Legal Update

1
Legal Update

• Chris Christensen
• Legal Update Breakout Session
• Charlotte, N.C.
• July 23, 2007

2
Electronic Signatures in Global and National
Commerce Act (E-SIGN) Cases

• Collins v. Mo. Elec. Coops. Emples. Credit Union,
  2006 U.S. Dist. LEXIS 57116 (D. Mo. 2006)
• The plaintiff opened an online checking account
  and subsequently opted-in to receiving banking
  statements electronically
• Shortly after opting in to electronic statements,
  the plaintiff was incarcerated at Millington
  Federal Prison Camp in Millington, Tennessee
• While incarcerated, he learned of electronic
  funds transfers against his checking account
• Plaintiff brought a lawsuit under the electronic
  funds transfer act alleging, inter alia, that the
  credit union failed to provide statements as
  required by the EFTA
• According the court, there is no express
  requirement under the EFTA for written
  statements, therefore E-SIGN was not applicable
  and the claim failed

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Electronic Signatures in Global and National
Commerce Act (E-SIGN) Cases

• Siebert v. Amateur Ath. Union of the United
  States, Inc., 422 F. Supp. 2d 1033 (D. Minn.
  2006)
• A "click signature on a web page membership
  agreement which states that any disputes are
  subject to arbitration
• Citing a series of clickwrap agreement cases
  and E-SIGN, the Court found that the "click"
  represents assent to the contract, including the
  arbitration clause
• Bell v. Hollywood Entm't Corp., 2006 Ohio 3974
  (Ohio Ct. App. 2006)
• An employee submitted an electronic employment
  application that included notification of
  arbitration and an E-SIGN process
• An electronic employment application with an
  arbitration provision is enforceable
• Poly USA, Inc. v. Trex Co., 2006 U.S. Dist. LEXIS
  8383 (D. Va. 2006)
• The use of a company email account to send an
  email does not necessarily constitute an
  electronic signature under E-SIGN (15 U.S.C.
  7006)
• The transmission of an electronic document via
  eMail was not sufficient evidence of intent to
  electronically sign the document

4
Uniform Electronic Transactions Act (UETA) Cases

• Brantley v. Wilson, 2006 U.S. Dist. LEXIS 17722
  (D. Ark. 2006)
• Electronic real estate sale contract survives
  Motion for Summary Judgment
• Defendant argued the statute of frauds precluded
  an electronic agreement to buy the property
• The Court, citing Arkansas adoption of the UETA,
  found that a genuine issues of material fact are
  in dispute with respect to the statute of frauds
• Crestwood Shops, L.L.C. v. Hilkene, 197 S.W.3d
  641 (Mo. Ct. App. 2006)
• The tenant expressed a desire to terminate a
  lease via eMail
• The tenant argued that the eMail did not
  constitute consent to conduct business via
  electronic means
• The court found sufficient consent to conduct
  business electronically citing two eMails. One
  eMail stated I will be on email only.
• The eMail offer to terminate the lease satisfied
  the statute of frauds

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Uniform Electronic Transactions Act (UETA) Cases

• Haywood Secs., Inc. v. Ehrlich, 149 P.3d 738, 739
  (Ariz. 2007)
• A typed signature of a judge in the "/s/ Name"
  format on an electronically filed judgment
  complies with the requirement that judgments be
  "signed"
• The Court based the holding on Arizona cases
  interpreting the definition of signed, but
  recognized the consistency with Arizonas
  Electronic Transactions Act
• EPCO Carbondioxide Prods. v. Bank One, NA, 2007
  U.S. Dist. LEXIS 33719 (D. La. 2007)
• The assertion that EPCO signed a credit agreement
  electronically required proof that the parties
  agreed to conduct transactions by electronic
  means
• While the parties had regularly engaged in
  negotiations electronically, they also negotiated
  through telephone calls and letters, and there is
  no indication that they had agreed to contract
  electronically
• While the negotiations were conducted
  electronically, final agreements were reduced to
  paper
• None of the documents had an electronic signature

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Uniform Electronic Transactions Act (UETA) Cases

• Peruta v. Outback Steakhouse of Fla., Inc., 2006
  Conn. Super. LEXIS 2679 (Conn. Super. Ct. 2006)
  (The process of logging-in constitutes a "signed
  statement" under the Connecticut UETA)

7
Warehouse Providers and eNotes

• In the paper world, the Warehouse Provider
  commonly takes physical possession of the paper
  note
• When the note is sold, the paper note is
  delivered to the investor before the Warehouse
  provider is funded
• Because the note is bearer paper, when the
  Warehouse Provider decides to deliver the
  instrument they technically would lose their
  priority
• The solution is to accompany the paper note with
  a bailee letter (Yes, I am delivering the note,
  but you are holding it on my behalf)

8
Warehouse Providers and eNotes

• Proposal Transferees on the MERS eRegistry
  system will hold the transferable record as
  designated custodian for the warehouse lender
  unless otherwise agreed
• Until such time as the appropriate value has been
  given, the transferee will not qualify for the
  rights of a holder in due course or a purchaser
  for value
• Upon paying value the transferee will be entitled
  to the rights of a holder in due course to the
  extent it otherwise qualifies for such rights.

9
Title Insurance Coverage of Electronic
Transactions

• Revised Loan Policy (Adopted June 2006) that
  explicitly includes insurance against the
  invalidity or unenforceability of the lien of the
  insured mortgage because of failure to perform
  those acts necessary to create a document by
  electronic means authorized by law. It is widely
  agreed that this coverage will insure against
  invalidity of the insured mortgage because of
  failure of the promissory note or mortgage to be
  created in accordance with applicable electronic
  transactions laws.
• Notwithstanding publication of the new loan
  policy form, the 1992 ALTA Loan Policy provides
  the same insurance by insuring provision 5, which
  insures against The invalidity or
  unenforceability of the lien of the insured
  mortgage upon the title
• Revised closing protections letters that include
  express reference to assignees and warehouse
  lenders

10
Admissibility of Electronic Records

• American Exp. Travel Related Servs. v. Vinhnee
  (In re Vinhnee), 336 B.R. 437 (Bankr. Fed. App.
  2005)
• Court refused to admit the creditor's
  computerized business records for inadequate
  authentication
• For purposes of authentication of electronic
  records, the Court inquiry includes
• The identification of the particular computer
  equipment and programs used,
• The entity's policies and procedures for the use
  of the equipment, database, and programs
• How access to the pertinent database is
  controlled,
• How access to the specific program is controlled,
• How changes in the database are logged or
  recorded,
• The structure and implementation of backup
  systems and audit procedures for assuring the
  continuing integrity of the database, and
• Whether records have been changed since their
  creation.

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Admissibility of Electronic Records

• Lorraine v. Markel Am. Ins. Co., 2007 U.S. Dist.
  LEXIS 33020 (D. Md. 2007)
• Managing Discovery of Electronic Information A
  Pocket Guide for Judges accessible at
  http//www.fjc.gov/
• There may be multiple ways to authenticate a
  particular computerized record, and careful
  attention to all the possibilities may reveal a
  method that significantly eases the burden of
  authentication
• In general, the least complex admissibility
  issues are associated with electronic documents
  or records

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Questions?

• Chris Christensen
• PeirsonPatterson, LLP
• 972.720.3253
• chrisc_at_peirsonlaw.com