The closing deadline is quickly approaching! Which of the following two processes would you choose? Would you:
(a) create a pdf of signature pages and request that parties provide a digital signature and return via email, or
(b) print out multiple sets of paper copies of each signature page for each transaction document in triplicate, then… ship each signature page packet to each signatory for the transaction (sending in tandem, an email with the overnight delivery tracking numbers) with a pre-addressed and prepaid return envelope and instructions to sign and return on a very tight timeline with no room for error, then…wait by the mailroom for those signature pages to come back.
You went with (a), right? Clearly, (a) is preferable given the circumstances. Any sane, rational person would agree. It’s (a).
Naturally, lawyers overwhelmingly choose (b). Of course we do.
We are all quick to poke fun at those lawyers uninterested in keeping up with the times. They dictate their memos, use “heretofore” in email correspondences, and/or insist on keeping a physical law library in the office. Although we laugh at these backwards Luddites, we still wonder if maybe the olden days were a bit better when we hear them wax poetic about luxurious lobster and steak dinners catered during offering document print sessions. We may have TikTok and Zoom, but our lukewarm print session dinners are served à la Styrofoam takeout trays in halogen-lit offices at 3 a.m..
But even outside of the nostalgia for days past, lawyers are overly cautious, risk-adverse individuals. When it comes to signature pages, specifically, every real estate and finance attorney feels the overwhelming anxiety that somehow the entire deal could be invalidated because of a problem with a signature page. Due to this errant signature page phobia (which is dutifully instilled into every first year associate), even the most open-minded technophile Millennial will insist on obtaining wet ink original signature pages (in triplicate, of course). However, times, they are a-changin’, and very recently it has become evident – due in large part to the COVID-19 pandemic and the resulting difficulties in obtaining wet ink signatures – that we need to get with the times and take advantage of how technology has advanced and how the law has kept pace with it, even if the lawyers have not.
We are not talking about brand new, cutting edge, untried and untested technology here. Remember back in 1999 when you were stoked to see the new movie where Keanu Reeves wears all black, dodges bullets and bends a spoon with his mind? Well, that’s when the Uniform Electronic Transactions Act (“UETA”) took effect. And one year later, when Justin Timberlake was just a nameless member of the boy band with the hit single “Bye Bye Bye,” the Electronic Signatures in Global and National Commerce Act (“E-SIGN”) took effect. These acts, in essence, state that an electronic signature will not be denied legal effect and enforceability and that, if a signature is required, an electronic signature will suffice so long as the parties to the contract have agreed to use electronic signatures. Thus, given that the technology is effective and the laws validating the use of this technology have been around for over two decades, it’s surprising that all transactions are not consummated using e-signatures. So, what’s the problem here?
Well, there are a few problems, but New York is a big one. While forty-seven states, the District of Columbia, U.S. Virgin Islands, and Puerto Rico have all adopted UETA because of its obvious advantages, guess who has not? That’s right, the Empire State has not adopted UETA and instead, in 2000, passed its own Electronic Signatures and Records Act (“ESRA”). ESRA, however, is very similar to E-SIGN (such that it is not pre-empted by E-SIGN) and UETA and effectively serves the same purposes. Another problem is that even within the 47 states that have adopted UETA, certain exceptions exist on a state-by-state basis. So while the e-signature concept is great in theory, it probably seems more efficient to just require wet ink signature pages in the usual way (the way that everyone is used to and comfortable with) rather than, for example, having to research Pennsylvania law to see if mortgage assignment documents are excluded from UETA in that state.
Besides state-specific carveouts from UETA and E-SIGN, we also need to look to industry-specific rules to understand this persistent aversion to e-signatures. Securitizations have to comply with Rules 11 and 302 of Regulation S-T, which would seemingly require wet ink sig pages be executed and retained in connection with any EDGAR filing. Rule 302(b) states that:
“Each signatory to an electronic filing…shall manually sign a signature page or other document authenticating, acknowledging or otherwise adopting his or her signature that appears in typed form within the electronic filing. Such document shall be executed before or at the time the electronic filing is made and shall be retained by the filer for a period of five years. Upon request, an electronic filer shall furnish to the Commission or its staff a copy of any or all documents retained pursuant to this section.”
Does this apply when this is a private deal that will not be on EDGAR, or when the document in question will not be Edgarized? Nope. But we all know how this shakes out when a deal is closing – since clients and lawyers are wary of transgressing signature requirements in one particular industry space, the wet ink signatures ritual bleeds into other transactional practices and asserts itself as the default operating procedure. Better safe than sorry. However, on March 24, 2020, the SEC issued a staff statement saying it will not recommend enforcement action of Rule 302(b) in certain instances on account of the COVID-19 crisis. At this point, we can only speculate where this rule may ultimately end up, and what effect the repeal of it might have on sig pages in the securitization industry.
For the real estate industry, ESRA permits electronic signatures and records with conveyances and other instruments recordable under New York real property law, and permits recording officers to electronically accept for recording or filing digitized paper documents or electronic records of real property instruments (deeds, mortgages, and accompanying documents). The issue here is that New York’s real property laws require that a signee “personally appear” before a notary to notarize a document. On account of the COVID-19 pandemic, an executive order suspended this in-person requirement and permitted the notary to video-conference with the signee. This suspension has been extended multiple times (the current extension term is set to expire on June 27th). Although we cannot guarantee the remote-notary process will not be reversed post-COVID, we would be shocked if it were. Indeed, the very nature of basic human interaction is changing. We’re looking at maybe a year of birthdays, weddings, and graduations through video conference – so the idea of a notary Zooming with a signatory to remotely notarize a document should be common sense to the New York state legislature (assuming of course, that politicians are capable of common sense, but we’ll leave that analysis for one of Rick’s blog posts).
Admittedly, we lawyers like to do things the same way as other lawyers. Hence, the classic answer to the question of why any outdated practice persists in the legal industry is: “well…it’s market.” However, the market is changing (and the last legal and regulatory vestiges supporting the old market are changing with it). Perhaps one of the silver linings of this pandemic will be an easing of the state- and industry-specific limitations on using electronic or digital signatures. Perhaps someday we will regale first year lawyers with tales of the abject terror and sweaty panic we experienced opening a FedEx package the day before closing only to find that the counterparty signed the wrong signature block and then added in the date manually, using yesterday’s date. And these new lawyers will sit back and think, “They really got to travel around New York City in taxicabs and on subways to hand deliver new signature pages to the signatory’s offices? What an adventure! It really was better back then.”
