                                                                           FILED
                           NOT FOR PUBLICATION                             MAR 20 2014

                                                                        MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U.S. COURT OF APPEALS



                            FOR THE NINTH CIRCUIT


RICK YOUNG, individually and on behalf           No. 12-56189
of a class and subclass of similarly situated
individuals,                                     D.C. No. 2:12-cv-01788-R-PJW

              Plaintiff - Appellant,
                                                 MEMORANDUM AND ORDER*
  v.

HILTON WORLDWIDE, INC. And
HILTON RESERVATIONS
WORLDWIDE, LLC,

              Defendants - Appellees.


                    Appeal from the United States District Court
                       for the Central District of California
                     Manuel L. Real, District Judge, Presiding

                     Argued and Submitted February 14, 2014
                              Pasadena, California




        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Before: PAEZ and NGUYEN, Circuit Judges, and MOTZ, Senior District Judge.***

      Rick Young (“Young”) challenges the district court’s dismissal of his

putative class complaint alleging that Hilton Worldwide, Inc. and Hilton

Reservations Worldwide, Inc. (collectively “Hilton”) violated California Penal

Code § 632.7 by recording calls to a customer service telephone line without

consent. Reviewing the district court’s dismissal de novo, Sylvia Landfield Trust v.

City of Los Angeles, 729 F.3d 1189, 1191 (9th Cir. 2013), and its denial of leave to

amend for abuse of discretion, id. at 1196, we reverse and remand.

      Young’s complaint asserts two claims for relief under Penal Code § 632 and

§ 632.7, respectively, but he appeals only dismissal of the latter. The former

provision generally prohibits eavesdropping and recordation on telephone land

lines, whereas the latter generally proscribes eavesdropping and recordation on

cellular and cordless telephone lines. In dismissing Young’s complaint, the district

court simply signed defendants’ proposed order, which failed to distinguish

between the two provisions, and in fact, did not even make any reference to § 632.7.

At the hearing, the parties did not offer oral arguments, and the district court merely

entered the order into the record.



        ***
             The Honorable J. Frederick Motz, Senior District Judge for the U.S.
District Court for the District of Maryland, sitting by designation.

                                           2
      Because the case was then terminated the district court apparently understood

the order as dismissing both claims. By its own terms, however, the order

purported to do so on grounds that are applicable to § 632 only—namely, because

the complaint failed to allege that the recorded communications were confidential

and subject to a reasonable expectation of privacy. The California Supreme Court

has unequivocally held that no such requirement applies to § 632.7. Flanagan v.

Flanagan, 27 Cal. 4th 766, 776 (2002) (explaining that § 632.7’s “prohibition

applies to all communications, not just confidential communications”). The district

court’s failure to so recognize was reversible error. Flanagan also forecloses

Hilton’s argument that § 632.7 should be interpreted as including a confidentiality

requirement because different standards for § 632 and § 632.7 would lead to absurd

results. Id.

      On appeal, Hilton for the first time urges several statutory construction

arguments in an attempt to defend the defective order that its own counsel drafted.

These arguments are plainly waived because they were not raised below.1 Hooper

v. Lockheed Martin Corp., 688 F.3d 1037, 1046 n.4 (9th Cir. 2012). Contrary to the

dissent’s suggestion, in light of the California Supreme Court’s decision in



      1
       We deny Hilton’s motion for judicial notice because reliance on the
submitted materials is not necessary to dispose of this appeal.

                                          3
Flanagan, it is not necessary to remand or to certify any issues to the state Supreme

Court. Hilton brought the motion in question and had every opportunity to litigate

whatever issues it so desired. Whether by design or oversight, it waived the right to

assert these issues on appeal by omitting them entirely from the motion to dismiss

and the proposed order the court signed. We therefore decline to address them.

      REVERSED and REMANDED.




