Quesada et al-v-Bank of America Corporation

Filing 26

ORDER GRANTING 21 MOTION TO DISMISS, WITH LEAVE TO AMEND. Signed by Judge Jeremy Fogel on 9/8/2011. (jflc2, COURT STAFF) (Filed on 9/13/2011)

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**E-Filed 9/13/2011**

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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ELWOOD QUESADA, JAMES DeROSA, and All
Others Similarly Situated,

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Plaintiffs,

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v.

Case No. 5:11-cv-1703 (HRL)
ORDER1 GRANTING MOTION TO
DISMISS, WITH LEAVE TO AMEND
[Re: Docket No. 21]

BANK OF AMERICA INVESTMENT
SERVICES, INC., NKA MERRILL LYNCH,
PIERCE, FENNER & SMITH, INC.

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Defendant.

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Pursuant to Fed. R. Civ. P. 12 (b)(6), Defendant Merrill Lynch, Pierce, Fenner & Smith

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Inc. (“Merrill Lynch”) moves to dismiss the complaint of Plaintiffs Elwood Quesada and James

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DeRosa (collectively, “Plaintiffs”) for failure to state a legally cognizable claim. Merrill Lynch

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contends that the applicable statute of limitations bars this action and that Plaintiffs have failed to

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allege sufficient facts to support a claim under California’s Invasion of Privacy Act, Cal. Pen.

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Code §§ 630, et seq.

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The Court has considered the moving and responding papers and the oral arguments of

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This disposition is not designated for publication in the official reports.

Case No. 5:11-cv-1703
ORDER GRANTING MOTION TO DISMISS, WITH LEAVE TO AMEND
(JFEX3)

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counsel at the hearing on August 19, 2011. For the reasons discussed below, the motion will be

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granted, with leave to amend.

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I. BACKGROUND
In January 2010, a Merrill Lynch employee called Quesada and DeRosa to discuss their

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brokerage accounts with the firm. (FAC ¶ 23-24) Neither Plaintiff expected the calls to be

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recorded, and neither consented to any recording. (Id.) Nonetheless, Plaintiffs discovered

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approximately one year later that Merrill Lynch had recorded the calls. (FAC ¶ 25)

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Plaintiffs filed this putative class action in the Santa Clara Superior Court on February 7,
2011, seeking statutory damages for violation of the Privacy Act. Merrill Lynch subsequently

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removed the action to this Court and moved to dismiss. In response, Plaintiffs filed the FAC on

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May 11, 2011.

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II. LEGAL STANDARD

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The Court may dismiss a complaint when it does not allege facts sufficient to state a

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claim for which the law provides relief. See, e.g., Kelly v. Arizona, 409 Fed. Appx. 124, 126 (9th

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Cir. 2010). Therefore, a plaintiff must allege “factual content that allows the court to draw the

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reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal,

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129 S. Ct. 1937, 1949 (2009), citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). As it

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evaluates a Rule 12(b)(6) challenge, the Court must take the plaintiff’s allegations as true and

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construe them most favorably toward him. See Gompper v. VISX, Inc., 298 F.3d 893, 896 (9th

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Cir. 2002). Conclusions of law posing as factual allegations, however, will not pass the test.

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Anderson v. Clow (In re Stac Elecs. Sec. Litig.), 89 F.3d 1399, 1403 (9th Cir. 1996) (citation

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omitted).

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The Court may not dismiss a complaint without leave for the plaintiff to amend unless it

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is clear that no amount of amending can save the complaint. Gompper, 298 F.3d at 898, citing

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Polich v. Burlington Northern, Inc., 942 F.2d 1467, 1472 (9th Cir. 1991).

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Case No. 5:11-cv-1703
ORDER GRANTING MOTION TO DISMISS, WITH LEAVE TO AMEND
(JFEX3)

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III. DISCUSSION
A. Invasion of Privacy Act
The Invasion of Privacy Act generally prohibits the intentional recording of a confidential

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communication without consent. See Cal. Penal Code §§ 632. Merrill Lynch contends that

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Plaintiffs have failed to allege sufficient facts to support any of the three elements of this claim.

