Throughout 2013 and into the new year, the plaintiffs’ bar has continued to file a steady stream of privacy-related class action claims.  With statutes such as California’s Invasion of Privacy Act and the federal Telephone Consumer Protection Act providing for fixed statutory damages, the potential exposure for companies that are sued for making telephone calls in violation of the law can be staggering. 

In suits featuring California state law claims and out-of-state plaintiffs, a worthwhile strategy to explore is whether it is possible to limit, or, as we succeeded doing in our client’s case, even eliminate liability by invoking more favorable out-of-state law. 

A recent Central District Court decision – Jonczyk v. First National Capital Corp. – illustrates how an early choice-of-law evaluation in a call recording case can curb a class action suit at the pleading stage.  Though the decision came in the context of California’s Invasion of Privacy Act (CIPA), in appropriate cases the court’s reasoning may extend outside the scope of CIPA and curtail other California privacy or consumer class actions under California  law.

The legislature intended to protect the interests of California residents – CIPA might not apply in cases with out-of-state plaintiffs

Applying a choice-of-law analysis, the United States District Court for the Central District of California recently dismissed a putative class action plaintiff’s claims for violations of CIPA.  Jonczyk v. First National Capital Corp., et al., No. SACV 13-959-JLS (AGRx), 2014 U.S. Dist. LEXIS 17211 (C.D. Cal. Jan. 22, 2014).  The plaintiff, a Missouri resident, sued First National Capital Corp. – a corporation headquartered in California – for allegedly recording the plaintiff’s calls with a California-based employee that took place while the plaintiff was physically in Missouri.  Notably, while CIPA requires the consent of all parties to a call before a call is recorded, Missouri’s Wiretap Act allows the recording with the consent of one party to a call.

Prompted by the distinction in the statutory schemes, the district court applied California’s governmental interests test to determine which state’s law should apply to the alleged claims at issue.  Having found that a “true conflict” between the statutory schemes exists, the district court determined that Missouri’s interests would be significantly impaired if CIPA, and not Missouri’s Wiretap Act, was applied to determine the outcome of the case.  In reaching its holding, the district court noted that Missouri had intentionally limited the reach of its wiretapping statute so as to curb what it deemed excessive litigation, while the California legislature “specifically stated that its intent was to ‘protect the right of privacy of the people [of California]’” as opposed to privacy rights of foreign states’ residents.  Finding that Missouri’s Wiretap Act applied to plaintiff’s claims, the district court dismissed the plaintiff’s CIPA claims with prejudice. 

First National can be reconciled with previous plaintiff-friendly decisions

First National is not an outlier - it is consistent with the rationale of state and federal decisions in whichcourts have applied CIPA in favor of the plaintiffs’ bar.  In Kearney v. Salomon Smith Barney, Inc., for example, the Supreme Court of California engaged in a choice-of-law analysis and determined that CIPA, rather than Georgia law, applied on the facts at issue.  Kearney v. Salomon Smith Barney, Inc., 39 Cal.4th 95 (2006).  In applying CIPA rather than Georgia’s consumer protection statute, the Kearney Court determined that CIPA can apply in situations featuring California plaintiffs – whose privacy rights the California legislature specifically intended to protect – and out-of-state defendants.

Likewise, First National is consistent with a 2011 federal decision in which the Northern District of California denied a motion to dismiss a CIPA claim brought against a California-headquartered corporation by plaintiffs who were not California residents.  Valentine v. NebuAd, Inc., 804 F.Supp.2d 1022 (N.D. Cal. 2011).  Though Valentine and First National both featured out-of-state plaintiffs and California defendants, unlike First National, the district court in Valentine did not engage in a choice-of-law analysis that took into account the interests of competing states and instead tested whether plaintiffs hadstanding based on CIPA’s statutory language.  The district court found that nonresident subscribers of Internet service providers had Article III standing and therefore standing “as a matter of statutory construction” to assert claims under CIPA.

Two important takeaways

First National’s potential impact is significant. 

First, while an out-of-state plaintiff may have standing to assert claims under California privacy statutes, a choice-of-law analysis may compel the application of the foreign state’s laws where a true conflict exists.  Thus, defendants may do well by considering arguments apart from standing. 

Second, the Central District of California did not limit its reasoning to Missouri’s Wiretap Act, and, therefore, the holding may apply to other CIPA cases featuring plaintiffs who are residents of states requiring the consent of only one party to lawfully record phone calls, or states that require actual damages or other qualifications before a plaintiff may sue. 

Outside the CIPA context, First National’s rationale may also be persuasive in limiting the reach of California statutes where defendants can point to evidence indicating the legislature’s intent to narrowly protect the interests of California residents.