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  • District Court rules email can be a signed, written instrument for purposes of amending a partnership agreement

    Courts

    On August 15, the U.S. District Court for the Southern District of New York granted defendants’ motion for summary judgment, ruling in part that an email could constitute a “written instrument” for purposes of amending a partnership agreement. The plaintiff is one of 33 limited partners in a funding entity formed to pool investments into a fund for litigation-related financing ventures. The plaintiff sued the defendants (the partnership’s general partner and asset manager) asserting four causes of action tied to their alleged failure to dissolve the partnership by a deadline established in the partnership agreement. Cross-motions for summary judgment were filed by the parties, in which the court reviewed plaintiff’s claims as to whether there was a valid amendment extending the term of the partnership, whether the limited partners received notice of this proposed amendment, and whether the limited partners approved the amendment or failed to raise objections within 25 days.

    While the defendants argued that an August 2019 email constitutes a valid amendment of the partnership term, the plaintiff countered that the email “is not a written instrument, is not signed, and does not specify the duration of the extension.” The court first reviewed the text of the partnership agreement, which stated that it “may be amended ‘only by a written instrument signed by the General Partner.’” While the agreement does not define what constitutes a “written instrument,” the court wrote, it “provides that ‘[a]ll notices, requests and other communications to any party hereunder shall be in writing (including electronic means or similar writing).’” As such, the court concluded that an email could constitute a “written instrument” for the purposes of amending the agreement.

    With respect to whether the email was “signed,” the court discussed the federal Electronic Signatures in Global and National Commerce Act (E-SIGN Act), which provides that “a signature . . . may not be denied legal effect . . . solely because it is in electronic form,” and pointed to several court decisions that similarly determined that the “law demands only demonstration of a person’s intent to authenticate a document as her own in order for the document to be signed [and that] [m]any symbols may demonstrate this intent.” In the present action, the court determined that “the e-mail speaks in the plural using ‘we’ and refers to the senders in third person as ‘your General Partners.’” Moreover, the court held that the plaintiff’s “unsubstantiated assertion” that the email is unsigned “is insufficient to create a genuine issue of fact with respect to [managing members’] intent to sign the e-mail.” The court also rejected the plaintiff’s argument that that the email is not a valid amendment because it did not specify the duration of the extension, pointing to language in the email stating that the fund will be extended until 2021. The court further disagreed with the plaintiff’s assertion that the amendment was not approved, noting that unrebutted statements provided by one of the managing members demonstrated that none of the limited partners aside from the plaintiff objected to the proposed extension.

    Courts E-SIGN Act E-Signature

  • District Court: Pressing the “acknowledge button” is a signature under E-SIGN

    Courts

    On March 31, the U.S. District Court for the District of Columbia granted summary judgment on behalf of a plaintiff consulting firm, ruling that the defendant breached the terms of a binding contract entered into with the plaintiff, which he “signed” by pressing an “acknowledge button” on a Proprietary Information and Assignment of Inventions Agreement (PIIA). According to the court’s memorandum opinion, the case involves a dispute concerning the rights in a software program developed by the defendant while working at the firm. Previously, the court granted partial summary judgment to the plaintiff, which declared that the parties had an enforceable contract under which the defendant had assigned his rights in the software program to the plaintiff. At the time, the defendant argued that even though he had pressed the acknowledge button, “he ‘never understood’ nor ‘intended’ himself to be bound by the PIIA[.]” As such, he challenged the plaintiff’s assertion that he had assented to the PIIA. The court disagreed, concluding that evidence established “that the PIIA itself drew an ‘equivalence’ between acknowledging and agreeing,” and that “since there was no separate signature line, nor any instructions or directions to print and sign the PIIA, [defendant] had ‘no reason to think that [plaintiff] expected a more formal acceptance of the’ PIIA than the acknowledgement he provided.” Accordingly, the court concluded that “acknowledging” the PIIA amounted to the defendant’s signature in this context, thus satisfying the E-SIGN Act for purposes of satisfying the statute of frauds and binding the defendant to its terms, which included assigning any of his rights in the software to the plaintiff.

