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National Labor Relations Board Issues Guidance Regarding Electronic Signatures
On October 26, the National Labor Relations Board issued revised guidance regarding its acceptance of electronic signatures to support a showing of interest. The revised guidance requires electronic signatures to contain the following information: (i) the signer’s name; (ii) the signer’s e-mail address or other known contact information, such as a social media account; (iii) the signer’s telephone number; (iv) the language to which the signer has agreed; (v) the electronic submission date; and (vi) the name of the employee’s employer. If the electronic signature technology used does not support digital signatures that can be independently verified by a third party, then “the submitting party must submit evidence that, after the electronic signature was obtained, the submitting party promptly transmitted a communication stating and confirming” the required information. Electronic submissions should not include personal identifiable information, such as the signer’s date of birth and social security number. Finally, a declaration must be submitted with an electronic signature to: (i) identify the technology used and explain how its controls ensure the authenticity of the signature; and (ii) show that the electronically transmitted information explaining what and when the employees signed is the same information that the employees saw and agreed to.
Alabama District Court Enforces Electronic Arbitration Agreement
On October 13, the Northern District of Alabama entered an order compelling an employer and employee to arbitration where the employer demonstrated the existence of an electronic arbitration agreement. Yearwood v. Dolgencorp, No. 6:15-cv-00898-LSC, 2015 U.S. Dist. LEXIS 138993 (N.D. Ala. Oct. 13, 2015). The employee provided an affidavit denying ever having seen or signed such a form electronically. The court held that under the Alabama version of the Uniform Electronic Transactions Act, the burden of proving attribution of the signature to the employee falls on the employer. In support of its motion to compel arbitration, the employer offered evidence demonstrating its practice of requiring employees to complete a series of electronic forms upon hiring, which included the arbitration agreement. The employer also produced evidence demonstrating that the arbitration agreement was executed by someone using the employee’s unique access credentials (user ID and password) on the employer’s online hiring system, and that the employee’s password had to be re-entered at the time of signing. The employer also produced evidence that the employee agreed to use the electronic signature system and agreed to keep her password confidential. Weighed against the employer's proof of its process and records demonstrating execution, the court held that employee’s blanket denial by affidavit was insufficient to rebut the proof of attribution. The court found that the signature on the arbitration agreement was attributable to the employee and ordered the parties to arbitrate.
Michigan Appellate Court Enforces Electronic Signature Based On Audit Trail
On October 13, a Michigan Court of Appeals held, in a dispute over the execution of an electronic contract, that a party who documented its electronic presentation, execution and retention process and audit trails was entitled to summary judgment on a contract claim against a party who offered affidavits denying ever seeing or executing the electronic agreement. Harpham v. Big Moose Inspection, No. 321970, 2015 WL 5945842 (Mich. App. Oct 13, 2015). At issue was a contract for home inspection services, which the plaintiffs denied (by affidavit) ever seeing or executing at the summary judgment stage. In support of its motion for summary judgment, the defendant submitted an affidavit describing its usual process for the delivery of electronic contracts to customers via email by a secure link. In addition, the defendant’s affidavit also described an audit trail which showed: (i) when the agreement was posted to the defendant’s secure website; (ii) the date a link to the agreement on the secure website was emailed to the plaintiffs; (iii) the two times someone using plaintiff’s access credentials to the secure site accessed the agreement; (iv) that someone using the same credentials signed the agreement electronically by clicking a button indicating acceptance; and (v) that the defendant generated and stored a record of that agreement. The court noted that under Michigan law, where the party seeking to enforce the signature has provided admissible evidence of attribution, mere conclusory statements regarding the authenticity of a signature are insufficient to avoid summary disposition. The person denying the authenticity of the signature must provide some admissible evidence countering the evidence supporting attribution.
North Carolina Passes Legislation Allowing Secured Parties to Submit E-Signatures to the DMV
On October 12, North Carolina Governor Pat McCrory (R-NC) signed into law North Carolina SB 370. Effective August 2016, an application for a certificate of title, a registration plate, a registration card, and any other document required by the DMV to be submitted with the application and requiring a signature may be submitted with an electronic signature. The required notification may also be performed electronically. In addition, effective December 1, 2015, upon the satisfaction or other discharge of a security interest in a vehicle for which the certificate of title data is notated by a lien through electronic means, the secured party shall, within seven business days from the date of satisfaction, send electronic notice of the release of the security interest to the DMV through the electronic lien release system. The electronic notice of the release of the security interest sent to the DMV by the secured party shall direct that a physical certificate of title be mailed or delivered to the address noted by the secured party providing notice of the satisfaction or other discharge of the security interest. Upon receipt by the Division of an electronic notice of the release of the security interest, the Division shall mail or deliver a certificate of title to the address noted by the secured party within three business days.
