Brinkley v. Monterey Financial Services, Inc.

• Court: District Court, S.D. California
• Decided: April 21, 2020
• Docket: 3:16-cv-01103
• Status: Unknown

Opinion

1 2 3 4 5 UNITED STATES DISTRICT COURT 6 SOUTHERN DISTRICT OF CALIFORNIA 7 8 TIFFANY BRINKLEY, on behalf of Case No.: 16-cv-1103-WQH-WVG herself and others similarly situated, 9 ORDER Plaintiff, 10 v. 11 MONTEREY FINANCIAL 12 SERVICES, LLC, 13 Defendant. 14 HAYES, Judge: 15 The matter before the Court is the Motion for Reconsideration of Order Denying 16 Motion to Dismiss Plaintiff’s Claim Under Cal. Penal Code Section 632.7 filed by 17 Defendant Monterey Financial Services, LLC. (ECF No. 149). 18 I. BACKGROUND 19 On October 15, 2013, Plaintiff Tiffany Brinkley, on behalf of herself and others 20 similarly situated, filed a Complaint in the Superior Court for the State of California, 21 County of San Diego, against Monterey Financial Services, Inc. (“Monterey, Inc.”), and 22 Does 1 through 100. (ECF No. 1-3). On May 6, 2016, Monterey, Inc., and “Doe Defendant 23 1,” Monterey Financial Services, LLC (“Monterey, LLC”), removed the action to this 24 Court. (ECF No. 1). 25 On May 17, 2018, Brinkley filed a First Amended Complaint (“FAC”). (ECF No. 26 97). In the FAC, Brinkley alleged claims against Defendants for invasion of privacy under 27 section 632 of the California Penal Code and section 9.73.030 of the Washington Revised 28 1 Code, unlawful recording of telephone calls under section 632.7 of the California Penal 2 Code, and unlawful and unfair business practices in violation of the California Business 3 and Professions Code. 4 On May 31, 2018, Defendants filed a Motion to Dismiss the FAC. (ECF No. 100). 5 Defendants contended that the Court should dismiss Plaintiff’s claim under section 632.7 6 of the California Penal Code because section 632.7 does not restrict the parties to a call 7 from recording the call; it only restricts third party interception. 8 On July 30, 2018, the Magistrate Judge issued an Order Substituting Monterey, LLC, 9 for Monterey, Inc., and terminating Monterey, Inc. (ECF No. 104). 10 On September 13, 2018, the Court issued an Order dismissing Brinkley’s claims for 11 violations of the California Business and Professions Code and Washington state law and 12 denying the Motion to Dismiss Brinkley’s claims for violations of sections 632 and 632.7 13 of the California Penal Code. (ECF No. 106). The Court stated: 14 . . . § 632.7 is susceptible to two different reasonable interpretations . . . . Under [the first] interpretation, a party who receives a communication with 15 the consent of the communicator and records the communication without the 16 communicator’s consent does not violate § 632.7 . . . . Under [the second] interpretation a party to a call who records part of the conversation without 17 the other party’s consent violates § 632.7 . . . . 18 (ECF No. 106 at 10). The Court determined that “the legislative history supports the second 19 interpretation” and held that “§ 632.7 prohibits the unauthorized recording of calls that are 20 received with the other party’s consent.” (Id. at 11). The Court determined that section 21 632.7 does not only restrict third party interception, it also restricts the parties to a call from 22 recording the call. 23 On December 10, 2018, Brinkley filed a Second Amended Complaint (“SAC”) 24 against Monterey, LLC (hereinafter, “Monterey”). (ECF No. 116). In the SAC, Brinkley 25 brings claims against Monterey for violations of sections 632 and 632.7 of the California 26 Penal Code and section 9.73.030 of the Washington Revised Code. 27 28 1 On December 20, 2018, Monterey filed a Motion to Dismiss the SAC. (ECF No. 2 117). Monterey moved to dismiss Brinkley’s claim for violation of Washington state law. 3 In addition, Monterey stated: 4 Monterey acknowledges the Court’s prior order denying Monterey’s motion to dismiss Brinkley’s claims under California Penal Code §§ 632 and 632.7. 5 Solely to preserve the issues for appeal, Monterey moves to dismiss those 6 claims from the Second Amended Complaint, incorporating the same arguments it made in its prior motion to dismiss (Doc. No. 100-1). 7