                                          4
Young v. Hilton Worldwide, Inc., No. 12-56189                       FILED
                                                                    MAR 20 2014
                                                                MOLLY C. DWYER, CLERK
                                                                 U.S. COURT OF APPEALS



MOTZ, Senior District Judge, dissenting:

      Although the conclusion reached by the majority may be correct, it is in my

view premature, so I respectfully dissent. The question the court decides today

was not adequately briefed before the district court. Indeed, the district court’s

order dismissing the complaint made no reference to § 632.7; thus, it is not clear

whether the district court considered at all Young’s § 632.7 claim or Hilton’s

limited argument on the issue.1 I would therefore vacate the district court’s order

and remand the case to the district court for full briefing and consideration of the

question. Before or after the district court renders its decision, the parties,

evaluating their respective positions on that question and on the appropriateness of

certifying a class action, may settle the case. If not, and an appeal follows, I would

certify the question—which involves solely an issue of California law which I

believe has not yet been answered fully—to the California Supreme Court pursuant

to Cal. Rules of Court, Rule 8.548.2



1
  Before the district court, Hilton only pressed the narrow argument that § 632.7,
like § 632, only prohibits recording a “confidential communication.”

                                           1
      That said, let me set forth my understanding of this complex statutory

scheme to show why I believe it would be better for the district court to consider

all of the issues together as opposed to us considering them piecemeal. Prior to the

enactment of § 632.7, the California Invasion of Privacy Act (“CIPA”) prohibited

the recording of confidential communications over a telephone line. See § 632.

Originally, a specific exception applied “to the use of any instrument, equipment,

facility, or service furnished and used pursuant to the tariffs of a public utility.”

See § 632(e)(2). The legislative history of this exception, which was also included

in § 632.7, see § 632.7(b)(2), shows that its intended effect was to exclude so-

called “service-observing” calls from the coverage of CIPA. 3 The California

legislature deemed the recording of such calls to be an essential and justifiable

business practice in contrast to the “clandestine wiretapping and eavesdropping”

targeted by § 632. See Letter from Assembly Speaker Jesse Unruh to Governor

2
  I would wait to see if the parties settle the case before certifying the question
presented here to the California Supreme Court in part because this action was
removed from state to federal court. If the action had remained in state court, the
California Supreme Court would not have been required to address the question if
the case had been settled.
3
  I recognize that purely as a matter of logic it could be argued that inclusion of the
“service-observing” exception in § 632.7 reflects that, contrary to what I say later
in this opinion, § 632.7 covers intended recipients of communications over cellular
phones because only intended recipients engage in “service-observing.” In my
judgment, however, more sensibly the inclusion of the “service-observing”
exception in § 632.7 should be understood as underscoring that, except for curing
the new risks created by cellular technology, what was lawful before the enactment
of § 632.7 remained lawful after the enactment of that statute.
                                            2
Ronald Reagan (July 31, 1967) (Hilton’s Request for Judicial Notice (“RJN”) Ex.

6 at 21); Digest of Senate Amendments to Assembly Bill No. 860 (1967) (RJN Ex.

9 at 30) (explaining that the June 5 amendment “[m]akes the wiretapping and

eavesdropping penalties inapplicable to telephone services regulated by the P.U.C.

This will insure that justifiable and regulated use of devices for overhearing

employees’ business conversations may continue unimpeded. This practice is

known as ‘service-observing.’”). Deregulation of the telecommunications industry

has made the language of the exception outdated: businesses may now purchase

telephone recording equipment from persons other than their carriers and use the

equipment not pursuant to a tariff. The statutory sections establishing the

exception, however, have not been repealed.

      By 1992, when § 632.7 was enacted, the technology of the

telecommunications industry had dramatically changed. Cellular phones, in

contrast to landline phones which were prevalent when § 632 was enacted, had

come into common use. The California legislature recognized that one of the

inherent risks of cellular phone use was that third parties could gain access to

cellular phone calls because these calls utilized the public airwaves. See Author

Lloyd G. Connelly’s Statement of Intent, Assembly Bill No. 2465 (1992) (RJN Ex.

13 at 45) (“AB 2465 recognizes the distinction between traditional, landline

telephones and inherently, less secure (or more public) non-traditional cellular and


                                          3
cordless telephones. Most simply, landline telephones employ ‘closed’ wire-to-

wire systems, whereas cellular and cordless telephones employ radio waves.”).

