Counsel Beware: A Few Keystrokes May Modify An Agreement

Tuesday, July 1, 2008 - 01:00

With the exponential growth of e-mail as the primary method of business communication, corporate counsel should be mindful that a few keystrokes can make their best-laid plans go awry. A New York appellate court recently ruled that a series of e-mails between an employee and his employer can modify an employment agreement - even when the agreement explicitly states that any changes must be in writing and signed by both parties. Stevens v. Publicis, S.A. , 50 A.D.3d 253, 854 N.Y.S.2d 690 (1st Dep't 2008). Although the New York courts have previously addressed modification of contracts via e-mail, this is the first time the issue has been considered in the employment context and decided in favor of modification.

The Employment Agreement

Plaintiff sold his New York-based public relations firm to defendant, a French company, and its American subsidiary. Pursuant to the employment agreement entered into in connection with the sale, plaintiff was to continue as chairman and CEO of the new company for three years. His duties were to be the "customary duties of a Chief Executive Officer." Id. at 254, 854 N.Y.S.2d at 691. When signs of financial problems surfaced within six months of the acquisition, plaintiff was removed as CEO. He was given several options, including: (1) leave the firm; (2) stay and work on new business; or (3) devise another alternative. Id.

Bob Bloom, former chairman and CEO of defendant's American subsidiary, exchanged a series of e-mails with the plaintiff regarding his options. These e-mails culminated in a message from Bloom to plaintiff setting forth Bloom's understanding of the terms they had discussed regarding plaintiff's new role. By e-mail the next day, plaintiff thanked Bloom for stepping in and stated that he accepted the proposal "with total enthusiasm and excitement." Id. at 255, 854 N.Y.S.2d at 691-92. Bloom replied the same day via e-mail that he was "thrilled" with plaintiff's decision and that they would all "continue to work in the spirit of partnership to achieve [their] mutual goal." Id. at 255, 854 N.Y.S.2d at 692. Each of the e-mails bore the typed name of the sender at the bottom of the message. Plaintiff also sent an e-mail to the chief operating officer of the new company in which he reaffirmed his unconditional acceptance of his modified duties.

E-mails Deemed Modification Of Agreement

The appellate court affirmed the trial court's decision that this e-mail exchange was a valid written modification of plaintiff's duties under his employment agreement. Id. The court held that this modification was further confirmed by plaintiff's e-mail to the new company's chief operating officer. The e-mails constituted "signed writings" within the meaning of the Statute of Frauds.1They also satisfied the agreement's requirement that any modification be signed by all parties because, the court reasoned, plaintiff's and Bloom's names at the end of their respective e-mails "signified [their] intent to authenticate the contents." Id. at 256, 854 N.Y.S.2d at 692.

The Stevens court relied on Rosenfeld v. Zerneck , 4 Misc.3d 193, 776 N.Y.S.2d 458 (Sup. Ct. Kings Co. 2004), when it held that the e-mails between plaintiff and Bloom constituted signed writings. Rosenfeld involved an alleged contract for the sale of real estate. The court found that the e-mail at issue lacked an essential term and thus did not create a binding agreement. Id. at 194, 196, 776 N.Y.S.2d at 459, 461. Nonetheless, the court held that the e-mail satisfied the signature requirement of the Statute of Frauds because "the sender's act of typing his name at the bottom of the e-mail manifested his intention to authenticate [that] transmission." Id. at 195-96, 776 N.Y.S.2d at 460.

In explaining its reasoning, the Rosenfeld court noted that in 1994, the New York State Legislature had amended the Statute of Frauds to provide that:

the tangible written text produced by telex, telefacsimile, computer retrieval or other process by which electronic signals are transmitted by telephone or otherwise shall constitute a writing and any symbol executed or adopted by a party with the present intention to authenticate a writing shall constitute a signing.

