Eavesdropping Liability

Some clients are just too good to be true. Take the plaintiff who swears she has the goods on the defendant because she secretly recorded an admission of wrongdoing. When that happens, your antenna should go up - but not because it's a good case. In fact, as case law demonstrates, that client may be subject to substantial liability for violating California Invasion of Privacy Act (CIPA) (Cal. Penal Code §§ 630-637.5), which prohibits eavesdropping and recording certain communications. The statute subjects violators to civil and criminal penalties, including statutory damages and potential jail time. (See Coulter v. Bank of America, 28 Cal. App. 4th 923, 929 (1994).)

The central CIPA sections prohibit wiretapping (§ 631), electronic eavesdropping on confidential communications (§ 632), and what might be called "wireless tapping" (§§ 632.5-632.7).

Penalties
On the criminal side, a CIPA violation is a wobbler: it can be charged as either a misdemeanor or a felony, depending on whether there are prior offenses. If not, the maximum fine is $2,500. But if the defendant is a repeat offender, the maximum fine is $10,000. (§ 632(a).)

On the civil side, damages are $5,000 per violation (automatic statutory damages) or triple the actual damages, whichever is greater. (§ 637.2.)

No Wiretapping
Wiretapping historically involved an actual electrical connection (a "tap") placed on a telephone wire. By metaphoric extension, the term is now often used in reference to the monitoring of cordless, Internet and cellular communications. Section 631 prohibits wiretapping and provides for penalties against any person who attempts to gain the benefit of wiretapping or wiretaps, either:

in form, by tapping or making an unauthorized connection with a telephone wire or the like; or

in substance, by attempting to learn the contents of a wire communication without authorization or the consent of all parties to it.

Note that section 631 does not apply to the interception of wireless communications. It applies only to the unauthorized connection with any telephone wire. (§ 631(a).)

No Electronic Eavesdropping
Section 632 is considerably broader, for it prohibits electronic eavesdropping on and the recording of a confidential communication.

To avoid a violation of section 632, all parties to the conversation must consent to the eavesdropping and recording. Accordingly, a "business that adequately advises all parties to a telephone call, at the outset of the conversation, of its intent to record the call would not violate the provision." (Kearney v. Salomon Smith Barney, 39 Cal. 4th 95, 117 (2006).)

However, section 632 applies only to electronic eavesdropping and recording. It is perfectly acceptable - or at least legal - in California to secretly use a stethoscope and a notepad to eavesdrop on and record someone else's conversation in the next room.

By its own terms, section 632 requires that the communication in question be confidential, which is a highly litigated issue. A confidential communication is one "carried on in circumstances as may reasonably indicate that any party to the communication desires it to be confined to the parties thereto." The code states that certain communications can never be considered confidential: communications made in a public gathering or in any legislative, judicial, or administrative proceeding open to the public, or "in any other circumstance in which the parties ... reasonably expect that the communication may be overheard or recorded." (§ 632(c).)

For this reason, the code does not prohibit listening to or recording communications conducted by radio. Thus, while section 632 prohibits a person from secretly recording a confidential conversation he or she participates in, it does not prohibit a person from secretly recording a communication conducted by radio, even if that radio communication is ostensibly confidential. Section 632 deems such radio-mediated communications to be the equivalent of a discussion conducted at a public gathering - in essence, a discussion that was never intended to be confidential and therefore never subject to section 632's prohibition against electronic eavesdropping and recording.

Great Expectations
An early line of authority held that a conversation would be considered confidential only if a party had an objectively reasonable expectation that the communication would not later be disseminated to others. (See O'Laskey v. Sortino, 224 Cal. App. 3d 241, 248 (1990).) A second line of authority held that the possibility of subsequent disclosure was irrelevant, the only issue being whether the parties expected that their discussion was being recorded. (See Frio v. Super. Ct., 203 Cal. App. 3d 1480, 1489-1490 (1988).)

The California Supreme Court resolved this split when it endorsed the latter approach. (See Flanagan v. Flanagan, 27 Cal. 4th 766 (2002).) In short, if any party to a communication reasonably expects it to be confidential, the court will generally consider it to be a confidential communication. But if circumstances indicate that a party should have believed a particular conversation would be overheard or recorded, the court will not consider it confidential. (Flanagan, 27 Cal. 4th at 774-775.)