Federal District Court Articulates Criteria for Effective Presentation of Electronic Contracts
In Berkson v. Gogo LLC, 2015 WL 1600755 (E.D. NY 2015), the Eastern District of New York denied a motion to dismiss and compel arbitration filed by an in-flight wifi provider. The provider was accused in a class action suit of duping customers into signing up for a monthly service without their knowledge. The plaintiffs alleged that the graphics and text of the website misled them to believe that they were purchasing only a single month of use, while concealing that the agreement was actually a subscription agreement for monthly services and a recurring monthly charge. At issue in the motion to dismiss was the enforceability of two separate agreements used to enroll customers, and in particular terms in those agreements related to mandatory arbitration and exclusive venue, which the defendant sought to invoke. The first contract presented a “Clickwrap” agreement—whereby the consumer checked a box presented next to the phrase “I accept the terms of use.” The second contract presented a “Signwrap” agreement—whereby the consumer clicked a sign-in button presented below a statement indicating that by signing in, the consumer agreed to the “terms of use.” In both instances, the phrase “terms of use” was a hyperlink presented in plaintext that would take the consumer to the contract terms, if clicked. Also in both cases, the actual button used to enroll customers was considerably larger than the hyperlink and presented in color. The plaintiffs argued that the agreements should not be enforced because the website pages on which they appeared were designed so that the terms were deliberately hidden and were never seen or agreed to by them.
As part of its analysis, the court reviewed a number of prior judicial decisions involving electronic consumer contracts, which closely scrutinized the manner in which agreement terms are disclosed to consumers on electronic platforms. The court also reviewed a number of empirical studies analyzing viewing and reading behavior (including eye tracking patterns) where consumers were presented with materials on a computer screen. The court concluded that in general an electronically presented agreement will be enforceable if (i) the website presenting the agreement puts a reasonably prudent user on inquiry notice of the terms of the contract; (ii) the user is encouraged by the design and content of the website and webpage to examine any agreement terms that are made available via a hyperlink; and (iii) the link to the agreement is placed where the user is likely to see it.
The court also observed that in this case the agreements qualified as “contracts of adhesion”, and so should also not be enforced unless it could be demonstrated that the user was, by virtue of the design of the agreement pages on the website, given adequate warning of adverse terms in the agreements, such as mandatory arbitration or exclusive venue.
Based on its analysis and review of the web pages presenting the agreements at issue, the court denied the defendant’s motion, concluding that the Signwrap agreement was unenforceable because the design and content of the web page did not make the agreement readily and obviously available, and its importance was obscured by the process (which involved clicking a button labeled “sign in,” rather than one labeled “accept” or “I agree”), and the defendant had not demonstrated that the Clickwrap agreement actually required the consumer to check the “I agree” box before enrolling the consumer in monthly services. The court also noted that the plaintiffs were not given an opportunity to retain a copy of the agreement, nor was one automatically provided to them.
National Labor Relations Board Determines Parties May Submit E-Signatures to Support a Show of Interest
In a September 1 memorandum, the National Labor Relations Board’s (NLRB) general counsel, Robert Griffin, issued guidance for accepting electronic signatures in support of a showing of interest, per the NLRB’s December 15, 2014 final rule that became effective on April 14, 2015. In its final rule, the NLRB concluded that its regulations were “sufficient to permit the use of electronic signatures” to support a showing of interest and called on Griffin to determine the standards for when and how electronic signatures should be accepted. Ultimately, Griffin determined that “the evidentiary standards that the Board has traditionally applied to handwritten signatures apply equally to electronic signatures and that it is practicable to accept electronic signatures in support of a showing of interest.” Current requirements for a support of showing of interest using handwritten signatures do not require the employee to provide personal contact information; however, the requirements Griffin outlined in the memorandum “are more stringent than what is currently required for non-electronic signatures,” including the prerequisite that an employee provide personal contact information when submitting electronic signatures. In accordance with Congress’s intention that the NLRB, and other Federal Agencies, “accept and use electronic forms and signatures, when practicable,” the NLRB will now accept electronic signatures along with handwritten signatures, effective immediately.
