Case Digest: Kearney vs. Salomon Smith Barney, 137 P.3d 914 (2006)
Private International Law
Petitioner: Kelly Kearney and Mark Levy, California
Respondent: Salomon Smith Barney, Georgia
Forum: California
Recit Version:
Kelly Kearney and Mark Levy, California residents, worked for WorldCom and had stock options that could only be exercised through Salomon Smith Barney (SSB). They communicated with SSB's brokers in Atlanta, Georgia, from California, and later discovered that SSB recorded these calls without their knowledge. They filed a class action lawsuit under California's privacy and unfair competition laws, seeking damages for the secret recordings.
Whether California law or Georgia law governs.
The California Supreme Court ruled that California law governs the case. The court applied the "governmental interest analysis" to resolve the choice-of-law issue, determining that California's interest in protecting the privacy of its residents would be severely impaired if Georgia law were applied.
Different Laws: California requires all parties' consent to record conversations, while Georgia allows recording with one party’s consent.
True Conflict: Both states have a legitimate interest—California to protect the privacy of its residents and Georgia to maintain its legal framework for businesses operating within its state.
Which Law Should Apply? California law was favored because failing to apply it would severely undermine its privacy protections, especially for interstate businesses operating in California. Applying California law to Georgia businesses in dealings with California clients would only cause minimal disruption, as disclosure of recording is still possible under Georgia law.
Facts:
Kelly Kearney and Mark Levy are California residents employed by MFS Communications Company, which was acquired by WorldCom in 1996.
After the acquisition, they continued to work for WorldCom and were granted stock options which could only be exercised through Salomon Smith Barney (SSB).
In 1998, Levy was informed by WorldCom's Human Relations Department to contact SSB's Atlanta (Georgia) office regarding his stock options, and both plaintiffs opened accounts with that office.
The plaintiffs had multiple phone communications with SSB's Atlanta brokers while in California.
Kearney and Levy filed claims with the National Association of Securities Dealers against SSB for "malfeasance, fraud, and breach of fiduciary duties."
They discovered that SSB's Atlanta office had recorded phone calls with California clients without consent or knowledge of the clients.
Kearney and Levy then filed a class action lawsuit against SSB on behalf of California clients whose calls were recorded without consent.
The complaint sought relief under California Penal Code section 637.2 (invasion of privacy) and Business and Professions Code section 17200 (unfair competition law), asking for injunctive relief and damages.
SSB filed a demurrer to the complaint.
California District Court: Sustained SSB's demurrer, stating that:
Under both Georgia and federal law, recordings may lawfully be made in Georgia with one party's consent, and
California law could not apply to calls recorded in Georgia.
CA: Affirmed the trial court's decision, ruling that Georgia had a greater interest in applying its law over California law in this case.
Issue: Whether California law or Georgia law governs Kearney and Levy's claims.
Held: California law governs Kearney and Levy's claims.
III
Beginning with Chief Justice Traynor's seminal decision for this court in Reich v. Purcell, supra, 67 Cal.2d 551, 63 Cal.Rptr. 31, 432 P.2d 727 (hereafter Reich ), California has applied the so-called governmental interest analysis in resolving choice-of-law issues. In brief outline, the governmental interest approach generally involves three steps.
First, the court determines whether the relevant law of each of the potentially affected jurisdictions with regard to the particular issue in question is the same or different.
Second, if there is a difference, the court examines each jurisdiction's interest in the application of its own law under the circumstances of the particular case to determine whether a true conflict exists.
Third, if the court finds that there is a true conflict, it carefully evaluates and compares the nature and strength of the interest of each jurisdiction in the application of its own law “to determine which state's interest would be more impaired if its policy were subordinated to the policy of the other state” and then ultimately applies “the law of the state whose interest would be the more impaired if its law were not applied.”
IV
Keeping in mind the choice-of-law principles and methodology set forth in these prior cases, we turn to the choice-of-law issue presented by the facts of this case. Here, the two potentially affected jurisdictions are California and Georgia, and the initial question is whether a conflict exists between the applicable law of each jurisdiction. In resolving that initial question, we must determine not only whether California law and Georgia law differ from one another, but also whether each state's law was intended to apply to a telephone conversation that occurs in part in California and in part in Georgia.