    In granting summary judgment in favor of the plaintiff on its breach of contract claim, the court first reiterated its previous position that undisputed evidence showed that the defendant acknowledged the PIIA, that the defendant intended to acknowledge the PIIA, and that acknowledgment constituted a signature for purposes of the E-SIGN Act. The court also determined that the plaintiff carried its burden of proof as to showing the plaintiff breached the PIIA and that the plaintiff was sufficiently damaged by the defendant’s breaches.

    Courts E-SIGN Act E-Signature

  • Texas adopts home equity lending amendments

    State Issues

    On December 31, the Texas Department of Banking, Department of Savings and Mortgage Lending, Office of Consumer Credit Commissioner, and Credit Union Department issued amendments related to home equity lending to specify requirements for electronic disclosures. With respect to oral and electronic loan applications, one of the provisions “provides that a home equity loan closing must occur at least 12 days after the owner ‘submits a loan application to the lender,’” and “explains that a loan application may be submitted electronically in accordance with state and federal law governing electronic disclosures, with references to the UETA and the E-Sign Act.” Additionally, among other things, the provisions describe Texas Constitution, Article XVI, Section 50’s applicability to out-of-state financial institutions. The amendments are effective January 6.

    State Issues Texas State Regulators Home Equity Loans E-SIGN Act Mortgages

  • FDIC releases September enforcement actions

    Federal Issues

    On October 29, the FDIC released a list of administrative enforcement actions taken against banks and individuals in September. During the month, the FDIC made public six orders consisting of “one Consent Order, two terminations of Consent Orders, one Order to Pay Civil Money Penalty, one Order Terminating Decision and Order to Cease and Desist, and one Order of Termination of Insurance.” Among the orders is an order to pay a civil money penalty imposed against a Nebraska-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank “[m]ade, increased, extended, or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance,” and also allegedly “[f]ailed to comply with proper procedures for force-placing flood insurance in instances where the collateral was not covered by flood insurance at some time during the term of the loan.” The order requires the payment of a $24,000 civil money penalty.

    The FDIC also issued a consent order to a Utah-based bank, which requires the bank to take measures to correct current alleged violations (and prevent future violations) of TILA, RESPA, E-Sign Act, ECOA, CRA, and TISA, as well as the statutes’ implementing regulations. The bank neither admitted nor denied the alleged violations but agreed to, among other things, develop a sound risk-based compliance program and implement an effective training program to ensure compliance.

    Federal Issues FDIC Enforcement Bank Regulatory Flood Disaster Protection Act TILA RESPA E-SIGN Act ECOA CRA Truth in Savings Act

  • District court holds no private right of action under E-SIGN Act

    Courts

    On October 26, the U.S. District Court for the District of Colorado denied, in relevant part, an individual’s motion for summary judgement, holding that no private right of action exists under the Electronic Signatures in Global and National Commerce (E-SIGN) Act. The plaintiff had asserted a violation of E-SIGN by an auto-dealership, who allegedly failed to advise the plaintiff of: (i) the right to receive paper copies (rather than electronic copies) of certain records; and (ii) the right to withdraw previously provided consent to receiving records in electronic form.

    In ruling against the plaintiff’s motion, the court noted that where Congress creates specific means for enforcing a statute, a court will assume that Congress did not intend to allow any additional rights of action beyond those specified. When applied to the E-SIGN Act, the court found that no standalone remedy is necessary, as any violation of the E-SIGN Act would be “self-effectuating.” Any failure to “[d]emonstrate the proper consent for electronic service would only expose the party required to deliver the information in writing to whatever sanctions the law requiring written disclosure provides.” Therefore, the court found that “Congress appears to have provided no separate remedial scheme for violation of the E-SIGN Act's consent provisions, as no standalone remedy is necessary.”

