The California Fourth District Court of Appeal held, in Smith v. LoanMe, Inc.,[1] that a plaintiff failed to state a claim in arguing that a defendant business violated a provision in the California Invasion of Privacy Act (“Privacy Act”) (Penal Code section 630, et seq.) by recording its call with the plaintiff.  The Court concluded that the section applies only to recording by third-party eavesdroppers, not to recording by a participant to the phone call.

Background

Defendant LoanMe, Inc. (“LoanMe”) is a business that provides personal and small business loans, including a loan to the wife of plaintiff Jeremiah Smith.  In October 2015, a LoanMe employee called the telephone number provided to LoanMe by Smith’s wife to discuss the loan.  Smith answered the call on a cordless telephone and informed the caller that his wife was not available, and the call then ended.  The call lasted approximately 18 seconds.  LoanMe recorded the call.  Three seconds into the call LoanMe “caused a ‘beep tone’ to sound.”  LoanMe had a practice where a beep tone would play at regular 15 second intervals on all of its outbound calls.  LoanMe did not orally advise Smith that the call was being recorded.  Smith also did not sign a contract granting LoanMe consent to record calls.

In September 2016, Smith filed a class action complaint seeking statutory damages and injunctive relief[2] against LoanMe, alleging that LoanMe violated Section 632.7 by recording a phone call with Smith without his consent while he was using a cordless telephone.  Smith further claimed that a “beep tone” at the beginning of the call did not constitute sufficient notice that LoanMe was recording the call.  On the parties’ stipulation, the trial court ordered a bifurcated bench trial to resolve the “the beep tone issue.”  After listening to a recording of the phone call, the trial court concluded that the beep tone provided Smith sufficient notice under Section 632.7 that the call was being recorded and that Smith implicitly consented to being recorded by remaining on the call.  The trial court entered judgment against Smith.

The California Fourth District Court of Appeal requested supplemental briefing on the issue of whether Section 632.7 applies to the recording of a phone call by a participant in the phone call or instead applies only to recording by third-party eavesdroppers.  The Court asked that the briefs address the question in light of the plain language of Section 632.7, its legislative history, and its relationship with other provisions of the Privacy Act.

Discussion

The Fourth District Court of Appeal explained that in interpreting a statute’s language to determine the Legislature’s intent, courts do not examine that language in isolation.  Courts look at the context of the statutory framework as a whole in order to determine its scope and purpose and to harmonize the various parts of the enactment.  (Meza v. Portfolio Recovery Associates, LLC (2019) 6 Cal.5th 844, 856.) “The meaning of a statute may not be determined from a single word or sentence; the words must be construed in context, and provisions relating to the same subject matter must be harmonized to the extent possible.”  (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735.) The Court also expressed that interpretations that would result in absurd consequences that the Legislature did not intend must be avoided.

Development of Section 632 Provisions

The Court observed that the Legislature enacted the Privacy Act in 1967 “to protect the right of privacy of the people of this state” from technological advances that “led to the development of new devices and techniques for the purpose of eavesdropping upon private communications.”  (Section 630.) The Legislature considered eavesdropping on private communications a serious threat that “cannot be tolerated in a free and civilized society.”  (Id.; Kearney v. Salomon Smith Barney, Inc. (2006) 39 Cal.4th 95, 115 [describing the Privacy Act as “a broad, protective invasion-of-privacy statute”].)

Subdivision (a) of Section 632 provides: “A person who, intentionally and without the consent of all parties to a confidential communication, uses an electronic amplifying or recording device to eavesdrop upon or record the confidential communication, whether the communication is carried on among the parties in the presence of one another or by means of a telegraph, telephone, or other device, except a radio, shall be punished by” a fine, imprisonment, or both.  Under Section 632(b), “person” includes businesses for purposes of the statute.  Section 637.2,[3] also part of the original 1967 legislation, “explicitly created a new, statutory private right of action, authorizing any person who has been injured by any violation of the invasion-of-privacy legislation to bring a civil action to recover damages and to obtain injunctive relief in response to such violation.”  (Kearney, supra, 39 Cal.4th at pp. 115–116.) Any person injured by a violation of the Privacy Act may recover $5,000 per violation. (Section 637.2(a)(1).)

