The Franchise Memorandum

In Simpson v. Best Western International, Inc., 2012 U.S. Dist. LEXIS 162181 (N.D. Cal. Nov. 13, 2012) and Simpson v. Vantage Hospitality Group, Inc., 2012 U.S. Dist. LEXIS 172157 (N.D. Cal. Dec. 4, 2012), two separate federal judges ruled against two separate hotel franchisors on their respective motions to dismiss the plaintiffs’ consumer class action complaints. In each case the plaintiffs asserted that the franchisors violated a California penal statute when their reservation centers recorded Plaintiffs’ cellphone calls, and the franchisors moved to dismiss on the ground that there was no reasonable expectation of privacy when the plaintiffs called the franchisors' reservation centers. The franchisors argued that the statute at issue was limited to recordings of “confidential communications” and, therefore, the plaintiffs had no actionable claim. The courts disagreed and noted that the statute applied to all communications, not just confidential communications. The franchisors also argued that the statute applies only to third parties that record a phone call, and not to the actual participants to the call. Because the franchisors were participants to the phone calls, they contended that the plaintiffs’ claims failed as a matter of law. Both courts rejected the franchisors’ argument and held that the plain language of the statute (as well as its legislative intent) demonstrated that the statute’s application was not limited to only third parties, but included the participants to the conversation. Finally, both courts also rejected the franchisors’ motions to strike the plaintiffs’ class allegations on the basis that the motions were premature because no discovery had yet been commenced.