    Courts E-SIGN Act E-Signature Private Right of Action

  • E-SIGN modernization bill passes Senate committee

    Federal Issues

    On September 16, the U.S. Senate Committee on Commerce, Science, and Transportation voted 14-12 to approve S. 4159 (the “E-SIGN Modernization Act”), sponsored by Senator Thune, the majority whip. As previously covered by Infobytes, the E-SIGN Modernization Act would amend E-SIGN to remove the requirement that consumers reasonably demonstrate they can access documents electronically before they can receive an electronic version. Instead, consumers would be allowed to obtain documents electronically once they are provided with disclosure information and consent to receiving documents through such means. The E-SIGN Modernization Act was opposed by several consumer advocacy groups, including the National Consumer Law Center, which argued in a letter to the committee that the bill “would increase fraud and effectively prevent access to legally required information and records about the transactions to which consumers are bound.”

    Committee Ranking Member Senator Cantwell had offered, but later withdrew, an amendment that would have rejected all the changes introduced under the E-SIGN Modernization Act and, among other things, required the Secretary of Commerce and the Federal Trade Commission to evaluate and report to Congress, within a year after S. 4159’s enactment, the benefits and burdens of E-SIGN’s requirement for consumers to reasonably demonstrate that they can access documents electronically before receiving electronic versions.

    The legislation is currently pending approval by the full Senate.

    Federal Issues Federal Legislation E-SIGN Act E-Signature U.S. Senate

  • Senators introduce E-SIGN modernization bill

    Federal Issues

    On July 2, three Republican senators introduced a bill that would make electronic transactions easier by simplifying how consumers signal their acceptance of them. Sens. John Thune, Jerry Moran, and Todd Young introduced S.4159, the “E-SIGN Modernization Act,” which would allow companies to use electronic documents instead of paper ones if they secure the consumer’s consent to the substitution. Under the original E-SIGN Act passed 20 years ago, consumers also had to demonstrate to the company that they could access the records in the electronic form.

    “Computers, smart phones, and other devices are more reliable and accessible than ever before,” Thune said in a press release accompanying the bill. “This legislation makes necessary updates to E-Sign to reflect these advancements in technology and make it easier for consumers to receive documents electronically.”

    The bill also would no longer require transaction parties to obtain new consents when hardware or software changes. Instead, the company would simply disclose the updated requirements and notify the consumer of their right to withdraw consent without penalty.

    Federal Issues Federal Legislation E-SIGN Act E-Signature U.S. Senate

  • CFPB provides E-Sign consent flexibility due to Covid-19

    Federal Issues

    On June 3, the CFPB released a statement on temporary and targeted flexibility for credit card issuers regarding electronic provision of certain disclosures during the Covid-19 pandemic. The statement highlights that certain credit card issuers are receiving far more calls from consumers seeking relief as a result of the pandemic, but are unable to provide such relief without first providing certain written disclosures required by Regulation Z. Because such disclosures can only be provided electronically after consent sufficient under the Electronic Signatures in Global and National Commerce Act (E-Sign Act) is obtained, credit card issuers may be unable to move quickly to assist consumers. To address this issue, the statement provides that the CFPB “will take a flexible supervisory and enforcement approach during this pandemic regarding card issuers’ electronic provision of disclosures required to be in writing for account-opening disclosures and temporary rate or fee reduction disclosures mandated under provisions governing non-home secured, open-end credit.”

    Specifically, the Bureau states that it does not intend to cite a violation in an examination or bring an enforcement action against an issuer that, during a phone call, does not obtain the formal E-Sign consent required by Regulation Z to receive electronic written disclosures, as long as the issuer obtains both (i) oral consent to electronic delivery of the written disclosures, and (ii) oral affirmation of the consumer’s ability to access and review the electronic written disclosures. The Bureau states that it expects issuers to take “reasonable steps during the phone call to verify consumers’ electronic contact information,” including verifying the accuracy of email addresses already on file.

