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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 15, 2016

Ed Snow, Partner, Burr & Forman, Atlanta Jason G. Beckham, Counsel, Burr & Forman, Atlanta

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

September 15, 2016

Jason Beckham Counsel Burr & Forman jbeckham@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

• 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 own 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

• f 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

• f 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

• thers)

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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

• pinions over 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 or logically associated with a record and executed or adopted by a person with the intent to sign the record

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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, or 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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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

• f 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

• f the signer.”

– UCC § 1-201 - has defined “signed” to mean “using any symbol executed or 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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Cases: – Smith v. Greenville County, 188 S.C. 349 (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, 103 N.W. 327 (Neb. 1905). “A 'signature' is whatever mark, symbol, or device one may choose to employ as representative of himself.” – Joseph Denunzio Fruit Co. v. Crane, 79 F. Supp. 117 (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

• f Short, 87 NY2d 524 (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 not acceptable under traditional Statute of Frauds analysis. See Gilmore v. Lujan, 947 F2d 1409 (9th Cir. 1991).

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What is a signature?

Attribution - Whose signature is that?

• 1. Witnesses (eyewitness and expert witness)

– Federal Rules of Evidence - 901

• (a)

In General. 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. The following are examples only — not a complete

list — of evidence that satisfies the requirement:

• (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 or the trier of fact.

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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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• IV. Electronic Signature Law--Provisions

and Practices to Ensure Validity

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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

• f its creation, execution, or adoption, including the parties’

agreement, if any, and otherwise as provided by law.

UETA security procedures

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“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 other acknowledgment procedures.

Security procedures are technologically neutral and whatever parties use for attribution or assuring message integrity may be offered into evidence, unless validly contested.

UETA security procedures

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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

• r content of an electronic record or 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.

UETA security procedures

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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

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

Possible documentary “training wheels” to assist in the adoption of commercial loans solely by electronic means

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Closing statement or other loan document signed in ink by all loan parties that incorporates by reference all electronically- signed loan docs (belt and suspenders—a more stream-lined dual track closing mechanism) Commitment letter and incumbency certificates could be revised to refer to borrower’s third-party electronic signature provider contract and the parties authorized to use borrower’s electronic signature services Resolutions could be broadened to refer to electronic closing mechanics, the borrower’s third-party electronic signature provider contract and parties authorized to use the service

• V. Electronic Signature Law--Third Party

Documents and Evidentiary Considerations to Ensure Validity

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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

• utside services could provide additional factual data to assist in

authenticating a signature or attributing a signature to a given person.

Third Party Documents

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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.

Third Party Documents

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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

• f algorithms or other codes, identifying words or

numbers, encryption, or callback or other acknowledgement procedures.”

Third Party Documents

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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 originals unless a genuine question about the

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

• VI. Relevant e-Signature Case Law Update

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Attribution Cases

– Adams v. Quiksilver (Ct. App. CA 2010) - Defendant failed to adequately show that electronic signature was made by Plaintiff. – Ruiz v. Moss Bros, 232 Cal. App.4th 836 (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.

• VI. Relevant e-Signature Case Law Update

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Association Cases

– SN4, LLC v. Anchor Bank, 848 N.W. 2d 559 (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.

• VI. Relevant e-Signature Case Law Update

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Email cases

– Lamle v. Mattel, Inc., 394 F.3d 1355 (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 held that a memo might 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 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

• ffer by email with 10 numbered paragraphs.

• 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, 947 F. Supp. 2d 704 (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.