## Facts

- Kelly Kearney and other California residents filed a putative class action in California state court against Salomon Smith Barney, Inc. (SSB), a nationwide brokerage firm that did extensive business in California and operated a branch office in Atlanta, Georgia.
- Plaintiffs alleged that brokers and employees in SSB’s Atlanta office repeatedly recorded telephone conversations with California clients without the clients’ knowledge or consent.
- Plaintiffs claimed the alleged conduct violated California Penal Code § 632, which generally prohibits recording a confidential communication without the consent of all parties, and also violated California’s Unfair Competition Law (Bus. & Prof. Code § 17200).
- SSB contended that Georgia law governed because the recordings were made in Georgia by Georgia-based employees using Georgia-based equipment.
- Georgia’s statute permits recording a telephone conversation so long as one party to the conversation consents, creating a conflict with California’s all-party consent rule.
- SSB demurred (seeking dismissal), arguing that because the alleged recording practice was lawful under Georgia law, the complaint failed to state claims based on California’s stricter statute.
- The trial court sustained the demurrer and dismissed the action.
- The Court of Appeal affirmed, concluding Georgia law applied and foreclosed relief.
- The California Supreme Court granted review to decide the governing law for interstate calls between California clients and a Georgia-based brokerage office, and the effect of that choice on requested remedies.

## Issues

1. When a Georgia-based office records telephone calls with California residents without their knowledge or consent, should a California court apply California’s all-party consent rule (Penal Code § 632) or Georgia’s one-party consent rule?
2. Under California’s governmental-interest choice-of-law method, if there is a true conflict between California and Georgia law, which state’s interest would be more impaired if its law were not applied?
3. May the court apply different states’ laws to different remedies—using California law for prospective injunctive relief while applying Georgia law to limit monetary relief for recordings made before the court’s decision?

## Decision

- The California Supreme Court reversed the Court of Appeal’s judgment and remanded.
- The court held that, in a California forum, California Penal Code § 632 applies to future recordings of telephone calls involving California residents, even when the recording is made from another state that allows one-party consent, when the defendant does business in California.
- As a result, plaintiffs could pursue prospective injunctive relief to stop SSB from recording calls with California clients unless all parties to the call consent (for example, by obtaining consent at the start of the call).
- For purposes of monetary liability for recordings that occurred before the court’s ruling, the court applied Georgia law, giving weight to Georgia’s interest in protecting conduct occurring within Georgia that was undertaken in reliance on Georgia’s one-party consent regime.
- Because the lower courts applied Georgia law to defeat all relief at the pleading stage, dismissal of the action in its entirety was improper.

## Legal Principles

- California courts resolve multistate conflicts using governmental-interest analysis: (1) identify the relevant law of each involved jurisdiction and the policies served; (2) determine whether each jurisdiction has an interest in applying its law to the case; and (3) if both have interests (a true conflict), apply the law of the state whose interest would suffer greater impairment if not applied (comparative impairment).
- A true conflict exists when each state has a legitimate, case-connected interest in having its rule applied and the rules differ in a way that matters to the outcome.
- California has a strong interest in protecting the privacy of its residents’ telephone communications, reflected in Penal Code § 632 and California’s constitutional privacy provision.
- California’s interest would be seriously harmed if out-of-state businesses could avoid § 632 simply by placing personnel and recording systems in a one-party-consent state while continuing to conduct substantial business with California residents.
- Georgia has an interest in allowing persons and businesses acting within Georgia to rely on Georgia law in structuring primary conduct, and in limiting unexpected, retroactive civil exposure for conduct that Georgia law allowed at the time.
- Comparative impairment can support a split approach: applying California law to govern future conduct affecting California residents while applying another state’s law to past conduct for damages-related remedies.
- A court may treat prospective injunctive relief differently from backward-looking monetary relief when the competing state interests differ in strength depending on whether the remedy regulates future conduct or imposes retroactive liability.

## Conclusion

*Kearney v. Salomon Smith Barney, Inc.* held that California courts will apply California’s all-party consent statute to future recordings of telephone calls involving California residents, even if the recording occurs in Georgia, but that Georgia law governs monetary relief for recordings made before the decision, reflecting Georgia’s interest in protecting reliance on its one-party consent rule; the dismissal was reversed and the case remanded.


Kearney v. Salomon Smith Barney, Inc., 39 Cal.4th 95 (2006)