A
We begin with the California statutory scheme.
The recording of telephone conversations is governed by the provisions of section 632, one of the original provisions of the 1967 legislation.
Under subdivision (a) of section 632, “[e]very person who, intentionally and without the consent of all parties to a confidential communication, by means of any electronic amplifying or recording device, ․ records the confidential communication, whether the communication is carried on among the parties in the presence of one another or by means of a telegraph, telephone, or other device” violates the statute and is punishable as specified in the provision.
Section 632, subdivision (b) provides in relevant part that “[t]he term ‘person’ includes an individual, business association, ․ corporation, ․ or other legal entity, ․ but excludes an individual known by all parties to a confidential communication to be ․ recording the communication.”
Section 632, subdivision (c), in turn, provides that “[t]he term ‘confidential communication’ includes any communication carried on in circumstances as may reasonably indicate that any party to the communication desires it to be confined to the parties thereto but excludes a communication made in a public gathering or in any other circumstance in which the parties to the communication may reasonably expect that the communication may be overheard or recorded.”
The language of section 632 does not explicitly address the issue whether the statute was intended to apply when one party to a telephone call is in California and another party is outside California. The legislatively prescribed purpose of the 1967 invasion-of-privacy statute, however, is “to protect the privacy of the people of this state” (§ 630), and that purpose certainly supports application of the statute in a setting in which a person outside California records, without the Californian's knowledge or consent, a telephone conversation of a California resident who is within California.
Furthermore, the companion wiretapping provision of the 1967 act-set forth in section 631, subdivision (a)-specifically applies to any person who attempts to learn the content of any communication “while the same is in transit or is being sent from, or received at any place within this state.” Nothing in the language or purpose of the 1967 legislation suggests that the related provisions of section 632 should not similarly apply to protect against the secret recording of any confidential communication that is sent from or received at any place within California.
SSB contends that section 632 should not be interpreted to apply in such a situation, because application of the statute in this setting would constitute a disfavored “extraterritorial” application of the statute. Interpreting that statute to apply to a person who, while outside California, secretly records what a California resident is saying in a confidential communication while he or she is within California, however, cannot accurately be characterized as an unauthorized extraterritorial application of the statute, but more reasonably is viewed as an instance of applying the statute to a multistate event in which a crucial element-the confidential communication by the California resident-occurred in California. The privacy interest protected by the statute is no less directly and immediately invaded when a communication within California is secretly and contemporaneously recorded from outside the state than when this action occurs within the state. A person who secretly and intentionally records such a conversation from outside the state effectively acts within California in the same way a person effectively acts within the state by, for example, intentionally shooting a person in California from across the California-Nevada border.
Because there can be no question but that the principal purpose of section 632 is to protect the privacy of confidential communications of california residents while they are in California, we believe it is clear that section 632 was intended, and reasonably must be interpreted, to apply in this setting. Unlike the conduct at issue in the cases cited by SSB, here SSB's employees allegedly acted to record conversations that were occurring contemporaneously in California. Although, as explained below in connection with the discussion of the relevant Georgia privacy statute, the privacy statute of another state also may apply to an interstate telephone call between California and the other state, we conclude that section 632 clearly is applicable in the present setting.
Accordingly, construing section 632 in light of the language and purpose of the relevant statutory scheme as a whole, we conclude that section 632 applies when a confidential communication takes place in part in California and in part in another state.
B
We turn next to the applicable Georgia law.
Georgia, like California, has enacted a broad statute addressing eavesdropping upon or recording of private conversations. The basic provision of the Georgia privacy statute provides in relevant part that “[i]t shall be unlawful for: (1) Any person in a clandestine manner intentionally to overhear, transmit, or record or attempt to overhear, transmit, or record the private conversation of another which shall originate in any private place ․”
The Georgia Supreme Court, in a decision concluding that the statute applied to one spouse's secret recording of telephone conversations of the other spouse, quoted a provision setting forth the general legislative intent underlying the statute: “ ‘It is the public policy of this State and the purpose and intent of this Chapter to protect the citizens of this State from invasions upon their privacy. This Chapter shall be construed in light of this expressed policy and purpose. The employment of devices which would permit the clandestine overhearing, recording or transmitting of conversations or observing of activities which occur in a private place has come to be a threat to an individual's right of privacy and, therefore, should be prohibited.’ ” [interpreting Georgia statute to prohibit parents from recording their teenage child's telephone conversations without the teenager's consent]
At the same time, however, another provision of the relevant Georgia statutory scheme explicitly provides that “[n]othing in Code Section 16-11-62 [that is, the foregoing statutory provision] shall prohibit a person from intercepting a wire, oral, or electronic communication where such person is a party to the communication or one of the parties to the communication has given prior consent to such interception.”
