Smith v. LoanMe, Inc.: Invasion of Privacy Act Protects Against Recording by Parties to Cell and Cordless Phone Calls, Not Just Third-Party Eavesdroppers, Says Cal. Supreme Court

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Smith v. LoanMe, Inc., No. S260391 (April 1, 2010) (“Smith”) (slip op. available here) presents a familiar scenario—a person answers his or her cellular or cordless phone and hears a “beep” during a call. The caller then records the call without first seeking the receiving party’s consent. In Smith, a unanimous California Supreme Court interpreted Penal Code section 632.7 to prohibit parties to a call made between a cellular or cordless phone and another telephone device from intentionally recording the call without the consent of all parties to the communication. Slip op. at 26. Smith reversed an appellate court that held that section 632.7 only applied to third parties who intentionally recorded calls.

In Smith, the defendant had extended a loan to the plaintiff’s wife. In connection with the loan, one of the defendant’s employees called the phone number provided by the wife. The plaintiff answered the call on a cordless phone. Three seconds later, the defendant caused a “beep” tone to sound on the call and recorded the call. Smith told the defendant’s representative that his wife was not home and the call ended. Slip op. at 2.

The Court of Appeal found this conduct to be legal, holding that section 632.7 was unambiguous and only prohibited intentional recording of phone calls on cellular and cordless phones by third party eavesdroppers. The appellate decision turned on statutory construction. “The statute . . . requires that the interception or receipt of the [covered] communication be without the parties’ consent. But 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.” Slip op. at 3. The appellate court concluded that “parties to a phone call are incapable of violating section 632.7, because they do not intercept or receive each other’s communications without all parties’ consent.” Id. at 3-4.

The California Supreme Court allowed that section 632.7 could conceivably support the Court of Appeal’s interpretation, but found that the statute was ambiguous. Considering the context, legislative history, and public policy of section 362.7, the court came to the opposite conclusion—that section 326.7 does apply to parties to a phone call. Id. at 10-22.

In particular, Smith brought the interpretation of section 632.7 in line with section 632 (applying to landlines) and vindicated the legislature’s intent that section 326.7 provides a greater degree of privacy and security to persons who use cellular or cordless telephones. Section 632 already provided parties as well as nonparties from nonconsensual recording of “confidential communications.” Slip op. at 7. Smith held that the same protection should be afforded users of cellular and cordless phones. In addition, the legislature intended that users of cellular and radio telephone technology have greater privacy protections because such systems inherently have less of a guarantee of privacy than landline systems. Id. at 20. Section 632.7 extends the protections of the Invasion of Privacy Act even to non-confidential communications. Id. at 9-10.

Smith is also important because the appellate court’s decision was the first published opinion by a California appellate court to have specifically addressed whether section 632.7 applies to the intentional recording of a communication by a party. The majority of federal district courts hold that section 632.7 applies to parties to a call, but a minority aligns with Court of Appeal’s conclusion that the section only prohibits intentional recording of calls by third parties. Slip op. at 8-9. Had the California Supreme Court not granted review, federal courts could have followed the minority view, chipping away at the protections intended by the Invasion of Privacy Act.

Unresolved by Smith is whether a “beep” tone at the beginning of a phone call gives a person sufficient notice that their conversation is being recorded. Slip op. at 26. Given that a “beep” tone at the beginning of a telephone call has become ubiquitous, that will be an important issue for another day.

Authored by:
Robert Friedl, Senior Counsel