December 17, 2019 Practice Points

Electronic Signatures: Not So Fast

Practitioners should be aware of the applicable statutes and downsides to using this technology to sign documents and agreements.

By Andrew J. Ennis and Catherine A. Green

In today’s digital world, the average person doesn’t think twice about using electronic signatures. But practitioners should be more cautious.

Over the past 20 years, electronic signature use has been on the rise. Due to their convenience, they are now used daily in myriad contracts and agreements. Practitioners, however, should consider the applicable statutes and practical downsides to using electronic signatures. (There are three main statutes governing electronic signatures: (1) the Electronic Signatures in Global and National Commerce Act of 2000; (2) the Uniform Electronic Transactions Act of 1999; and (3) the 21st Century Integrated Digital Experience Act.)

Litigation Issues

Electronic signatures present unique issues in litigation. For example, an electronic signer can more easily deny that he actually signed the document. And it may be difficult to determine how to lay proper foundation for an electronic signature.

Electronic signatures also allow corporate entities to argue that the signor did not have authority to bind the entity. For example, in April 2018, the North Carolina Court of Appeals affirmed a summary judgment for Bank of America based in part on DocuSign records. IO Moonwalkers, Inc. v. Banc of America Merchant Services, 814 S.E.2d 583 (N.C. App. 2018). Though the court upheld an electronically signed contract, it did so based on a theory of ratification, highlighting the risk that in the case of a disputed electronic signature, a party seeking to enforce the signature may need additional evidence beyond the mere digital trail.

Banc of America Merchant Services (BAMS) provided credit card processing services to IO Moonwalkers (a company that sells hoverboard scooters). A dispute arose between the parties over chargebacks for fraudulent purchases and Moonwalkers claimed that it never electronically signed the contract with BAMS. In its motion for summary judgment, however, BAMS produced DocuSign records showing the date and time that someone using the Moonwalkers company email viewed the contract, signed the contract, and later viewed the final, fully executed version. Moonwalkers did not dispute the records but claimed that the signer was not authorized to do so.

Luckily for BAMS, the trial court held, and the appellate court agreed, that the evidence confirmed that Moonwalkers ratified the contract. The trial court noted that “the electronic trail created by DocuSign provides information that would not have been available before the digital age—the ability to remotely monitor when other parties to a contract actually view it.”

But the court did not hold that those records, in and of themselves, established that Moonwalkers’ authorized representative had signed the contract and bound Moonwalkers. Instead, the court held that DocuSign records confirmed that Moonwalkers had reviewed and was aware of the contract’s terms. That, coupled with Moonwalkers other actions in abiding by the terms of the contract and responding to BAMS’s requests for information or materials required under the contract, led the court to hold that Moonwalker had ratified the contract. DocuSign records were critical evidence, but not in and of themselves dispositive of the validity or binding nature of the contract.

Practitioners need to weigh the convenience of electronic signatures against these potential problems—especially in large transactions that could end in litigation.

Filings

Practitioners also need to check local rules regarding the use of electronic signatures to avoid potential sanction. In December 2016, a bankruptcy judge for the Eastern District of California imposed sanctions on a bankruptcy lawyer for permitting a debtor client to use DocuSign to sign documents requiring an original signature. In re Mayfield, 2016 WL 3958982, No. 16-22134-D-7 (E.D. Cal. July 15, 2016). There, the bankruptcy attorney submitted various documents, which the debtor had signed using DocuSign. The United States Trustee argued that DocuSign did not constitute an original (“wet”) signature as required under the applicable bankruptcy and local rules. The court noted its concerns that an electronic signature could be more easily forged, or placed by someone other than the debtor, leading to potential disputes over the validity of critical case documents: “The essential point is that an individual’s handwritten signature is less easily forged than any form of software-generated electronic signature, and the presence of forgery is more easily detected and proven” Id. at *2.

Takeaways

Although the law is less than clear, practitioners should consider implementing the following:

  • Review all applicable court rules prior to filing documents using an electronic signature.
  • If disputes arise, be prepared to confirm your own electronic signatures, by affidavit or otherwise, to enforce contracts.
  • Consider including language in contracts or deal documents to bolster the validity of electronically-signed documents.
  • Be cognizant of potential arguments against enforceability—perhaps take the added step of requiring “wet” signatures in certain situations.

Andrew J. Ennis and Catherine A. Green are with Polsinelli, P.C., in Kansas City, Missouri.

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