Georgia decisions long have interpreted the relevant Georgia privacy statutes as not applicable to a situation in which a conversation is recorded by one of the participants in the conversation. In this respect, of course, Georgia law differs from California law.
With regard to the further question whether the Georgia privacy statutes are intended to apply to a telephone call in which one of the parties is in Georgia and one of the parties is in another state, there is nothing in the language of the Georgia statutes that expressly addresses this issue. In light of the underlying purpose of the Georgia statute, however, we believe that-as we have concluded with regard to the California statute-the applicable Georgia statutes were intended, and reasonably should be interpreted, to apply to such a call.
A hypothetical example may help explain our conclusion in this regard. Consider a situation in which a third party-located in a state other than Georgia or California-were to wiretap or intercept a telephone call between a person in Georgia and a person in California without the knowledge or consent of either party to the conversation. In that setting, the wiretapping would violate the relevant privacy law of both California and Georgia, and each state clearly would have a legitimate and substantial interest in applying its statute to the unlawful invasion of privacy of the person located within its state, whereas the state in which the person who committed the wiretapping was situated would not have that interest (although it still might have an interest in permitting an action against the wiretapper if the conduct were unlawful under its state's law). As this example demonstrates, in light of the principal purpose underlying the kind of privacy provisions here at issue, it is most reasonable to conclude that a state's privacy statute should be interpreted to apply to a telephone call in which one or more of the parties to the call are located within the state.
Accordingly, we conclude that the Georgia statute, as well as the California statute, applies to the telephone calls at issue in this case, and that the law of each state differs with regard to the legality of such conduct. Although it is unlawful under California law for a party to a telephone conversation to record the conversation without the knowledge of all other parties to the conversation, such conduct is not unlawful under Georgia law.
C
Plaintiffs maintain, however, that although California law and Georgia law differ, there nonetheless is no true conflict in this situation. Although it is evident that California has a legitimate interest in having its law applied in the present setting because plaintiffs are California residents whose telephone conversations in California were recorded without their knowledge or consent, plaintiffs contend that Georgia does not have an interest in having its law applied here, because the fundamental purpose of the Georgia statute is to protect the privacy of conversations that have some relationship to Georgia and in this case there is no claim that the privacy of any Georgia resident or any person or business in Georgia has been violated.
Although plaintiffs are correct that the facts of this case do not implicate the privacy interests protected by the Georgia statute, the Georgia statute also can reasonably be viewed as establishing the general ground rules under which persons in Georgia may act with regard to the recording of private conversations, including telephone calls. Because Georgia law prohibits the recording of such conversations except when the recording is made by one of the parties to the conversation or with such a party's consent, persons in Georgia reasonably may expect, at least as a general matter, that they lawfully can record their own conversations with others without obtaining the other person's consent, and Georgia has a legitimate interest in not having liability imposed on persons or businesses who have acted in Georgia in reasonable reliance on the provisions of Georgia law. Because the conduct of SSB that is at issue in this case involves activity that its employees engaged in within Georgia, we believe that Georgia possesses a legitimate interest in having its law applied in this setting.
Accordingly, we conclude that this case presents a true conflict of laws.
V
A
We also believe that the failure to apply section 632 in the present context would substantially undermine the protection afforded by the statute. Many companies who do business in California are national or international firms that have headquarters, administrative offices, or-in view of the recent trend toward outsourcing-at least telephone operators located outside of California. If businesses could maintain a regular practice of secretly recording all telephone conversations with their California clients or customers in which the business employee is located outside of California, that practice would represent a significant inroad into the privacy interest that the statute was intended to protect. As noted above, an out-of-state company that does business in another state is required, at least as a general matter, to comply with the laws of a state and locality in which it has chosen to do business. As this court determined in Bernhard, supra, 16 Cal.3d 313, 322-323, 128 Cal.Rptr. 215, 546 P.2d 719, with regard to the need to apply California law relating to the liability of tavern owners to the out-of-state tavern owner at issue in that case, the failure to apply California law in the present context seriously would undermine the objective and purpose of the statute.
