Fabian v. Renovate America, Inc. (Cal. App.)
The following is a case update written by the Honorable Meredith Jury (United States Bankruptcy Judge, C.D. Cal., Ret), who is a member of the ad hoc group and a member of the Insolvency Law Committee of the BLS., analyzing a recent decision of interest:
A California appellate court ruled that a party seeking to compel arbitration failed to satisfy its evidentiary burden of showing the plaintiff electronically signed the arbitration agreement using DocuSign. [Fabian v. Renovate America, Inc., 2019 WL 6522978 (Cal. Court of Appeal, Nov. 19, 2019, ordered published on Dec. 4, 2019).]
To review the entire opinion, click here.
Rosa Fabian filed a lawsuit against Renovate America, Inc., a lender, asserting that solar panels she purchased for her home were improperly installed. She alleged that in early 2017 Renovate made an unsolicited telephone call to her home about financing the solar system. Renovate communicated with Fabian only telephonically and she was never presented with any documents to sign. She claims that she did not sign a financial agreement with Renovate, but nevertheless Renovate incorporated the solar panel payments set forth in the financial agreement into her mortgage loan payments. Thus, she alleged, Renovate violated the Consumers Legal Remedies Act, the Unfair Competition Law, and the California Contract Translation Act.
Renovate responded to the complaint by filing a petition to compel arbitration, relying on an arbitration provision in an Assessment Contract (Contract) that Renovate claimed Fabian had signed electronically. The Contract, attached to the petition, had the words “DocuSigned by” and the printed electronic signature “Rosa Fabian” in a signature box at the end. A supporting declaration from Renovate’s Senior Director of Compliance Operations, Mike Anderson, asserted that Fabian entered into the Contract on February 28, 2017.
In her opposition Fabian declared that she only discussed financing with Renovate telephonically, it provided no documents for her to sign, she did not sign the Contract physically or electronically, and what purported to be her electronic signature was “placed” on the Contract without her consent, authorization, or knowledge. After the trial court allowed limited discovery, Renovate filed supplemental pleadings. However, the best that Renovate could do to authenticate Fabian’s signature on the Contract was to offer a declaration from its attorney stating that Anderson had testified at his deposition that “based on his extensive experience” “Fabian was present and signed the document.”
After brief argument, the trial court ruled that Renovate failed to establish that Fabian electronically signed the Contract and denied the petition. The Court of Appeal affirmed.
The Court of Appeal first discussed the shifting burden: Renovate met its initial burden to show an agreement to arbitrate in the electronically-signed Contract; Fabian then rebutted that evidence by declaring that she did not sign. This shifted the burden back to Renovate to prove by a preponderance of the evidence that the electronic signature was authentic. The court looked at California statutes and caselaw to determine that “the burden of authenticating an electronic signature is not great…including presenting evidence of the contents of the contract in question and the circumstances surrounding the contract’s execution.” Renovate’s proof, however, fell short.
Renovate offered two items to show that the trial court erred in denying its arbitration petition: (1) the Contract bearing Fabian’s printed electronic initials and signature, purportedly authenticated by DocuSign, relying on Newton v. Am. Debt Servs (N.D.Cal.2012) 854 F. Supp. 2d 712; and (2) the Anderson declaration.
In Newton, the district court explained that DocuSign permits a company to send documents to a customer for signature. The customer creates a signature and must click a button confirming their signature once they have completed all form fields and signed in all required places. Once signed, the signature was assigned an identifying code which appeared above the plaintiff’s signature. This process was designed to comply with the U.S. Electronic Signature in Global and National Commerce Act (ESIGN), 15 U.S.C. § 7001, et seq.The Court of Appeal found that the Anderson declaration was insufficient to verify Fabian’s electronic signature because it never mentioned DocuSign, who sent the Contract to Fabian, how the signature was placed on the Contract, how the signed document was returned to Renovate or how Fabian’s identification was verified as the person who actually signed the Contract. The court found this authentication argument unsupported and unpersuasive.
The court also determined the Anderson declaration was not sufficient because it “summarily asserted” that Fabian entered into the Contract, but did not state that he observed her signing it, the location where she signed, or that Fabian was even present at the time the document was signed. The declaration never mentioned DocuSign nor the significance of the Identity Verification Code or how it was deemed completed. Absent these details, Anderson offered little more than a bare statement that Fabian signed based on the record being kept in the ordinary course of business. Since this item also failed to establish that it was Fabian who had electronically signed the Contract, the Court of Appeal held that Renovate had failed to meet its burden and affirmed the denial of the petition for arbitration.
The use of DocuSign to obtain electronic signatures on documents has been embraced by the California real estate industry because it is quick, cheap, does not require travel by the agents or lenders, and has an established track record of more reliable, timely return of required signatures than any previously utilized signature collection procedure. This case describes just one of the problems with this system in the eyes of this writer. The failure of proof that Fabian signed the contract here is palpable because the declarant never even stated that he was involved with the signature process or knew that Fabian was a client of Renovate. His testimony relied on business practices, not personal knowledge. Whether this signature had been electronic or wet ink, his declaration would have failed to authenticate that Fabian wrote the signature or initiated the process which placed the electronic signature on the contract. This evidence was doomed to fail to meet the burden.
As noted in the cited Newton case, DocuSign has an internal authentication procedure. It can provide to its customer a Document History, including an Audit Trail and Certificate of Completion. Cases cited on the DocuSign website accept a DocuSign signature as authentic when the court was provided with these documents, which meet the burden of proving the document was electronically signed by the person alleged to have signed it. Fabian makes clear that any litigating party relying on a DocuSign signature should provide the court with the Certificate of Completion and accompanying documents if authenticity is challenged.
My concern with DocuSign, however, goes far beyond just this circumstance, more toward whether the placement of an electronic signature on the document makes it binding on a consumer or can be used to prove the consumer was aware of the contents of the signed document and thereby agreed to the terms. DocuSign is almost always delivered in a default status such that once the party has approved which electronic signature will be used and verified she wants to sign using this method, it then fast feeds the document from one signature line or box to the next, to the next, never displaying the content of the document on a screen such that the signer has an opportunity to read what she is signing without trying to scroll backwards from the signature block to the beginning of that part of the contract. In other words, the signer does not “review and sign” the document, having seen only the signature lines or initial blocks. If the only computer available to the signer is a small smart phone, not unique for the poorer segment of our population, scrolling backwards to review what is being signed is virtually impossible.
I believe this method of signature leaves the agreement open to attack by a party who does not want to be bound by the terms, especially in consumer cases. Defense counsel can make a compelling argument that the consumer was pushed or coerced to sign a document with perhaps draconian terms, having had no meaningful way to read it before signing
If a party wants an executed agreement to be impervious to this type of challenge, I suggest that they never use DocuSign and find a different process to affix electronic signatures on documents. If that party is “married” to the convenience of DocuSign, then have the document delivered in review status so that the recipient is compelled to scroll page by page to read the content, locate the signature lines and boxes, and individually affix a signature in each location.
These materials were written by the Honorable Meredith Jury (United States Bankruptcy Judge, C.D. Cal., Ret), who is a member of the ad hoc group and a member of the Insolvency Law Committee of the BLS. Editorial contributions were made by Christopher Hawkins, a shareholder with Sullivan Hill in its San Diego, CA office, and a member of the Commercial Transactions Law Committee of the BLS. Thomas Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomas Reuters.