Review of California Business Litigation Cases in 2014

• Publication year: 2015
• Author: Justene Adamec and Shanen Prout

Review of California Business Litigation Cases in 2014

Justene Adamec and Shanen Prout

The Business Litigation Committee was formed in 2014. The following cases have been chosen for their potential impact on crafting transactions and on advising clients who are considering litigation.

Electronic Signature Cases:

California Civil Code section 1633.1, et. seq. (the California Uniform Electronic Transactions Act, or "UETA"), allows an electronic signature to be binding under certain circumstances. For example, section 1633.9 provides:

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.
The effect of an electronic record or electronic signature attributed to a person under subdivision (a) is determined from the context and surrounding circumstances at the time of its creation, execution, or adoption, including the parties' agreement, if any, and otherwise as provided by law.¹

Two recent cases address when an electronic signature is binding:

• J.B.B. Investment Partners, Ltd. v. Fair, 2014 WL 7421609 (Cal. App. 1st Dist. December 5, 2014, as modified December 30, 2014).

The First District Court of Appeal reversed the trial court's judgment that the defendant, whose automatically-generated printed name appeared at the bottom of an e-mail, had entered into a settlement agreement. The defendant's printed name did not constitute an "electronic signature" under the UETA in the absence of evidence that the defendant printed his name at the end of his e-mail with the intent to formalize an electronic transaction. Further, the UETA makes an electronic signature enforceable only when the parties consent to conduct the transaction by electronic means. "Whether the parties agree to conduct a transaction by electronic means is determined from the context and surrounding circumstances, including the parties' conduct."² The defendant's printed name at the end of his e-mail did not meet the UETA's signature requirements, because the record lacked evidence that the defendant intended to formalize a settlement agreement. Although the parties' e-mail correspondence demonstrated that they agreed to negotiate the terms of the settlement by e-mail, there was insufficient evidence that the parties agreed to memorialize their agreement by electronic means.

• Ruiz v. Moss Bros. Auto Group, Inc., 2014 WL 7335221 (Cal. App. 4th Dist. December 23, 2014).

Similarly, in another case involving an electronic signature, the appellate court affirmed the trial court's

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implicit finding that the defendant did not present sufficient evidence to establish that an electronic signature on its proffered arbitration agreement was "the act of" the plaintiff. A declaration from the defendant's business manager, stating that the signature was the plaintiff's and that the plaintiff signed on a particular date, was inadequate, where there was no explanation as to how the business manager verified that the plaintiff, or any other employee, electronically signed the document.

Guaranty Cases:

• California Bank & Trust v. Del Ponti, 232 Cal. App. 4th 162 (2014).

The Fourth District Court of Appeal, addressing what they called a case of first impression, limited the scope of a guarantor's waiver of all defenses, which is common in standard forms of guaranty. Five Corners LLC ("Five Corners") had obtained a construction loan from Vineyard Bank ("Vineyard"). After Vineyard failed to fund four progress payments, Five Corners defaulted. Vineyard, through its assignee, California Bank & Trust ("California Bank"), later sued Five Corners and the Guarantors.³ In its opinion, the court narrowed the scope of a waiver of "all" defenses customarily found in a guaranty to include a waiver of legal defenses only. Because the court found that Vineyard had "willfully breached" the agreement by failing to fund four progress payments and causing the Borrower to default, it...