Special Alert: CFPB Reports On The Findings From Its "Know Before You Owe" eClosing Pilot Project
In 2014, the Consumer Financial Protection Bureau (“CFPB”) initiated an eClosing pilot program. The eClosing pilot was intended to assist the CFPB in evaluating the use of electronic records and signatures in the residential mortgage closing process. The pilot program has now been completed and on August 5, 2015 the Consumer Financial Protection Bureau (“CFPB”) released a report detailing its findings (“Report”). In the Report, the CFPB indicates that eClosings present a significant opportunity to enhance the closing process for both consumers and the mortgage industry.
The pilot program focused on the mortgage closing process and measured borrowers’ (i) understanding (both perceived and actual) of the process, (ii) perception of efficiency, and (iii) feelings of empowerment. The program also sought to quantify objective measures of process efficiency. The program was conducted over four months in 2014 with seven lenders, four technology companies, settlement agents, and real estate professionals. About 3000 borrowers participated in the study – roughly 1200 completed the CFPB’s survey.
The CFPB sought to determine if an electronic closing process improved the borrowers’ (i) understanding of the transaction, (ii) perception of efficiency, and (iii) feeling of empowerment. These three criteria were measured in multiple ways. To gauge understanding, the borrower was asked about their perceived understanding of the terms and fees, costs, and their rights and responsibilities. To determine the borrower’s actual understanding of their mortgage, they were given an eight question quiz. Five questions were about mortgages generally and three about their mortgage, specifically. To evaluate the efficiency of the transaction, the CFPB measured the difference between eClosings and paper closings in terms of delays, errors in documents, and the time required between steps in the process. Borrowers were also asked about their perceptions concerning efficiency. Finally, in order to gauge the borrower’s feeling of empowerment, the CFPB asked about the borrower’s feelings of control, his or her role, and the role(s) of others in the process.
Among the key findings of the survey cited by the CFPB:
- eClosing borrowers felt more empowered, had better perceived and actual understanding of the transaction, and perceived the process as more efficient than a paper-based closing;
- Delivery of closing documents prior to closing, in particular, improved consumer’s feeling of empowerment and enhanced their perceived and actual understanding of the transaction; and
- eClosing borrowers tended to have shorter closing meetings and a shorter time frame from clearing the closing documents until the actual closing.
The CFPB also stated that the eClosing pilot provided insights into practical issues affecting the success of the eClosing process, and expressed the hope that these insights would assist the mortgage industry in further improving the process. The CFPB’s observations included:
- Certain documents were often still signed on paper because of technology platform limitations, questions about eSignature risks, and the limited availability of electronic notarization services.
- Hybrid closings (part electronic and part paper) caused some confusion among lenders and investors, and more guidance from investors on the subject of hybrid closing would be desirable.
- The large number of stakeholders in the mortgage lending process created coordination and acceptance challenges – some ancillary service providers were resistant to the process changes required by eClosings.
- Mapping closing document packages to eClosing processes proved to be an ongoing challenge during the pilot.
- Settlement agents and closing attorneys appeared to have a significant learning curve when first being introduced to eClosings.
The Report signals the CFPB’s ongoing support for continued development and deployment of eClosing processes. The Report concludes:
Borrowers experiencing eClosing scored higher on average than those experiencing paper closings on many of our measures of perceptions of empowerment, understanding, and efficiency, which suggests that eClosing can be a valuable option for consumers. In particular, eClosing seem to serve as a vehicle to help facilitate two other drivers of empowerment, understanding, and efficiency at closing: early document review and easy integration of educational materials.
However, the Report also calls upon the mortgage industry, as it moves forward, to conduct further research on the impact of eClosings on the borrower’s experience.
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Questions regarding the matters discussed in this Alert may be directed to any BuckleySandler attorney with whom you have consulted in the past.
