Kearney v. Salomon Smith Barney, Inc.

45 Cal.Rptr.3d 730

39 Cal.4th 95

137 P.3d 914

Kelly KEARNEY et al., Plaintiffs and Appellants, v. SALOMON SMITH BARNEY, INC., Defendant and Respondent.

No. S124739.

Supreme Court of California.

July 13, 2006.

Markun Zusman & Compton, David S. Markun, Pacific Palisades, Edward S. Zusman and Kevin K. Eng, San Francisco, for Plaintiffs and Appellants.

Bill Lockyer, Attorney General, Richard M. Frank, Chief Assistant Attorney General, Herschel T. Elkins, Assistant Attorney General, and Margaret Reiter, Deputy Attorney General, as Amici Curiae on behalf of Plaintiffs and Appellants.

Orrick, Herrington & Sutcliffe, William F. Alderman and Alejandro Vallejo, San Francisco, for Defendant and Respondent.

National Chamber Litigation Center, Robin S. Conrad, Washington, DC, Stephanie A. Martz; Mayer, Brown, Row & Maw, Donald M. Falk, Palo Alto, and Fatima Goss Graves for the Chamber of Commerce of the United States of America as Amicus Curiae on behalf of Defendant and Respondent.

Deborah J. La Fetra and Timothy Sandefur, Sacramento, for Pacific Legal Foundation as Amicus Curiae on behalf of Defendant and Respondent.

GEORGE, C.J.

[137 P.3d 99]

The complaint in this case alleges that employees at the Atlanta-based branch of defendant Salomon Smith Barney (SSB) — a large, nationwide brokerage firm that has numerous offices and does extensive business in California — repeatedly have recorded telephone conversations with California clients without the clients' knowledge or consent. These facts give rise to a classic choice-of-law issue, because the relevant California privacy statute generally prohibits any person from recording a telephone conversation without the consent of all parties to the conversation, whereas the comparable Georgia statute does not prohibit the recording of a telephone conversation when the recording is made with the consent of one party to the conversation.

In this proceeding, several California clients of SSB filed a putative class action against SSB seeking to obtain injunctive relief against its Atlanta-based branch's continuing practice of recording telephone conversations, resulting from calls made to and from California, without knowledge or consent of the California clients, and also seeking to recover damages and/or restitution based upon recording that occurred in the past. SSB filed a demurrer to the complaint, maintaining that no relief is warranted, because the conduct of its Atlanta-based employees was and is permissible under Georgia law.

The trial court sustained SSB's demurrer and dismissed the action. The Court of Appeal affirmed the judgment rendered by the trial court, concluding that application of Georgia law is appropriate and supports the denial of all relief sought by plaintiffs. We granted review to consider the novel choice-of-law issue presented by this case.

[137 P.3d 100]

Past decisions establish that in analyzing a choice-of-law issue, California courts apply the so-called governmental interest analysis, under which a court carefully examines the governmental interests or purposes served by the applicable statute or rule of law of each of the affected jurisdictions to determine whether there is a "true conflict." If such a conflict is found to exist, the court analyzes the jurisdictions' respective interests to determine which jurisdiction's interests would be more severely impaired if that jurisdiction's law were not applied in the particular context presented by the case. (See, e.g., Reich v. Purcell (1967) 67 Cal.2d 551, 63 Cal.Rptr. 31, 432 P.2d 727; Hurtado v. Superior Court (1974) 11 Cal.3d 574, 114 Cal.Rptr. 106, 522 P.2d 666; Bernhard v. Harrah's Club (1976) 16 Cal.3d 313, 128 Cal.Rptr. 215, 546 P.2d 719; Offshore Rental Co. v. Continental Oil Co. (1978) 22 Cal.3d 157, 148 Cal.Rptr. 867, 583 P.2d 721 (Offshore Rental).)

For the reasons discussed at length below, we conclude that this case presents a true conflict between California and Georgia law, and that, as a general matter, the failure to apply California law in this context would impair California's interest in protecting the degree of privacy afforded to California residents by California law more severely than the application of California law would impair any interests of the State of Georgia.

