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Businesses in California, and throughout the nation, are now regularly recording or monitoring telephonic communications with their customers, or potential customers. They follow this practice for a variety of legitimate reasons, including for quality assurance
and training (also known as “service-observing”), customer protection and qualification, as well as risk management. This increasing trend among businesses has found its way into the collection industry. Now, many collection agencies routinely record some, if not all, of their telephonic communications with debtors and others.
However, along with this trend by collectors in employing recording technology, there is another increasing trend: a rising tide of lawsuits filed against collectors in California for their alleged wrongful recording and monitoring of calls with debtors in violation of California’s Invasion of Privacy Act (“CIPA”), found at Penal Code §§ 630, et seq. Over the last year or so, consumer attorneys have filed a wave of literally hundreds of lawsuits, many of them putative class actions. These suits have named numerous California businesses, and many out-of-state businesses as well, and many have been filed against collection agencies that are already reeling from the onslaught of numerous TCPA class actions.
This article addresses some of the salient features of CIPA, some of the major defenses to putative liability, and, finally, a few common-sense suggestions as to how to manage the risks associated with call recording.
II. CIPA Protects an Objectively Reasonable Right to Privacy
The CIPA, found at California Penal Code § 630, et seq. was enacted in 1967 for the express purpose “to protect the right of privacy of the people of this state.” Penal Code § 630. The California Legislature declared that with the advent of new devices and technology used “for the purposes of eavesdropping upon private communications,” the resulting invasion of privacy from the “use of such devices and techniques has created a serious threat to the free exercise of personal liabilities and cannot be tolerated in a free and civilized society.” Id. Various sections of the CIPA make it illegal, for example, to wiretap (§631), to eavesdrop (monitor) and record telephonic communications (§632) or to record without consent cell phone communications (§632.7).
The CIPA prohibits various forms of intentional recording or eavesdropping without the consent of all parties to the conversation. Specifically, § 632(a) imposes liability on:
Every person who intentionally and without the consent of all parties to a confidential communication, by means of any electronic amplifying or recording device, eavesdrops upon or records the confidential communication . . .” (Emphasis added.)
Penal Code § 632(c) defines “confidential communication” as including:
any communication carried on in circumstances as may reasonably indicate that any party to the communication desires it to be confined to the parties thereto, but excludes a communication made . . . in any other circumstance in which the parties to the communication may reasonably expect that the communication may be overheard or recorded. (Emphasis added.)
The CIPA then protects only confidential communications. Kearney v. Salomon Smith Barney, Inc. (2006) 39 Cal.4th 95, 117 (interpreting § 632). A party to a telephone conversation violates § 632 by monitoring or recording a confidential conversation only where it fails to inform all other parties to the communication that the conversation may be monitored or recorded. Id. at 100, 118.
How do you determine whether the conversation will be confidential? There is no black or white test, unfortunately. A conversation is deemed “confidential” under § 632 of CIPA only if a party to that conversation has an objectively reasonable expectation that the conversation is not being overheard or recorded. Flanagan v. Flanagan (2002) 27 Cal.4th 766, 768, 774–776; Vera v. O'Keefe (S.D.Cal.2011) 791 F.Supp.2d 959; 1396;. Whether there exists a reasonable expectation that no one is secretly recording or listening to a phone conversation is generally a question of fact. See Kight v. CashCall, Inc. (4th Dist. 2011) 200 Cal.App.4th 1377, 1396-97; Lieberman v. KCOP Television, Inc. (2003) 110 Cal.App.4th 156, 169. However, where the facts are undisputed, the court may decide the issue as a matter of law. See Weiner v. ARS Services, Inc. (S.D. Cal. 2012) 2012 WL 3632025 (finding circumstances of call, including its short duration, indicated no expectation of privacy).
Disclosing that a call may, or will, be “monitored” is viewed as the equivalent of disclosing that a call may, or will, be “recorded.” See, e.g., Kight, supra, 200 Cal.App.4th at 1396-1397 (court held that no distinction for invasion of privacy purposes under Penal Code § 630 between a monitored call and a recorded call). In Kight, for example, Justice Haller, writing for Division 1 of the Fourth District Court of Appeal, held: “[F]or purposes of section 632, the privacy rights affected are the same regardless of whether a conversation is secretly recorded by a machine or monitored by a human being.” In other words, whether warned the conversation may be recorded, or that it may be monitored by a third party, the effect on the listener’s privacy rights and their objective expectation of privacy is the same. Ibid.
“The test of confidentiality is an objective one defined in terms of reasonableness.” Frio v. Superior Court (1988) 203 Cal.App.3d 1480, 1488 (citation omitted). A person’s subjective belief that the call should not be recorded or monitored is not the test. Id. Whether a call is for business or legal purposes is not dispositive. Kearney, supra, 39 Cal.4th at 118. Courts have recognized, for example, that debtors calling about their debts may have an expectation of privacy. Courts that have analyzed the issue of whether a communication is confidential under § 632 have considered the totality of the surrounding circumstances to determine whether the parties had an objectively reasonable expectation that the conversation would not be recorded or overheard. Kight, supra, 200 Cal.App.4th at 1397.
