Recording Customer Calls: California Supreme Court Extends California Privacy Law to Calls Made From and Recorded in Other States
October 19, 2006
A. Brian Albritton- Tampa
Banks, securities dealers, brokerage firms and other financial services businesses that record customer calls should take note of a recent case handed down by the California Supreme Court, Kelly Kearney v. Salomon Smith Barney, Inc., 2006 WL 1913135 (Ca. Jul. 13, 2006). Salomon Smith Barney (SSB), the defendant in Kearney, assumed that as long as it made or received calls from within a state whose law permitted one party to a call to record it, it did not need to obtain its customer’s consent to record those calls. Yet, SSB customers in California sued the company claiming that SSB violated their privacy when it recorded their customer calls without their consent.
The court in Kearney proved SSB’s assumption to be wrong. The Kearney court found that even though SSB made, received and recorded calls in Georgia from its customers in California, the company was still subject to California’s privacy laws that prohibit recording calls without the consent of all the parties. Even though Georgia law permitted SSB to record its customers’ calls without first obtaining their consent, Kearney held that recording calls in a state like Georgia, that permits such a practice, does not protect the party from being found liable for violating the privacy laws of other states.
The federal government and 38 states permit a person on a call to record the conversation as long as one person on the call consents to the recording – so called “one party consent” states. Twelve other states, however, require that before any party on a call may record it, all the parties to the call must consent. These states are referred to as “two party consent” states, and they include the following: California, Connecticut, Delaware, Florida, Massachusetts, Maryland, Michigan, Montana, New Hampshire, Pennsylvania and Washington.
Kearney is the highest state court decision to address conflicting laws between one-party and two-party consent states, but differs from almost all of the other courts that have considered the issue. Prior to Kearney, courts in only five states (California, Florida, Massachusetts, New York and Texas), the majority of them federal district courts, addressed the issue of what state law applies to recording interstate calls. With the exception of one appellate court in Florida, the courts considering the issue found that for calls between interstate callers, the law of the state where the call was recorded governed. Kearney recognized the unsettled state of the law among the states and to that end, refused to permit SSB’s customers to obtain damages and restitution against SSB. Yet, Kearney made it clear that its ruling applied prospectively, and from now on California privacy law will apply to interstate callers who make calls into or receive calls from California.
Kearney rejected all of the challenges made by SSB to the application of California law. First, the Court found that the calls between Georgia and California gave rise to personal jurisdiction in California over SSB. Second, the court rejected any argument that federal law, which permits recording with one party’s consent, applied to or preempted interstate calls. Third, the court also held that applying California law to calls recorded in Georgia was not an unconstitutional attempt by California to extend its laws to conduct occurring in other states. Recording a California call in Georgia, the court maintained, constituted an invasion of privacy in California. Additionally, the court found that the U.S. Constitution’s Commerce Clause did not prohibit application of California law because California’s law would “not compel any action or conduct of the business with regard to conversations by non-California clients or consumers.”
What’s the Point?
For now, financial service businesses can take measures to avoid what occurred to SSB. Before recording any calls, the business should first ask the customer for permission to record the call. Second, financial service businesses should consider adding a clause to their customer agreements wherein the customer agrees in writing to such recordings. Third, if customers call into a business and are transferred or placed on hold before speaking with a customer service representative, a recorded message can inform the customer while holding that the business records all customer calls for “quality assurance.” These measures should go a long way to reducing the risk of privacy suits such as Kearney.
For more information, e-mail A. Brian Albritton at brian.albritton@hklaw.com or call toll free, 1-888-688-8500.