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 sixth 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, we look at how to obtain authorization for recurring debit transactions electronically and avoiding traps for the unwary. In addition, we will cover recently enacted federal and state laws, federal and state regulatory activities, fresh judicial precedent and other important news.

INSIGHT

OBTAINING REMOTE EPAYMENT AUTHORIZATIONS FROM CUSTOMERS: ARE YOU IN COMPLIANCE?

With the expansion of online commerce has come the need to obtain remote electronic payment authorizations from consumers. These authorizations include both one-time payments and ongoing or recurring payments for goods, services and financing arrangements.;

But, too often, businesses fail to meet key requirements in an electronic environment.

Find out more.

LEGISLATIVE DEVELOPMENTS

FEDERAL DEVELOPMENTS

CFTC remarks lay out potential regulatory framework for crypto: On Oct 16, Commissioner Briam Quintenz of the Commodities Futures Trading Commission spoke at the GITEX Technology Week Conference. In his remarks, he discussed how regulators are grappling with applying existing legal paradigms to novel technologies, including smart contracts, blockchain and cryptocurrency.

Senate Banking Committee hearing on cryptocurrency and blockchain: On October 11, the Senate Banking Committee held a hearing on exploring the cryptocurrency and blockchain ecosystem, featuring the panelists Dr. Nouriel Roubini, Professor of Economics and International Business, New York University Stern School of Business, and Peter Van Valkenburgh, Director of Research, Coin Center.

STATE DEVELOPMENTS

Blockchain:

  • On September 28, 2018, the Governor of California approved a bill (AB 2658) that requires the Secretary of the Government Operations Agency to appoint a blockchain working group on or before July 1, 2019. This working group will evaluate the uses, risks, benefits, legal implications, and best practices surrounding blockchain technology in California.
  • On September 28, 2018, the Governor of California approved a bill (SB 838) that authorizes privately-held corporations to include a provision in their articles of incorporation authorizing the use of blockchain technology to record and track the issuance and transfer of stock certificates

Mortgage: Vermont allows electronic delivery of commitment letters: Effective October 1, 2018, regulations adopted by the Vermont Department of Financial Regulation clarify that commitment letters may be signed and delivered electronically pursuant to the Vermont Electronic Transactions Act.

Notary: DC adopts law allowing use of electronic notarization: On October 15, 2018, the Mayor of the District of Columbia signed into law the Revised Uniform Law on Notarial Acts. This law facilitates the use of electronic notarizations within Washington, D.C., and requires that notaries receive an endorsement to act as an electronic notary. Notaries must choose one or more tamper-evident technologies to perform electronic notarial acts, but they are not required to perform an electronic notarial act with technology that they did not choose.

Virtual Currency: New York State's Virtual Markets Integrity Initiative: On September 18, 2018, The New York State Attorney General Barbara D. Underwood issued the Virtual Markets Integrity Report, an outcome of the Virtual Markets Integrity Initiative, which seeks to increase the transparency and accountability of platforms that retail investors rely on to trade virtual currency and to inform enforcement agencies, investors, and consumers. In April 2018, the AG's office sent letters to 13 major virtual currency trading platforms requesting key information on their operations, internal controls and safeguards to protect customer assets. The report finds that many platforms are vulnerable to abusive trading, conflicts of interest and other consumer risks.

Fintech: Arizona accepts first participant in Fintech Sandbox: Earlier this month, the Arizona Attorney General announced that Omni Mobile Inc, a mobile payment platform, was the first participant in Arizona's Fintech Sandbox. The company will process guest payments at a Tucson resort, and will need to provide customers with various disclosures describing the company's participation in the Sandbox. The Arizona Attorney General also announced that a new cooperation agreement had been signed with Taiwan's financial regulator, with the goal of increasing the reach of Arizona's Fintech Sandbox.

