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

Each issue will feature in-depth insight on a timely and important current topic.

In this issue, our Insights piece highlights new amendments to the Uniform Commercial Code addressing digital assets. This issue also includes reports on other recently enacted federal and state laws, federal and state regulatory activities, fresh judicial precedent and other important news.

For related information regarding blockchain and digital assets, please see our monthly bulletin Blockchain and Digital Assets News and Trends.

INSIGHT

ULC approves important new amendments to the Uniform Commercial Code for state adoption

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

Last fall, we described the ongoing effort by the Uniform Law Commission (ULC) and the American Law Institute (ALI), as the joint sponsors of the Uniform Commercial Code (UCC) to draft proposed amendments to the UCC. That drafting effort has now been completed, and during its July meeting, the ULC approved Amendments to the Uniform Commercial Code (2022), which are now recommended for enactment by the states. Read more.

More from our team

You may also enjoy the latest issue of our monthly bulletin Blockchain and Digital Assets News and Trends, which includes the following brief articles:

  • Bankruptcies begin for crypto firms as “crypto winter” settles in
  • Implementation of crypto reporting rules delayed
  • Pennsylvania and Washington enact rules explicitly bringing income from sales of non-fungible tokens (NFTs) within the sales' tax base
  • Chinese court rules in first NFT copyright infringement case
  • Stablecoin Transparency Act introduced in Congress
  • New European Markets in Crypto-Assets regulation

REGULATORY DEVELOPMENTS

FEDERAL

Remote online notarization

SECURE Notarization Act passes the House: On July 27, the US House of Representatives passed a series of bills that included the Securing and Enabling Commerce Using Remote and Electronic (SECURE) Notarization Act HR3962. If passed by the US Senate and signed into law by President Biden, the SECURE Notarization Act would:

  • Permit immediate nationwide use of remote online notarization (RON)
  • Create national minimum standards for RON and
  • Provide certainty for interstate recognition of RON.

STATE

Electronic records

California enacts law removing exception for Medicare supplement policy application forms under the state’s UETA: On June 21, 2022, California enacted SB 1179, which modifies the listing of exclusions from the California Uniform Electronic Transactions Act (UETA) to remove the Medicare supplement policy application forms exception. Effective June 21, such application forms may be provided and executed in electronic form in accordance with the requirements of the state UETA.

Virtual currency

Missouri amends money laundering law to incorporate cryptocurrency: On June 16, 2022, the governor of Missouri approved HB 1472, which amended Missouri’s money laundering law to include cryptocurrency, thus making it a criminal offense of money laundering if a person engages in specified financial transactions that involve cryptocurrency.

Blockchain technology

Arizona allocates $500,000 in blockchain funding: On June 23, 2022, Arizona enacted HB 2862, which allocates $500,000 for distribution by the Arizona Commerce Authority to applied research centers that specialize in blockchain technology, subject to available funding. The funds may be distributed in amounts of up to $250,000 to applied research centers that have matching out-of-state funds, that collaborate with universities, nonprofit business associations, health science research centers, institutes or other technology businesses that do business in Arizona, and the recipient must submit annual reports. Funds must be used by September 1, 2026 or they must be returned.

Digital assets

New Hampshire enacts Article 12 of the UCC: On June 28, 2022, New Hampshire enacted HB1503, and joins Nebraska and Iowa in enacting into law a new provision of the Uniform Commercial Code that governs “controllable electronic records.” The Uniform Law Commission (ULC) and the American Law Institute (ALI), as the joint sponsors of the Uniform Commercial Code (UCC), established a committee that began work in 2019 on drafting proposed amendments to the UCC, including drafting the new Article 12, that serves as the basis for New Hampshire's law. See here for our initial thoughts on the new Article 12. In short, New Hampshire’s new law extends the concept of control, as set forth in the UCC, to “controllable electronic records,” thus expanding the types of digital assets for which a party can establish control. New Hampshire joins Iowa and

In-person electronic notarization

South Carolina issues final regulations on eNotary: On June 24, 2022, South Carolina adopted final regulations under the South Carolina Electronic Notary Public Act which enables in person notarization of electronic records using electronic signatures. The regulations are immediately effective and require notaries to register with the state to perform notarial acts on electronic records, and also require providers of electronic notarization platforms to be approved by the Secretary of State prior to enabling state notaries to use the platform.

