State Supreme Court Hears Smith Barney Taping Case

In arguments before the California Supreme Court on Thursday, Citigroup Inc.’s Smith Barney brokerage unit defended tape-recording phone calls with California customers without their consent, saying the state’s law requiring their approval doesn’t apply in other states.

Smith Barney said employees in Georgia who recorded conversations with Californians were bound only by Georgia law, which requires the consent of only one party.

Plaintiffs are trying to win reinstatement of a 2002 suit that claimed that the practice was an invasion of privacy. An appeals court dismissed the case in 2004.

The case is being watched by other businesses because if the California court rules in favor of the customers, it could lead to other suits and rulings that might require businesses to adhere to a patchwork of state laws.

“It would be an unprecedented extension of the power of one state,” said Donald Falk, a lawyer who filed a brief supporting Smith Barney on behalf of the U.S. Chamber of Commerce.

California is one of 11 states that require the consent of both parties in recording phone calls. Georgia and 38 other states require consent of only one party.

The plaintiffs were employees of WorldCom Inc. in California who received stock options as part of their pay and used Smith Barney’s Atlanta office to exercise the options. They learned of the recordings during a dispute over their investments and are seeking to represent hundreds of other Californians employed by WorldCom who dealt with Smith Barney by phone.

William Alderman, an attorney for Smith Barney, said California could regulate the content of products and services the company provides Californians but not the conduct of its employees, who are bound by the laws in the states where they are situated.