Court Holds That Evidence of Clickwrap Assent Not Always Sufficient When Evidence Disputing Assent is Presented
On June 29, in Jim Schumacher, LLC v. Spireon, Inc., Civ. Action No. 3:12-cv-00625-TWP-CCS, a Tennessee federal judge denied the motion for partial summary judgment as to the breach of contract claim because there was evidence that the plaintiff did not use the defendant’s portal or authorize an agent to use the defendant’s portal to manifest assent to the modified contract terms even though the defendant had digital evidence of such assent to the clickwrap agreement, thus creating a factual dispute. In 2005, the plaintiff became a reseller of the defendant’s vehicle location devices. In 2009, the defendant modified its agreement, and placed the modified agreement on its customer portal website through which resellers manage purchases, sales, and customer data. Visitors to the portal were required to click “I Accept” or “I Decline” before being permitted to access any other information on the portal. The defendant produced digital evidence demonstrating that someone with the correct login and password accepted the 2009 agreement, and further digital evidence that someone with the correct login and password accepted an agreement in 2010 as well. The plaintiff claims that he did not use the portal after the defendant placed the 2009 agreement on the portal, and thus could not have assented to the clickwrap agreement. During this time, the plaintiff also did not authorize his representative to agree to the terms of the 2009 amendment, nor did he give any other users the ability to execute the agreement on his behalf. The plaintiff filed a lawsuit alleging a breach of contract claim and a fraud claim based on the 2005 agreement.
The defendant argued that the 2005 agreement was superseded by the plaintiff’s acceptance of the 2009 agreement, which itself was superseded by the plaintiff’s acceptance of the 2010 agreement, and that the defendant had digital evidence of the plaintiff’s assent. The plaintiff contended that neither argument was properly executed on his behalf. The defendant argued that the plaintiff cannot avoid summary judgment by asserting a failure to see, read, or sign the 2009 or 2010 agreements. In so doing, the defendant relied on two cases where the terms of the “clickwrap” agreement were enforced against a party who claimed lack of agreement to the terms. The court distinguished this case from those two cases by noting that in both of those cases, undisputable evidence existed that the party assented to the terms of the clickwrap, either because the party used the website to make travel arrangements or because the party incorporated software into its own products that could only have been installed if the party agreed to the clickwrap agreement. Here, the court noted, the plaintiff did not use the portal after the defendant posted the amended agreements. Regarding the defendant’s argument that some with apparent authority executed the agreements, the court found that no evidence existed that the plaintiff granted anyone but his representative authority to act on his behalf and that the record was silent regarding whether the plaintiff’s representative did execute the agreements. Therefore, the court denied the defendant’s motion for summary judgment regarding the breach of contract claim because a factual dispute existed regarding which contract controlled. Finally the court allowed the plaintiff’s fraud claims to proceed only regarding alleged statements made between January 2011 and March 10, 2011, when the defendant claims it terminated the 2010 agreement with the plaintiff.
Indiana Court of Appeals Reverses "E-Mortgage" Decision
The Indiana Court of Appeals reversed and remanded for further proceedings a trial court’s grant of partial summary judgment and held that because the plaintiff did not show that it controlled the electronic mortgage note (“Note”) for purposes of 15 U.S.C. § 7021(b) as of the date the foreclosure was filed, it had not established that it was the party entitled to enforce the Note as of that date. The plaintiff was not the original lender, and instead, received the mortgage by assignment. The plaintiff filed a complaint to foreclose the mortgage shortly after taking assignment. The Note stated that the only authoritative copy was the copy within the Note Holder’s control. 15 U.S.C. § 7021 provides conditions under which a party can have control and the court found that the evidence put forward by the plaintiff in support of the motion for summary judgment did not properly address satisfaction of those conditions. Specifically, the court stated that the plaintiff did not present evidence demonstrating that control over the Note had been transferred to the plaintiff in accordance with the requirements of 15 U.S.C. 7021. The court specifically noted in the decision that the plaintiff, upon demonstrating it had received a transfer of control, would be entitled to the same rights as the holder of a written promissory note under UCC Article 3, and that delivery, endorsement and possession of a physical note were not required. Good v. Wells Fargo Bank, N.A., No. 20A03-1401-MF-14 (Ct. App. Ind. 2014).
Software Company Releases New E-Signature Product
On January 8, Kofax Limited, a California-based software company, released SignDoc Enterprise, a product that allows lenders to capture and process electronic signatures. The software gives consumers the ability to sign and return documents securely from their personal computer or mobile device. The software also supports "click to sign" and handwritten signatures, and can capture biometrics at the time of signing for greater security and authentication.