8 (ECF No. 117-1). On May 6, 2019, the Court issued an Order granting Monterey’s Motion 9 to Dismiss Brinkley’s claims under Washington state law. (ECF No. 122). 10 On May 14, 2019, Monterey filed an Answer to the SAC. (ECF No. 123). 11 On September 3, 2019, Monterey filed a Motion for Summary Judgment. (ECF No. 12 129). On January 17, 2020, the Court denied Monterey’s Motion for Summary Judgment, 13 leaving Brinkley’s claims for violations of sections 632 and 632.7 of the California Penal 14 Code for trial. (ECF No. 150). 15 On January 10, 2020, with leave of Court, Monterey filed a Motion for 16 Reconsideration of the Court’s Order on Monterey’s Motion to Dismiss the FAC. (ECF 17 No. 149). Monterey requests that the Court reconsider the Order of September 13, 2018, 18 denying Monterey’s Motion to Dismiss Brinkley’s claim under section 632.7 of the 19 California Penal Code. On February 4, 2020, Brinkley filed an Opposition to Monterey’s 20 Motion for Reconsideration and a Request for Judicial Notice.1 (ECF No. 153). On 21 February 11, 2020, Monterey filed a Reply. (ECF No. 154). On April 3, 2020, Brinkley 22 filed a Notice of California Supreme Court’s Granting of the Petition for Review of the 23 24 25 1 Brinkley requests that the Court take judicial notice of the January 28, 2020, petition for review of the 26 decision in Smith v. LoanMe, Inc., 43 Cal. App. 5th 844 (2019), review granted, No. S260391 (Cal. Apr. 1, 2020), and five documents related to the legislative history of section 632.7 of the California Penal 27 Code. (ECF No. 153-2 at 14-15). Judicial notice of the requested documents is unnecessary for this Order. Brinkley’s requests for judicial notice are denied. See Asvesta v. Petroutsas, 580 F.3d 1000, 1010 n. 12 28 1 Appellate Court Decision in Smith v. LoanMe, Inc., 43 Cal. App. 5th 844 (2019), review 2 granted, No. S260391, 2020 WL 1608928, at *1 (Cal. Apr. 1, 2020). (ECF No. 155). 3 II. CONTENTIONS 4 Monterey contends that the California Court of Appeal’s decision in Smith v. 5 LoanMe, Inc., “represents an intervening change in controlling law warranting 6 reconsideration” of the Court’s September 13, 2018, Order denying Monterey’s Motion to 7 Dismiss Brinkley’s claim under section 632.7 of the California Penal Code. (ECF No. 149- 8 1 at 4). Monterey contends the court’s determination in Smith that section 632.7 only 9 applies to third-party eavesdroppers is contrary to this Court’s decision and supports 10 reconsideration. Monterey contends that Smith is controlling because there is no on-point 11 decision from the California Supreme Court. 12 Brinkley contends that Smith does not represent a change in controlling law because 13 it is not a decision by the California Supreme Court. Brinkley further contends that petitions 14 for review and for depublication are pending before the California Supreme Court. 15 III. LEGAL STANDARD 16 Reconsideration is an “extraordinary remedy, to be used sparingly in the interests of 17 finality and conservation of judicial resources.” Kona Enters., Inc. v. Estate of Bishop, 229 18 F.3d 877, 890 (9th Cir. 2000). (quotation omitted). “‘[A] motion for reconsideration should 19 not be granted, absent highly unusual circumstances, unless the district court is presented 20 with newly discovered evidence, committed clear error, or if there is an intervening change 21 in the controlling law.’” Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 22 F.3d 873, 880 (9th Cir. 2009) (alteration in original) (quoting 389 Orange St. Partners v. 23 Arnold, 179 F.3d 656, 665 (9th Cir. 1999)). “A motion for reconsideration ‘may not be 24 used to raise arguments or present evidence for the first time when they could reasonably 25 have been raised earlier in the litigation.’” Id. at 880 (emphasis omitted) (quoting Kona 26 Enters., Inc., 229 F.3d at 890). “Whether or not to grant reconsideration is committed to 27 the sound discretion of the court.” Navajo Nation v. Norris, 331 F.3d 1041, 1046 (9th Cir. 28 2003). 1 IV. RULING OF THE COURT 2 Monterey seeks reconsideration of the Court’s September 13, 2018, Order denying 3 Monterey’s Motion to Dismiss Brinkley’s claim for violations of section 632.7 of the 4 California Penal Code. Section 632.7, part of the California Invasion of Privacy Act, 5 provides in relevant part: 6 Every person who, without the consent of all parties to a communication, intercepts or receives and intentionally records, or assists in the interception 7 or reception and intentional recordation of, a communication transmitted 8 between two cellular radio telephones, a cellular radio telephone and a landline telephone, two cordless telephones, a cordless telephone and a 9 landline telephone, or a cordless telephone and a cellular radio telephone 10 [violates the statute].

