This
article was first presented as a paper at the ABA Forum on the
Construction Industry in Orlando, Florida, in April 1998.
IS IT THE REAL DEAL?—The Authenticity of Computer-Generated Information on the "Paperless" Construction Project: Concerns for the Client and its Counsel
April 15-19, 1998
The Peabody Hotel
Orlando, Florida
I. INTRODUCTION.
Authentication: In the law of evidence, the act or mode of giving authority or legal authenticity to a stature, record, or other written instrument, or a certified copy thereof, so as to render it legally admissible in evidence.
Black's Law Dictionary at 121 (5th ed. 1979). The requirement of authentication is a "condition precedent" to admissibility. F.R.E. 901(a). This condition is satisfied by "evidence sufficient to support a finding that the matter in question is what its proponent claims." Id. In the world of paper documentation, authenticity issues rarely surface. Provided a witness testifies that a document "is what it is claimed to be," see F.R.E. 901(b)(1), and the document fits one of the exceptions to the hearsay rule (most often a record of a regularly conducted activity, or "business record," see F.R.E. 803(6)) the document is admitted. But today, with the world becoming increasingly "paperless," authenticity issues loom much larger.
Long before the construction lawyer is asked to grapple with how to convince a judge or arbitrator to admit a particular piece of information, however, authenticity issues can have significant impact on participants in the construction industry during the progress of the job. Is a current and authentic version of the plans being used to perform its work? Is a given communication received by one of the parties authentic? These are but some of the important issues participants face in this evolving area.
With the furious pace of change, the construction lawyer in the 21st century must keep abreast of these issues to properly counsel clients in dispute avoidance and resolution. This paper will address authenticity issues first in the context of the construction project, and then in the context of the use of computer-generated information from a construction project in litigation.
II. AUTHENTICITY CONCERNS ON THE "PAPERLESS" PROJECT.
A. What is my contract anyway?
1. Contract Formation Issues.
Authenticity issues can arise right from the beginning of a construction project, as the use of electronic contracting can create uncertainty even as to what constitutes the contract between the parties. In order for there to be a contract, there must be an offer and an acceptance. The acceptance also must conform to the requirements for acceptance outlined in the offer. Acceptance may be in "any manner and by any medium reasonable in the circumstances." See U.C.C. '2-206(1)(a); see also Restatement (Second) of Contracts ' 65 (indicating that acceptance can be in any manner customary at the time and place).
Today, through the use of electronic data interchange ("EDI"), an offer to contract can be made and accepted by automated systems. EDI is like e-mail except that EDI is in a preset format that allows inventory and accounting software to process the data directly. Benjamin Wright, The Law of Electronic Commerce ' 1.14 at 122 (1991). What constitutes an electronic offer and acceptance, however, may be open to debate. For instance, if a subcontractor places a material order with a supplier by electronic transmission, what response by the supplier's system constitutes an acceptance? At least one court has held that there must be more than an acknowledgment of receipt of the offer to constitute acceptance. See Corinthian Pharmaceutical Systems, Inc. v. Lederle Lab., 724 F. Supp. 605, 610 (S.D. Inc. 1989)(electronic confirmation of order for tracking purposes insufficient to constitute acceptance of offer), citing Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 539 (9th Cir. 1983); Flyer Co. v. Milliken & Co., 53 N.C. App. 785, 281 S.E.2d. 734, 736 (1981). Whether a return communication from the seller acknowledging the order operates as an acceptance is a fertile area for dispute.
Other troublesome issues relate to the buyer's right to revoke its offer. Although an offer can be revoked at any time before it is accepted, query the effect of an immediate electronic acknowledgment of the electronic offer. Does that acknowledgment preclude revocation of the offer? This again turns on whether the computer-generated acknowledgment is in fact an acceptance.
Yet another consideration is the application of the so-called "mailbox rule" to electronic contracting. The mailbox rule, which typically applies to the creation of a contract between parties separated by physical distance, provides that communication of either an offer or acceptance is effective when it is sent. See Restatement (Second) of Contracts ' 69. Notwithstanding physical separation, the mailbox rule does not apply to some forms of two-way communication over a distance, such as the telephone. The Restatement provides that telephonic communication of an offer or an acceptance should be treated like face-to-face communications. See Restatement of Contracts ' 64. Thus, the question arises as to whether the mailbox rule should apply to communication of an offer or acceptance by computer.