Recognizing this risk, through the enactment of § 632.7, the California legislature

prohibited the recording of cellular phone calls, regardless of whether they were

confidential, by “[e]very person who, without the consent of all parties to a

communication, intercepts or receives and intentionally records . . . a

communication.”

      Against this background, I am of the view that the recording of a non-

confidential call, particularly a “service-observing” call, by an intended recipient

of the communication may well not be prohibited by § 632.7. 4



4
  My analysis is based upon the premise that § 632, after the enactment of § 632.7,
continues to make unlawful the recording of confidential communications made
over cellular phones because they are “carried on . . . by means of a telephone.”
See § 632. In Flanagan v. Flanagan, 27 Cal. 4th 766 (2002), the California
Supreme Court was at least neutral if not amenable to § 632’s continued
applicability to cellular phone calls. See Flanagan, 27 Cal. 4th at 771 n.2 (noting
that the complaint only raised § 632 claims despite some of the calls taking place
on a cellular phone and noting that neither party argued that § 632 did not apply to
those calls). To the extent that several courts may have indicated, expressly or
implicitly, that § 632 applies only to landlines and that only § 632.7 applies when
at least one cellular phone is involved, see, e.g., Hataishi v. First Am. Home Buyers
Prot. Corp., --- Cal. Rptr. 3d. ---, No. B244769, 2014 WL 667381, at *9 n.4 (Cal.
Ct. App. Feb. 21, 2014) (published); Simpson v. Best W. Int'l, Inc., No. 3:12-CV-
04672-JCS, 2012 WL 5499928, at *8–*9 (N.D. Cal. Nov. 13, 2012) (unpublished),
I respectfully disagree with them. In any event, because this case involves
“service-observing,” Hilton may be entitled to prevail even if § 632 does not apply
to communications made over a cellular telephone.

                                          4
      The overarching principle of California rules of statutory interpretation is

that courts should “strive to ascertain and effectuate the Legislature’s intent.”

People v. Allegheny Cas. Co., 41 Cal. 4th 704, 708–09 (2007) (quotation omitted).

Although this is generally achieved simply by following the ordinary meaning of

the law’s text, see id., “[t]he literal meaning of the words of a statute may be

disregarded to avoid absurd results or to give effect to manifest purposes that, in

light of the statute’s legislative history, appear from its provisions considered as a

whole,” see Silver v. Brown, 63 Cal. 2d 841, 845 (1966). Accordingly, “[w]hen the

wording of the statute is ambiguous . . . a court may consider extrinsic evidence of

the legislature’s intent, ‘including the statutory scheme of which the provision is a

part, the history and background of the statute, the apparent purpose, and any

considerations of constitutionality.’” Neilson v. Chang (In re First T.D. & Inv.,

Inc.), 253 F.3d 520, 527 (9th Cir. 2001) (quoting Hughes v. Bd. of Architectural

Exam’rs, 17 Cal. 4th 763, 776 (1998)).

      I find that the word “receive” in § 632.7 is ambiguous. I recognize, of

course, that Hilton did in one sense “receive” the communication. However, so

would a person who “intercepts” a communication, and yet such a person is

separately mentioned in § 632.7. The word “receive” could therefore be limited to

third parties who unintentionally receive the communication. Accordingly, I must

consider other indicia of the legislature’s intent to determine the scope of § 632.7.


                                           5
      The apparent purpose of § 632.7 supports limiting its reach to third parties

who unintentionally receive the communication. The advent of cellular technology

introduced a risk that did not exist with respect to landlines: that third persons, not

parties to the communication, would be able to obtain access to the

communication. It was entirely reasonable for the California legislature to address

this risk by enacting legislation that prohibited the recording of a conversation

overheard, intentionally or inadvertently, by a third person. Here, Hilton was not a

third person; it was an intended party to the communication initiated by Young and

members of the purported class.