11 Cal. Pen. Code § 632.7(a). Section 637.2 of the California Penal Code authorizes “any 12 person who has been injured by a violation of this chapter” to bring an action for the greater 13 of “[f]ive thousand dollars ($5,000) per violation” or “[t]hree times the amount of actual 14 damages, if any . . . .” Cal. Pen. Code § 637.2(a). 15 In the FAC, Brinkley alleged that she and other residents of California and 16 Washington received telephone calls from Monterey and placed telephone calls to 17 Monterey. Brinkley alleged that Monterey secretly recorded the telephone calls in violation 18 of section 632.7. In Monterey’s Motion to Dismiss the FAC, Monterey asserted that the 19 Court should dismiss Brinkley’s section 632.7 claim because Brinkley failed to allege that 20 Monterey “intercepted or received [Brinkley’s] cellular calls without consent.” (ECF No. 21 100-1 at 16). Monterey contended that “[t]he phrase ‘without the consent of all parties to a 22 communication’ is placed before––and therefore modifies––all of what follows: ‘intercepts 23 or receives and intentionally records.’” (Id. (quoting Cal. Pen. Code § 632.7(a)). Monterey 24 contended that, “[a]ccordingly, a prosecuting authority or civil plaintiff must plead and 25 prove lack of consent with respect to both (1) the ‘interception or receipt’ of the 26 communication, and (2) the ‘recordation’ of the communication . . . . [S]ection 632.7 does 27 not apply to the call participants.” (Id. at 16-17). 28 1 The Court rejected Monterey’s interpretation and denied the Motion to Dismiss 2 Brinkley’s section 632.7 claim in its September 13, 2018, Order. The Court stated: 3 The Court finds that § 632.7 is susceptible to two different reasonable interpretations. The first is the interpretation suggested by Monterey, that 4 “without the consent of all parties to the communication” modifies both 5 “intercepts or receives” and “intentionally records.” (ECF No. 100-1 at 16) (quoting Cal. Penal Code § 632.1). Under this interpretation, a party who 6 receives a communication with the consent of the communicator and records 7 that communication without the communicator’s consent does not violate § 632.7. The second reasonable interpretation of § 632.7 is that “without the 8 consent of all parties to the communication” modifies two conjunctives 9 “intercepts and intentionally records” and “receives and intentionally records.” Cal. Penal Code § 632.7. Under this interpretation, a party to a call 10 who records part of the conversation without the other party’s consent violates 11 § 632.7 by “receiv[ing] and intentionally record[ing]” a communication without the other party’s consent. Id. 12

