California Supreme Court Holds that Cellular Eavesdropping Statute Applies to Businesses


California Supreme Court Holds that Cellular Eavesdropping Statute Applies to Businesses

Alert |
Brett F. Clements, Matthew B. Mock

Anyone who has called customer service in the past decade is familiar with the refrain, “this call may be recorded for quality assurance purposes.” A recent California Supreme Court decision clarified that businesses and other organizations may be held liable for not advising customers that the company records calls, which will have significant ramifications for businesses, nonprofits, or any other entity that records telephone calls. This eavesdropping statute provides both for criminal and civil liability.

Smith v. LoanMe, Inc.[1] reversed an appeals court decision holding that the statute applied only to third-parties who surreptitiously recorded calls, not to the caller and recipient. The lower court highlighted that Penal Code section 632.7 was a more traditional eavesdropping statute that looked to whether someone “maliciously” recorded calls and interpreted that to mean eavesdropping by nonparties. In its unanimous decision, the California Supreme Court rejected that interpretation and held that the statute implicates both parties and nonparties to the call.

As the Supreme Court noted, the Court of Appeal departed from all but one federal district court decision that applied the statute to both parties and nonparties. The Court extensively reviewed the statute’s legislative history in determining that, “[t]he Legislature’s aim was ….to more generally protect communications involving a cordless or cellular phone from intentional recordation without the parties’ consent — and by doing so, better align the array of protections accorded…with the safeguards applicable to calls involving only landlines.” The Court also rejected the defendant’s argument that the statute was arbitrary and absurd because the plain text of the statute assertedly applied only to “cellular or cordless” phones. In its holding, the Court found that the broader statutory scheme applies similar restrictions to recording of landline calls.

Of note, the Supreme Court did not address what constitutes notice of the recording under the statute. The underlying trial court in Smith found that a “beep” tone three seconds into an 18-second call gave plaintiff notice that it was being recorded.

As a practical matter, however, businesses that regularly record customer calls may prefer a more explicit notification. Smith makes clear that if organizations want to avoid Section 632.7 liability, they should have a compliance program in place to notify both incoming callers and customers whom it calls that the call is being recorded.

[1] Smith v. LoanMe, Inc., --- P.3d ---, 2021 WL 121873 (Apr. 1, 2021).