As supplemented by UETA and ESIGN, the law of contract

formation, the basic elements of validity and verification of inked signatures continue in the electronic signature realm, albeit with some additional considerations.

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• III. “Pre-Electronic” Signature Law—

Ensuring Validity

When signatures are required: Statute of Frauds

• Certain contracts are enforceable only if “there is a written

memorandum” of the contract. Restatement (Second) of Contracts (1979) § 110.

• A written memorandum is “… evidenced by any writing,

signed by or on behalf of the party to be charged” Rest 2nd § 131. General contract law requirement of assent

• Open-ended meaning, with focus on intention.

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What is a signature?

Intention.

• Key issue is intent, not the form the signature takes.
• Restatement 2nd Contracts § 134: A “… signature may be any symbol

made or adopted with an intention, actual or apparent, to authenticate the writing as that of the signer.”

• UCC § 1-201 - has defined “signed” to mean “using any symbol executed
• r adopted with present intention to [adopt or accept] [authenticate] a

writing.”

• A signature stamp or machine, if authorized, is a signature.

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What is a signature?

Cases:

• Smith v. Greenville County (South Carolina 1938). “A

‘signature’ may be written by hand, printed, stamped, typewritten, engraved, photographed, or cut, from one instrument and attached to another…”

• Griffith v. Bonawitz (Nebraska 1905). “A 'signature' is

whatever mark, symbol, or device one may choose to employ as representative of himself.”

• Joseph Denunzio Fruit Co. v. Crane (S.D. Cal. 1948). Office

to office teletype correspondence with negotiations and final “acceptance” was “signed” in a manner sufficient to satisfy statute of frauds.

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What is a signature?

Cases:

• Parma Tile Mosaic & Marble Co., Inc. v. Estate of Short (Ct.
• App. NY 1996). Fax transmission of a guaranty (with no

manual signature) with a name page header at the top of each page not “subscribed” for purposes of the Statute of Frauds.

• However, there may be contexts where a stamp or facsimile is

not acceptable under traditional Statute of Frauds analysis. See Gilmore v. Lujan (9th Cir. 1991).

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• 1. Witnesses (eyewitness and expert witness)
• Federal Rules of Evidence - 901

― (a) To satisfy the requirement of authenticating or identifying an item of evidence, the proponent must produce evidence sufficient to support a finding that the item is what the proponent claims it is. Examples: ― (1) Testimony of a Witness with Knowledge. Testimony that an item is what it is claimed to be. ― (2) Nonexpert Opinion About Handwriting. A nonexpert’s

• pinion that handwriting is genuine, based on a familiarity with it

that was not acquired for the current litigation.” ― (3) Comparison by an Expert Witness or the Trier of Fact. A comparison with an authenticated specimen by an expert witness

• r the trier of fact.

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Attribution - Whose signature is that?

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Attribution - Whose signature is that? (cont.)

• 2. Attribution proven by notaries

3. Attribution proven by incumbency certificates

• 4. Attribution proven by legal opinions

5. Process of dual track closings via Emailed PDFs and Overnight Originals

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UETA security procedures

• UETA Section 12-2-9 provides that:

― (a) An electronic record or electronic signature is attributable to a person if it was the act of the person. The act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable. ― (b) The effect of an electronic record or electronic signature attributed to a person under subsection (a) is determined from the context and surrounding circumstances at the time of its creation, execution, or adoption, including the parties’ agreement, if any, and

• therwise as provided by law.

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• IV. Electronic Signature Law--Provisions and

Practices to Ensure Validity

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UETA security procedures

“Security procedure" is defined broadly in UETA Section 10-12- 2(14) to mean:

• a procedure employed for the purpose of verifying that an

electronic signature, record, or performance is that of a specific person or for detecting changes or errors in the information in an electronic record. The term includes a procedure that requires the use of algorithms or other codes, identifying words or numbers, encryption, or callback or

• ther acknowledgment procedures.

Security procedures are technologically neutral and whatever parties use for attribution or assuring message integrity may be

• ffered into evidence, unless validly contested.