CASE LAW

STATE CASE LAW Scanned copy of ink-signed contract is an electronic record and can be enforced under Ohio law: In BP Metals, LLC v. Glass, 2018 WL 4201314 (Oh. Ct. App. Sep. 4, 2018), the court overturned the trial court's conclusion that the plaintiff was not the holder of the instrument when the defendant converted the instrument into electronic form and retained the hard copy. That reasoning, the court found, ignores that electronic records are enforceable under Ohio law. When the defendant emailed an electronic copy of the signed contract to the plaintiff and retained the ink-signed paper version, the court found, a genuine issue of material fact was created as to whether the parties agreed to conduct the transaction electronically. Therefore, the court ruled that a genuine issue of material fact existed regarding whether the plaintiff was a holder of the note and could invoke the trial court's jurisdiction. As a result, the Ohio appeals court found, the trial court's grant of summary judgment to the defendant was improper.

State courts continue to uphold the validity of electronic signatures: In the following case, a court upheld the validity of electronic signatures, with minimal discussion:

  • In Wolfe v. J.C. Penney Corp., Inc., 2018 WL 4600871 (Oh. Ct. App. Sep. 25, 2018), the court ruled that the plaintiff signed the arbitration agreement on an employee kiosk when she clicked on the check box that indicated she had accepted the arbitration agreement.

FEDERAL CASE LAW

TCPA autodialer definition not limited to devices with the capacity to call numbers produced by a random or sequential number generator: In Marks v. Crunch San Diego, 2018 WL 4495553 (9th Cir. Sep. 20, 2018), the court held that an automatic telephone dialing system (ATDS) under the TCPA is not limited to devices that have the capacity to call numbers produced by a random or sequential number generator, but also includes devices with the capacity to dial stored numbers automatically. After the DC Circuit's decision in ACA International v. FCC (covered here), in which the DC Circuit invalidated certain of the FCC's interpretations of an ATDS, the Ninth Circuit concluded that it "must begin anew to consider the definition of ATDS under the TCPA." In so doing, the court rejected the defendant's argument that a device cannot qualify as an ATDS if there is human intervention: "Common sense indicates that human intervention of some sort is required before an autodialer can begin making calls, whether turning on the machine or initiating its functions." Because the evidence showed that the defendant's system stores numbers and then dials them automatically to send text messages, the court concluded there existed a genuine issue of material fact as to whether the system used by the defendant constituted an ATDS. The court remanded the case for further proceedings.

As a result of this decision, on October 3, 2018, the FCC issued a public notice requesting further comments on the definition of an ATDS.

For a "process" to constitute an electronic signature, party must intend that such process will create an electronic signature: In Liberty Salad, Inc. v. Groundhog Enterprises, Inc., 2018 WL 4566151 (E.D. Pa. Sep. 21, 2018), the court ruled that when a bank performed its underwriting and approval process with regard to a payment processing agreement, it did not sign the application. This case arose when the defendant attempted to sell payment processing services to the plaintiff and, as part of that process, the plaintiff had to be approved by a bank and another third party. Part of the approval process was that the bank and the other third party would sign the application. Neither party expressly signed the application, and the defendant argued that under ESIGN and Pennsylvania's UETA, the bank actually did sign the application because the process it used when it underwrote and approved the plaintiff constituted the bank's electronic signature. The court stated that the defendant did not designate an agent to sign the application, as required by the two laws, and therefore, the bank had not signed the application.

In-store use of touchpad not sufficient to form agreement when plaintiff could not review the terms: In National Federation of the Blind v. The Container Store, Inc., 904 F.3d 70 (1st Cir. Sep. 14, 2018), the court held that the plaintiffs did not manifest assent to the arbitration provision during their in-store sign-up process for the defendant's loyalty program. The court said it was "undisputed" that the plaintiffs had no ability to access the terms of the loyalty program, including the arbitration provision, on the touch screen used to sign up, and that therefore they could not be aware of its terms and conditions. The defendant also argued that an inability to read the terms and conditions was not a defense to the arbitration (ie, they had "constructive notice"). The court stated that while the inability to read is not a defense to contract formation, parties cannot enter into a contract without knowing the basic terms; here, the terms were not so conspicuous that the plaintiff had constructive notice.