13 The Court finds that the legislative history supports the second interpretation. According to the author of § 632.7, it was intended to “simply extend[ ] to 14 persons who use cellular or cordless telephones the same protection from 15 recordation that persons using ‘landline’ telephones enjoy[ed at that time].” Connelly’s Statement of Intent, Assem. Bill No. 2465 (1991), at 1. At the time 16 § 632.7 was being debated, a party to a call conducted on a landline violated 17 § 632 by recording that call. See Cal. Penal Code § 632 (prohibiting “intentionally and without the consent of all parties to a confidential 18 communication . . . record[ing a] confidential communication . . . carried on . 19 . . by means of a telegraph, telephone, or other device, except a radio.”). Accordingly, the Court finds that § 632.7 prohibits the unauthorized recording 20 of calls that are received with the other party’s consent. Monterey’s motion to 21 dismiss Brinkley’s claim for violations of § 632.7 is denied. See Ronquillo- Griffin v. TELUS Commc’ns, Inc., No. 17CV129 JM (BLM), 2017 WL 22 2779329, at *4 (S.D. Cal. June 27, 2017) (denying the defendant’s motion to 23 dismiss because the legislature intended § 632.7 to apply to parties to the communication); Simpson v. Best W. Int’l, Inc., No. 3:12-CV-04672-JCS, 24 2012 WL 5499928, at *9 (same). 25 (ECF No. 106 at 10-11 (alterations in original)). 26 After this Court’s Order on Monterey’s Motion to Dismiss the FAC, the California 27 Court of Appeal decided Smith on December 19, 2019. In Smith, defendant LoanMe called 28 1 plaintiff Smith to discuss a loan that LoanMe provided to Smith’s wife. 43 Cal. App. 5th 2 at 848. LoanMe recorded the call. Id. A “beep tone” played three seconds into the call and 3 approximately every fifteen seconds thereafter. Id. Smith filed a class action complaint 4 against LoanMe in California state court, alleging that LoanMe recorded phone calls 5 without consent in violation of section 632.7. The trial court held a bifurcated bench trial 6 on “the beep tone issue” and determined that “the beep tone provided Smith sufficient 7 notice under section 632.7 that the call was being recorded and that Smith implicitly 8 consented to being recorded by remaining on the call.” Id. The trial court entered judgment 9 against Smith. Id. 10 On appeal, the California Court of Appeal “requested supplemental briefing on the 11 issue of whether section 632.7 applies to the recording of a phone call by a participant in 12 the phone call or instead applies only to recording by third party eavesdroppers.” Id. at 847. 13 The appellate court affirmed the trial court’s dismissal of Smith’s action and held that 14 “section 632.7 prohibits only third party eavesdroppers from intentionally recording 15 telephonic communications involving at least one cellular or cordless telephone. 16 Conversely, section 632.7 does not prohibit the participants in a phone call from 17 intentionally recording it.” Id. at 848. 18 The appellate court discussed and “disagree[d] with” this Court’s reasoning in the 19 September 13, 2018, Order on Monterey’s Motion to Dismiss the FAC. Id. at 855. The 20 appellate court stated: 21 The Brinkley court begins by acknowledging that in section 632.7, the phrase “‘without the consent of all parties to a communication”’ can reasonably be 22 interpreted as modifying “both ‘intercepts or receives’ and ‘intentionally 23 records.’” That is how we interpret it . . . .

24 But the Brinkley court next concludes that the following alternative 25 interpretation is also reasonable: The statute is violated whenever the defendant (1) intercepts and intentionally records a communication without 26 all parties' consent, or (2) receives and intentionally records a communication 27 without all parties’ consent . . . .

28 1 We do not agree that such an interpretation of section 632.7 is reasonable. By its terms, section 632.7 is violated by “[e]very person who, without the 2 consent of all parties to a communication, intercepts or receives and 3 intentionally records, or assists in the interception or reception and intentional recordation of, a communication” involving a cordless or cellular phone. The 4 introductory prepositional phrase “without the consent of all parties to a 5 communication” appears on its face to modify the entire verb phrase “intercepts or receives and intentionally records.” We do not believe it is 6 reasonable to suppose that by such language the Legislature intended to enact 7 a criminal prohibition that can be violated by someone who receives a communication with the consent of all parties. 8

9 The unreasonableness of such an interpretation is apparent when section 632.7 is considered in light of its predecessors, sections 632.5 and 632.6. Sections 10 632.5 and 632.6 are violated by “[e]very person who, maliciously and without 11 the consent of all parties to the communication, intercepts, receives, or assists in intercepting or receiving a communication” involving a cellular (§ 632.5) 12 or cordless (§ 632.6) phone. The clear and unambiguous effect of the consent 13 requirement is to limit sections 632.5 and 632.6 to third party eavesdroppers— the statutes are violated only if the communication was intercepted or received 14 without all parties’ consent. It is therefore not reasonable to suppose that when 15 the Legislature enacted section 632.7, it used the same language (“without the consent of all parties to the communication, intercepts or receives”) to create 16 a criminal prohibition that can be violated even if the communication was 17 intercepted or received with all parties’ consent.

18 For all of the foregoing reasons, we conclude that the alternative interpretation 19 of section 632.7 identified in Brinkley . . . is not reasonable.

