Kearney v. Salomon Smith Barney, Inc.

• Decision Date: 01 April 2004
• Docket Number: No. A101477,A101477
• Citation: 117 Cal.App.4th 446,11 Cal.Rptr.3d 749
• Court: California Court of Appeals Court of Appeals
• Parties: Kelly KEARNEY et al., Plaintiffs and Appellants, v. SALOMON SMITH BARNEY, INC., Defendant and Respondent.

11 Cal.Rptr.3d 749

117 Cal.App.4th 446

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

No. A101477

Court of Appeal, First District, Division 2

April 1, 2004

Review Granted June 23, 2004

David S. Markun, Edward S. Zusman, San Francisco, Kevin K. Eng, Los Angeles, Markun Zusman & Compton LLP, San Francisco, Attorney for Appellants Kelly Kearney and Mark Levy.

William F. Alderman, Alejandro Vallejo, Orrick, Herrington & Sutcliffe LLP, San Francisco, Attorney for Respondent Salomon Smith Barney.

Bill Lockyer, Attorney General, Richard M. Frank, Chief Assistant Attorney General, Herschel T. Elkins, Senior Assistant Attorney General, Margaret Reiter, Supervising Deputy Attorney General, Office of the Attorney General as Amicus Curiae in support of Appellants.

HAERLE, J.

I. INTRODUCTION

This an appeal by two individuals who filed a putative class action against respondent based on conduct allegedly violative of Penal Code section 632 (section 632) and Business and Professions Code section 17200 (section 17200). The conduct in question was the recording, in Georgia, of telephone calls between appellants, both California residents at the time, and their Atlanta-based brokers. The recordings were made without the consent of appellants, as would be required under California law, but were lawful in Georgia because they were made with the consent of one party to the calls, i.e., respondent and its agents. Based on this premise, the superior court sustained a demurrer to appellants' complaint without leave to amend. We affirm.

II. FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs and appellants, Kelly Kearney and Mark Levy (appellants), are California residents, Kearney a resident of Alameda County and Levy a resident of Los Angeles County. Both were employed by a company which was acquired by WorldCom in 1996; thereafter, both were granted WorldCom stock options. They allege that their options "could only be exercised through [respondent]." Both thereafter opened accounts with the Atlanta, Georgia, office of respondent Salomon Smith Barney, Inc. (respondent), Levy in 1998, and Kearney in 2001.¹ The complaint alleges that, after opening their respective accounts, each appellant made "numerous telephone calls to [his or her] broker at Defendant's Atlanta branch office and also received telephone calls from [his or her] broker in Atlanta." The complaint goes on to allege that, recently, appellants discovered that "numerous telephone calls" between respondent's Atlanta office and "its California customers" were tape-recorded without the latter's knowledge or consent. The complaint alleges that, by recording telephone calls without the customers' consent, respondent violated sections 632 and 17200.

Respondent demurred to the complaint and the parties briefed the purely legal issues involved to the superior court. On January 2, 2003, that court sustained the demurrer without leave to amend, ruling that "under both Georgia and federal law recordings may lawfully be made in Georgia with one party's consent. As such, defendant's conduct cannot be viewed as unlawful or unfair or deceptive under ... § 17200. Further, any attempt to apply Penal Code § 632 to recordings made in Georgia would be preempted by federal law and violate the Commerce Clause." The order dismissed the action with prejudice. Appellants filed a timely notice of appeal.

III. DISCUSSION

A. Standard of Review

The parties agree that our standard of review is de novo. This is clearly correct. As our Supreme Court held in Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58: "In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. `We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]" (See also, Hirsch v. Bank of America (2003) 107 Cal.App.4th 708, 717, 132 Cal.Rptr.2d 220; Ross v. Creel Printing & Publishing Co. (2002) 100 Cal.App.4th 736, 742, 122 Cal.Rptr.2d 787.)