Unlike a telephone conversation, computer communications today typically are not truly instantaneous.1However, a significant problem with applying the mailbox rule to computerized communications lies in the reliability of the technology. The mailbox rule exists, at least in part, because of the general reliability of the mail system. While computer communication systems have become increasingly reliable, there is little doubt that because of compatibility problems, system congestion and other technical problems, they are not yet as reliable as conventional mail. Thus, the policy question for courts is whether to shift the risk to the intended recipient of the electronic communication even though the message may never have been received, and the intended recipient had no way of knowing that a message was ever sent. One possible solution lies in the use of message verification systems, making the mailbox rule inapplicable where a verification is not received by the sender.
Beyond the creation of a contract, there is the issue of what are the terms and conditions of the contract. The U.C.C. "battle of the forms," as the buyer and seller exchange competing form terms and conditions, takes on a new twist with a familiar result when done electronically. The so-called "battle of the forms" results from section 2-207 of the Uniform Commercial Code, coupled with the fact that parties routinely disregard contract formalities such as both signing the same document. Rather, they agree on central terms, such as price, quantity and delivery, but exchange form contracts, neither signing the other, and often both assuming that the one they sent governs.
Section 2-207 exists to permit the parties to enforce their contract despite discrepancies between the offer and the acceptance. See, e.g., Album Graphics, Inc. v. Beatrice Foods Co., 87 Ill. App. 3d 338, 42 Ill. Dec. 332, 408 N.E.2d 1041, 1047 (1980). See also Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1576 (10th Cir. 1984). Section 2-207 changes the common law rule that an acceptance must exactly mirror an offer to be valid. Generally speaking, it provides that the acceptance is valid if it is sent within a reasonable time "even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms." U.C.C. ' 2-207(1). It further provides that the additional or different terms are to be "construed as proposals for additions to the contract," except that, between merchants, those terms become part of the contract unless "(a) the offer expressly limits the acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received." Id. ' 2-207(2).
This "battle of the forms" appears to apply equally to form contracts exchanged electronically.2 However, as the outcome of the battle of the forms often turns on the timing of the exchange of the forms, when a computer-generated form is deemed to have been "delivered" is an issue of great import.
2. Contract Enforceability Issues.
Electronic contracting is also replete with enforceability issues, not the least of which is the statute of frauds. Contracts for the sale of goods in excess of $500 typically must be memorialized in a writing signed by the party to be charged with enforcement of the contract. See U.C.C. ' 2-201. Obviously, what constitutes a signed writing in an electronic transaction is a significant issue. The Uniform Commercial Code defines a writing to include "printing, typewriting or any other intentional reduction to tangible form." U.C.C. ' 1-201(46). It defines "signed" to include any "symbol executed or adopted by a party with present intention to authenticate a writing." U.C.C. ' 1-201(39).
a. What Constitutes a "Writing"?
A computer-generated letter has been held to be a sufficient writing to satisfy the statute of frauds. See, e.g., Bains v. Piper, Jaffray & Hopwood, Inc., 497 N.W.2d 263, 271 (Minn. Ct. App. 1993) citing Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Cole, 189 Conn. 518, 457 A.2d 656, 663 (1983); Kohlmyer & Co. v. Bowen, 126 Ga. App. 700, 192 S.E.2d 400, 404 (1972). Similarly, telegrams and fax transmissions have passed muster under the statute of frauds. See, e.g., Franklin County Coop. v. MFC Servs., 441 So. 2d 1376, 1377 (Miss. 1983); Hideca Petroleum Corp. v. Tampimex Oil Int'l, Ltd., 740 S.W.2d 838, 844 (Tex. Ct. App. 1987). Courts have reached conflicting results, however, on the issue of whether electronically stored transmissions which do not result in a traditional written document constitute a "writing." See United Stated v. Riggs, 739 F. Supp. 414 (N.D. Ill. 1990); United States v. Brown, 925 F.2d 1301 (10th Cir. 1991).
