Companies that provide call center services to consumers are increasingly being targeted in class action lawsuits under an arcane section of the California penal code that provides a civil right of action and statutory damages for monitoring or recording of confidential telephone conversations without the other party's knowledge or consent. Sections 630 et seq. of the California Penal Code were enacted in the 1960s to prevent illegal surveillance of confidential telephone calls. In the past several years, plaintiffs have attempted to use the statute to seek damages against the operator of a customer service call center that fails to include a notice at the beginning of each customer service call that the call "may be monitored or recorded" for training or quality assurance purposes. Since this type of notice is ubiquitous among call centers, the failure to provide the notice can often be the result of a system error or a design flaw in the call system. Plaintiffs' lawyers have been taking advantage of these errors by filing class actions for statutory damages for each call that was made from California during any time period during which the warning was not provided.

The exposure in these cases can be enormous because the statute provides for $5,000 in statutory damages, an amount that the lawsuits allege is owed for each call. For example, a call center that receives 1,000 calls during a time in which the warning was not provided may find itself defending a $5 million lawsuit, and 10,000 calls means a $50 million lawsuit. The high exposure amounts, coupled with the seemingly low standard that has been adopted by the California state courts to determine what constitutes a "confidential" telephone conversation, has caused many defendants to rush to early settlements rather than face the risks of litigation.

SETTLEMENT MAY NOT BE THE ANSWER!

A defendant should not assume that there is no defense to a case filed under the Privacy Act. Defenses on the merits that have been raised in Privacy Act cases include that the call centers were intended to be exempt from the statute altogether, that the aggregation of statutory penalties violates due process and that customer service calls are not confidential in nature. Individual defenses to the named plaintiff's claims may also exist. For example, the claims of individual defendants may be susceptible to arguments that 1) the plaintiff signed an arbitration agreement; 2) the circumstances surrounding the plaintiff's call show that there was no expectation of confidentiality; or 3) the plaintiff knew the call was being recorded despite the lack of express notice.

There are also defenses to class certification based on factual variations, despite the uniform nature of the statutory remedy. Plaintiffs will argue that the fixed nature of the available remedy and the objective standards for determining the expectation of confidentiality and the disclosure of sensitive information simplifies the cause of action and alleviates the need for certain individualized questions. However, in cases involving recorded telephone conversations, there can be significant factual differences from caller to caller on facts ranging from the location of the caller at the time of the call, to the nature of the conversation alleged to be confidential, to the facts bearing on the caller's knowledge or understanding that the call may be recorded. The California Privacy Act is just one of the various statutes that are increasingly becoming targeted for class action lawsuits because of the availability of a statutory penalty.