The Court observed that in 1985, the Legislature responded to the development of “cellular radio telephone” technology by enacting Section 632.5 as part of the Cellular Radio Telephone Privacy Act of 1985 (a subpart of the Privacy Act).  In 1990, the Legislature amended the 1985 legislation and renamed it the “Cordless and Cellular Radio Telephone Privacy Act of 1985.”  The amendment added Section 632.6, which extended the protections Section 632.5 provides for cellphone communication to communications involving cordless telephones.

Specifically, Section 632.5 provides in relevant part: “Every person who, maliciously and without the consent of all parties to the communication, intercepts, receives, or assists in intercepting or receiving a communication transmitted between cellular radio telephones or between any cellular radio telephone and a landline telephone shall be punished by” a fine, imprisonment, or both.[4]  Section 632.6’s parallel provision states:  “Every person who, maliciously and without the consent of all parties to the communication, intercepts, receives, or assists in intercepting or receiving a communication transmitted between cordless telephones … , between any cordless telephone and a landline telephone, or between a cordless telephone and a cellular telephone shall be punished by” a fine, imprisonment, or both.  (Section 632.6(a).)[5]

The Court of Appeal further observed that in 1992, the Legislature amended the Cordless and Cellular Radio Telephone Privacy Act of 1985 to add Section 632.7.  Section 632.7(a) 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 by” a fine, imprisonment, or both.

Summarizing the three provisions, the Court explained that Sections 632.5, 632.6, and 632.7 are all parts of the Cordless and Cellular Radio Telephone Privacy Act of 1985.  Section 632.5 prohibits the malicious and nonconsensual interception or receipt of cellular phone calls.  Section 632.6 prohibits the malicious and nonconsensual interception or receipt of cordless phone calls.  Section 632.7 prohibits the nonconsensual interception or receipt and intentional recording of cellular and cordless phone calls.  The Court observed that Section 632.7 differs from Sections 632.5 and 632.6 in that it removes the element of malice, adds the element of (nonconsensual) intentional recording, and covers both cellular phones and cordless phones in a single code provision.

Interpretation of Section 632.7

LoanMe argued that Section 632.7 clearly and unambiguously applied only to third-party eavesdroppers, while Smith contended that the section applied to the parties to the phone call as well as to third-party eavesdroppers.

Considering the “plain meaning” of the section’s text, the Court explained that Section 632.7 requires that the interception or receipt of the communication be without the parties’ consent.  However, the Court explained, “the parties to a phone call always consent to the receipt of their communications by each other—that is what it means to be a party to the call (or at least that is part of what it means).”  The Court therefore determined that the parties to a phone call are incapable of violating Section 632.7, because they could not intercept or receive each other’s communications without all parties’ consent.

The Court concluded that this interpretation of Section 632.7’s language was in alignment with the plain meaning of Sections 632.5 and 632.6, whose language Section 632.7 incorporated.  The Court explained that Sections 632.5 and 632.6, like Section 632.7, could not apply to the parties to a phone call, because Sections 632.5 and 632.6 apply only to someone who intercepts or receives a communication without all parties’ consent.  Thus, Sections 632.5 and 632.6 prohibit only malicious third-party eavesdropping on cordless or cellular phone calls.[6]

The Fourth District added that an interpretation of Sections 632.5 and 632.6 that encompassed the parties to a call would lead to absurd results.  Such an interpretation would mean a party to a call would have to receive another party’s communication without all parties’ consent, and because a party would have to receive the other party’s communication maliciously; the Court found both notions “absurd and unintelligible.”

The Court thus found that Sections 632.5 and 632.6 must be interpreted as limited to third-party eavesdroppers, because they applied only to persons who intercept or receive communications without all parties’ consent.  The Court explained that Section 632.7 contained the same restriction in the same language (“without the consent of all parties … intercepts or receives”), and because the Court was required to interpret Section 632.7 in a way that harmonized it with the statutory scheme of which it is a part (Meza, supra, 6 Cal.5th at p. 856), the Fourth District concluded that Section 632.7 clearly and unambiguously applies only to third-party eavesdroppers, not to the parties to a phone call.

