In a first-of-its-kind ruling, a San Francisco Superior Court judge has ruled that a proposed class action accusing Dialpad, Inc. of using artificial intelligence to eavesdrop on customer service calls with other companies can move forward.
On June 30, 2026, Judge Ethan P. Schulman overruled Dialpad’s demurrer to our clients’ Second Amended Complaint in Freund v. Dialpad, Inc., Case No. CGC-25-624953. The decision is the first in-depth judicial analysis of the outer boundaries of CIPA’s telephone company exemption and the extent to which it allows telephone companies to eavesdrop on calls conducted over their networks. The court’s order allows our clients to proceed with claims under the California Invasion of Privacy Act (CIPA) on behalf of a proposed class of California residents whose calls were allegedly intercepted, analyzed, and processed without their consent.
What the case is about
The complaint alleges that Dialpad sells a cloud-based Voice-over-IP (VoIP) phone system to businesses to manage their customer service calls. Separate from those VoIP products, Dialpad also sells AI-powered software that its business partners can use to analyze customer service calls. The complaint alleges that when a consumer calls a company that uses Dialpad AI, Dialpad’s software listens to the live conversation, transcribes it, runs sentiment analysis, coaches the company’s agents in real time on how to handle the calls, and also uses the calls to train Dialpad’s own algorithms.
Our clients allege that they called companies like Warby Parker, Netflix, RE/MAX, and AAA, and that Dialpad’s AI software listened in on their calls without their knowledge or consent, in violation of California Penal Code section 631, which prohibits intercepting the contents of a communication without the consent of all parties.
What we argued
Dialpad’s primary defense was that, as a telephone company, Penal Code section 631(b)(1) exempts it from liability for listening to any customer calls. To that end, Dialpad argued that its AI products were merely part of the operation of its VoIP products.
We argued that the exemption does not allow Dialpad to secretly listen to phone calls just because it’s also a telephone company. Rather, the exemption shields a phone company only when it intercepts calls for the purpose of operating its communications service, such as checking a line for a malfunction. To support our interpretation, we relied on the text of the statute, evidence of the legislative history, and the California Supreme Court’s decision in Tavernetti v. Superior Court, which held that CIPA’s exemptions are “carefully limited” to their stated purposes.
The court agreed with us, distinguishing Dialpad’s VoIP products from Dialpad’s AI products. While the VoIP products are communications services, Dialpad AI is not. Instead, it’s a separate software layer that listens to and analyzes the contents of a phone call for collateral business purposes, not as a means to operate Dialpad’s VoIP products. The court also rejected Dialpad’s fallback argument that the statute was too ambiguous to enforce, finding that the text, the legislative history, and the purpose of the law all pointed the same way.
Why it matters
As AI-powered technologies advance, many companies are racing to monetize them without first thinking through potential privacy implications. The decision joins a growing body of authority holding that AI call-analysis software can violate CIPA. This ruling, however, is the first to confirm that a telephone company is on the same footing as other vendors: it doesn’t have carte blanch to listen to calls carried out on its networks just because it also happens to be a telephone company.
CIPA allows a person who has been harmed by an interception to recover $5,000 in statutory damages per violation. If you believe your call contents have been accessed by Dialpad’s AI software, please feel free to contact us for possible legal assistance.
There is no money currently available in this lawsuit. If money later becomes available and you are a member of the class, you will receive notice as approved by the Court at that time.