The Supreme Court of California, interpreting California Penal Code section 632.7, recently held in Smith v. LoanMe, Inc. that cellular or cordless phone conversations cannot be recorded by nonparties or the parties to the call without consent of the parties. This decision overturned the Court of Appeal's previous ruling that consent is only required if nonparties, and not the parties to the call, seek to record the conversation. Therefore, companies must ensure that they obtain consent prior to recording their calls, or else criminal and civil liability may ensue, including expensive class actions.
California Penal Code § 632.7
As part of the Invasion of Privacy Act, Penal Code section 632.7 provides, in relevant part: "Every person who, without the consent of all parties to a communication, intercepts or receives and intentionally records, or assists in the interception or reception and intentional recordation of, a communication transmitted between two cellular radio telephones, a cellular radio telephone and a landline telephone, two cordless telephones, a cordless telephone and a landline telephone, or a cordless telephone and a cellular radio telephone, shall be punished."
Section 632.7 was enacted to expand section 632, which criminalized the unconsented to recording of phone conversations between traditional telephones, to include cellular or cordless phones.
Factual and Procedural Background
This case arose after Defendant LoanMe, Inc. ("LoanMe") recorded a very brief phone conversation that it had with Plaintiff Jeremiah Smith ("Smith"), the husband of a woman to whom LoanMe extended a loan. On October 15, LoanMe called the phone number that Smith's wife had provided, and Smith answered on a cordless phone, informed LoanMe that his wife was not home, and hung up. The call lasted a total of eighteen seconds. About three seconds into the call, LoanMe caused a "beep" tone to sound, which signaled that the call was about to be recorded, though the LoanMe representative never verbally advised Smith that the call was going to be recorded.
Thereafter, in September 2016, Smith brought suit on behalf of a putative class consisting of "all persons in California whose inbound and outbound telephone conversations involving their cellular or cordless telephones were recorded without their consent by [LoanMe] or its agent/s within the one year prior to the filing of this action." The complaint alleged that the recording of these calls violated section 632.7.
The trial court held that there was no violation, holding that the beep tone gave Smith sufficient notice that the call was going to be recorded.
The Court of Appeal, rather than focusing on if Smith consented to the recording, addressed when consent would be required prior to the recording. Specifically, the court debated if section 632.7 required that consent be obtained when parties to the call sought to record the call, or if it only applied when nonparties were the ones recording the conversation. The court ultimately concluded that only nonparties were required to obtain consent, reasoning that "parties to a phone call always consent to the receipt of their communications by each other." Smith v. LoanMe, Inc., 43 Cal. App. 5th 844, 848 (2019).
Supreme Court of California's Decision
On April 1, 2021, the Supreme Court of California reversed the lower courts, holding, "We conclude that [section 632.7] applies to the intentional recording of a covered communication regardless of whether the recording is performed by a party to the communication, or a nonparty." The Court's analysis is as follows:
In Flanagan v. Flanagan, this Court defined "confidential communication" for purposes of interpreting section 632. The Court held, "A conversation is confidential if a party to that conversation has an objectively reasonable expectation that the conversation is not being overheard or recorded." Flanagan v. Flanagan, 27 Cal. 4th 766, 768 (2002). As part of its reasoning, the Court determined that this interpretation was consistent with section 632.7. Therefore, because parties to a phone call will typically have a reasonable expectation that the call is not being recorded, it is unreasonable to assume that a person consented to a recording of their conversation by virtue of being on the call.
Language of § 632.7
The Court then looked to the language of the statute, which specifically addresses a person who "intercepts or receives" a call and intentionally records it without the parties' consent. Because a party to the call is a person who "receives" the call, the statute therefore forbids parties to the call from recording the conversation without the other party's consent. The Court went on to say, "Although parties might normally be regarded as consenting to the receipt of their communications by other parties to a call, this acquiescence would not, by itself, necessarily convey their consent to having these communications recorded."
The Committee analyses of Assembly Bill 2465 establish that section 632.7 was enacted to respond to concerns that existing law did not prohibit the unconsented to recording of conversations involving cellular or cordless phones. Although multiple analyses lend support to this notion, the following provides a concise explanation:
The primary intent of [AB 2465] is to provide a greater degree of privacy and security to persons who use cellular or cordless telephones. Specifically, AB 2465 prohibits persons from recording conversations transmitted between cellular or cordless telephones.
Under current law, it is only illegal to 'maliciously' intercept a conversation transmitted between the above-identified telephones. There is no prohibition against recording a conversation transmitted between cellular or cordless telephones.
By comparison, it is currently illegal to 'intentionally' intercept or record a conversation transmitted between landline, or traditional, telephones.
...Henceforth, persons using cellular or cordless telephones may do so knowing that their conversations are not being recorded. Sen. Com. on Judiciary, Analysis of Assem. Bill No. 2465, at pp. 3-4, Ops. Cal. Legis. Counsel, No. 27958 (Dec 17, 1991)
Because the Legislature's aim was to provide more protection for communications involving cellular or cordless phones, interpreting section 632.7 to require both parties and nonparties to obtain consent before recording a call squarely aligns with the legislative intent.
From a policy perspective, recording a conversation without a party's consent, regardless of who is doing the recording, can implicate considerable privacy concerns. As this Court recognized in Ribas v. Clark, "While one who imparts private information risks the betrayal of his confidence by the other party, a substantial distinction has been recognized between the secondhand repetition of the contents of a conversation and its simultaneous dissemination to an unannounced second auditor, whether that auditor be a person or mechanical device." Ribas v. Clark, 38 Cal. 3d 355, 360-61 (1985). Applying this to section 632.7, although a party to a call consents to the other party receiving its communications, there are privacy concerns when the party's communications are simultaneously disseminated to a recording device without the party's consent.
The Court reasoned that the distinction stressed in Ribas owes to the fact that "secret monitoring denies the speaker an important aspect of privacy of communication - the right to control the nature and extent of the firsthand dissemination of his statements." Ribas, at 361; United States v. White, 401 U.S. 745, 787-788 (1971)(dis. opn. of Harlan, J.) ["[m]uch off-hand exchange is easily forgotten and one may count on the obscurity of his remarks, protected by the very fact of a limited audience, and the likelihood that the listener will either overlook or forget what is said, as well as the listener's inability to reformulate a conversation"]. The Court concluded, citing Kearney v. Salomon Smith Barney, 39 Cal.4th 95, 125 (2006), to ensure that these concerns are addressed, the state has a "strong and continuing interest in the full and vigorous application" of laws that vindicate the privacy rights that can be compromised when a communication is recorded without consent.
Moving forward, it is now unlawful for anyone, party or nonparty, to record a cellular or wireless telephone conversation without the consent of all parties to the call. As such, companies must ensure that they receive the other party's consent before recording the call. However, it is important to note that what exactly constitutes consent remains uncertain (it is still to be determined whether the "beep" in the above case gave Smith adequate notice that the call was being recorded). Because of this, companies should have their representatives or automated systems clearly indicate to the other party that the call is being recorded and ensure that such notification is non-bypassable. Companies should ensure that their outbound and inbound call recording practices with California individuals comport with this significant new decision. We expect the plaintiffs' bar to target non-compliant businesses conducting business in California.
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