Moreover, if section 632-and, by analogy, other similar consumer-oriented privacy statutes that have been enacted in California-could not be applied effectively to out-of-state companies but only to California companies, the unequal application of the law very well might place local companies at a competitive disadvantage with their out-of-state counterparts. To the extent out-of-state companies may utilize such undisclosed recording to further their economic interests-perhaps in selectively disclosing recordings when disclosure serves the company's interest, but not volunteering the recordings' existence (or quickly destroying them) when they would be detrimental to the company-California companies that are required to comply with California law would be disadvantaged. By contrast, application of section 632 to all companies in their dealings with California residents would treat each company equally with regard to California's concern for the privacy of the state's consumers.
In sum, we conclude that the failure to apply California law in the present context would result in a significant impairment of California's interests.
B
By contrast, we believe that, for a number of reasons, the application of California law rather than Georgia law in the context presented by the facts of this case would have a relatively less severe effect on Georgia's interests.
First, because California law, with regard to the particular matter here at issue, is more protective of privacy interests than the comparable Georgia privacy statute, the application of California law would not violate any privacy interest protected by Georgia law. In addition, there is, of course, nothing in Georgia law that requires any person or business to record a telephone call without providing notice to the other parties to the call, and thus persons could comply with California law without violating any provision of Georgia law.
Second, with respect to businesses in Georgia that record telephone calls, California law would apply only to those telephone calls that are made to or received from California, not to all telephone calls to and from such Georgia businesses. In considering the practicability of singling out California calls for distinct treatment, there would appear to be little question that it would be feasible for a business to identify those calls that its own employees are making to current or potential California clients. Similarly, with regard to calls received by a business in Georgia, it appears likely that technical tools-such as “caller ID”-are available that readily would make it possible to identify which calls received by the Georgia office are coming from California, and, even in the absence of such technological devices, there would appear to be no reason why an SSB employee, when answering a call, could not simply inquire where the client is calling from. Thus, application of California law would appear to affect only those telephone calls to or from California.
Furthermore, applying California law to a Georgia business's recording of telephone calls between its employees and California customers will not severely impair Georgia's interests. As discussed above, California law does not totally prohibit a party to a telephone call from recording the call, but rather prohibits only the secret or undisclosed recording of telephone conversations, that is, the recording of such calls without the knowledge of all parties to the call. Thus, if a Georgia business discloses at the outset of a call made to or received from a California customer that the call is being recorded, the parties to the call will not have a reasonable expectation that the call is not being recorded and the recording would not violate section 632.
Accordingly, to the extent Georgia law is intended to protect the right of a business to record conversations when it has a legitimate business justification for doing so, the application of California law to telephone calls between a Georgia business and its California clients or customers would not defeat that interest.
The Court of Appeal, in reaching the conclusion that Georgia law should apply, thought it important to emphasize that Georgia has a legitimate interest in permitting a financial services entity, such as SSB, to routinely record telephone calls “for the perfectly understandable purpose of protecting themselves from the customer who might later claim the institution misunderstood his or her investment instructions,” but the appellate court failed to recognize that the application of California law would not thwart that interest. Although the application of California law to telephone calls between Georgia and California would impair Georgia's interests to the extent Georgia law is intended to protect a business's ability secretly to record its customers' telephone calls, we believe that, particularly as applied to a business's blanket policy of routinely recording telephone calls to and from California customers, this consequence would represent only a relatively minor impairment of Georgia's interests.
For the foregoing reasons, we conclude that, as a realistic matter, the application of California law in this context would not result in a severe impairment of Georgia's interests.
C
Accordingly, because we have found that the interests of California would be severely impaired if its law were not applied in this context, whereas Georgia's interest would not be significantly impaired if California law rather than Georgia law were applied, we conclude that, with the one exception we discuss below, California law should apply in determining whether the alleged secret recording of telephone conversations at issue in this case constitutes an unlawful invasion of privacy.
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