This distinction can have very significant consequences. For example, in the Coulter case, the court described how an "amateur sleuth" recorded dozens of conversations he had with bank coworkers by means of two concealed tape recorders, all "in apparent anticipation of litigation he would later file, claiming sexual harassment and lack of adequate grievance review procedures." (28 Cal. App. 4th at 925.) The plan backfired: The employee was fined $132,000 for 44 instances of electronic eavesdropping, at what was then the statutory penalty - $3,000 a pop. Lawyers should certainly dissuade their clients from going down that road.

Objective Standard
Section 632 does not explicitly require that the desire for confidentiality be objectively reasonable. Rather, the statute defines a confidential communication as one "carried on in circumstances as may reasonably indicate that any party to the communication desires it to be confined to the parties thereto." As such, the code section arguably requires only that the circumstances reasonably indicate that the desire for confidentiality, not the expectation of it, was reasonably evident.

In deciding the Flanagan case the state Supreme Court did not expressly decide this issue, but it did endorse the analysis utilized by the court of appeal in Frio. And the unambiguous holding in Frio was that the test of confidentiality turns on an objectively reasonable expectation of privacy, not merely a reasonable indication of one's desire for confidentiality. (See Frio, 203 Cal. App. 3d at 1488.) Not surprisingly, in the wake of these cases courts have adopted an objective standard. (See Weiner v. ARS Nat'l Servs., 887 F. Supp. 2d 1029, 1032 (S.D. Cal. 2012).)

Case Studies
The analysis of whether any particular communication is confidential involves a question of fact that may depend on numerous specific factors, such as whether a telephone call was initiated by the consumer or whether a corporate employee phoned the customer; the length of the customer-business relationship; the customer's prior experiences with business communications; and the nature and timing of any recorded disclosures. (See Kight v. CashCall, 200 Cal. App. 4th 1377, 1396 (2011).) Consequently, case rulings are rather fact specific. Calls to customer service centers to dispute a charge typically do not support a reasonable expectation of privacy. (Faulkner v. ADT Sec. Servs., 706 F. 3d 1017, 1020 (9th Cir. 2013).) By the same token, no reasonable expectation of privacy existed in a phone call to a hotel for routine matters related to reservations and billing. (Young v. Hilton Worldwide, 2012 WL 5503866, at *1 (C.D. Cal.), reversed on other grounds, 565 Fed. Appx. 595, at *1 (9th Cir. 2014).)

Meanwhile, a car salesperson had no expectation of confidentiality with respect to incoming customer calls on a 1-800 line because the salesperson had been notified that the calls would be recorded and because of the close proximity of other salespeople at the phone desk. (Bornstein v. Sonic Auto., 2014 WL 431203, at *6 (Cal. App.).)

On the other hand, a reasonable expectation of privacy existed during a sales inquiry phone call in which the potential customer shared personal and confidential information but received no notification that the call might be recorded. (Brown v. Defender Sec. Co., 2012 WL 5308964, at *3 (C.D. Cal.).) Similarly, phone calls between individual borrowers and institutional lenders involving "sensitive financial information" were found to be confidential communications. (Kight, 200 Cal. App. 4th at 1384.)

A court found that a phone conversation between a record producer and a musician's manager was confidential because it "related to ongoing business matters which apparently were in a state of great flux, ... market data or business strategy were discussed," and the plaintiff's "business involved a few key people, a highly visible product and the potential for substantial profit." (Frio, 203 Cal. App. 3d at 1489.)

The California Supreme Court found that, with respect to a phone call to a stock brokerage concerning personal financial affairs, it is "equally plausible [as not] that ... a California consumer reasonably would anticipate that such a telephone call is not being recorded, particularly in view of the strong privacy interest most persons have with regard to the personal financial information frequently disclosed in such calls." (Kearney, 39 Cal. 4th at 118 n. 10.) Meanwhile, a phone call between father and son concerning private family matters positively supported a reasonable expectation of privacy. (See Flanagan, 27 Cal. 4th at 771.)

