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Are E-Signed Arbitration Agreements Enforceable?

By: Amy M. Gallegos

LaptopAs more and more businesses conduct transactions electronically, courts and practitioners are increasingly faced with questions about the validity and enforceability of electronically signed documents.  In consumer law, this issue often arises when a company seeks to enforce an arbitration agreement contained in a document that was electronically signed by the consumer.  California courts are well known for their skepticism of arbitration provisions in consumer contracts.  Additionally, consumers may be more likely to challenge electronic agreements, perhaps because they believe electronic signatures are not legally binding, or because without a handwritten signature to prove up the contract, they think it makes sense to play the odds that the defendant will not be able to satisfy the court that an agreement was actually made.  Understanding how to prove up an agreement to arbitrate when the consumer’s signature is electronic is critical for consumer lawyers practicing in California.

In California, general principles of contract law determine whether the parties have entered a binding agreement to arbitrate.  California has enacted the Uniform Electronic Transaction Act, which recognizes the validity of electronic signatures. (Cal. Civ. Code Section 1633.1.)  Under that act, an electronic signature has the same legal effect as a handwritten signature, and “[a] … signature may not be denied legal effect or enforceability solely because it is in electronic form.” (Cal. Civ. Code, Section 1633.7, subd. (a).)  That said, any writing must be authenticated before the writing, or secondary evidence of its content, may be received in evidence. (Evid. Code Section 1401.)  “Authentication of a writing means (a) the introduction of evidence sufficient to sustain a finding that it is the writing that the proponent of the evidence claims it is or (b) the establishment of such facts by any other means provided by law.”

California Civil Code Section 1633.9 addresses how a proponent of an electronic signature may authenticate the signature—that is, show the signature is, in fact, the signature of the person the proponent claims it is.  The statute states: “An electronic record or electronic signature is attributable to a person if it was the act of the person.  The act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.”

Authentication is where the rubber hits the road. A recent case out of the Fourth Appellate District of the California Court of Appeal underscores the importance of scrupulously authenticating an electronically signed arbitration agreement.  In Fabian v. Renovate America, a homeowner alleged that Renovate America (Renovate), a solar panel company, had violated the Consumer Legal Remedies Act and Unfair Competition Law in connection with the financing and installation of a solar energy system in Rosa Fabian’s home. (Fabian v. Renovate America, —Cal. Rptr.3d— (2019), 2019 L 6522978 (Nov. 11, 2019).)  Renovate filed a petition to compel arbitration, based on an agreement that it claimed the homeowner had electronically signed. The agreement at issue was signed using DocuSign, a company that provides a platform to electronically sign documents.  The words “DocuSigned by:” and the printed electronic signature of the homeowner appeared in a signature box at the end of the contract, along with the date, a 15-digit alphanumeric character, and the words “Identity Verification Code: ID Verification Complete.”  Renovate’s petition was supported by the declaration of a Renovate employee stating that the plaintiff had entered into the contract on the date referenced in the electronic signature.  However, the declaration did not include any information about what DocuSign was or how it worked.  The plaintiff denied she had signed the agreement and contended that her electronic signature was placed on the agreement without her consent, authorization or knowledge.

The trial court denied Renovate’s motion, and the Court of Appeal affirmed.  The Court of Appeal explained that because the plaintiff had “declared that she did not sign the contract,” Renovate had the burden of “proving by a preponderance of the evidence that the electronic signature was authentic.”  The Court of Appeal found that Renovate had not met this burden.  Although the court acknowledged that a federal court in California had accepted a DocuSign verified signature in Newton v. American Debt Services, 854 F. Supp. 2d 712 (N.D. Cal. 2012), the court found that case distinguishable because in that case the declarant proved that the electronic signature was authentic by explaining the process used to verify the signature.  In Fabian, by contrast, the defendant had offered “no evidence about the process used to verify Fabian’s electronic signature via DocuSign,” including who sent her the contract, how her signature was placed on the contract, who received the signed contract, how the signed contract was returned to Renovate, and how Fabian was verified as the person who actually signed the contract.

Fabian underscores that California courts can be skeptical of arbitration agreements especially when they require a consumer to arbitrate a claim against a corporate defendant. It is therefore critical that practitioners moving to compel arbitration based on a consumer’s electronic signature be painstakingly diligent about laying the proper foundation.  To establish that an electronic signature is authentic, defendants submit a declaration from a witness with personal knowledge explaining how the software used to generate the signature works and how it ensures that the signature is authentic—for example, by requiring the use of a unique, secure user name and password to create the signature.  (See, e.g., Smith v. Rent-A-Center, No. 1:18-CV-01351, (E.D. Cal. Jul. 10, 2019).)

Optimally, the declarant should describe all of the facts surrounding the transaction that support the conclusion that the plaintiff signed the contract. The declarant should describe how the contract was sent to the plaintiff, such as whether it was emailed to an address belonging to the consumer, or whether the consumer was sent a password-protected link to the contract.  The declarant should also describe all of the steps the plaintiff had to take in order to electronically sign the document—for example, creating a secure, password-protected account to use the software that generates the signature, or signing onto a secure website with a unique user name and password. (See id. at * 5 (E.D. Cal. Jul. 10, 2019); Espejo v. Southern California Permanente Medical Group, 246 Cal. App. 4th 1047, 1062 (2016).)  Courts have also approved the use of check boxes on documents when a secure username and password were required to access the document. (Smith, 2019 L 3004160 at *5.)  The declarant should describe how the signed document was transmitted to the company.  Although it should not be necessary if an employee of the company has the requisite personal knowledge, some courts might be more inclined to accept a declaration from the software vendor.

Additionally, practitioners should be aware that some courts, due to skepticism about technology or vigilance protecting consumers, may be uncomfortable accepting sworn testimony about the reliability of electronic signature technology, especially when faced with a consumer swearing she never signed the agreement.  In many cases, it would be helpful to bolster the declaration with other evidence that would tend to support the existence of a contractual relationship. Examples could include inquiries from the consumer about the status of the product purchased, or evidence that the company sent a “welcome” email to the consumer, and the consumer did not respond that it was sent in error.

Although the law states that electronically signed arbitration agreements are enforceable, lawyers defending consumer claims can’t make the assumption that courts will rubber-stamp motions to compel arbitration.  Practitioners must be diligent about providing the proper evidence to ensure that agreements are upheld when challenged.

Reprinted with permission from the January 8 issue of The Recorder. © [2020] ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved. The original article can be viewed here.