N.Y. Gen. Oblig. Law § 5-701(b)(4). While this amendment appears to have been intended to apply to "qualified financial contracts" between entities only, as defined in Section 5-701(b)(2)(a-j) of New York's General Obligations Law, the Rosenfeld court applied it to a real estate transaction between natural persons.2The Stevens court applied it to a modification of an employment agreement. Another New York court has applied the amendment to a software licensing agreement. See Al-Bawaba.com, Inc. v. Nstein Techs. Corp. , 2008 WL 1869751, at *3 (Sup. Ct. Kings Co. Apr. 25, 2008). However, stipulations of settlement are held to a higher standard and are not enforceable via confirmatory e-mails. See DeVita v. Macy's East, Inc. , 36 A.D.3d 751, 828 N.Y.S.2d 531 (2d Dep't 2007).

The Uniform Commercial Code

The official comment to the Statute of Frauds' provision in New York's Uniform Commercial Code states that the word "signed" is meant to include "any authentication which identifies the party to be charged." N.Y. U.C.C. § 2-201 official cmt. 1. Thus, a New York federal judge held that a letter on company letterhead that closed with a typewritten signature and was sent via e-mail satisfied the writing and signature requirements of New York's Uniform Commercial Code. Bazak Int'l Corp. v. Tarrant Apparel Group , 378 F.Supp.2d 377, 386 (S.D.N.Y. 2005). The court noted that the ability of e-mail to stand as a signed writing is also mandated by Congress' adoption in 2000 of the Electronic Signatures in Global and National Commerce Act, known as the "E-Sign Act," which provides:

[n]otwithstanding any statute, regulation, or other rule of law . . . with respect to any transaction in or affecting interstate or foreign commerce - (1) a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form; and (2) a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.

15 U.S.C.S. § 7001(a). The E-Sign Act defines "electronic signature" as "an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record." Id. § 7006(5).

A Missouri federal judge expanded the definition of "signature" under the Uniform Commercial Code to include a header in an e-mail with the name of the sender when it is clear that the sender, "by hitting the send button, intended to presently authenticate and adopt the content of the e-mail[] as [his] own writing." Int'l Casings Group, Inc. v. Premium Standard Farms, Inc. , 358 F.Supp.2d 863, 873 (W.D. Mo. 2005). The New York courts are not likely to adopt this liberal definition in light of the ruling of the state's highest court that the header on a facsimile did not constitute a signature under the Statute of Frauds. Parma Tile Mosaic & Marble Co. v. Estate of Short , 87 N.Y.2d 524, 528, 663 N.E.2d 633, 635, 640 N.Y.S.2d 477, 479 (1996). The court held that "[t]he act of identifying and sending a document to a particular destination does not, by itself, constitute a signing authenticating the contents of the document for Statute of Frauds purposes." Id.

The Bottom Line

Communication by e-mail is often "just 'talking' with the help of the internet." Singer v. Adamson , 2003 WL 23641985, at *6 (Mass. Land Ct. Dec. 24, 2003). Yet by typing the sender's name on the bottom line, such seemingly casual e-mail "discussions" between sufficiently high-level managers and employees can modify a well-crafted, intensely negotiated agreement at the click of a mouse.

To prevent such unanticipated revisions, corporate counsel should instruct their clients to consult with counsel before engaging in any e-mail correspondence that may be construed as an offer and acceptance. This will ensure that any e-mail modifications to existing agreements and any new agreements created by e-mail are intentional and do not contain terms that will bind the company in unexpected ways. Counsel also may wish to draft around this problem by stating explicitly in agreements that e-mails with a typed name and/or signature block do not constitute signed writings.

1 New York's Statute of Frauds provides that every agreement not to be performed within one year of its making is void unless it is "in writing, and subscribed by the party to be charged therewith." N.Y. Gen. Oblig. Law § 5-701(a).

2 One New York trial court declined to follow Rosenfeld when it held that e-mail exchanges between the president of the prospective purchaser of real property and a representative of the prospective vendors did not constitute a signed writing under the statute of frauds, precisely because an agreement for the sale of real property is not a "qualified financial contract" and thus the 1994 amendment did not apply. Vista Developers Corp. v. VFP Realty LLC, 17 Misc.3d 914, 920-21, 847 N.Y.S.2d 416, 420-21 (Sup. Ct. Queens Co. 2007).

Alix R. Rubin is a Partner in the Florham Park, New Jersey and New York, New York offices of Entwistle & Cappucci LLP and a member of the firm's employment litigation and counseling group.

Please email the author at arubin@entwistle-law.com with questions about this article.