This principle is especially applicable when, as here, the interpretation and application of statutes is involved. "[T]he interpretation of a statute is a question of law to be determined by the reviewing court de novo." (Diamond Benefits Life Ins. Co. v. Troll (1998) 66 Cal.App.4th 1, 5, 77 Cal.Rptr.2d 581; see also: International Federation of Professional & Technical Engineers v. City and County of San Francisco (1999) 76 Cal.App.4th 213, 224, 90 Cal.Rptr.2d 186; Goodstein v. Superior Court (1996) 42 Cal.App.4th 1635, 1641, 50 Cal.Rptr.2d 459.)

B. The Relevant Statutes

As noted, appellants' complaint alleged violations of both sections 632 and 17200. But also clearly implicated are Penal Code sections 27, 777, 778 and 778a.

Section 632 was enacted in 1967 as a part of the "Invasion of Privacy Act," which is composed of Penal Code sections 630 et seq. (See People v. Buchanan (1972) 26 Cal.App.3d 274, 287-288, 103 Cal.Rptr. 66.) The pertinent section of that statute reads: "Every person who, intentionally and without the consent of all parties to a confidential communication, by means of any ... recording device ... records the confidential communication, whether the communication is carried on among the parties ... by means of a ... telephone ... shall be punished by a fine not exceeding two thousand five hundred dollars ($2,500), or imprisonment in the county jail not exceeding one year...." (§ 632, subd. (a), emphasis supplied.)

Section 637.2, enacted at the same time and also relied on in appellants' complaint, provides parties injured by a violation of any provision of the chapter a private right of action. (Pen.Code, § 637.2.)

Section 17200 is the lead section of California's unfair competition law (UCL) which our Supreme Court has described thusly: "[A]s relevant here, it defines `unfair competition' to include `any unlawful, unfair or fraudulent business act or practice.' [Citation.] ... It governs `anti-competitive business practices' as well as injuries to consumers, and has as a major purpose `the preservation of fair business competition.' [Citations.] By proscribing `any unlawful' business practice, `section 17200 "borrows" violations of other laws and treats them as unlawful practices' that the unfair competition law makes independently actionable. [Citations.]" (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180, 83 Cal.Rptr.2d 548, 973 P.2d 527.)

Sections 27, 777, 778 and 778a of the Penal Code deal with the territorial reach of the provisions of that code. Section 27, enacted in 1872, provides in pertinent part: "(a) The following persons are liable to punishment under the laws of this state: [¶] (1) All persons who commit, in whole or in part, any crime within this state. [¶] (2) All who commit any offense without this state which, if committed within this state, would be larceny, carjacking, robbery, or embezzlement under the laws of this state, and bring the property stolen or embezzled, or any part of it, or are found with it, or any part of it, within this state. [¶] (3) All who, being without this state, cause or aid, advise or encourage, another person to commit a crime within this state, and are afterwards found therein." (Pen.Code, § 27, subd. (a.).)

Section 777, also enacted in 1872, provides: "Every person is liable to punishment by the laws of this State, for a public offense committed by him therein, except where it is by law cognizable exclusively in the courts of the United States; and except as otherwise provided by law the jurisdiction of every public offense is in any competent court within the jurisdictional territory of which it is committed." (Pen.Code, § 777.)

Section 778, yet another provision dating from 1872, provides: "When the commission of a public offense, commenced without the State, is consummated within its boundaries by a defendant, himself outside the State, through the intervention of an innocent or guilty agent or any other means proceeding directly from said defendant, he is liable to punishment therefor in this State in any competent court within the jurisdictional territory of which the offense is consummated." (Pen.Code, § 778.)

Section 778a, enacted in 1905,² also deals with the Code's geographic reach. It provides: "(a) Whenever a person, with intent to commit a crime, does any act within this state in execution or part execution of that intent, which culminates in the commission of a crime, either within or without this state, the person is punishable for that crime in this state in the same manner as if the crime had been committed entirely within this state." (Pen.Code, § 778a, subd. (a).)

Before leaving the subject of pertinent statutes, it is important to note that Georgia law provides that the consent of only one party is required for a telephone conversation to be recorded. This result derives from the interplay of sections 16-11-62 and 16-11-66 of the Georgia Annotated Code. The first-cited section broadly restricts the right of anyone "in a clandestine manner intentionally to overhear, transmit, or record ... the private conversation of another which...