Remote online notarization

Three additional states have adopted remote online notarization (RON - remote execution and notarization of electronic records using electronic signatures):

  • North Carolina - On July 8, HB776 was adopted to be effective July 1, 2023
  • Delaware - On June 30, SB262 was passed by both houses to be effective on August 1, 2023 and is pending the governor's signature
  • Rhode Island - On June 30, H7363 was adopted , becomng immediately.

This raises the total number of states that have adopted permanent RON legislation to 42: Alaska, Arizona, Arkansas, Colorado, Florida, Hawaii, Idaho, Illinois (eff. when regulations adopted), Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine (effective July 1, 2023), Maryland, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.

The eight remaining states that have not yet enacted permanent RON legislation are Alabama, California, Connecticut, Georgia, Massachusetts, Mississippi, South Carolina, and South Dakota.

CASE LAW

FEDERAL

Electronic signature and contract formation

Court upholds electronic contract formation: In Megan Mannor v. Amerilodge Group, LLC, 2022 WL 2867182 (USDC ED Mich. SD, July 20, 2022), the court granted Defendant employer's motion to compel arbitration finding that the plaintiff employee had entered into an arbitration agreement. As part of employment onboarding, the plaintiff used the employer's HR system to sign a Consent to Electronic Signature, agreeing to receive all employment documents electronically and agreeing that "her electronic signature was the legal equivalent of her written signature on 'any associated [employment] documents.'" Additionally, the plaintiff was presented with the defendant's employee handbook which attached a two-page document entitled "Contract Between Employee and Amerilodge Group, LLC and Acknowledgment and Acceptance of Employee Handbook" that contained an arbitration agreement with signature lines for physical signatures. Although neither party signed those signature lines, the plaintiff applied her electronic signature to another document entitled "Acknowledgment and Receipt" which stated "[Employee] [has] read and understood the content and any requirements or expectation of the attached document: Handbook Acknowledgment…. [Employee] [has] access to an electronic copy of the document and agree[s] to abide by the document guidelines as a condition of [] employment." The court concluded that the plaintiff's signature on the Acknowledgment and Receipt constituted acceptance of the employee handbook, including its attached contract and acknowledgment.

Court denies motion to compel arbitration for Defendant's failure to present sufficient evidence of agreement

  • In Hale v. Club Demonstration Services, Inc., et al., 2022 WL 2482239 (USDC D. Nev. July 6, 2022), the court found a genuine dispute of material fact and granted plaintiff's request for a summary jury trial to determine whether the plaintiff employee agreed to arbitrate disputes with the defendants, associated with her former employer. The plaintiff provided a sworn declaration that conclusory stated she "never agreed to arbitrate any disputes," that she had "no recollection of ever having been shown or reviewed the arbitration agreement" and that no documents she electronically signed "include signature statements that say anything about arbitration." However, the defendant cited no cases which supported the grant of a motion to compel arbitration without first holding a summary trial, and the arbitration agreement proffered by the defendant did not include any signature blocks to indicate the parties bound by the agreement. Additionally, the arbitration agreement identified "Club Demonstration Services, Inc. (CDS)/Daymon Interations (DI)" as a party, but not the defendant, Daymon Worldwide Inc. The declaration proffered by the defendants' human resource manager also failed to state describe any personal knowledge of the onboarding process actually utilized with the plaintiff.
  • In Frade v. Luxottica of America Inc., 2022 WL 2393979 (USDC D. Mass. March 7, 2022), the court held an evidentiary hearing to resolve whether pa laintiff former employee was the person who accessed the defendant's electronic platform and assented to the arbitration agreement. The defendant presented evidence that access to the platform was made by a 6-digit number and password assigned to Plaintiff, Plaintiff's name was typed into the signature box, and the person accessing the platform chose "I wish to participate" in the drop-down menu to participate in the arbitration agreement. However, the court found that the plaintiff credibly testified that she did not sign the agreement and that she offered a plausible alternative in that she had provided her password to her supervisor upon his request during the relevant time period to manually process certain tasks on her behalf in the platform which the platform failed to automatically process.
  • In Etienne v. All Seasons in Naples, LLC and Oakland Management Corporation A/k/a All Seasons Naples, a Senior Living Facility, 2022 WL 2802697 (USDC MD Fla. July 18, 2022), the defendants' employee handbook included an arbitration provision which stated, in part, that "By signing the acknowledgment sheet to this Handbook, the Employee agrees that any and all claims … will be submitted to arbitration…." The defendants presented the cover of the handbook which was electronically signed by plaintiff. The plaintiff provided the acknowledgement page of the handbook, which was not signed, and stated "I ___, employed at ____ with OMC, acknowledge receipt of the Employee Handbook and understand that I am responsible for understanding the contents of the Handbook and will adhere to the policies and procedures, as may be amended or revised…." The court refused to compel arbitration as the arbitration provision expressly required agreement "By signing the acknowledgement sheet to this Handbook" which the plaintiff showed had not been signed. Moreover, the court held that state law required that the acknowledgment sheet was insufficient to form an agreement to arbitrate under state law even if it had been signed as the acknowledgment failed to "incorporate by reference the arbitration policy contained in an employee handbook.

