While most consumers ignore "this call may be recorded" disclosures when they call customer service numbers, the absence of such disclosures has been a goldmine for plaintiffs. Dozens of class action lawsuits have been filed against businesses for failing to provide these innocuous disclosures. These suits are generally brought pursuant to California's Invasion of Privacy Act (CIPA), Penal Code Section 632.7, which allows for steep statutory penalties of $5,000 per customer service call recorded over the preceding year.

On Dec. 20, 2019, the Court of Appeal in Smith v. LoanMe, Inc., E069752, 2019 WL 6974386 (Cal. App. 4th Dist. Dec. 20, 2019) ruled, "Section 632.7 applies only to persons who receive (or intercept) communications without all parties consent" and "does not prohibit the participants in a phone call from intentionally recording it." Rather, the statute "prohibits only third-party eavesdroppers from intentionally recording telephonic communications involving at least one cellular or cordless telephone." Smith deals a major blow to plaintiffs' CIPA litigation, which generally involve a consumer who called a customer service line and allegedly did not receive a "this call may be recorded disclosure."

Section 632.7

Section 632.7 provides:

Every person who, without the consent of all parties to a communication, intercepts or receives and intentionally records, or assists in the interception or reception and intentional recordation of, a communication transmitted between two cellular radio telephones, a cellular radio telephone and a landline telephone, two cordless telephones, a cordless telephone and a landline telephone, or a cordless telephone and a cellular radio telephone, shall be punished . . .

The statute creates a private right of action for violation of CIPA and provides that "Any person who has been injured . . . may bring an action… for the greater of the following amounts: (1) Five thousand dollars ($5,000). [or] (2) Three times the amount of actual damages, if any, sustained by the plaintiff." Cal. Pen. Code § 637.2. The statute does not define the word "injured."

Courts for years have been divided as to whether the statute requires consent to the call, or merely consent to the recording of the call. Defendants in many cases have argued that a violation of Section 632.7 occurs only where a business, "without the consent of all parties to a communication, [1] intercepts or receives and [2] intentionally records...a communication." (Emphasis added.) While a handful of trial courts have agreed with this interpretation, more have held that a plaintiff can state a claim merely by alleging the call was recorded without his or her consent—regardless of whether she consented to the call itself. Until Smith, no appellate court had interpreted this provision of the statute.

Smith v. LoanMe

In Smith, the Court of Appeal resolved this split in favor of the recording party defendant, holding that the statute "clearly and unambiguously" applies only to third-party eavesdroppers and not to parties to the call.

Smith involved an 18-second call, in which one of LoanMe's employee's called the phone number it had on file for the plaintiff's wife to discuss her loan. The plaintiff answered the call on a cordless telephone and informed the caller that his wife was not available, and the call then ended. The plaintiff then brought a class action seeking $5,000 per call that the defendant recorded over the previous year. On the parties' stipulation, the trial court ordered a bifurcated bench trial to resolve the question of whether the plaintiff had implicitly consented to the call being recorded. The trial court held that he had, and the Court of Appeal affirmed.

While the specific question in front of the Court of Appeal was originally whether a beep tone that sounded during the call put the plaintiff on notice that the call was being recorded, the Court of Appeal requested supplemental briefing on the issue of whether Section 632.7 applies to the recording of a phone call by a participant in the phone call or instead applies only to recording by third party eavesdroppers. The court concluded "that section 632.7 prohibits only third party eavesdroppers from intentionally recording telephonic communications involving at least one cellular or cordless telephone." Specifically:

The statute [] requires that the interception or receipt of the communication be without the parties' consent. But the parties to a phone call always consent to the receipt of their communications by each other—that is what it means to be a party to the call (or at least that is part of what it means). In this case, for example, LoanMe consented to Smith's receipt of LoanMe’s communications ("Is Mrs. Smith there?"), and Smith consented to LoanMe's receipt of Smith’s communications ("No."). Consequently, the parties to a phone call are incapable of violating section 632.7, because they do not intercept or receive each other’s communications without all parties’ consent.

