California Supreme Court: State’s One-Party Consent Law Governs Interstate Communication
September 13, 2006
Brian R. Guth- Los Angeles
Is it legal for a person in a state that requires only one party’s consent for electronic recording to tape a telephone conversation with someone in a state that requires two-party consent? According to the California Supreme Court, if the person being recorded is in California, the answer is “no.”
In Kearney v. Salomon Smith Barney, Inc., the court applied California’s strict invasion of privacy laws to telephone calls between financial advisors in Georgia and their clients in California, holding that the advisors’ practice of recording the calls violated the California residents’ rights. Georgia law requires only one party’s consent. California law, however, requires both parties’ consent. Kearney clarified which state’s laws apply when someone outside California records a conversation with a California resident.
The plaintiffs in Kearney were California residents who opened accounts with Salomon Smith Barney that were administered through its Atlanta office. The plaintiffs had numerous telephone conversations with individual brokers in Atlanta, unaware that the conversations were being recorded. When the plaintiffs learned of the practice, they filed a class action lawsuit alleging violations of California’s invasion of privacy statutes. They sought an injunction against further nonconsensual recordings and monetary damages for the past recorded calls.
The trial court initially granted a motion to dismiss the plaintiffs’ suit on the grounds that California’s privacy statute was preempted by federal law and would violate the Commerce Clause if applied to calls between people in different states. The California Court of Appeal had affirmed the dismissal, but based its decision on a choice-of-law analysis rather than federal preemption, finding that Georgia had a greater interest than California in having its law applied to the recorded calls.
The California Supreme Court reversed, applying California law and holding, with one caveat, that under the choice-of-law analysis, California had the greater interest in having its law applied. The caveat was that California’s interests were greater only with respect to future conduct. The court refused to impose monetary liability on Salomon Smith Barney, holding that for past conduct, Georgia’s interests in protecting its citizens outweighed those of California.
The court focused on several reasons why, in its view, California’s interest in having its law applied was greater. First, failure to apply the statute to calls that involved an out-of-state party would severely limit its protection given the ubiquity of interstate communication. Second, allowing out-of-state companies to operate under more lenient laws would put California businesses at a competitive disadvantage. Third, requiring out-of-state businesses to comply with California’s law would impose only a slight burden on them since they could comply by simply notifying the other party at the start of the conversation of their intent to record the call. Also, the requirement would only apply to calls involving California residents, a limited subset of customers. Finally, companies that complied with California’s law would also be in compliance with Georgia’s law, although not necessarily vice versa. Based on these reasons, the court held that California’s law should be applied with respect to future calls.
The court determined, however, that Georgia had the greater interest with respect to past calls. Prior to this decision, Georgia businesses could reasonably have believed that Georgia’s privacy laws governed their conduct. Georgia also had an interest in protecting its citizens from unfair liability. Finally, denying recovery for damages would not impair California’s interests since the threat of future liability would suffice to protect the privacy interests at stake.
Even after the Kearney decision, the law in this area remains unsettled depending on which states are involved. Other cases that have not involved California residents applied the law of the state in which the recording takes place.
For more information, e-mail Brian R. Guth at brian.guth@hklaw.com or call toll free, 1-888-688-8500.