Smith argued that because the Section 632.7 uses both of the terms “intercepts” and “receives,” those terms must refer to different types of conduct, the section must apply to parties to a call as well as third-party eavesdroppers.  The Fourth District found this argument lacked merit because it did not resolve the issue that Section 632.7 applies only to persons who receive (or intercept) communications without all parties’ consent.  The Court found that federal decisions (including Brinkley v. Monterey Financial Services, LLC (S.D.Cal. 2018) 340 F.Supp.3d 1036) made the same error.

The Court also found legislative history supported its interpretation that all three sections were intended to apply only to third-party eavesdroppers.  The Court stated: “When the Legislature enacted section 632.5 in 1985 and section 632.6 in 1990, the Legislature’s sole concern was that eavesdroppers could more easily access conversations occurring over cellular and cordless phones than over landline phones.”  The Court found Section 632.7’s similar language to the other sections supported its interpretation for Section 632.7 also.  Moreover, the Court explained that “[t]hroughout the legislative history of section 632.7, the Legislature demonstrates its concern with eavesdropping on wireless communications, and it never shows any concern about recording by parties.  We therefore conclude that the legislative history supports our interpretation of section 632.7 as limited to third party eavesdroppers.”

Here, the Court explained that LoanMe called Smith.  LoanMe consented to Smith’s receipt of LoanMe’s communications (asking Smith, “Is Mrs. Smith there?”), and Smith consented to LoanMe’s receipt of Smith’s communications (Smith replied, “No.”).  The Court concluded that, as a party to the call, LoanMe was incapable of violating Section 632.7.  Because Section 632.7 did not prohibit LoanMe from intentionally recording the call, the Court concluded that Smith failed to state a claim against LoanMe under Section 632.7.  The Fourth District Court of Appeal accordingly affirmed the trial court’s dismissal of Smith’s lawsuit.

HOW THIS AFFECTS YOUR AGENCY

While the Fourth District’s decision precludes the application of Penal Code section 632.7 to parties to a call, agencies should take note of the point discussed in Footnote 6 that Section 632 – unlike Sections 632.5, 632.6, and 632.7 – can apply to the parties to a communication (not just third-party eavesdroppers) because that section refers to the use of an electronic amplifying or recording device to eavesdrop or record, not merely the receipt of such communication which the Court found to be inherent to being a party to a call.  With this decision, the Court made a fine distinction between these two sections.  We will continue to monitor this case to determine if California takes this case up for review.

As always, if you wish to discuss this matter in greater detail, please feel free to contact James R. Touchstone at (714) 446–1400 or via email at jrt@jones-mayer.com.

Information on www.jones-mayer.com is for general use and is not legal advice.  The mailing of this Client Alert Memorandum is not intended to create, and receipt of it does not constitute, an attorney-client-relationship.

[1] 2019 Cal. App. LEXIS 1282 (4th. Dist. Dec. 20, 2019).

[2] Smith argued for the first time on appeal that “LoanMe infringed on [his] right to privacy guaranteed by the California Constitution,” but the Fourth District did not address it because Smith did not include a constitutional cause of action in his complaint and did not litigate the issue in the trial court.

[3] Not to be confused with Section 632.7, whose interpretation is the main issue in this case.

[4] Section 632.5(a).

[5] See also Section 632.6(c), defining cordless telephones as “consisting of two parts—a ‘base’ unit which connects to the public switched telephone network and a handset or ‘remote’ unit—which are connected by a radio link.”

[6] The Fourth District noted that the requirement that the alleged wrongdoer intercept or receive the communication without all parties’ consent distinguishes Sections 632.5, 632.6, and 632.7 from Section 632, which provides that “[a] person who, intentionally and without the consent of all parties to a confidential communication, uses an electronic amplifying or recording device to eavesdrop upon or record the confidential communication” shall be punished by a fine, incarceration, or both. (Italics added.) The Court explained that Section 632 can apply to the parties to a communication because parties to a phone call do not always consent to the use of an electronic amplifying or recording device to eavesdrop upon or record the communication (although parties to a phone call always consent to each other’s receipt of their communications).