1. The chair reported on the status of the website library. It was suggested that other types of documents be added to the library, including practice forms, and the index of MLA seminar papers prepared by the CLE Committee. As to the index, the chair is to follow up with Bob Glenn. It was also suggested that all meeting notices sent by the MLA secretary be posted in the library.

Two additional projects were suggested. The first is to investigate whether the website could be used to streamline the process of appointing and confirming and listing Committee members. David Sharpe of New Orleans volunteered to investigate the possibilities in this area and make a report to the next meeting of the Committee.

The second project was to investigate whether the Committee might be able to recommend to other Committees an efficient way to organize, set up and find a host for listservs. John Edginton agreed to investigate the possibilities. The Committee looks forward to his report at its next meeting.
 
 

2. Ed Cattell made a report to the Committee. Ed has been appointed as one of two American Law Institute members to the committee which is redrafting Article 7 of the UCC, covering documents of title such as bills of lading and warehouse receipts, etc., in order to accommodate e-commerce. Ed reported that the committee would be looking at the 1990 CMI Rules as well as a possible new convention being produced by UNCITRAL.

Ed reported that President Dorsey had asked him to work with this committee as well as the CMI committee during the redrafting process for Article 7. Any ideas that anyone has for Ed should be brought to the attention of this Committee. Ed will periodically update this Committee on developments.

3. The chair made a presentation of E-sign, UETA and New York’s ESRA. An outline of the presentation is attached as Schedule A. A handout consisting of extracts of the three laws including the introductory notes and some comments on § 16 of UETA was distributed. (Extra copies of which are available from the Chair.)

4. John Edginton reported that the Northern District of California has initiated an electronic filing system similar to the one (demonstrated at our last meeting) in effect in the Eastern district of New York. Only one member of the Committee present had actual experience in e-filing and mentioned that the scanning and filing of bulky exhibits is somewhat inconvenient, but otherwise the system seemed to be working well.

Thirteen members attended the meeting, including David Sharpe by conference telephone from New Orleans.

Respectfully submitted,

Glen T. Oxton, Chair

Is a Negotiable Bill of Lading Covered by the New Electronic Signature Laws? — Answer: it depends.

I. The Federal Electronic Signature Law (“E-sign”) became effective in October, 2000 and is contained in 15 U.S.C. §§ 7001, et seq.

A. Section 7001 of E-sign generally validates electronic signatures and electronic documents and records. With respect to transactions in interstate commerce, E-sign preempts state law to the contrary.

B. Section 7001 of E-sign excludes

1. Wills and Trusts

2. Matters of family law

3. Any contract or record to the extent it is governed by the UCC other than Articles 2 (Sales) and 2A (Leases)

C. Section 7021 of E-sign deals with “transferable records,” which is essentially a new definition for a negotiable instrument, except that under E-sign it is limited to promissory notes secured by real property.

1. A transferable record is defined as an electronic record that:

a. would be a note under UCC Article 3 if it were in writing

b. the issuer expressly agrees that it is a transferable record

c. relates to a loan secured by real property.

2. Transferable records may be electronic, provided that there is a method of control as defined in the statute to reliably establish the owner of the transferable record.

D. Section 7002 of E-sign contains its two preemption exemptions.

1. If a state adopts the Uniform Electronic Transactions Act (“UETA”) “as approved and recommended” for enactment by NCCUSL, it is exempt from preemption, except that:

a. any restriction of the scope of UETA by a state under Section 3(b)(4) of UETA shall be preempted to the extent it is inconsistent with E-sign;

b. any requirement by a state of any particular technology (in violation of Section 2002(2)(A)(ii) of E-sign) will be preempted.

2. If a state law other than UETA is consistent with the requirements of E-sign, does not require a particular technology, and, if enacted after the enactment date of E-sign (June 30, 2000) makes specific reference to e-sign, then it will be exempt from preemption.

II. The Uniform Electronic Transactions Act (“UETA”) was approved by NCCUSL in July 1999. The full text is available at http://www.law.upenn. edu/bll/uls/fnact99/1990/s/ueta99.htm.

A. UETA Section 3 defines its scope. It applies to electronic records and electronic signatures relating to a transaction. A transaction is defined as including interaction between two or more persons. It excludes transactions governed by

1. Laws governing wills and trusts

2. UCC Articles 2 and 2A

3. The Uniform Computer Information Transactions Act (“UCITA”)

4. Other laws, if any, identified by the state (this is Section 3(b)(4) referred to in E-sign Section 7002).

B. Like E-sign, UETA (in Section 16) defines a “transferable record” and states that they are governed by UETA provided that there is a method of control over the transferable record in a single identifiable person.

C. The categories of documents that may constitute a transferable record under UETA is broader than that under E-sign. UETA includes:

1. a note under UCC Article 3 if the issuer has expressly agreed it shall be a transferable record, regardless of whether it is secured by real estate; and

2. a document under UCC Article 7 if the issuer has expressly agreed it shall be a transferable record. This would include a negotiable bill of lading.

D. The UETA comments to Section 16 acknowledge that the most likely means of satisfying the control requirements for transferable records is a registry system of some kind. Section 16 leaves open the possibility that control could be provided by some kind of technological advance that would provide a standalone method for establishing control such as by permitting each holder to transfer the record only once.

III. ESRA — New York adopted an Electronic Signatures and Records Act in September 1999, predating E-sign, as Chapter 57-A of the Technology Law. ESRA generally validates electronic records and electronic signatures.

A. ESRA appears to satisfy Section 7002(a)(2)(A) of E-sign and is thus exempt from preemption.

B. Section 107 of ESRA contains its exceptions to applicability, which are as follows:

1. Wills, trusts and healthcare proxies

2. Any negotiable instruments — “unless an electronic version of such record is created, stored or transferred pursuant to this article in a manner that allows for the existence of only one unique, identifiable and unalterable version which cannot be copied except in a form that is readily identifiable as a copy.”

3. Any instrument “recordable under Article 9 of the Real Property Law.”

4. Any other document specifically excepted in the rules and regulations.

IV. Conclusion. If the law governing the issuance of an electronic negotiable bill of lading is that of a state which has passed UETA, is governed by New York State’s ESRA or by another state’ laws which are similar to ESRA, then the negotiable bill be covered by the electronic signature laws, provided that the control provisions referred to above have been satisfied. The CMI Rules (1990) provide a specific type of registry system that would comply with these provisions. Registry systems such as those provided by Bolero would also comply. If the governing law is that of a state that does not have a digital signature act, E-sign would be applicable without supplementation by state law, and an electronic negotiable bill of lading would not be recognized.

V. The possibility of including a governing law clause in an electronic record was discussed. It was pointed out that a governing law clause might have no effect on the threshold issue of whether a valid contract had been made. The chair reported that in order to sidestep this threshold issue, some companies are unilaterally declaring that they will not challenge a contract solely on the grounds that it is in electronic form or is electronically signed. If both parties to an electronic contract have taken this position, then the threshold question of whether a contract was made at all, at least to the extent of issues as to its electronic form and electronic signatures should no longer be a concern.

On the other hand, the Restatement 2d of Conflicts of Law §187, states that parties may bootstrap themselves into a valid contract based on a choice of law provision in the contract except when the law chosen has no substantial relationship to the parties or the transaction, or when the law chosen would be contrary to a fundamental policy of a state with a materially greater interest in the transaction. The first exception has been diluted by subsequent cases. With respect to the second, few, if any, jurisdictions have a policy expressly against the use of electronic signatures and documents in commercial transactions. The problem in jurisdictions that do not have electronic signature acts, is a lack of clarity as to whether electronic documents satisfy the requirements for legality.