Court finds email contract offer to be electronically signed: In Herren Farms, LLC v. Lawrence E. Martin t/a LnR Feed & Grain Handling Systems, 2022 WL 2811650 (USDC WD Va. Charlotte Div. July 18, 2022), the court held that the defendant's email which (i) contained a summary of construction costs for a grain handling and storage system and instructed the plaintiff to "return with your written approval and a 10% deposit to order" (2) included a signature line with the defendant's name in cursive font and (3) attached contract documents; set forth the defendant's electronic signature attached with the intent to sign under the Virginia UETA such that the plaintiff's acceptance of the offer in the email by written approval and submission of a 10 percent deposit constituted a fully signed agreement between the parties.

STATE

Court upholds electronic contract formation: In Bushey v. Home Direct Logistics, LLC, 2022 WL 2298419 (S.C. of Conn. Waterbury June 24, 2022), the court overruled a plaintiff’s objection to the defendant’s motion to compel arbitration because the court found that the plaintiff’s assertion that “to the best of [her] knowledge and belief” she did not receive a copy of, sign, or agree to the arbitration agreement was insufficient to counter the defendant’s statement that the plaintiff signed the agreement electronically at a date and time certain, although they did not have a copy of the electronically signed agreement. The court also held that the absence of a signature from a contract would not necessarily defeat the contract’s validity, noting that the effect of an electronic record or signature as attributed can be determined by context and surrounding circumstances. The court also considered that federal policy favors arbitration and that the established state law was to resolve doubts in favor of arbitration coverage, and found that the plaintiff’s claims were clearly within the scope of the arbitration agreement in question.

Read this next

Embracing digital evolution: Our new business report

RECENT EVENTS

Margo Tank and David Whitaker presented at the Electronic Signature & Records Association Member Meeting in June on the current legal and regulatory issues for the use and acceptance of electronic signatures.

RECENT PUBLICATIONS

Cryptocurrency and Digital Asset Regulation, published by the American Bar Association and co-edited by Deborah Meshulam and Michael Fluhr, including chapters by Meshulam and Fluhr and by Margo H.K. Tank and Andrew Grant.

The MBA Compliance Essentials Remote Online Notarization State Surveys, developed by DLA Piper, provides a comprehensive look at RON requirements in each state that has enacted RON legislation. These fully editable surveys are organized by category of requirements, including registration, technology, seal and signature, certificates of RON acts, journal, authentication, session, recording and additional requirements. Companies can purchase the full package which includes surveys for all states that have enacted RON legislation along with a matrix summarizing state requirements, or companies can purchase information about individual states as needed. Read more.