Summary

California Penal Code Section 632 has provided a springboard to litigation related to the recording of telephone calls in the State of California.  Last week, in Hatisihi v. First American, Case No. B244769 (Cal. Ct. App. 2d Dist.), the California Court of Appeal affirmed the recent trend of class certification denials in cases brought under Section 632, based upon the individualized inquires into a determination of whether the communication recorded was “confidential.”

Background Facts

First American issues one-year home warranty plans for major home systems and appliances to customers in 46 states, including California.  Customers may make warranty claims by calling an “800” number (“inbound” calls).  In addition, First American makes calls to existing customers as part of marketing and warranty renewal campaigns (“outbound” calls).  All calls between First American — whether inbound or outbound  – are recorded.  Inbound calls include an automated disclosure that the call may be monitored or recorded.  Outbound calls, however, do not include any such automated disclosure, and, prior to 2009, First American did not have a policy of requiring sales representatives to advise customers that the call may be monitored or recorded.  Id. at *2-4.

Plaintiff purchased a one-year First American Warranty in 2005 and renewed it annually for the next three years until it expired in May 2009.  Between 2005 and May 2008, Plaintiff admitted to making approximately 12 inbound calls to First American during which she received the automated disclosure that her call may be monitored or recorded.  Plaintiff also admitted that she participated in “dozens” of telephone calls with other companies where she understood her call would be recorded or monitored for quality assurance.  Plaintiff did not object to any of the inbound calls with First American or the other companies being recorded.  Id.

In May 2008 and May 2009, Plaintiff received outbound calls from First American’s sales group.  Both calls were recorded and Plaintiff was not given the disclosure that the calls would be recorded or monitored.  Id.

The Lower Court’s Opinion

Thereafter, Plaintiff filed a class action complaint entitled Hataishi v. First American (Los Angeles County Super. Ct. Case No. B244769) against First American for statutory invasion of privacy under California Penal Code Section 632, which prohibits the intentional recording of a “confidential communication” without the consent of all parties to the communication.  Plaintiff filed a class certification motion seeking to certify a class of California consumers who received telephone calls from First American between 2006 and 2009.  Plaintiff asserted that there were common issues of law and fact because: (1) First American was the only defendant; (2) First American’s policy was to record all outbound calls; (3) the outbound calls were not proceeded by an automated warning that the call would be recorded; and (4) prior to 2009, First American did not have a policy requiring its sales persons to give a verbal warning that the call would be recorded.  The trial court denied the motion finding, among other things, that individual issues predominated.  The trial court also rejected Plaintiff’s contention that the objective reasonableness of each plaintiff’s expectations could be assessed by First American’s uniform call recording procedures.  Id. at *6.

The Court of Appeal Affirms Denial of Class Certification

On February 21, 2014, the California Court of Appeal Second Appellate District, addressing only the community of interest issue, affirmed.  The Court of Appeal explained that a communication is “confidential” for purposes of Section 632 if the party has an objectively reasonable expectation that the conversation is not being overheard or recorded.  Accordingly, in order to establish that an outbound First American call was subject to Section 632, Plaintiff would need to prove the objective reasonableness of her expectation that the call would not be recorded and the objective reasonableness of each putative class members’ expectations of the same.  This required individualized proof of (1) the length of the customer relationship, (2) the plaintiffs’ prior experiences with calls to or from the defendant including the number of calls and whether or not those calls included a recording/monitoring disclaimer, and (3) the plaintiffs’ prior experiences with other companies wherein they were provided the recording/monitoring disclaimer.  Such individualized inquiry precluded the certification of Plaintiff’s class claims especially considering her admissions regarding inbound calls to First American and calls from other businesses wherein the recording/monitoring disclaimer was provided.    Id. at *14-15.

Significance

In recent years, plaintiffs’ lawyers have used, and, arguably, abused, section 632 (and similar state and federal statutes), bringing harrowing class cases against corporations, then demanding large settlements for quick resolution.  The First American decision should hopefully limit the number of Section 632 class action claims filed in the future, and provides strong support for the denial of pending cases seeking class certification.  First American also provides a strong framework for mounting early dispositive challenges to cases brought under Section 632, and similar call recording statutes.