Court Issues Surprising Decision on Phone Call Recording

For many years, California has been one of the dozen states requiring all parties to consent before a telephone call could be recorded. Under the California Invasion of Privacy Act (CIPA), businesses that neglected to warn that “calls may be recorded” risked damages of $5,000 per recording and multimillion-dollar class action lawsuits.

California’s Court of Appeal for the Fourth Appellate District rejected that rule recently in Smith v. LoanMe, Inc., ruling that Penal Code § 632.7 of CIPA prohibits wiretappers and eavesdroppers from recording calls but not individual call participants from doing so.

Smith is the first appellate decision interpreting this statute. Several federal district courts have analyzed the issue, and the decisions vary. ABA Section of Litigation leaders say it is too soon to predict the long-term effects of Smith, but one thing is certain: until the California Supreme Court resolves the issue, uncertainty and forum shopping shall prevail.

Courts and Parties Disagree about Who Must Consent and When

CIPA § 632.7 states: “Every person who, without the consent of all parties to a communication, intercepts or receives and intentionally records … [calls involving mobile or cordless phones] shall be punished….” Section 637.2 creates a private right of action for CIPA violations and imposes damages of at least $5,000 per violation. The multimillion-dollar question is whether a call participant violates CIPA by recording the call without the consent of all parties, or if Section 632.7 applies only to call recording by third parties.

The plaintiff brought a class action lawsuit alleging that the defendant company violated CIPA when it recorded their telephone call without his consent. The company called the plaintiff’s residence to speak with his spouse, and the call ended shortly after the plaintiff stated that his spouse was not available. About three seconds into the call, the company’s phone system caused a single “beep tone,” which was the only indication that the call was being recorded.

The company asserted that the beep tone notified the plaintiff that it was recording the call. Following a bifurcated trial to address the beep tone issue, the trial court entered judgment against the plaintiff, concluding: (i) the beep tone was sufficient notice of the recording; and (ii) the plaintiff implicitly consented to the recording by staying on the call. The plaintiff appealed and the appellate court requested supplemental briefing on the question of whether Section 632.7 applies when a participant records a call or only when a third party records a call.

The plaintiff argued that Section 632.7 applies to participants and third parties alike because the phrase “without the consent of all parties to a communication” modifies both “intercepts or receives” and “intentionally records.” The appellate court, however, affirmed the trial court’s decision, holding that “without the consent of all parties” only modifies “intercepts or receives.” As the “parties to a communication” implicitly consent to receive the communication, the statute can only apply to the recording of calls by nonparties. The plaintiff petitioned for review by the California Supreme Court, but it has not yet decided whether to hear the appeal.

Continued Split of Authority Is Likely

Trial courts outside the Fourth Appellate District are not bound by Smith, and they are not likely to adopt it uniformly, believes Adam Polk, San Francisco, CA, cochair of the Section of Litigation’s Class Actions & Derivative Suits Committee. Polk finds more persuasive the decision of the U.S. District Court for the Southern District of California in Brinkley v. Monterey Financial Services, LLC, that Section 632.7 requires all parties to consent to the recording of phone calls.

The Brinkley court found that the language of § 632.7 supports both interpretations—single party and all-party consent. Turning to the legislative history to resolve the ambiguity, the district court found in favor of all-party consent, noting the statute’s author’s statements that Section 632.7 was intended to “simply extend[] to persons using cellular or cordless telephones the same protection from recordation that persons using ‘landline’ telephones enjoy.” “Given the Brinkley decision and the other cases aligning with the Brinkley court’s conclusions, I believe that the split in statutory interpretation will persist notwithstanding the Smith case,” Polk explains.

Smith Makes Section 632.7 Almost Meaningless

Since 1967, Penal Code § 632 has protected Californians’ communications via “telephone, telegraph, or other device” against eavesdropping and recording without all parties’ consent. Amidst concern that it may not protect technology that did not then exist, Section 632.7 became law in 1992, to protect cell phones and portable phones.

The Smith decision, however, “seems to undermine and gut the whole purpose of [CIPA] and having all-party consent,” says Peter A. McLaughlin, Boston, MA, editor-in-chief of the ABA Section of Science & Technology Law’s The Sci-Tech Lawyer. “Who would the violating third party be, other than some nefarious actor?” McLaughlin asks. Even a third party hired by a participant to record or monitor a call would be acting as an agent for the participant and would not trigger a violation.

As this result runs counter to California’s long-time all-party consent policy, McLaughlin thinks the Smith decision will be an outlier and will be narrowed or overturned by legislation or judicial action. Until it is settled, “if you are going to do any sort of monitoring or recording, let someone know in advance,” McLaughlin advises.