Fundamentally, the way to stay on the safe side of CIPA is to simply inform the other parties up front that a conversation is being recorded. If others choose to participate anyhow, their consent is implied. Any lesser notice may invite litigation.

Class Certification
Because of the fact-specific nature of the confidentiality determination, courts typically decline to certify class actions alleging a violation of section 632. In such cases, the facts specific to each plaintiff caller predominate over the common issues. (See Hataishi v. First Am. Home Buyers Prot. Corp., 223 Cal. App. 4th 1454, 1463-1468 (2014).)

Content Clues
A disputed issue is whether the content of a conversation informs the confidentiality analysis. The germ of the dispute is the California Supreme Court's Flanagan decision, where the court stated: "Under the construction adopted here, the Privacy Act ... protects against intentional, nonconsensual recording of telephone conversations regardless of the content of the conversation or the type of telephone involved." (Flanagan, 27 Cal. 4th at 776.) Considered in a vacuum, this quote could mean one of two things: (1) Some conversations can be considered confidential regardless the content because other indicia establish that the parties reasonably believed it to be confidential, or (2) content is never relevant to confidentiality.

Taken in context, the court probably intended the first interpretation and not the second. After all, the Flanagan court also stated, while referring to and endorsing Frio, "the court reasoned that the nature of Frio's business and the character of the communications showed that the parties would not expect their communications to be simultaneously disseminated to an unannounced second auditor." (27 Cal. 4th at 772, citing Frio, 203 Cal. App. 3d at 1488-90 [emphasis added].)

A complete evaluation of the "character" of a communication arguably should include the actual content of the conversation. Thus, a federal court recently noted that "[a]lthough the content of the communication is undoubtedly relevant to whether a party had a reasonable expectation of privacy in the communication, it is not dispositive and it should not be." (Roberts v. Wyndham Int'l, 2012 WL 6001459, at *6 (N.D. Cal.).)

Nevertheless, other courts have endorsed the content-irrelevant stance wholesale. (And at least one court hedged on the issue, simultaneously declaring that the content of the conversation was irrelevant but then proceeding to discuss the content as a basis for finding that the communication was not confidential. (See Defender Sec. Co., 2012 WL 5308964, at *3.))

Either way, courts typically do refer to the content of the communication in their analyses. (For example, see Weiner, 887 F. Supp. 2d at 1033; Frio, 203 Cal. App. 3d at 1489; Young, 2012 WL 5503866, at *1; and Kearney, 39 Cal. 4th at 118 n. 10.)

The lesson is that content is far from irrelevant to the analysis of confidentiality; indeed, the substance of a conversation often bears directly on whether a given discussion should be kept between the parties to it.

Open Questions
Although the code clearly prohibits people from electronically eavesdropping on calls involving cell phones (§ 632.5) and cordless phones (§ 632.6), newer technology poses several open questions. One of them is whether voice over Internet protocol (VoIP) communications are covered by these rules. Another is whether section 632.7 (which prohibits intercepting and recording phone conversations involving at least one cordless or cellular phone) applies to all kinds of recording. That section is not limited by its terms to electronic recordings (as section 632 is). Therefore, at least facially, section 632.7 would prohibit a handwritten stenographic record of a telephone conversation involving at least one cellular or cordless phone. However, such a slavishly literal interpretation would seem to take things too far.

Conclusions
Generally, the best practice is to inform others in advance that they are being recorded. Consent is implied when anyone participates in a conversation after being informed that it is being recorded. And consent is generally an absolute defense. But be careful: For the defense to apply, all participants must consent.

Also, bear in mind that these prohibitions apply to communications, eavesdropping, and recording that in some way involve electronic connections and transmission. Nonelectronic eavesdropping (think: ear to wall) and handwritten recording (via pencil and a notepad, for example) generally are legal.

And as noted at the outset, be wary - make that very wary - of the client who claims he or she has airtight evidence obtained by surreptitiously recording a key witness. All one needs to do is read the Coulter case (cited above) to know the end of that story. There, the fine was well into six figures and the per-incident statutory damages per section 637 have increased from $3,000 to $5,000 since the time the Coulter opinion was issued.

Vance Woodward practices business and contract litigation in West Hollywood.

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