Caveat Vendor

Call (and Record) Me, Maybe: Dismissal of Call-Recording Class Action May Signal Reduced Liability for Service Providers

July 24, 2014

Ryan Nier and Elizabeth Dorsi

One of the formalities of many customer service calls is the prerecorded line now engrained in our heads: “This call may be monitored or recorded for quality assurance purposes.”  The purpose underlying the business practice (known as “service-observing”) is obvious: call centers want to be able to monitor and/or record calls to help train their employees.  The purpose behind the disclosure, however, is legal: while most states allow telephone calls to be recorded with the consent of one party to the call, twelve states require the consent of all parties.

The rationale behind most of these laws — often known as ‘anti-eavesdropping’ statutes — was not to preclude the recording of calls for business purposes, but rather to curb and penalize industrial espionage and illicit wiretapping.  See, e.g., Statement for the Floor of Assembly Bill 860 (June 19, 1967) (Assembly Speaker Jesse Unruh explaining that California’s Invasion of Privacy legislation arose out of concerns of “industrial espionage and eavesdropping” and that the bill was crafted so that “only clandestine, unregulated devices would be covered”).  Notwithstanding the purpose of these laws, however, the plaintiffs’ bar has seized and relied on them as the foundation of a huge swath of recent class-action ‘wiretapping’ lawsuits.
Young” Money: Massive Class-Action Statutory Damage Claims Under CIPA

Young v. Hilton Worldwide, Inc. et al. is one such case.  Plaintiff Young sued Hilton hotels, alleging that its service-observing practice violated two sections of California’s Invasion of Privacy Act (“CIPA”).   Cal. Penal Code § 630 et seq.  The CIPA, which is codified in California’s penal code, prohibits wiretapping (§ 631), eavesdropping or recording telephone calls (§ 632), or recording cell phone communications without consent (§ 632.7).
CIPA’s eavesdropping prohibition is limited only to confidential communications (i.e., where the caller had a reasonable expectation of privacy), which can make it difficult to establish commonality for class-wide claims in service-observing lawsuits.
However, the section of the law governing cell phone conversations (§ 632.7) was added later and does not expressly include such a limitation.  In 2002, after the California Supreme Court stated in dictum that section 632.7 applied to all conversations, the litigation floodgates opened: motivated by statutory penalties of $5,000 per violation, and aided by the low pleading requirements to state a claim, plaintiffs have since filed over 100 lawsuits alleging CIPA violations.  Flanagan v. Flanagan, 27 Cal. 4th 766 (2002) (“This prohibition [§ 632.7] applies to all communications, not just confidential communications.”).
Most of these copycat cases allege a violation through the routine practice of service-observing.  Young is a striking example of this ‘no harm, but foul’ approach that seeks millions of dollars in class-action damages for conduct that even the state legislature agrees should never have triggered liability.  See Young v. Hilton Worldwide, Inc., 2014 WL 1087777, at *2 (9th Cir. Mar. 20, 2014) (Motz, J., dissenting) (“The legislative history of this exception . . . shows that its intended effect was to exclude so-called ‘service-observing’ calls from the coverage of CIPA.  The California legislature deemed the recording of such calls to be an essential and justifiable business practice in contrast to the ‘clandestine wiretapping and eavesdropping’ targeted by § 632.”).

Young Again: The Case Is Dismissed, Appealed and Remanded

In 2012, the district court dismissed both of Young’s CIPA claims on the basis that he failed to allege that the recorded conversations were confidential and subject to a reasonable expectation of privacy.  Young appealed the dismissal of the section 632.7 claim (the cell phone claim) but not the section 632 claim (the broader eavesdropping claim).  On appeal, the Ninth Circuit reversed and remanded, holding that the district court improperly grafted a confidentiality requirement onto section 632.7 that was contrary to the California Supreme Court’s decision in Flanagan.
In dissent, Senior District Court Judge Motz, sitting on the Ninth Circuit by designation, suggested that although CIPA § 632.7 did not require an expectation of confidentiality, it may contain another critical limitation dooming plaintiff’s claim: it may only prohibit the recording of phone calls by third parties.  In so concluding, Motz turned to CIPA’s legislative history, which suggested that § 632.7 was (1) added to address the California legislature’s concern that third parties might be able to intercept cell phone calls because they traveled (at that time) on public airwaves, and (2) not intended to prohibit the recording of “service-observing” calls made for justifiable business purposes.
On remand, and after another round of briefing, the district court agreed with Judge Motz.  Two weeks ago, on July 11, 2014, the court dismissed the sole remaining claim, holding that CIPA § 632.7 contained two limitations dispositive of plaintiffs’ claim: (1) it was aimed at restricting third-party interception of cell phone calls, and therefore did not prohibit parties to the call from recording calls without consent, and (2) it expressly exempted recordings for the purpose of service-observing.

Young Lessons: Conduct Business, But Be Safe

The Young opinion signals a significant shift away from caselaw trending dangerously toward liability for California companies recording calls for service-monitoring.
Nonetheless, service providers can breathe a small sigh of relief.  Had Young been decided differently, this one case on California law could have solidified a trend that would require affirmative consent prior to recording for every call center in the United States.  Because of the practical difficulty in quickly identifying whether an incoming call is coming from a cell phone (let alone a cell phone in California), Young could have required every call center to obtain consent from every caller or face millions of dollars in fines — all without ever “eavesdropping,” engaging in nefarious behavior or otherwise damaging a plaintiff.  Given the absence of controlling federal law, differing state laws, conflicting court decisions and the significant penalties at issue, the landscape is still murky and fractured.  But Young v. Hilton signals that a shift in favor of permitting the recording of business service calls may be underway.

Caveat Vendor is Paul Hastings’ Consumer Issues blog. We welcome your feedback. Please contact our blog editor with any thoughts or suggestions.

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