Factors relevant to determining whether an objectively reasonable expectation of privacy exists (that is, that no one is secretly recording or listening to a phone conversation) include, but are not limited to: (1) who initiated the call, (2) the purpose and duration of the call, (3) the customer’s prior relationships, experiences and communications, (4) whether confidential information was conveyed, and, or course (5) whether an admonition/disclosure/warning was given during the call at the outset, or otherwise. See Kight, supra, 200 Cal.App.4th at 1397 (citing Kearney); see also Flanagan, supra, 27 Cal.4th at 776–77 (remanding for consideration whether son had objectively reasonable expectation that his private telephone conversations with his father were not being recorded by the father's wife); Nissan Motor Co., Ltd. v. Nissan Computer Corp. (C.D.Cal.2002) 180 F.Supp.2d 1089, 1093–94 (conversations between counsel concerning litigation related matters were deemed confidential communications within the meaning of Section 632); People v. Pedersen (1978) 86 Cal.App.3d 987, 994 (“The nature of the meeting and the manner in which it was carried out are such that the court could reasonably conclude that it was no different than other business meetings of the parties that were not confidential.”).
The elements of a claim for violation of CIPA are: (1) an intentional action, (2) of recording or monitoring of a conversation in which a party would normally have a reasonable expectation it would not be so recorded and monitored, (3) without consent, and (4) where the party suffered injury – but not necessarily damage. Penal Code §§ 632, 637.2.
A defendant may prevail in a CIPA case by negating any of the essential elements of that claim, or by pleading and proving an affirmative defense. A defendant may plead and prove other available defenses, e.g., consent, unclean hands, etc., that may be appropriate in view of the nature of the claim and the relief requested.
1. No Expectation of Privacy
The most common defense in a § 632/§ 637.2 case is that the plaintiff did not have a reasonable expectation that his or her call would not be overheard or recorded. Kearney, supra, 39 Cal.4th at 117-118. This is not really a defense, per se, but, rather, the negation of an essential element of the claim. This issue was discussed at length above as to a “confidential communication” and will not be repeated here.
As a corollary to this element, obtaining consent to record or monitor is its own defense, but, of course, notification and consent also undermine the expectation of privacy element. See Kearney, supra, 39 Cal.4th at 100, 118.
2. No Actual Injury
The CIPA at § 637.2(a) provides for a private right of action; a civil lawsuit may be brought by “any person who has been injured by a violation of this chapter,” and that person may bring an action against the person who committed the violation for the greater of “either (1) $5,000” or “three times the amount of actual damages, if any sustained by the plaintiff.” Penal Code § 637.2(a) (emphasis added.) Section 637.2(c) provides: “It is not a necessary prerequisite to an action pursuant to this section that the plaintiff has suffered . . . actual damages.”
Frankly, the distinction between injury and resulting damage is not an easy one for even lawyers and judges, and the interpretive law is not very helpful. However, using ordinary rules of statutory construction, it seems clear that usage of the word “injured” in § 637.2(a) must be deemed to have a different meaning than the phrase “actual damages,” also found in § 637.2(a), and in § 637.2(c). Referring again to rules of statutory construction, under a plain reading of the statutory scheme, and to avoid surplussage, it appears a plaintiff must first be “injured” as a prerequisite to asserting a right to damages, actual or statutory, under § 637.2(a).
On the other hand, while not clear, the plaintiff probably needs not to have suffered appreciable, compensable, or even nominal “damage” to assert a viable claim. But compare FAA v. Cooper (2012) ___ U.S.____, 132 S.Ct. 1441 (interpreting “actual damages” as a term of art under the federal Privacy Act of 1974 as not including non-pecuniary or emotional distress-type damages).
3. Statute of Limitations
“The statute of limitations in which to commence an action for invasion of privacy is one year.” Ion Equipment Corp. v. Nelson (1980) 110 Cal.App.3d 868, 880. The statute of limitations on a cause of action under Penal Code § 632 commences when the plaintiff knew, or should have known, of the defendant’s unlawful acts. Montalti v. Catanzariti (1987) 191 Cal.App.3d 96, 97-98.
4. Consent (Express/Implied)
Consent is clearly a defense since the statute could not be violated if all parties understand and consent to recordation or monitoring. Kearney, supra, 39 Cal.4th at 100, 118. Under § 632(a), every person who intentionally “and without the consent of all parties to a confidential communication, by means of any electronic amplifying or recording device. . .records the confidential communication. . .violates the statute and is punishable as specified in the provision.” Kearney, supra, 39 Cal.4th at 117 (emphasis added).