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UETA security procedures

Official Comment 11 to UETA Section 12-2-2 further elaborates on security procedures:

• a party may institute any security procedure (which means what is says)

to demonstrate attribution of a signature

• the use of a security procedure is merely one method, among others, by

which a party might prove the source or content of an electronic record

• r electronic signature
• a security procedure can be an old-fashioned telephone call to confirm

the identity of a party, or, it can be a sophisticated, encrypted system.

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Parties should be more deliberate and about memorializing closing mechanics as security procedures (most of these are standard anyway):

• Initial face-to-face meetings on borrower/guarantor premises
• Retention of emails associated with loan closing and circulation of

drafts and signed loan documents

• Pre-funding calls with all parties verified on the call to confirm

documents are final and conditions satisfied ― FaceTime or other video conference service ― Conf. call services that track parties dialed into the call

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UETA Security Procedures

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• An electronic record or electronic signature is attributable to a

person if it was the act of the person.

• The act of a person may be shown in any manner, including the

showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.

• The effect of an electronic record or electronic signature attributed

to a person is determined from the context and surrounding circumstances at the time of its creation, execution, or adoption, including the parties’ agreement, if any, and otherwise as applied by law.

• Really no different than current dual track of emailed PDF

documents and follow-up wet signatures.

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UETA Security Procedures

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Key provision of UETA: “In a proceeding, evidence of a record or signature may not be excluded solely because it is in electronic form.”

• This provision is designed to eliminate unwarranted or unfounded

biases against electronic signatures.

• A number of different entities provide third-party electronic

signature services.

No particular requirement that parties use a third-party service, but outside services could provide additional factual data to assist in authenticating a signature or attributing a signature to a given person.

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• V. Electronic Signature Law--Third Party

Documents and Evidentiary Considerations to Ensure Validity

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Third Party Documents

For example, certain third-party providers can produce (among other things) certification as to:

• the IP address of the machine on which the signature

was created;

• the date and time the signature was created;
• the location of the machine (including a mobile phone)

at the time the signature was created;

• password protected accounts;
• and the date and time that someone using the machine

agreed to conduct the transaction electronically.

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While digital attribution can be demonstrated in much the same way attribution is demonstrated in the analog world, attribution might even be easier to demonstrate in the digital world, because of security procedures:

• “a procedure employed for the purpose of verifying that an

electronic signature . . . is that of a specific person . . . .

• The term includes a procedure that requires the use of algorithms
• r other codes, identifying words or numbers, encryption, or

callback or other acknowledgement procedures.”

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Third Party Documents

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Third Party Documents

The Best Evidence Rule in the Federal Rules of Evidence and in most states’ rules of evidence have been modified to permit duplicates of electronic documents to the same extent as

• riginals unless a genuine question about the original’s

authenticity is raised or the circumstances make it unfair to admit the duplicate. Authenticating an electronic signature for evidentiary purposes follows roughly the same procedure as that for paper signatures.

• Possible

methods might include—description

• f

security procedures; affidavits or testimony from third-party providers; entry of personal information on a form; email correspondence between certain email addresses.

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• VI. Relevant e-Signature Case Law Update

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Attribution and Authentication Cases

• Adams v. Quiksilver (Ct. App. CA 2010) - Defendant failed to adequately

show that electronic signature was made by Plaintiff.

• Ruiz v. Moss Bros (Ct. App. CA 2014) - Declaration of business manager

that an electronic signature appearing on an arbitration agreement was entered by the plaintiff was not sufficient evidence to attribute the electronic signature to plaintiff.

• Tagliabue v. J.C. Penney (E.D. Cal 2015). Distinguishing Ruiz, Court

found that detailed evidence of a login and password system for employees to be sufficient to show that Plaintiff must have accessed and electronically signed the agreement.

• Rogers v. THD At-Home Services, Inc. (D.C. Cal 2015) - The court

held that Defendants had provided the court with sufficient evidence to authenticate Rogers’ e-signature by 1) Rogers conceding to the fact that he "remembers going to the site . . . and clicking on the documents that [he] was supposed to sign" even if he didn’t remember reading the document, and 2) a Human Resources Administrator's explanation that the company's software uses special security features to ensure that signatures could not be forged.

