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Callers phoning California from out of state could face more than long-distance charges if they surreptitiously record their conversations. Specifically, a civil suit complete with damages for violating California law. On Thursday, the state Supreme Court ruled that consent from all parties is required when recording telephone conversations in California even if the caller is phoning from a jurisdiction that allows taping based on a single person’s permission. “California clearly has an interest � in protecting the privacy of telephone conversations of California residents while they are in California � sufficient to permit this state, as a constitutional matter, to exercise legislative jurisdiction over such activity,” Chief Justice Ronald George wrote for a unanimous court. “This is not a case,” he added, “in which California would be applying its law in order to alter a defendant’s conduct in another state vis-a-vis another state’s residents.” The business community had argued such a result could tangle interstate commerce and communication in a Gordian knot. And on Thursday, Donald Falk, a partner in Mayer, Brown, Rowe & Maw’s Palo Alto office who represented the Chamber of Commerce of the United States of America as an amicus curiae in the case, said the court “fundamentally misunderstood the constitutional scope of state power.” “What [the ruling] will do,” he said, “is encourage private plaintiffs here and perhaps in other instances to export California’s hyper-regulatory environment around the country.” In 2002, California residents Kelly Kearney and Mark Levy filed a putative class action against Salomon Smith Barney � now known as Citigroup Global Markets Inc. � after discovering that the investment bank’s Atlanta-based brokers had tape recorded their telephone conversations during discussions of stock options. Although Georgia and most other states permit taping of phone conversations as long as one person consents, Kearney and Levy argued that the bank’s actions violated California’s 39-year-old Invasion of Privacy Act, which � similar to 10 other states � prohibits the recording of any communication without the permission of all affected parties. San Francisco Superior Court Judge A. James Robertson II dismissed the suit in 2003. San Francisco’s First District Court of Appeal affirmed a year later, stating that under conflict-of-law principles, the Georgia statute prevailed. The Supreme Court disagreed, finding that allowing one-sided taping “would significantly impair the privacy policy guaranteed by California law.” “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,” Chief Justice George wrote. “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.” He also said allowing outside callers to tape without all parties’ consent could put California companies at an economic disadvantage. “By contrast,” he wrote, “application of [the privacy law] 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.” George tossed Citigroup and other companies a bone, though, by ruling that past offenders won’t be held liable for their conduct because they reasonably might have relied on the laws of other states. “In light of our decision, of course,” George noted, “out-of-state companies that do business in California now are on notice that, with regard to future conduct, they are subject to California law with regard to the recording of telephone conversations made to or received from California, and that the full range of civil sanctions by California law may be imposed for future violations.” Markun Zusman & Compton partner Edward Zusman, who represented the plaintiffs, couldn’t be reached for comment. Orrick, Herrington & Sutcliffe partner William Alderman, who represented Citigroup, referred calls to the company’s New York headquarters. Alexander Samuelson, spokesman for Citigroup Smith Barney said: “The California Supreme Court’s decision is a new interpretation that extends California law beyond its borders. We will review our procedures to comply with the court’s decision.” The ruling is Kearney v. Salomon Smith Barney Inc., 06 C.D.O.S. 6226.

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