The court began by interpreting two other sections of CIPA, Sections 632.5 and 632.6, whose "without the consent of all parties" language Section 632.7 borrows. It held that it would be "absurd and unintelligible" to interpret these sections (and by extension, Section 632.7) as applying to the parties to a call: "if one is a party to a call, then, by that very fact, one consents to the other party's receipt of one's communications—that is (part of) what it means to be a party to the call."

The court also focused on the fact that Section 632.7 applies only to calls made from cellular or cordless phones, and not landline phones. The court also said it would be "absurd" to subject businesses to civil and criminal liability "because of the happenstance that [Plaintiff] allegedly answered on a cordless phone [as opposed to a land-line]—a fact that was absolutely beyond [Defendant's] knowledge or control." The only reasonable explanation for the statute's otherwise arbitrary distinction between landlines and wireless phones relates to the statute's "manifest purpose of [of] target[ing] the greater vulnerability of wireless communications to third party listening and recording."

Based on these issues, the court held that the "without the consent of all parties" language necessarily limits Section 632.7 (in addition to sections 632.5 and 632.6) to third-party eavesdroppers. "[T]he statutes do not impose liability on the basis of factors beyond the knowledge or control of the wrongdoer. A third party eavesdropping on a wireless communication is ordinarily aware that the communication is wireless."

Other Sections of CIPA May Still Apply

The Smith decision does not foreclose all call recording cases. Irrespective of Section 632.7, Penal Code Section 632, which governs confidential communications, requires that all parties consent to a recording, and has no requirement that the communication be intercepted or received without consent. Section 632 provides, "[a] person who, intentionally and without the consent of all parties to a confidential communication, uses an electronic amplifying or recording device to eavesdrop upon or record the confidential communication" shall be punished by a fine of up to $2,500 per violation, incarceration, or both.

The court explained that "Although parties to a phone call always consent to each other's receipt of their communications, they do not always consent to the use of an electronic amplifying or recording device to eavesdrop upon or record the communication. It is consequently unsurprising that Section 632 can apply to the parties to a communication."

Notably, the calls at issue in many cases brought under Section 632.7 are not "confidential communications" subject to Section 632, defined as "any communication[s] carried on in circumstances as may reasonably indicate that any party to the communication desires it to be confined to the parties thereto..." Cal. Penal Code § 632(c).

New CCPA Law also Requires Disclosures

Outside of CIPA, businesses subject to the California Consumer Privacy Act (CCPA), which took effect on Jan. 1, 2020, will be required to inform consumers of the categories of personal information to be collected and the purposes for the collection at or before the point of collection. The CCPA adopts an extremely broad definition of personal information, which includes identifiers (including name, postal address, email, and phone number), commercial information (such as order history and payment information), and even voice recordings under certain circumstances. Put simply: CCPA arguably requires retailers subject to the law to include a second set of disclosures on customer service calls, in addition to those required by Section 632 for confidential communications.

CCPA—which has been criticized for failing to set forth clear standards for compliance—does not specify how this disclosure should be made in the context of customer service calls. The law does say, however, that required disclosures should be provided before collecting the customer's information, and should identify both the categories of personal information that may be collected and the purpose(s) of collecting such information.

Conclusion

While the court's Smith interpretation of the call recording law is currently binding, the plaintiff has until Jan. 29, 2020 to appeal to the California Supreme Court, which may or may not grant review.

Although Smith is by no means a green light for retailers to delete their "this call may be recorded" disclosures, it does help protect retailers from the multimillion-dollar liability at issue in many CIPA cases. Given that call recording disclosures can inadvertently be omitted during system upgrades, and are oftentimes controlled by third parties, retailers should continue to follow the best practice of periodically auditing their customer service lines to confirm that the requisite disclosure is provided as intended.