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California "Two-Party Consent Law" Applies to Recording of Calls Made from Other States

7/17/2006
Client Alert

Companies often record or monitor conversations between their employees and customers for quality‑control purposes.  When both parties to the call are in a state that, like federal law, permits monitoring or recording with the consent of only one party to the conversation, the employee’s consent to monitoring is sufficient to prevent a successful legal challenge.  When one party is in a state that permits monitoring only with the consent of both parties to the call, the company’s obligations are less certain.

In a decision entered Thursday, July 13, 2006, the California Supreme Court ruled that California’s two‑party consent law governs a lawsuit arising from calls between a company’s location in Georgia (a one‑party consent state) and clients located in California.  The California decision confirms that states with restrictive eavesdropping laws will not hesitate to enforce those laws against interstate callers.

Kearney v. Salomon Smith Barney, Inc., S124739 (Sup. Ct. Cal. July 13, 2006) ("Kearney"), is a putative class action suit brought in the California Superior Court for San Francisco County.  The plaintiffs alleged that Salomon Smith Barney, Inc. ("SSB") recorded conversations between its employees in Georgia and the plaintiffs in California.  According to the complaint, those recordings were made without the plaintiffs’ consent.

The Superior Court in San Francisco dismissed the complaint on the ground that the alleged calls were subject to — and lawful under — Georgia’s one‑party consent law.  The California Court of Appeals upheld that decision.  The Supreme Court’s decision of July 13, however, found that the complaint was properly governed by California law and the lower court’s dismissal of the complaint was therefore in error.

The Supreme Court’s decision turned primarily upon the question of choice of law – in this case, whether California or Georgia law should be applied to a set of facts in which both states had a legitimate interest but as to which the two states’ laws were in conflict.  Under California precedent, such conflicts are resolved by a "governmental interest" analysis, which consists of three steps.  "First, the court determines whether the relevant law of each of the potentially affected jurisdictions with regard to the particular issue 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.’"  Kearney, slip opinion at p. 13, quoting Bernhard v. Harrah’s Club, 16 Cal.3d 313, 320 (Sup. Ct. Cal. 1976).  Once this analysis is complete, the court applies the law of the state that would suffer the greater adverse impact if its law was not applied.  Id.

The court had little difficulty finding that the Georgia and California eavesdropping laws were in conflict, and that the conflict applied directly to the facts alleged in the complaint.  Accordingly, the court proceeded to the third element of the "governmental interest" analysis, and found:  (1) that California’s interest in protecting its residents’ privacy would be substantially impaired by failure to enforce its two-party consent law in this case; and (2) that the harm to Georgia from failure to enforce that state’s law would be substantially less.  As to the second point, the court found, for example, that enforcing California’s law would affect only calls made from Georgia to California, and that even this limitation on Georgia callers could be mitigated by obtaining prior consent from California residents before their calls were recorded. 

The California Supreme Court’s decision in Kearney does not find that SSB’s conduct was unlawful, but it does find that California law will decide that question if the case proceeds to trial.  Regardless of the eventual result, Kearney reinforces some important principles about the application of state eavesdropping/wiretapping laws to interstate telephone calls.

1.  Federal Law Does Not Preempt State Eavesdropping Laws

As the California Supreme Court made clear, federal law (which permits monitoring with the consent of one party) does not preempt more restrictive state eavesdropping laws, even when the monitored communications are interstate.  Accordingly, companies that monitor interstate calls for quality control purposes must consult the applicable provisions of state, as well as federal, law.

2.  The Laws of Both Originating and Terminating States Will Apply

Assuming that the complex Due Process elements of jurisdiction are otherwise present, either the originating or terminating state of an interstate call may have a claim to jurisdiction over an eavesdropping complaint.  Specifically, the state in which the call is monitored or recorded may claim jurisdiction because the monitoring occurred there, and the state in which the plaintiff resides may take jurisdiction because the harm to the victim occurred there.  In the Kearney case, for example, the plaintiffs might have chosen to bring their lawsuit in Georgia rather than California, leaving the choice of which state’s law to apply to be settled by a Georgia court.  The laws of both the originating and terminating states must be taken into account before the decision to monitor or record a call between those states is made.

3.  Obtain Required Consents

If both the originating and terminating states permit monitoring or recording with the consent of one party, ensure that your employee has consented to the monitoring and/or recording of all business‑related uses of the company’s communication facilities.  For this purpose, appropriate language in the company’s employee handbook or technology use policy should suffice.  The presumption of employee consent will be strengthened, however, if the employee has acknowledged his or her agreement to the policy in writing.

If either end point of some of your company’s customer calls will be in a two‑party consent state, your company should avoid monitoring/recording calls that originate or terminate in such states, or should precede the conversation with an announcement stating that the conversation may be recorded.  The customer’s decision to continue with a call after hearing such an announcement constitutes prior consent to the subsequent monitoring or recording.

4.  Special Problems of Outbound Calling

When a company places an outbound call to a customer, playing of a recording announcing that the call will be recorded may end the call before it starts.  In order to avoid this result, companies placing outbound calls might choose not to monitor or record calls to or from two-party consent states.  In the alternative, a company might review the laws of the two-party consent states for other exceptions that may permit monitoring or recording without customer consent.

Conclusion

The Kearneycase underscores, but does not exhaust, the complexity of eavesdropping and wiretapping laws.  Besides their one-party and two-party consent provisions, those laws may include other exemptions — such as rights to monitor for quality-control purposes or to protect the monitoring entity’s rights or property — that trump even the consent requirements.  Careful review of the relevant state laws, therefore, might disclose protections as well as prohibitions for companies that wish to monitor calls for legitimate business reasons.