On March 20, 2014, the Ninth Circuit Court of Appeals reversed the dismissal of a class action against Hilton Worldwide Inc. and Hilton Reservations Worldwide, LLC, in which defendants were accused of violating the California Invasion of Privacy Act (CIPA) by recording incoming customer service telephone calls. In Young v. Hilton Worldwide Inc. and Hilton Reservations Worldwide, LLC, Plaintiff Rick Young claimed that Hilton violated two sections of CIPA, Sections 632 and 632.7, when it allegedly recorded his phone call to Hilton’s reservation line without his consent. A California federal court dismissed the action, holding that a caller’s subjective belief that his call was not being recorded is insufficient to support a determination that the call is confidential. Plaintiff appealed the dismissal of the Section 632.7 claim but not the Section 632 claim. The Ninth Circuit reversed the district court, in a three page order holding that Section 632.7 prohibits recording of calls made from cellphones and cordless phones regardless of whether a communication is initiated with a reasonable expectation of privacy. The decision is noteworthy not just for its holding but also for the issues left unresolved and the longer dissent which lays out a logical interpretation of CIPA and potential defenses to CIPA claims.
The California Invasion of Privacy Act
California Penal Code Section 632(a), part of the CIPA,1 makes it unlawful for any person to intentionally eavesdrop upon or record a confidential communication without consent of all parties, whether the communication is in person or by telephone, but excluding cellular or cordless phones. “Confidential communication” generally includes a communication carried on in circumstances that reasonably indicate that any party to the communication desires it to be confined to the parties thereto, but excludes circumstances in which the parties “may reasonably expect that the communication may be overheard or recorded.” § 632(c). The term “person” excludes an individual known by all parties to a confidential communication to be overhearing or recording the communication. § 632(b).
Section 632.7 makes it unlawful for any person to intercept, receive, or intentionally record a communication without the consent of all parties, and applies where at least one party uses a cellular or cordless phone. This Section has been construed by case law to not be limited to “confidential communications.”
CIPA provides a private right of action for injunctive relief and/or damages of either $5,000 or three times the amount of actual damages (whichever is greater), but it is not necessary for a plaintiff to have suffered actual damages. There has been an explosion in CIPA cases filed against companies in the last two years.
Young v. Hilton Worldwide Inc. and Hilton Reservations Worldwide, LLC
In Young v. Hilton, Plaintiff Rick Young brought a class action complaint against Hilton in California state court, claiming Hilton violated Sections 632 and 632.7 when it allegedly recorded a phone call he placed to Hilton without his consent. Young argued that he had an objectively reasonable expectation the calls would be private, making them “confidential communications” subject to CIPA’s all-party consent requirement.
After removing the case to federal court, Hilton moved to dismiss, arguing that calls to its reservation line were not “confidential communications” subject to Sections 632 and 632.7 because callers could not reasonably expect that the calls would not be overheard or recorded. The district court agreed, adopting Hilton’s proposed order which stated generally that Young failed to allege that the incoming calls were confidential. Young appealed, challenging the dismissal of the Section 632.7 claim but not the dismissal of the Section 632 claim, arguing that Section 632.7 does not require that the recorded communications were confidential.
On March 20, 2014, the Ninth Circuit reversed, holding the district court committed reversible error in failing to recognize the California Supreme Court’s holding in Flanagan v. Flanaganthat a plaintiff need not allege a “confidential communication” in order to state a claim under Section 632.7.2 The Ninth Circuit opined that Flanagan “forecloses Hilton’s argument that § 632.7 should be interpreted as including a confidentiality requirement because different standards for § 632 and § 632.7 would lead to absurd results.” The Ninth Circuit found it unnecessary to address Hilton’s statutory interpretation arguments, which it found Hilton had waived by failing to raise them with the district court.
Writing in dissent, Maryland District Judge J. Frederick Motz found the majority’s decision premature because it decided a question not adequately briefed before the district court. Judge Motz observed that the suit called for clarity from the California Supreme Court as to whether Section 632.7 applies only when calls are secretly recorded by unauthorized third parties, as opposed to the intended call recipient.
The dissent focused primarily on the legislative history of the “service-observing” exception to CIPA, stating that “[t]he recording of a nonconfidential call, particularly a ‘service-observing’ call, by an intended recipient of the communication may well not be prohibited by Section 632.7.” The dissent pointed out that prior to the enactment of Section 632.7, CIPA contained an exception for “the use of any instrument, equipment, facility, or service furnished and used pursuant to the tariffs of a public utility.” The legislative history of this exception, which was also included in Section 632.7, “shows that its intended effect was to exclude ‘service-observing’ calls from the coverage of CIPA” because the California Legislature deemed recording of such calls to be an essential and justifiable business practice, in contrast to the “clandestine wiretapping and eavesdropping” targeted by Section 632.
Judge Motz further noted that although deregulation of the telecommunications industry has made the language of the exception outdated, the statutory sections establishing the exception have not been repealed. The Legislature enacted Section 632.7 in response to the risk that cellular and cordless telephone conversations, which traveled by radio wave rather than closed wire-to-wire systems, could be more easily accessed by unauthorized third parties. The dissent also observed that the Court in Flanagan did not consider the continued vitality of the “service-observing” exception, and was perhaps “less careful than it should have been...by not making clear that § 632.7 does not cover recording non-confidential communications, at least communications that fell within the ‘service-observing’ exception, by one of the parties to the communication.”
The dissent highlighted ambiguity in the word “receive” as it applies to Section 632.7, stating that it was reasonable for the Legislature to address the risk of unauthorized access to cell phone communications by enacting legislation that prohibited the recording of a conversation overheard by a third person. “Here, Hilton was not a third person; it was an intended party to the communication initiated by Young and members of the purported class.”
The dissent also expressed concern that interpreting Section 632.7 — a criminal statute — to apply to intended parties to a communication might unfairly penalize defendants based solely on the type of device a caller chooses to use. Judge Motz opined that “reading [Section] 632.7 as covering persons who intercept or receive a cellular communication other than a person who is an intended party to the communication effectuates the California Legislature’s intent.”
Hilton is the most recent in a line of cases addressing CIPA claims. Given the holding, the issues left unresolved, and the dissent, the law in this area is likely to continue to develop. Those doing business in California and elsewhere should therefore consider reviewing their telephone monitoring and recording practices to minimize risk of claims under CIPA and other applicable laws.