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Court of Appeals Narrows Telephone Exemption Under Maryland Wiretap Act

The Maryland Court of Appeals ruled that equipment which the Injured Workers' Insurance Fund ("IWIF") used to monitor and record incoming and outgoing calls did not qualify as "telephone equipment ... or a component thereof" under the Maryland Wiretapping and Electronic Surveillance Act, § 10-401, et. seq., of the Courts and Judicial Proceedings Article of the Maryland Code ( the "Act"), thereby exposing the IWIF to potentially significant liability under the Act. Schmerling v. Injured Workers' Insurance Fund, 368 Md. 434 (2002).

In 1996, IWIF installed the Racal system to evaluate and improve customer service. The equipment recorded the voices of both the IWIF employee and any party to the conversation. Each Racal unit was able to monitor 64 lines at once and was used to record countless conversations. Supervisors could then review calls at their convenience and retrieve calls either at random or about which complaints or problems had been reported.

The Act makes it unlawful to "willfully intercept … any wire, oral, or electronic communication." The Act defines "intercept" as the "aural or other acquisition of the contents of any wire, electronic, or oral communication through the use of any electronic, mechanical or other device." An "electronic, mechanical or other device" is defined, in relevant part, as "any device … other than any telephone or telegraph instrument, equipment or other facility for the transmission of electronic communications, or any component thereof" that is used in the ordinary course of business.

A class action was filed under the Act alleging that the monitoring and recording of business calls through the Racal devices was illegal. The trial court entered summary judgment in favor of IWIF on the basis that the Racal recording and monitoring equipment fell under the "telephone exemption" under the Act and such decision was affirmed by the Court of Special Appeals. The Court of Appeals reversed.

The Court noted that while the Act is modeled after the federal law, it is more protective of privacy rights than the federal statute. For example, the Act authorizes an interception only if all parties to the conversation consent (while the federal law and the laws of a majority of other states permit one party to consent to an interception). The Court ruled that the Act is to be construed in light of "the Legislature's intent to establish strict protections for the privacy interests of the citizenry."

The Court stated that in order to fall within the telephone exemption, equipment must satisfy two criteria: (1) the equipment must be a "telephone ... instrument, equipment or other facility for the transmission of electronic communications, or any component thereof"; and (2) the equipment must be "used in the ordinary course of business." According to the Court, "to be deemed telephone equipment, the equipment must further the use of or functionally enhance the telecommunications system." The Court distinguished cases which found that the telephone exemption applied to the monitoring of calls via an extension phone. It held that the Racal system did nothing more than monitor and record, it did not facilitate communication or advance the efficient use of the telecommunications system, and therefore did not qualify for the telephone exemption.

IWIF faces potentially significant liability on remand. Under the Act, any person whose wire, oral or electronic communication is intercepted in violation of the Act is entitled in a civil action to recover actual damages but not less than liquidated damages computed at the rate of $100 per day for each violation or $1,000, whichever is higher, "punitive damages", and reasonable attorneys' fees and other litigation costs reasonably incurred. However, in addition to other issues IWIF may raise, the plaintiffs must prove that IWIF acted "willfully". See Fearnow v. C&P Tel. Co., 104 Md. App. 1 (1995); Benford v. ABC, 649 F.Supp. (D.Md. 1986) (the willfulness standard is identical in civil and criminal cases under the Act). The term "willfully" means either an intentional violation or a reckless disregard of a known legal duty, so that a violator must know that what he or she is doing is illegal. Fearnow, 104 Md. App. at 23-24.


August 31, 2002




Bacharach, Charles R.
Kellner, Robert C.