In Riggs, the court considered whether an electronic transfer of a stolen, confidential computer file violated a criminal statute prohibiting transfer of stolen "goods, wares or merchandise." The defendant argued that all he had transferred were electronic impulses, which were not the type of commodity covered by the statute. 739 F. Supp. at 419.
The court rejected this argument analogizing to the electronic transfer of funds, which, in prior decisions, was held to fall within the statute. Electronic signals in that instance:
are the means by which funds are transported. The beginning of the transaction is money in one account and the ending is money in another. The manner in which the funds are moved does not affect the ability to obtain tangible paper dollars or a bank check from the receiving account. . . . Similarly, . . . [defendant's] conduct is not properly characterized as the mere transmission of electronic impulses. Through the use of his computer . . . [he] allegedly transferred proprietary business information . . . . Like the money in the case dealing with wire transfers of funds, the information in the E911 text file was accessible at Neidorf's computer terminal in Missouri before he transferred it, and the information was also accessible at the Lockport, Illinois computer bulletin board after Neidorf transferred it. Therefore, . . . the mere fact that the information actually crossed state lines via computer-generated electronic impulses does not defeat a charge under ' 2314.
Id. at 420. The court further stated that:
if the information in the . . . E911 text file had been affixed to a floppy disk, or printed out on a computer printer, then Neidorf's transfer of that information across state lines would clearly constitute the transfer of "goods, wares, or merchandise" . . . . This court sees no reason to hold differently simply because Neidorf stored the information inside the computers instead of printing it out on paper. In either case, the information is in a transferable, accessible, even salable form.
Id.
By contrast, the court in Brown reached the opposite result in determining whether the transfer of a stolen computer program in source code form violated the same statute. The court relied on the Supreme Court's decision in Dowling v. United States, 473 U.S. 207, 216 (1985), which held that the statute only applied to "physical" goods, wares or merchandise, and that purely intellectual property is not within this category. 925 F.2d 1301, 1307. The court held that "the computer program itself is an intangible intellectual property and as such, it alone cannot constitute goods, wares, merchandise, securities or moneys which have been stolen, converted or taken within the meaning of ' 2314 or 2315." Id. at 1308. The court expressly disagreed with the decision in Riggs stating that it felt ""that Riggs interpretation of the statute is in error in light of the Supreme Court's focus on "physical 'goods, wares [or] merchandise' that have themselves been 'stolen, converted or taken by fraud.'"" Id.
The proposed draft of the revised Uniform Commercial Code attempts to resolve this issue, changing the requirement of a "writing" to a "record." U.C.C. ' 2B-102(37) and 2B-201 (Proposed Draft February 1998).3
b. What is "signed"?
To determine whether a computer-generated communication is "signed," it is essential to discern the intent of the sender. See, e.g., Parma Tile Mosaic & Marble Co. v. Short, 87 N.Y.2d 524, 526, 663 N.E.2d 633, 634, 640 N.Y.S.2d 477 (1996)(holding that automatic entry of party's name on fax did not meet signature requirement of statute of frauds because of lack of intention for entry of name to authenticate the document). In Parma Tile, the defendant sent a guaranty of payment agreement by fax to the plaintiff. The defendant had programmed its fax machine to automatically imprint the company's name on every transmitted page. The plaintiff attempted to enforce the guaranty, which the defendant argued was merely a draft. The defendant also argued that the guaranty was unenforceable because it was unsigned and therefore violated the statute of frauds.
The court held that "the 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 . . . ." 663 N.E.2d at 635. The court also rejected "that the intentional act of programming a fax machine, by itself, sufficiently demonstrates to the recipient the sender's apparent intention to authenticate every document subsequently faxed. The intent to authenticate the particular writing at issue must be demonstrated." Id.
Again, pending revisions to the Uniform Commercial Code would make it easier for electronic communications to meet the "signature" requirement by allowing for automated "authentication." See U.C.C. ' 2B-102(1) and 2B-201 (Proposed Draft February, 1998).
