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A bankruptcy judge for the Eastern District of California sanctioned attorney Pauldeep Bains for filing a bankruptcy petition signed with digital signatures.  (See In re Mayfield, Case #16-22134).

The attorney sent completed bankruptcy documents to the debtor to sign via a digital signature service called  DocuSign.  Bankruptcy judge Robert Bardwil imposed sanctions for violations of bankruptcy rule 9004-1(c)(1)C) & (D).  Those rules state the following:

(C) The Use of “/s/ Name” or a Software Generated-Electronic Signature.  The use of “/s/ Name” or a software-generated electronic signature on documents constitutes the registered user’s representation that an originally signed copy of the document exists and is in the registered user’s possession at the time of filing.

(D) Retention Requirements When “/s/ Name” or a Software-Generated Electronic Signature Is Used.  When “/s/ Name” or a software-generated electronic signature is used in an electronically filed document to indicate the required signature(s) of persons other than that of the registered user, the registered user shall retain the originally signed document in paper form for no less than three (3) years following the closing of the case.  On request of the Court, U.S. Trustee, U.S. Attorney, or other party, the registered user shall produce the originally signed document(s) for review.  The failure to do so may result in the imposition of sanctions on the Court’s own motion, or upon motion of the case trustee, U.S. Trustee, U.S. Attorney, or other party.

Judge Bardwil ruled that digital signatures do not constitute “original signatures” and thus imposed sanctions.

The problem with this ruling is that the above rules do not specifically state that digital signatures are not valid “original signatures.”  The court assumes this is obvious, but it is not, especially to a generation of lawyers who live in a digital universe.  What we have here is a generational divide, or as one writer has said, a bifocal divide.

Counsel, as the registered user filing the documents, did not accurately represent that originally signed copies of the documents existed and were in his possession at the time of filing, as required by Rule 9004-1(c)(1)(C), and could not have produced and did not produce the originally signed documents for review when requested by the UST, as required by Rule 9004-1(c)(1)(D), because originally signed documents never existed.”

To the contrary, originally signed documents are created by use of digital signatures.  The E-sign act specifically validates digital signatures. The State of California (as well as Nebraska) also have laws supporting digital signatures.

What becomes confusing for courts is that the E-sign act does not require courts to use digital signatures.  The federal preemption that requires states to recognize and give legal effect to electronic signatures is not imposed on court pleadings. In other words, courts are free to establish rules to allow or banish the use of electronic signatures.  What the E-sign act does not say, however, is that electronic signatures are invalid in all court proceedings.  It is merely the mandatory federal preemption that does not apply to court pleadings.  The courts have freedom to make their own policy on their use due to the sensitive nature of legal documents.

Judge Bardwil expresses grave concern that allowing digital signatures would open up a Pandora’s Box of document fraud because of “the ease with which a DocuSign affixation can be manipulated or forged.”  He repeats the United States Trustee’s question:  “What happens when a debtor denies signing a document and claims his spouse, child, or roommate had access to his computer and could have clicked on the “Sign Here” button?”

And therein lies the grave worry of the Judge.  Somebody may click the “Sign Here” button by accident or with fraudulent intent.  Why, anybody could click a button.  That’s too easy!  It’s not formal enough.  It’s the end of civilization as we know it!

Hang on there, Judge.  Doesn’t this problem already exist?  If I mail a paper copy of a bankruptcy pleading to a client, isn’t there a risk that a spouse, child or evil roommate would have access to the mailbox and then–faster than you can power up a computer–forge a signature and drop it in the return envelope?  Gosh, should we outlaw the mailing of bankruptcy documents for fear of the evil roommate?  Should we require every page of a bankruptcy document to be signed and notarized at the courthouse?  I’m just saying, the whole thing is wide open for fraud Judge, and we need to stop these Millennial lawyers from mucking up the integrity of the institution!

Of course, we could consider some of the key advantages of digital signatures and the very long process of getting to the point of even signing a bankruptcy document in any format.

Bankruptcy petitions are not filed 2 minutes after having an online chat with prospective client.  This is an involved process with many steps.

  • Initial consultations with a client in person or over the phone or through emails occur.
  • Alternative courses of action are generally outlined.
  • Debtors must take a Credit Counseling class and obtain a certificate before any bankruptcy may be filed.
  • Written retainer agreements between the attorney and client must be signed and fees must be paid in full before any work is prepared.
  • Investigations of assets, income and debts are prepared.
  • Income averages for the past 6 months are prepared.  Debtors must send their attorneys bank statements, paycheck stubs, credit reports, tax returns, collection letters, lawsuits and other documents before a bankruptcy petition can even be drafted.
  • Multiple phone calls and emails are exchanged during this process to create property lists and creditor lists and statements of income and expenses.
  • A written court notice is mailed to debtors immediately after a case is filed to inform them of the case number and court date.
  • Following the filing of a case the debtor actually attends a court hearing and testifies that they actually signed the bankruptcy documents.

What happens when a debtor denies signing a document and claims his spouse, child, or roommate had access to his computer and could have clicked on the “Sign Here” button?  Filing bankruptcy is not as simple clicking on a “Sign Here” button.  IT’S A PROCESS.  A long process that takes days, weeks, months and sometimes years to complete.  The fear of debtors clicking “Sign Here” buttons recklessly is irrational.  This is a long, difficult and considered process.  Whether a document, after all this process is completed, is signed on sheep skin in blood or on 50% cotton fiber paper in blue ink or digitally is trivial.  This fear of older jurists is unjustified.

Here is why truly concerned jurists should support digital signatures in bankruptcy cases.

  1. Debtors receive a written notice mailed to them days after the case is filed.  If a signature is forged, this is their first clue to the debtor.
  2. Debtors attend court hearings within 30 days of filing the case and testify that they actually signed the documents.
  3. Digitally signed documents cannot be altered after they are signed, unlike paper documents with one or two signature pages buried within an 80-page document.  The truth is, bankruptcy attorneys routinely make material changes to signed documents without getting updated signatures from their clients. They just print out new pages and stick them underneath the signed declaration page.  That, my dear Judge, is the true fraud issue in bankruptcy documents.  Digitally signed documents, however, are encrypted and they display alerts if the contents are altered.  Can your paper pleadings do that?
  4. Audit Trails.  Digitally signed documents provide “audit trails” showing where the documents were emailed and the IP address of the sender and receiver.
  5. Immediate Copies to Debtors.  Many bankruptcy attorneys fail to provide their clients with copies of what they sign, especially attorneys who know in advance that they will alter the signed documents.  Digitally signed documents, however, are immediately distributed to all signing parties and the debtors have evidence of exactly what they signed.
  6. Third Party Verification.  Digitally signed documents have a third party (DocuSign, for example) that can verify what was signed and who signed the document.
  7. Updated pleadings can be signed fast.  Yes, the key advantage of digital signatures is that they make it easy to get updated signatures in a matter of minutes.  That is actually a good thing.   Bankruptcy attorneys often discover errors in the originally signed pleadings, and making it easier to get corrections signed actually improves the integrity of bankruptcy documents.

Protecting the integrity of court documents.  Reducing fraud and forgery.  Improving the accuracy of court documents. Ensuring debtors know what they are signing and that they receive copies of the signed documents.  These are worthy goals we can all agree on, whether we sign off with fountain pens or “Sign Here” buttons.