Sensible call recording litigation

Recent decisions out of California federal and state courts may make it more difficult for plaintiffs to bring lawsuits against businesses that record cellular and cordless telephone calls for quality assurance. Plaintiffs have been bringing these actions under California Penal Code Section 632.7, which is part of California's Invasion of Privacy Act (CIPA), claiming that the calls are recorded without consent.

In Young v. Hilton World Wide Inc., 2:12-cv-01788-R (PJWx) (C.D. Cal. July 11, 2014), a case being closely watched by privacy lawyers, the court granted Hilton's motion for judgment on the pleadings holding that Section 632.7 only applied to third-party interception of "cellular and cordless telephonic radio transmissions" and that it exempted "service-observing monitoring" - i.e., the recording of calls for quality assurance purposes. Hilton follows several other federal district court and California state trial court rulings that also found Section 632.7 and it's a related statute, Section 632, do not apply to the recording and/or monitoring of calls for quality assurance purposes. Notably, the service-observing issue came up in an earlier appeal in the Hilton case and at least one judge on the 9th U.S. Circuit Court of Appeals panel found the argument had merit. Young v. Hilton Worldwide Inc., 12-56189 (March 20, 2014).

Section 632.7 is a unique statute that prohibits the "interception or reception and intentional recording" of communications between certain specified devices, such as cellular and cordless phones, without consent. Section 637.2 creates a private right of action for violation of Section 632.7 and provides for $5,000 in statutory damages per action. As a result of the available statutory damages - which plaintiff's lawyers and some courts have interpreted to mean $5,000 per call or per violation, rather than per action - call recording litigation has exploded in recent years, but decisions like Hilton may stem the tide.

While plaintiff's lawyers will likely assert that Hilton's holdings are contrary to other decisions in this area, as at least one California court of appeal has noted, without consideration of the relevant legislative history or modern telecommunications practices, that there is no service-observing exemption to Section 632. Kight v. Cashcall Inc., 200 Cal. App. 4th 1377, 1394-95 (2011). But a review of the legislative history of Sections 632 and 632.7 reveals that the Hilton decision makes sense and follows the intent and purpose behind CIPA in its rulings regarding third-party interception and service-observing.

Section 632.7, which was enacted in the early 1990s, followed a number of other statutes enacted with the rise in use of cellular telephone technology, including Sections 632.5 and 632.6. The impetus for Section 632.7 was an incident where someone used a scanner to eavesdrop on a cordless telephone call between businessmen interested in buying the Sacramento Kings, recorded that call, and offered to sell the recording. Upon being notified of this incident, Assemblymember Lloyd Connelly authored Assembly Bill 2465, which became Section 632.7. In Connelly's statement of intent, he said the statute was needed because persons using cellular or cordless telephones do not "reasonably anticipate that their conversations will be both intercepted and recorded." Thus, the object to be remedied and the conduct to be discouraged by Section 632.7 is the intercepting and recording of the call while it is being transmitted between certain types of devices over the airwaves. This is consistent with Hilton's ruling on third-party interception.

Similarly, the general purpose behind the CIPA, which was originally enacted in the late 1960s, was to "put a stop to unethical industrial espionage and spying operations in California." March 1, 1967 Press Release from Jesse Unruh, Speaker of the California Assembly and author of Assembly Bill 860 (which later became CIPA). The legislative history of the CIPA reveals that service-observing by companies was always intended to be exempt. A June 5, 1967, Senate Digest provides that the statute "will insure that justifiable and regulated use of devices for overhearing employees' business conversations may continue unimpeded. This practice is known as 'service-observing.'" In addition, a June 30, 1967, letter from Jesse Unruh, the sponsor of Assembly Bill 860 (which later became the CIPA), sent in response to criticism of the statute in the San Francisco Chronicle, states that "[u]nder [AB 860], it would continue to be perfectly legal to monitor business calls, to insure proper service of customers by employees." Further, in response to concerns from various businesses that service-observing would have been outlawed by the CIPA, Unruh wrote to then-Gov. Ronald Reagan on July 31, 1967, and stated, "we have exempted from coverage under the measure normal business telephone monitoring, known as 'service-observing.'" This exception for service-observing was embodied in Section 632(e)(2), and carried over to Section 632.7(b)(2), and exempted "use of any instrument, equipment, facility, or service furnished and used pursuant to the tariffs of a public utility."

Based on the legislative history, this language was intended to exempt service-observing. At the time the CIPA was enacted, all telephone equipment was furnished by a telecommunication carrier and used pursuant to its filed tariffs. As a result, any business that obtained telephone recording equipment from its carrier to record customer service calls was exempt. Due to the changes in the telecommunications industry that occurred after the breakup of AT&T and related deregulation, businesses no longer obtain their telephone equipment from the telephone company and often no longer use telecommunications services pursuant to filed tariffs. As a result, looking at Sections 632.7(b)(2) and 632(e)(2) without reference to the historical context renders the statutory exemption meaningless - no company could qualify for the exception. Up until recently, some California courts have taken this literal view of Sections 632(e)(2) and 632.7(b)(2) and refused to recognize the service-observing exemption. See, e.g., Kight, 200 Cal. App. 4th at 1394-95.

Hilton reverses this course and brings common sense back to call recording litigation. Relying on another case, Shin v. Digi-Key Corporation, 2012 WL 5503847 (C.D. Cal. Sept. 17, 2012), Hilton found "[t]he context of the statutory scheme along with the legislative history make it clear that [Section ]632.7 does not reach Hilton's alleged activity." At least two other California courts have agreed. See Sajfr v. BBG Commc'n Inc., 10cv2341 AJB (NLS) (S.D. Cal. Jan. 10, 2012); Turner v. Western Dental Servs., BC478188 (Los Angeles Sup. Ct. Dec. 31, 2012). Similarly, courts from other states have also interpreted their service-observing exceptions in accord with modern telecommunications practices. See, e.g., Dillon v. Mass. Bay Transp. Auth., 729 N.E.2d 329, 334 (Mass. Ct. App. 2000) (holding that statutory exemption should not be interpreted to "override common sense" or "produce absurd or unreasonable results" by "allowing the fortuity of the source of the equipment to entail serious material consequences.")

While Hilton may appear to be a significant win for companies that record calls and/or monitor for quality assurance purposes, as their practices would be exempted, it is important to note that neither the state Supreme Court nor the 9th Circuit has yet ruled on either issue. An appeal of the Hilton decision is expected and could bring much-needed common sense and clarity to call recording litigation.

Edward D. Totino is a partner in DLA Piper LLP's Los Angeles office. He can be reached at edward.totino@dlapiper.com.

Monica D. Scott is an associate in DLA Piper LLP's Los Angeles office. She can be reached at monica.scott@dlapiper.com.