As we shall explain, in light of the substantial number of businesses operating in California that maintain out-of-state offices or telephone operators, a resolution of this conflict permitting all such businesses to regularly and routinely record telephone conversations made to or from California clients or consumers without the clients' or consumers' knowledge or consent would significantly impair the privacy policy guaranteed by California law, and potentially would place local California businesses (that would continue to be subject to California's protective privacy law) at an unfair competitive disadvantage vis-à-vis their out-of-state counterparts. At the same time, application of California law will not have a significant detrimental effect on Georgia's interests as embodied in the applicable Georgia law, because applying California law (1) will not adversely affect any privacy interest protected by Georgia law, (2) will affect only those business telephone calls in Georgia that are made to or are received from California clients, and (3) with respect to such calls, will not prevent a business located in Georgia from implementing or maintaining a practice of recording all such calls, but will require only that the business inform its clients or customers, at the outset of the call, of the company's policy of recording such calls. (As explained below, if a business informs a client or customer at the outset of a telephone call that the call is being recorded, the recording would not violate the applicable California statute.)

Although we conclude that the comparative impairment analysis supports the application of California law in this context, we further conclude that

[137 P.3d 101]

because one of the goals of that analysis is "the `maximum attainment of underlying purpose by all governmental entities'" (Offshore Rental, supra, 22 Cal.3d 157, 166, 148 Cal.Rptr. 867, 583 P.2d 721, italics added), it is appropriate in this instance to apply California law in a restrained manner that accommodates Georgia's reasonable interest in protecting persons who in the past might have undertaken actions in Georgia in reasonable reliance on Georgia law from being subjected to monetary liability for such actions. Prior to our resolution of this case it would have been reasonable for a business entity such as SSB to be uncertain as to which state's law — Georgia's or California's — would be applicable in this context, and the denial of monetary recovery for past conduct that might have been undertaken in reliance upon another state's law is unlikely to undermine significantly the California interest embodied in the applicable invasion-of-privacy statutes. We therefore conclude that it is Georgia's, rather than California's, interest that would be more severely impaired were monetary liability to be imposed on SSB for such past conduct. Under these circumstances, we conclude it is appropriate to decline to impose damages upon SSB (or to require it to provide restitution) on the basis of such past conduct.

Accordingly, we conclude that plaintiffs' action should be permitted to go forward with respect to the request for injunctive relief, but that the judgment rendered by the Court of Appeal should be affirmed insofar as it upholds the dismissal of plaintiffs' claim for damages or restitution based on SSB's past conduct.

I

Because the trial court dismissed plaintiffs' action after sustaining a demurrer without leave to amend, for purposes of this appeal we assume the truth of all well-pleaded factual allegations of the complaint. (See, e.g., Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

According to the complaint, the named plaintiffs — Kelly Kearney and Mark Levy — are California residents who were employed in California by MFS Communications Company (MFS) when that company was acquired in 1996 by WorldCom (a large nationwide telecommunications firm). After the acquisition, both plaintiffs continued to work for WorldCom in California and, during the course of their employment, both were granted stock options in WorldCom that could be exercised only through defendant SSB. The complaint alleges that in 1998, WorldCom's Human Relations Department informed Levy that the Atlanta branch office of SSB handled financial matters for WorldCom employees, and that this department "directed" him to that branch office with regard to matters involving the exercise of his stock options. Both Levy and Kearney opened accounts with SSB's Atlanta office and, during the

[137 P.3d 102]

course of their relationships with SSB, each plaintiff, while in California, made and received numerous telephone calls from individual brokers in the Atlanta office.

At some point, Kearney and Levy filed claims against SSB with the National Association of Securities Dealers, alleging that SSB and its individual brokers had engaged in "malfeasance, fraud, and breach of fiduciary duties" in providing advice to them. Apparently in the course of the litigation of those claims, Kearney and Levy learned that numerous telephone calls that were made and received by SSB's Atlanta office to and from California clients, while the clients were in California, were tape-recorded by SSB employees without the clients' knowledge or consent.

Kearney and Levy then filed the present action, seeking relief on their own behalf and on behalf of all other clients of SSB who resided in California and whose accounts were serviced by the Atlanta branch of SSB. The complaint alleged that during the course of their relationship with SSB, the named plaintiffs and other members of the class took part in numerous telephone conversations...