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Plaintiffs allege that Merrill Lynch carried out a concerted effort to call its customers in

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California and that it “planned . . . and implemented” a system to record phone calls such as

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those made to Quesada and DeRosa. (FAC ¶¶ 9-10) They also allege that Merrill Lynch failed

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to train its employees, including the employee who allegedly called Plaintiffs, “to inform its

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clients that [Merrill Lynch] was recording the calls.” (FAC ¶ 11) Plaintiffs contend that a

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reasonable inference may be drawn from those allegations that Merrill Lynch intentionally

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recorded the calls. (Opp’n to Mot. to Dismiss, 5:13-6:7) The Court agrees.

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Plaintiffs also allege that the communications were confidential and therefore protected

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by the Invasion of Privacy Act. A telephone call is confidential for purposes of the Act only if a

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party has an objectively reasonable belief that the discussion is not being recorded. Flanagan v.

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Flanagan, 27 Cal. 4th 766, 768 (2002). Here, Plaintiffs assert that neither of them “had a

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reasonable expectation” that their calls would be recorded. (FAC ¶¶ 23-24) They allege that

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Merrill Lynch called them to discuss personal financial matters but made no effort to notify them

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or members of the putative class of the recording. (FAC ¶¶ 11, 23-24). Given the common

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business practice of informing customers that their calls may be monitored in an effort to ensure

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quality customer service, it is at least plausible that the absence of such a disclaimer would create

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a reasonable expectation on Plaintiffs’ part that their calls would not be monitored. Because

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Plaintiffs also allege their lack of consent to the recordings, the FAC sufficiently states a claim

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for violation of the Invasion of Privacy Act.

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B. Statute of Limitations

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Generally, plaintiffs seeking statutory damages must comply with the one-year statute of

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limitations set forth in Cal. C. C. P. § 340(a). See Montalti v. Catanzariti, 191 Cal. App. 3d 96,

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98 (1987). However, time does not begin to run on such actions brought under the Invasion of
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Case No. 5:11-cv-1703
ORDER GRANTING MOTION TO DISMISS, WITH LEAVE TO AMEND
(JFEX3)

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Privacy Act until the plaintiff discovers or should have discovered his injury. Id. at 99; see also

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Kuschner v. Nationwide Credit, Inc., 256 F.R.D. 684, 690 (E.D. Cal. 2009) (given the nature of

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secret recording, “it would defy logic” to deny plaintiffs discovery-rule exception).

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“In order to rely on the discovery rule . . . , ‘[a] plaintiff whose complaint shows on its

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face that his claim would be barred without the benefit of the discovery rule must specifically

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plead facts to show (1) the time and manner of discovery and (2) the inability to have made

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earlier discovery despite reasonable diligence.’” Fox v. Ethicon Endo-Surgery, Inc., 35 Cal. 4th

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797, 808 (2005) at 808 (quoting McKelvey v. Boeing North American, Inc., 74 Cal. App. 4th 151,

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160 (1999)); see also, Grisham v. Philip Morris U.S.A., Inc., 40 Cal. 4th 623, 638 (2007)

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(holding that smoker must plead facts showing her inability to discover her addiction to tobacco

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earlier); Rhynes v. Stryker Corp., 2011 WL 2149095 (N.D. Cal. 2011) (denying exception

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because complaint stated only that “plaintiff was unaware of the injury from the defect” until

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after the expired statute of limitations period).

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Here, Plaintiffs allege only that they “discovered Defendant’s surreptitious recording . . .

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approximately one year later . . . .” (FAC ¶ 25) They do not provide any specific facts that

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explain how they made this discovery or why they were unable to do so earlier. Accordingly,

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their claim is subject to dismissal as untimely. Because it appears that Plaintiffs may be able to

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allege sufficient facts to satisfy the requirements of the delayed discovery rule, leave to amend

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will be granted.

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IV. ORDER

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Good cause therefor appearing, the motion to dismiss is GRANTED. Any amended

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complaint shall be filed within twenty (20) days of the date of this order.

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IT IS SO ORDERED.

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Dated: 9/8/2011
JEREMY FOGEL
United States District Judge

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Case No. 5:11-cv-1703
ORDER GRANTING MOTION TO DISMISS, WITH LEAVE TO AMEND
(JFEX3)