20 Id. at 855-56 (internal citations omitted). 21 The federal court is “bound by the state’s highest court’s interpretation of its own 22 statute.” Briceno v. Schriber, 555 F.3d 1069, 1080 (9th Cir. 2009). “‘In the absence of a 23 pronouncement by the highest court of a state, the federal courts must follow the decision 24 of the intermediate appellate courts of the state unless there is convincing evidence that the 25 highest court of the state would decide differently.’” Id. (quoting Owen ex rel. Owen v. 26 United States, 713 F.2d 1461, 1464 (9th Cir. 1983)). 27 28 1 There is currently no “pronouncement” from the California Supreme Court on the 2 interpretation of section 632.7. Id. (quotation omitted). However, on April 1, 2020, the 3 California Supreme Court granted review of the Smith decision and denied pending 4 requests for depublication of the appellate court opinion. Smith, 2020 WL 1608928, at *1. 5 The “highest court of the state [may] decide [Smith] differently. Briceno, 555 F.3d at 1080 6 (quotation omitted). Whether the California Court of Appeal’s decision in Smith remains 7 “controlling law” that this Court “must follow” will remain uncertain until the California 8 Supreme Court affirms, reverses, or modifies the decision of the California Court of 9 Appeal. Marlyn Nutraceuticals, Inc., 571 F.3d at 880; Briceno, 555 F.3d at 1080 (quotation 10 omitted). 11 A district court has broad discretion to stay proceedings pending before it “to control 12 the disposition of the causes on its docket with economy of time and effort for itself, for 13 counsel, and for litigants.” Landis v. N. Am. Co., 299 U.S. 248, 254 (1936). The power to 14 stay “calls for the exercise of judgment, which must weigh competing interests and 15 maintain an even balance.” Id. at 254-55 (citations omitted). “Among these competing 16 interests are the possible damage which may result from the granting of a stay, the hardship 17 or inequity which a party may suffer in being required to go forward, and the orderly course 18 of justice measured in terms of the simplifying or complicating of issues, proof, and 19 questions of law which could be expected to result from a stay.” CMAX, Inc. v. Hall, 300 20 F.2d 265, 268 (9th Cir. 1962). 21 In this case, the outcome of the California Supreme Court’s decision in Smith has a 22 decisive effect on the viability of one of Brinkley’s two remaining claims, potentially 23 narrowing the issues for trial and simplifying the issues in this case. If the Court grants 24 Monterey’s Motion for Reconsideration, and then the California Supreme Court reverses 25 the decision in Smith, the Court and the parties will expend unnecessary time and resources. 26 In addition, the parties will suffer little damage if this case is stayed. The Scheduling Order 27 in this case was vacated on March 14, 2018 (ECF No. 91), and there is no trial date set. 28 Reconsidering this Court’s Order before the California Supreme Court decides Smith goes 1 || against the interests of fairness and judicial economy. The Court determines that a stay 2 || pending the California Supreme Court’s resolution of Smith is warranted. 3 Accordingly, Monterey’s Motion for Reconsideration is denied without prejudice to 4 ||refile. This action is stayed pending the California Supreme Court’s decision in Smith. 5 || V. CONCLUSION 6 IT IS HEREBY ORDERED that this action is stayed pending the California 7 || Supreme Court’s resolution of Smith v. LoanMe, Inc., No. S260391. Monterey shall file a 8 ||status report on July 10, 2020, and every ninety (90) days thereafter, on the status of the 9 || state court proceedings. Monterey shall file a notice to the Court within seven (7) days of 10 California Supreme Court’s resolution of Smith. After the seven-day period, the stay 11 || will be lifted and proceedings will resume in this Court. 12 IT IS FURTHER ORDERED that Monterey’s Motion for Reconsideration of Order 13 || Denying Motion to Dismiss Plaintiff's Claim Under Cal. Penal Code Section 632.7 (ECF 14 || No. 149) is denied without prejudice to refile. Monterey may file any amended Motion for 15 || Reconsideration within fourteen (14) days of the California Supreme Court’s decision in 16 || Smith. 17 || Dated: April 20, 2020 BE: te Z. A a 18 Hon, William Q. Hayes 19 United States District Court 20 21 22 23 24 25 26 27 28