In addition, many states have enacted electronic signature laws which authorize certain forms of digital signatures as a means of creating enforceable legal documents. Some statutes make electronic signatures equivalent to conventional signatures. Others are more specific about signature methods, types of technology and verification, and provide enhanced protections for the methods and technologies specified. Such statutes have been enacted in more than twenty states, including: Arizona,4 California,5 Delaware,6 Florida,7 Georgia,8 Indiana,9 Iowa,10 Kansas,11 Louisiana,12 Minnesota,13 Mississippi,14 Missouri,15 Nevada,16 New Hampshire,17 Oklahoma,18 Rhode Island,19 Tennessee,20 Texas,21 Utah,22 Virginia23 and Washington.24
B. Authenticity of Documents Exchanged during Performance of the Project.
Before a contractor erects a wall, runs conduit or makes a roof penetration, the contractor must consult the contract documents to determine the proper way to perform the work. When the architect hands the stamped construction drawings to the contractor, the contractor can rely on those drawings and take solace in the fact that if the contractor follows those drawings, and builds per the design and in a good and workmanlike manner, the contractor has performed its contractual obligations. But what about the contractor who receives the construction drawings electronically—drawings which were created and revised electronically by the architect and its several sub-consultants? How does the contractor assure itself that the drawings it is following are the drawings it is supposed to be following? Are the drawings the latest version? Is the contractor's computer system properly reading those documents so that the contractor can reliably follow them? Who bears the risk in the event that the contractor is not following the correct drawings? All of these issues may lead those involved to ask the valid question—is all this technology making really making things easier?
It is beyond the scope of this article to discuss in detail the technology available to address the myriad concerns created by the use of electronic data interchange on a construction project. However, some simple notions can significantly reduce risks and help the parties realize the intended benefits of technology.
1. Compatibility.
Critical to the success of any "paperless" project is the compatibility of the systems used by those participating in the project. Compatibility insures that the desired communication occurs and that the communication is accurate. Electronically transmitted data must be capable of being read by the intended recipient. Although conversion programs can be effective, differences in format and errors in reading the transmission can be critical, particularly when the subject of the communication is a drawing.
Ideally, each of the participants in a "paperless" project will have the same system capabilities and software needed for the project. However, it is unrealistic to think that on the average project, the parties will be willing to absorb the costs of such homogeneity. More realistic is that for certain matters, such as the exchange of drawings, owners will insist that all participants have the capability to receive electronically transmitted data on a system which will read the data reliably. Indeed, a prudent owner should do so.
2. Security.
Fortunately, as advances in technology have exploded the means by which parties can communicate, advances in securing these communications to prevent misuse and fraud appear to be keeping pace. Encryption, a process that packages data into "digital envelopes," thereby preventing the reading of an electronic message unless a specific encrypted code is employed to "open the envelope" and decipher the data, is the leading technology for securing electronic communication. Encryption provides users with digital envelopes that cannot be opened except by the addressee, and provides contents with "digital signatures" that cannot be forged. See John R. Thomas, Legal Responses to Commercial Transactions Employing Novel Communications Media, 90 Mich L. Rev. 1145, 1161 n.113 (1992), citing Vin McLellan, Data Network to Use Code to Insure Privacy, N.Y. Times, Mar. 21, 1989, at D5.
Other protections such as monitoring systems, information clearinghouses and third-party "electronic notaries" which track electronic communications and maintain accurate logs of those communications can be employed to prevent fraud and provide proof of what was communicated between the parties.
Care should be taken by participants in a "paperless" project to employ such technology to insure proper access to communications exchanged during the project, to protect against misuse of such information or fraud, and to insure that such communications are accurately memorialized.
III. AUTHENTICITY ISSUES IN CONSTRUCTION LITIGATION ON A "PAPERLESS" PROJECT.
For many years, courts have dealt with concerns over the authenticity of computer-generated information. Initially, they approached the admissibility of such information cautiously, and were strict in applying the evidentiary rules.