      Moreover, CIPA is a criminal statute. It would appear odd, and perhaps

unconstitutional, to criminalize conduct on the basis of the type of telephone a

caller chooses to use. 5 Young has not challenged on appeal the district court’s

dismissal of his § 632 claim, so the consequence of imposing different standards to

§ 632 and § 632.7 may not be fully in focus. But interpreting § 632.7 to apply to

intended parties to a communication draws a line between criminal and

noncriminal conduct not based on any action taken by the person receiving and


5
 Presumably, any possible constitutional problem would be cured by reading into
§ 632.7 a requirement that a defendant know not only that he is recording the
contents of a communication but also that the communication is over a cellular
phone. But if we believe that such a requirement should be read into § 632.7, we
should expressly so state because the knowledge requirement thus imposed might
have profound implications upon the structure of this litigation.

                                           6
recording the call but instead based on a factor entirely unknown to that person—

the type of phone the other party to the call is using. Interpreting § 632.7 to apply

only when third parties intercept or receive and record a communication avoids

this quandary.

      Therefore, it appears to me that reading § 632.7 as covering persons who

intercept or receive a cellular communication other than a person who is an

intended party to the communication effectuates the California legislature’s intent.

Under that reading, it is only persons who record a communication after

intercepting or inadvertently receiving it who commit an invasion of privacy. 6

      Most importantly, unlike the majority, I do not believe that the decision of

the California Supreme Court in Flanagan v. Flanagan, 27 Cal. 4th 766 (2002), is

dispositive of all issues related to § 632.7. The majority is completely correct in

pointing out that in Flanagan the court stated that § 632.7 “applies to all

communications, not just confidential communications,” id. at 771 n.2, and that

§ 632.7 and related sections “protect against interception or recording of any

communications . . . rather than protecting only conversations where a party

wanted to keep the content secret,” id. at 776. However, Flanagan involved § 632,

not § 632.7; the facts presented (involving confidential communications recorded

6
 Such an action is an invasion of the calling parties’ privacy whether or not the
call involves a “confidential communication,” so my interpretation also explains
why § 632.7 does not contain an express requirement that there be a “confidential
communication.”
                                          7
in connection with a domestic dispute) were quite different from those presented

here; and the court’s holding was limited to the proper definition of the word

“confidential” as used in § 632.

      I readily acknowledge that even though the court’s discussion of § 632.7 in

Flanagan is probably best characterized as “considered dicta,” we are bound to

follow it. See Homedics, Inc. v. Valley Forge Ins. Co., 315 F.3d 1135, 1142 (9th

Cir. 2003) (quoting Rocky Mountain Fire & Cas. Co. v. Dairyland Ins. Co.. 452

F.2d 603, 603–04 (9th Cir. 1971). The court in Flanagan, however, did not

consider the continued vitality of the “service-observing” exception, and the

language from Flanagan relied on by the majority is in fact consistent with the

analysis of § 632.7 that I have articulated here. Perhaps the California Supreme

Court was less careful than it should have been in Flanagan by not making clear

that § 632.7 does not cover recording non-confidential communications, at least

communications that fell within the “service-observing” exception, by one of the

parties to the communication. If the court did err in that respect, it is entirely

understandable given the context of its pronouncements, which did not affect its

reasoning in any respect.7




7
 Lest there be any doubt, I am not at all questioning the soundness of the
conclusion reached in Flanagan or the quality of the court’s reasoning.

                                           8
      But in my judgment, by not following the course I suggest, we would be

turning a mistake into folly. The economic consequences at stake are enormous.

Young is seeking $5,000 in statutory damages as to each communication Hilton

recorded. The problems with which courts must deal are complicated, and legal

reasoning—not simple appeals to fairness and common sense—is therefore

necessary. However, fairness and common sense lie at the heart of the law and

when a conclusion reached by legal exegesis seems contrary to what common

sense and fairness suggest the conclusion should be, there is reason for one to

pause.8

      Generally, most of us like to seize and keep control of the ball.

Commendable though that instinct may be, there are times to drop back and punt. I

believe this case is one of those times.




8
 I realize that Hilton could have avoided the dilemma in which it finds itself if it
had followed what would seem to be the sensible business practice of alerting all
of its callers to the fact that their calls were being recorded and obtaining their
consent to the recording. At the same time, if that is what the California legislature
wanted businesses to do, they could have enacted simple legislation to that effect.
                                           9
