In recent years, the California Invasion of Privacy Act (CIPA) (Cal. Penal Code §§ 630-637.5) has spurred class action litigation related to the monitoring and recording of customer calls. The defendants in these actions are typically customer facing companies that routinely record customer service calls, but are alleged not to have advised that the calls "may be recorded for quality assurance."
Under CIPA, plaintiffs can seek statutory damages of US$5,000 per violation or three times the amount of actual damages, whichever is greater. Because of the number of calls involved in day-to-day business activities and the possibility that one person may experience multiple "violations," CIPA can result in a very large class award. Faced with such staggering potential damages, some companies have settled these class actions for millions of dollars.1
In a recent published decision, however, the California Court of Appeal may have sounded the death knell for these types of class actions. In Hataishi v. First American, 223 Cal. App. 4th 1454 (2nd Dist. 2014), the Second District Court of Appeal affirmed the trial court's denial of a class certification motion, holding that individualized issues predominated.
First American, the defendant in Hataishi, used a call recording system that plaintiff claimed recorded both inbound and outbound calls. While all inbound callers automatically received a notice that the call may be recorded, plaintiff alleged that no automatic notice was played for outbound calls. The original named plaintiff in Hataishi filed a class action complaint in 2009, alleging that he received multiple “outbound” telephone calls from First American that were recorded, without being notified that the call "may be recorded for quality assurance purposes."
Plaintiff asserted a single cause of action for violation of California Penal Code section 632, which prohibits the non-consensual recording of telephone calls if the caller has a "reasonable expectation of privacy." Plaintiff alleged that First American placed over 200,000 “outbound” calls at issue. Plaintiff sought the CIPA statutory penalty of US$5,000 for each of those calls.
Following extensive discovery, and an initial round of class certification briefing, the original named plaintiff was disqualified after First American’s investigation discovered that he was married to a lawyer at the plaintiff’s law firm. That lawyer was later sanctioned for refusing to testify at deposition. Although plaintiff's counsel was able to procure a new named plaintiff, the trial court ultimately denied the plaintiff’s motion for class certification in August 2012.
The Second District Court of Appeal affirmed that denial, agreeing with First American’s argument that the “reasonableness” of a specific caller’s expectations with regard to call recording is highly individualized and idiosyncratic and that First American had a due process right to cross-examine each individual caller. The Court held that each plaintiff's objectively reasonable expectations would turn on individualized inquiries, including the length of the class member's experience with First American, whether the class member had ever been notified that their calls with First American may be recorded and each class member's experience with other businesses that record or monitor calls.
First American, and the Court, used plaintiff's own unique circumstances as an example. The evidence revealed that she had made approximately a dozen calls to First American during which she was told that the call “may be monitored or recorded.” This set her apart, for purposes of assessing the reasonableness of her expectations, from other customers who never heard the disclosure or heard it only a few times. The Court likewise found that the plaintiff’s prior experience with other businesses—the “dozens and dozens and dozens” of telephone calls where she understood her call could be recorded or monitored for quality assurance—could support a jury finding that she lacked an objectively reasonable expectation that her calls with First American would not be recorded.
The Court acknowledged that a different class member may have different "objectively reasonable expectations" depending on their experiences. Thus, individualized issues predominated, precluding certification of a class.
The plaintiff attempted to eliminate the "individualized issues" involved in a Section 632 claim by adding a claim under Penal Code section 632.7, which applies to the non-consensual recording of calls on a cell phone or cordless phone. The Court refused to allow the plaintiff to add such a claim because she failed to make a formal motion to amend at the trial level. Nevertheless, the Court concluded that a Section 632.7 claim would still have required individualized inquiries. Plaintiff would have been required to determine whether a landline, cellular or cordless telephone had been used to receive the subject call, and a call-by-call inquiry would have been required to make that determination. Although the Court did not reach the issue, many of the factors that rendered the “reasonable expectation” inquiry (in a Section 632 claim) individualized would also render the “consent” inquiry (in a Section 632.7 claim) just as individualized as well. That is, a caller who reasonably expected his or her call to be recorded, but participated in the call anyway, implicitly “consented” to the recording.
The Hataishi ruling effectively relegates the remaining individual lawsuit to “small claims” status, with the named plaintiff seeking only US$10,000 (US$5,000 times two allegedly recorded telephone calls).