In view of the complex nature of the operation of computers and general lay unfamiliarity with their operation, courts have been cautioned to take special care "to be certain that the foundation is sufficient to warrant a finding of trustworthiness and that the opposing party has full opportunity to inquire into the process by which information is fed into the computer." McCormick, Handbook of the Law of Evidence, p. 734 (2d Ed. 1972).
American Oil v. Valenti, 179 Conn. 349, 359, 426 A.2d 305, 310 (1979). See also United States v. Russo, 480 F.2d 1228, 1240-41 (6th Cir. 1973), cert. denied, 414 U.S. 1157 (1974)(imposing a higher burden on introduction of computerized business records); accord United States v. De Georgia, 420 F.2d 889, 895 (9th Cir. 1969)(requiring a prima facie showing of the reliability of the computer system).
However, a more recent commentator observed that:
Even though the scrivener's quill pens in original entry books have been replaced by computer printouts, magnetic tapes, and microfiche files, the theory behind the reliability of regularly kept business records remains the same. Provided a proper foundation is laid, computer-generated evidence is no less reliable than original entry books and should be admitted under the exception.
J. W. Strong, McCormick on Evidence 282-83 (4th Ed. 1992). Indeed, Rule 803(6) of the Federal Rules of Evidence, which embodies the business records exception to the hearsay rule, expressly applies to a "data compilation in any form."
Regularly kept business records are admitted under the hearsay exception because they are believed to be trustworthy. Thus, in the case of computer records, the proponent should be required to show that the method by which the information is recorded and stored is trustworthy. Some courts merely require that a witness familiar with the technology outline the process and attest to the fact that the process is "standard." See, e.g., State v. Jones, 544 So. 2d 1209, 1219 (La. App. 1989); Brandon v. State, 272 Ind. 92, 396 N.E.2d 365, 370 (1979); King v. State ex rel. Murdock Acceptance Corp., 222 So. 2d 393, 398 (Miss. 1969). Others have been even less restrictive. See, e.g., United States v. Vela, 673 F.2d 86, 89-91 (5th Cir. 1982)(treating computer records in a manner identical to any other business record, and not requiring testimony concerning the type of computer or software used.).
One problem area in the introduction of computer-generated business records lies in the requirement that the record be made at or near the time of the event recorded. If a printout of computer information is made long after the data was first entered into the system, and, in some cases, after litigation has commenced, does that affect the admissibility of the business record? Courts have held that the time requirement of the evidentiary rules refers to when the information was entered into the computer system, not when it was printed out. See, e.g., United States v. Russo, 480 F.2d 1228, 1240-41 (6th Cir. 1973), cert. denied, 414 U.S. 1157 (1974); Brown v. J.C. Penney Co., 297 Or. 695, 688 P.2d 811, 812 (1984); Westinghouse Elec. Supply Co. v. B.L. Allen, Inc., 138 Vt. 84, 413 A.2d 122, 131-32 (1980).
Whether the record is rendered inadmissible because it was created after litigation was commenced turns on whether the format of the printout of the information undercuts its reliability. Documents created for litigation purposes are not typically business records, and are therefore inadmissible. Where the printout of computer data is produced by a program that merely orders the data, rather than summarizing or interpreting it, the printout has been held admissible. See United States v. Sanders, 749 F.2d 195, 199 (5th Cir. 1984). However, some courts have been quite sensitive to admitting documents generated "in response to litigation" from information stored on a computer. See, e.g., United States v. Miller, 771 F.2d 1219, 1237 (9th Cir. 1985). Unless the printout has compromised the reliability of the data reported on the printout, the printout should be admitted.
Equally germane to determining the admissibility of computer-generated information is the "best evidence rule." As applied to documents, the rule requires that for a document to be admissible it must be the original. The rule owes its origin to the history of document reproduction. Initially done by hand, copying errors were routine and expected. Because of the unreliability of a copy, the best evidence rule was necessary to insure the trustworthiness of documentary evidence. As technology has evolved, however, the rule largely has been devoured by its exceptions and essentially was eliminated as to documents with the enactment of the Federal Rules of Evidence. Rule 1001(4) provides that copies produced by photography or chemical reproduction or equivalent techniques are considered "duplicates." Duplicates are admissible as originals under Rule 1003 unless a genuine question is raised as to the authenticity of the original or it appears under the circumstances that it would be unfair to admit the duplicate in lieu of the original.