    Federal Issues Covid-19 CFPB TILA E-SIGN Act Regulation Z

  • District court: Initial debt collection communication via email does not violate FDCPA

    Courts

    On May 19, the U.S. District Court for the Northern District of California granted a debt collector’s motion to dismiss a lawsuit with prejudice brought by a plaintiff alleging violations of the Electronic Signatures in Global Commerce (E-SIGN) Act and the FDCPA. The defendant sent an email to the plaintiff attempting to collect an unpaid debt that contained a validation notice. The plaintiff argued that the email violated the E-SIGN Act because she did not consent to receive email from the defendant, and that it also violated the FDCPA “because the email referred to ‘send[ing]’ a copy of the verification of the debt whereas § 1692g(a)(4) specifies that a copy of the verification will be ‘mailed.’” Among other arguments, the plaintiff claimed that the email’s subject line, which stated “This needs your attention,” violated the FDCPA because it did not convey that the message was seeking to collect a debt, and that she received several more emails during the validation period, which confused her and “overshadowed” the validation notice in the initial communication.

    The court disagreed, stating that because there are “no express restrictions” within the FDCPA about how the initial communication must be made, allowing it to be made electronically is a “reasonable argument.” Specifically, the court noted that the CFPB has recognized that certain communication technologies such as email did not exist when the FDCPA was passed, and referred to the Bureau’s commentary on its proposed debt collection rule that stated “a validation notice as part of an initial communication can be conveyed via email.” [Emphasis in the original.] The court also determined that the plaintiff lacked standing with respect to her claim that the initial email’s subject line violated the FDCPA since she opened the email and clicked on the link. Furthermore, the court noted that using the word “send” instead of “mailed” in the initial communication would not have confused the least sophisticated debtor because the “debtor, if concerned about getting a verification of debt via email, could always ask for a copy to be sent via physical mail instead.”

    Courts FDCPA E-SIGN Act Debt Collection CFPB

  • 7th Circuit: Debt collector’s email not a “communication” under the FDCPA

    Courts

    On August 8, the U.S. Court of Appeals for the 7th Circuit affirmed a summary judgment ruling in favor of a consumer, concluding that a debt collector’s emails did not constitute a “communication” under the FDCPA. According to the opinion, the debt collector sent a consumer two emails about separate medical debts containing hyperlinks to the debt collector’s website, which then required the user to click through various screens to access and download a document containing the disclosures required under Section 1692g(a) of the FDCPA. The consumer did not open the emails. After finding out about the debt collection effort from the hospital, the consumer called the debt collector for more information; however, the required disclosures were not provided over the phone or sent in a written notice within the next five days. The consumer filed suit against the debt collector alleging it violated Section 1692g(a) by not providing the disclosures during her phone call or within five days after the call as required by law. The company argued that the emails were the FDCPA’s “initial communications” and contained the mandatory disclosures. The lower court granted the consumer’s motion for summary judgment.

    On appeal, the 7th Circuit rejected the debt collector’s arguments that the emails constituted a “communication” under the FDCPA, noting that other appellate courts have held the message “must at least imply the existence of a debt,” and the emails only contained the name and email address of the debt collector. Moreover, the appellate court took issue with the multistep process required to access the validation notice, concluding “[a]t best, the emails provided a digital pathway to access the required information. And we’ve already rejected the argument that a communication ‘contains’ the mandated disclosures when it merely provides a means to access them.”

    Notably, the CFPB filed an amicus brief in the action, seeking affirmation of the lower court’s ruling on the separate theory that the debt collector allegedly failed to satisfy the conditions of the E-Sign Act. However, because the court affirmed the decision on other grounds, it chose not to address the E-Sign Act.

    Courts Appellate Seventh Circuit Debt Collection FDCPA CFPB E-SIGN Act

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