Note: Moss & Barnett attorney John Rossman also contributed to this article.

Many debt collection companies record calls to ensure quality and compliance in their operations. This practice has proven a double-edged sword, as it makes agencies possibly vulnerable to liability under state statutes regulating call recording. California’s call recording statute may be the most draconian of all: it imposes civil liability of $5,000 for each call surreptitiously recorded in violation of the statute.

Plaintiffs capitalized on this statute, electing not only to pursue individual claims, but also assert putative class action claims against collection agencies placing calls to California consumers. These suits expose agencies to significant, possibly crippling, monetary exposure of millions of dollars.

A recent decision issued by a federal judge in Young v. Hilton Worldwide, Inc., 2014 WL 3434117 (C.D. Cal. July 11, 2014), may put a stop to at least some of these lawsuits.

California’s Invasion of Privacy Statute

California law generally requires a person to obtain consent from all parties to a call before recording the call. See Cal. Penal Code § 630 et seq. Consent can likely be obtained by providing a recording disclosure at the outset of the call. Despite this, many companies fail to make proper call-recording disclosures, paving the way for high-cost litigation in California courts.

Historically, surreptitious call-recording litigation focused on two provisions of California’s invasion of privacy statute: § 632 and § 632.7. Section 632 prohibits a person from eavesdropping upon or recording a “confidential communication” without the consent of all parties to the communication. Section 632.7, on the other hand, regulates communications involving a wireless telephone, such as a cell phone, and imposes liability on a person who “intercepts or receives and intentionally records” a communication without the consent of all parties to the communication. Significantly, Section 632.7 does not require the recorded communication to be confidential before liability may be imposed.

Plaintiffs Attempt to Avoid the Confidentiality Requirement in California’s Recording Statute

By its terms, Section 632 of California’s invasion of privacy statute imposes a heightened evidentiary burden. To recover damages, plaintiffs are forced to show that a recorded call involves “confidential” content. This proves particularly problematic for plaintiffs in the class action context as it creates individualized, fact-sensitive inquiries that arguably cannot be resolved in a uniform manner on a class-wide basis.

To avoid this hurdle, plaintiffs began prosecuting claims against agencies under Section 632.7 of California’s statute—a provision that, as mentioned, is content neutral. Agencies attempted to defeat these claims by arguing that Section 632.7 does not apply to call participants. It only regulates third-parties who “intercept” or “receive” a wireless call, and proceed to intentionally record it without the call participants’ knowledge.  Even though the plain language of the provision appeared to support this interpretation, early judicial decisions consistently rejected the defense. Courts reasoned that in addition to third parties, Section 632.7 applies to call participants because each party—whether the caller or called party—“receives” a communication from the other party during the call. These unfavorable rulings opened the floodgates to high-exposure class action suits against agencies that recorded calls to cell phones in the course of their operations.

The Hilton Case Changes the Legal Landscape

A federal judge in the Central District of California recently revisited the applicability of Section 632.7 to call participants in Young v. Hilton Worldwide, Inc., 2014 WL 3434117 (C.D. Cal. July 11, 2014). The plaintiff in the case, Rick Young, brought a putative class action suit against Hilton Worldwide, Inc. and Hilton Reservations Worldwide, Inc. (collectively “Hilton”) under California’s invasion of privacy statute for the alleged recording of his calls to Hilton’s customer service representative. Young asserted claims under Sections 632 and 632.7 of the statute. In 2012, Hilton moved to dismiss the complaint. Young v. Hilton Worldwide, Inc., 2012 WL 5503866 (C.D. Cal. June 18, 2012).  The district court granted Hilton’s motion on the basis that Young failed to establish that the calls to Hilton were “confidential.”  Id. at *1.

Young appealed. On appeal, the Ninth Circuit determined that the district court failed to distinguish between Young’s Section 632 and 632.7 claims. Young v. Hilton Worldwide, Inc., 2014 WL 1087777, at *1 (9th Cir. Mar. 20, 2014). The Ninth Circuit noted that the dismissal order focused exclusively on whether the calls at issue were confidential. Because Section 632.7 does not include a confidentiality requirement, the Ninth Circuit reversed the district court’s decision and remanded the case to the district court for further proceedings.  Id.

Hilton filed a motion for judgment on the pleadings after remand from the Ninth Circuit.  Young, 2014 WL 3434117. In considering the motion, the district court determined that only Young’s Section 632.7 claim survived the appeal. Departing from prior cases, the court held that Section 632.7 restricts “third-party interception of cellular and cordless telephonic radio transmissions.”  Id. at *1 (emphasis in original). According to the court, the statutory scheme makes it clear that the section refers “to the actual interception or reception of these radio signals by third parties and do[es] not restrict the parties to a call from recording those calls.” Notably, the court determined that even if the provision applied to call participants, it would not reach Hilton’s activity because “the legislature did not limit the service observing monitoring of calls that [was] alleged in [the] case.”  Accordingly, the court granted Hilton’s motion and dismissed Young’s complaint with prejudice.  Id. at *1-2.

The Hilton decision marks a significant victory for the collection industry. The ruling provides agencies, creditors, and other companies in the collection industry with a valuable tool for combatting high-cost litigation under California’s unforgiving invasion of privacy statute. Hopefully, other courts will continue to swing the pendulum in the other direction by adopting Hilton’s sound reasoning in future cases.


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