Courts have viewed information recorded on a computer system to be a logical extension of the rules regarding copies. Machine printouts of such information have been routinely admitted as duplicates. See, e.g., United States v. De Georgia, 420 F.2d 889, 895 (9th Cir. 1969); King v. State ex rel. Murdock Acceptance Corp., 222 So. 2d 393, 398 (Miss. 1969); Transport Indemnity Co. v. Seib, 178 Neb. 253, 132 N.W.2d 871, 874-75 (1965).
Given the apparent liberal attitude of courts to admitting computer-generated business records in much the same manner as any other copy of a business record, the burden largely falls on the party opposing the introduction of the evidence to raise "a genuine question as to the authenticity of the evidence." This appears to be a difficult burden, requiring discovery inquiries concerning the use and capabilities of the opponents' computer system, and probably expert testimony to challenge the propriety of the system and/or the information it generates.
IV. Conclusion.
The "paperless" project, or at least significant aspects of it, are upon us. Our clients either have, or soon will encounter projects employing, at least to some degree, electronic data interchange. The successful use of these technologies requires predictability in the authenticity of the information exchanged. Success in the presentation or defense of claims arising from such projects also depends on being able to prove the authenticity of the information exchanged during the project. Once an issue relegated to the dusty annals of evidence law, authenticity has emerged as an important issue in the new world of construction contracting.
Notes
1. This may change quickly with the advent of instant messaging technologies over the internet.
2. For an excellent discussion of the various permutations of the "battle of the forms" see James J. White and Robert S. Summers, Uniform Commercial Code ' 1-3 (4th Ed. 1995). They end with the good counsel that
[i]f one must have a term, that party should bargain with the other party for the term; a client should not get it by a lawyer's sleight of hand. If a seller must have the term to reduce its liability but cannot strike a bargain for it, the only answer may be to raise the price, buy insurance, or—as a last resort—have an extra martini every evening and do not capitalize the corporation too heavily.
Id.
3.But see Marc E. Szafran, A Neo-Institutional Paradigm for Contracts Formed in Cyberspace: Judgment Day for the Statute of Frauds, 14 Cardozo Arts & Ent. L.J. 491 (1996)(arguing that mere changes in the language of the Uniform Commercial Code will not adequately address the restrictions of the statute of frauds).
4. 1996 Ariz. Sess. Laws 213 (1996).
5. Cal. Gov. Code ' 16.5 (1995).
6. Del. Code Ann. 29 ' 2706 (1996).
7. Fla. Stat. ' 1.01(4) (1997).
8. Ga. Code Ann. ' 10-12-1 et seq. (1997).
9. 1997 Ind. SB 5(a) (1997).
10. Iowa Code Ann. ' 155A (1997); Iowa Code ' 48A.13 (1995).
11. 1997 Kan. HB 2059 (enacted May 15, 1997).
12. La. Rev. Stat. ' 40:2144 (1995).
13. 1997 Minn. SB 173 (enacted May 19, 1997, but carried over to 1998 session).
14. Miss. Code Ann. ' 25-631-7 (1997).
15. 1997 Mo. SB 16 (enacted July 7, 1997).
16. Nev. Rev. Stat. Ann. ' 31-351.291-353.3245 (1997).
17. N.H. Rev. Stat. Ann. ' 294-D (1997).
18. Okla. Stat. 74 ' 8201 (1997).
19. R.I. Gen. Laws ' 42-127 (1997).
20. Tenn. Code Ann. ' 16-1-1 and 16-3-4 (1997).
21. Tex. Bus. & Com. Code Ann. ' 2-2.108 (1997).
22. Utah Code ' 46-3-101-504.
23. Va. Code Ann. ' 2.1-563.31 and 59.1-39 (1997).
24.Wash. Rev. Code ' 19-250 (1996).
Copyright 1998 Piper & Marbury L.L.P.
Updated 9/98