Where a caller is made aware that the call or conversation was, or is, being monitored or recorded, there is no violation of § 632 because there is no objectively reasonable expectation of privacy. Id. at 100, 118; Weiner, supra, 2012 WL 3632025 at *3, fn. 2.Moreover, by continuing with the conversation after being so warned, consent is given by implication. See Kearney, supra, 39 Cal.4th at 100, 118.
The California Supreme Court has written in this context:
As made clear by the terms of section 632 as a whole, this provision does not absolutely preclude a party to a telephone conversation from recording the conversation, but rather simply prohibits such a party from secretly or surreptitiously recording the conversation, that is, from recording the conversation without first informing all parties to the conversation that the conversation is being recorded. If, after being so advised, another party does not wish to participate in the conversation, he or she simply may decline to continue the communication. A business that adequately advises all parties to a telephone call, at the outset of the conversation, of its intent to record the call would not violate the provision. Id. at 117, 118 (footnote omitted).
So-called “service observing” or recording for quality assurance is recognized in CIPA’s legislative history as a contemplated exception to the reach of the statute. But, contrary to some commentators’ views, it does not appear that defense was generally adopted into the statute as a statutory defense. Kight, supra, 200 Cal.App.4th at 461. Even if it is not a defense per se, the legitimate nature of recording for quality assurance may be important to the defense. In any event, where the plaintiff knows the call is being recorded and goes forward without objection and participates anyway, consent should be implied. See Kearney, supra, 39 Cal.4th at 100, 118.
5. Commerce Clause
Some have suggested that because § 632 has the effect of regulating out-of-state businesses who do business in California, it may violate the Commerce Clause of the United States Constitution. While this argument has not definitively been rejected, the California Supreme Court in Kearney casts serious doubt as to its legitimacy -- where the reach of the statute solely regulates calls into California, directed toward California residents. Kearney, supra, 39 Cal.4th at 104-107; see also Zephyr v. Saxon Mtg. Serv., Inc. (E.D. Cal. 2012) 2012 WL 2046814 at *5-7.
6. Excessive Fines
As noted above, a violation of § 632 and § 637.2 may lead to imposition of statutory damages of $5,000 for eachviolation. Obviously, potential statutory damages may quickly multiply to huge figures. The spectre of such ruinous liability has troubled courts in the same way that excessive punitive damages untethered from actual injury have troubled our courts as a potential violation of due process. See, e.g., State Farm Mut. Auto Ins. Co. v. Campbell (2003) 538 U.S. 408, 426; BMW of North America, Inc. v. Gore (1996) 517 U.S. 559, 582-583.
The California Supreme Court has recognized that statutory damages that are imposed without discretion, and regardless of actual damages, may constitute excessive fines and violation of due process. People ex. rel. Lockyer v. R.J. Reynolds Tobacco Co. (2005) 37 Cal.4th 707, 726-730; Hale v. Morgan (1978) 22 Cal.3d 388, 399-404 (statutory damage award stricken as excessive); see also Civil Code § 3359 (“Damages must in all cases be reasonable. . .”). As explained by one appellate court, combining a minimum statutory scheme with the class action mechanism “may expand the potential statutory damages so far beyond the actual damages suffered that the statutory damages come to resemble punitive damages – yet ones that are awarded as a matter of strict liability, rather than for the egregious conduct typically necessary in support of a punitive damages award.” Parker v. Time Warner Entertainment (2d Cir. 2003) 331 F.3d 13, 22; accord Starbucks Corp. v. Superior Court (2008) 168 Cal.App.4th 1436, 1451.
This defense is important in class actions, and it should be pled to avoid waiver. See In re: Stephenson (9th Cir. 2002) 41 Fed.Appx. 936, 937.
7. Unclean Hands and Other Defenses
There is no decision indicating the above defenses and other defenses, such as unclean hands, estoppel, mistake of facts, and the like, could not be raised to a statutory invasion of privacy cause of action, as well as to a common law claim. Whether these are appropriate defenses will likely depend upon the particular facts and circumstances of the case.
IV. Conclusion and Comments
Call recording and monitoring requires that your company’s policies and procedures in giving warning disclosures are seamless. Beware of an over reliance on technology to announce the warning invariably. The history of collection agency litigation, from my experience, is littered with cases brought where the agency believed it was covered, but the technology failed.
A good practice is to require every collector, and the receptionist, to “back up” your technology by giving a standard oral admonition on every inbound and/or outbound call where a connection is made and a conversation ensues. You may want to adopt an invariable admonition, such as: “Every telephone conversation is or may be recorded or monitored for quality assurance [training purposes],” or the like. This should be announced at the beginning of the conversation.
Beware of “back” phone lines where the mechanical admonition may not be given. If every phone call is automatically recorded every time on every line, then the admonition must be given every time.
The above article and all articles in this website are not intended to be legal advice. Readers should consult an attorney to determine how the law applies to their particular circumstances. Also, please understand that the law constantly evolves and changes. Certain of the decisions and legal propositions quoted in the above article may be out of date or superseded. Questions or comments about the above article can be directed to its author, Mark E. Ellis.
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