Wednesday, April 23, 2014

FYI: Cal App Ct Holds Monitoring Phone Calls, Without Notice to Customer, May Violate State Law

Wednesday, November 30, 2011

The California Court of Appeal, Fourth District, recently held that a
business which monitors phone calls between it and its customers may
violate Section 632 of the California Penal Code, where the customer is
not notified that the call may be monitored.

A copy of the opinion is available at:

A consumer finance company randomly monitored calls between it and various
borrowers, for quality control purposes. Most (but not all) borrowers
who called the company were advised that the conversation might be
recorded. Borrowers whom the company called for collection purposes were
not so advised.

Borrowers brought individual and class claims against the company,
alleging violations of common law, statutory and constitutional privacy
rights, including an alleged violation of California Penal Code Section
632 ("Section 632"). The lower court granted summary judgment for the
company regarding the Section 632 claim, on the grounds that the statute
prohibited eavesdropping only by a third party, whereas here, only two
parties were involved: the company and the borrower. The borrowers

Section 632(a) of the California Penal Code imposes liability on "[e]very
person who, intentionally and without the consent of all parties to a
confidential communication ... eavesdrops upon or records the confidential
communication." A "person" is defined to include a corporation.

The Court began its analysis by noting that recent case law established
that "the crux of section 632 is the right to prevent a simultaneous
dissemination [of a communication] to an unannounced listener." See
Flanagan v. Flanagan, 27 Cal.4th 766, 768 (2002). It further noted that
the statute "contains no exceptions applicable when a business monitors a
telephone conversation even if the monitoring is for a legitimate business

Thus, the Court held that the lender "can be held liable for directing its
supervisory employees to monitor confidential communications between
employees and customers without properly notifying the customer about the

With that standard in place, the Court determined that the lower court
erred in its decision to grant summary adjudication in favor of the
company on the borrowers' Section 632 claim.

However, it emphasized that "[t]his holding means only that we disagree
with the trial court's conclusion that plaintiffs' section 632 claim fails
as a matter of law. To recover, plaintiffs will need to prove the other
requisite elements of a section 632 claim, including a reasonable
expectation of privacy and that their communications were 'confidential.'"

The Court also addressed the company's contentions that the summary
judgment should be affirmed on the basis that the calls did not constitute
"confidential communication[s]," as required by the statute. The company
contended that a reasonable person would expect the conversations to be
disclosed to its employees, and that borrowers were told "at the outset of
the borrower-lender relationship" that calls might be monitored.

However, the Court noted that the fact that borrowers knew that the
contents of their telephone calls might later be disclosed to other
company employees "does not mean that [borrowers] had no reasonable
expectation that their telephone conversation were not being secretly
overheard." The Court further stated that the fact the borrowers were
initially informed that a call might be recorded did not necessarily mean
that borrowers were "adequately warned that subsequent calls would be

Therefore, the Court held that triable issues of fact as to whether the
telephone calls constituted "confidential communication[s]" and whether
borrowers' expectations that the calls would not be monitored were
objectively reasonable. Accordingly, it directed the lower court to
vacate its order granted the summary judgment in favor of the company.

Eric Tsai
McGinnis Wutscher Beiramee LLP
Emerald Plaza
402 West Broadway, Suite 400
San Diego, CA 92101
Direct: (619) 955-6989
Fax: (866) 581-9302
Mobile: (714) 600-6000

Admitted to practice law in California, Nevada and Oregon

          McGinnis Wutscher Beiramee LLP