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Attribution and Authentication Cases

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• Lorraine v. Markel Am. Ins. Co. (D.M.D. 2007) cites Rule 901 of the Federal

Rules of Evidence as to how to show an electronic record is authentic: “The requirement of authentication or identification as a condition precedent to admissibility is satisfied by evidence sufficient to support a finding that the matter in question is what its proponent claims." Electronic records are evaluated on a case-by-case basis for authenticity, just as any other document may be analyzed, and factors such as data inputting and security systems may be considered.” Lorraine, 241 F.R.D. at 544.

• The degree of foundation required to authenticate computer-based

evidence depends on the quality and completeness of the data input, the complexity of the computer processing, the routineness of the computer

• peration, and the ability to test and verify results of the computer
• processing. Id.

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Attribution and Authentication Cases

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• Lorraine v. Markel Am. Ins. Co. (D.M.D. 2007)
• Another method of authenticating electronic evidence under Rule

901(b)(4) is the use of "hash values" or "hash marks" when making a

• document. As noted by the Lorraine court, a "hash value" is a unique

numerical identifier that can be assigned to a file, a group of files, or a portion of a file, based on a standard mathematical algorithm applied to the characteristics of the data set. Lorraine, 241 F.R.D. at 546.

• Another way in which electronic evidence may be authenticated under

Rule 901(b)(4) is by examining the metadata for the evidence. "Metadata" is information describing the history, tracking or management of an electronic document. Because metadata shows the date, time and identity of the creator of an electronic record, as well as changes made to it, metadata is a distinctive characteristic of all electronic evidence that can be used to authenticate it under Rule 901(b)(4).

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• Zulkiewski v. American General Life Ins. Co. (Mich. Ct. App. 2012) - The

court stressed that the safeguards used by the plaintiff in the e-sign process, such as the built-in electronic security requiring knowledge of various private information, as well as email and mail correspondence, can demonstrate attribution, which then helps to authenticate the electronic signature because “the signature must be executed or adopted by the person as the embodiment of his or her intent.”

Attribution and Authentication Cases

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• VI. Relevant e-Signature Case Law Update

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Association Cases

• SN4, LLC v. Anchor Bank (Ct. App. Minn. 2014) – Court found

email signatures were signatures, but not logically associated with the attached purchase agreement.

• Labajo v. Best Buy Stores (S.D. N.Y. 2007). Signature on

computer pad was Plaintiff’s, but insufficient evidence that the subscription agreement was provided to Plaintiff, so no association between signature and agreement.

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• VI. Relevant e-Signature Case Law Update

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Email cases – Lamle v. Mattel, Inc. (Fed Cir 2005). Party sent email summarizing terms agreed to orally in meeting. Court held there was a genuine issue of fact as to whether the parties agreed to a contract orally at the meeting. Court in dictum said that a memo might satisfy the Statute of Frauds. – Note: Court stated - “If the email had been sent after January 1, 2000, there would be no question of its sufficiency under the Statute of Frauds because of the Uniform Electronic Transactions Act.” – J.B.B. Investment Partners, Ltd., et al. v. R. Thomas Fair, et al. (Cal. Ct.

• App. 2014). Extensive email negotiations of settlement offer by email

with 10 numbered paragraphs.

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• VI. Relevant e-Signature Case Law Update

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Email cases—cont.

• Court held that typing name on email did not constitute an electronic

signature under UETA because “UETA only applies when the parties consent to conduct the transaction by electronic means.” Tip: in CA, include a statement that the parties intend to contract by electronic means.

• Mikhak v. University of Phoenix (N.D. Cal. 2016). Clicking “Accept” to

an acknowledgement of agreement to arbitration terms is an effective electronic signature. Court distinguished Fair, saying by clicking “Accept” P assented to electronic transaction, because clicking “Accept” was only means available to assent.

• Williamson v. Bank of New York Mellon (ND Tex 2013). Emails between

lawyers for parties regarding settlement terms created an electronic contract, even where the lawyers indicated that they would eventually sign a traditional settlement agreement.

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• VI. Relevant e-Signature Case Law

Update

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Email cases—cont.

• Neman Real Estate Investments, LLC v. Oken (Cal. App.
• Jul. 11, 2017) - “[a] signature block on an email is not

much different than a preprinted letterhead" which is intended as identification, not authentication.

• Khoury v. Tomlinson (Tex. App. Dec. 22, 2016) - The court

found that "[t]he name or email address in a “from” field functions as a signature in an email.”

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