Federal courts continue to uphold the validity of electronic signatures: In the following cases, courts upheld the validity of electronic signatures, usually with minimal discussion:

  • Anderson v. Safe Streets USA LLC, 2018 WL 4106135 (E.D. Cal. Aug. 29, 2018) – the court ruled the defendant provided sufficient evidence that the plaintiff signed the electronic arbitration agreement, even though the defendant's online signature system did not require a unique username and password, because it required providing detailed personal information that only the plaintiff would know.
  • Dicent v. Kaplan Univ., 2018 WL 4169072 (M.D. Penn. Aug. 30, 2018) – the court ruled that the plaintiff's assertion that she never consented for her electronic signature to be attached to any documents is contrary to the evidence, which includes the plaintiff clicking a button labeled "Electronically Sign," and that the defendant's security measures used to verify the plaintiff's electronic signature were sufficient.
  • Meltzer, Lippe, Goldstein & Breitstone, LLP v. Malfetti, 2018 WL 4627667 (E.D. N.Y. Sep. 27, 2018) – the court ruled that while there was no requirement for the plaintiff to sign the contract for it to be enforceable – as objective evidence existed that the parties intended to be bound – the presence of a plaintiff's employee's signature block at the bottom of her email served to authenticate her email.
  • In re: 167 West 133rd Street Housing Development Fund Corp., 2018 WL 4637460 (Bnkr. Ct., S.D. N.Y. Sep. 25, 2018) – the court ruled that the person who filed a petition for reorganization on behalf of the debtor did not have authority to file that petition because she resigned her position as secretary-treasurer of the board when she sent an email resigning her position. She argued that she did not sign the email and that the email did not contain an electronic signature under New York's Electronic Signatures and Records Act (ESRA). The court found no merit to her contention that her typed name was not intended to be her electronic signature.
  • Cintron v. Monterey Financial Services, Inc., 2018 WL 4908283 (D.N.J. Oct. 10, 2018) – the court held that the plaintiff's electronic signature was valid, and the arbitration agreement was enforceable, even though the plaintiff alleged that two electronic signatures contained the same time stamp. In making that allegation, the plaintiff stated there was a triable issue of fact regarding whether the electronic signatures were affixed after the plaintiff read the credit agreement alone or after he read the arbitration agreement. The court said it was immaterial whether the plaintiff signed the contract before or after reading the arbitration agreement and that, therefore, the arbitration agreement was enforceable.

UPCOMING EVENTS

October 25 – Margo Tank is participating in a Smart Contracts Roundtable with the Chamber of Digital Commerce in San Francisco, hosted by DLA Piper. Event registration is now closed.

November 8 – Margo Tank and David Whitaker are presenting a webinar "Digital Contracting: Litigation and Enforcement Trends," illustrating "what not do" when moving your business online. Register today.

November 14 – Margo Tank and David Whitaker are presenting at the Electronic Signature & Records Association Annual Conference on "eSignatures: Legislative and Regulatory Developments: Year in Review."

November 14 – Margo Tank is presenting at the Electronic Signature & Records Association Annual Conference on a panel titled: "Not So Fast: Challenges for Blockchain in Highly Regulated Environments."

November 15 – Margo Tank is moderating a panel at the Electronic Signature & Records Association Annual Conference on a panel titled: "Artificial Intelligence, Robots and Bots Oh My!"

November 15 – David Whitaker is moderating a panel on eNotes at the MERS West Coast eMortgage Boot Camp

READ IT NO

M. Tank, D. Whitaker, P. Fry, Smart Contracts: Is the Law Ready?, Chamber of Digital Commerce (with contributions from A. Grant) (2018)