How a Single State Can Make “National” Law

Summary

A business that seeks to be completely compliant should look to national rules, such as the Telemarketing Sales Rule, but also “national” state laws - laws, though passed in a single state, are of such importance that calls to the entire nation are affected.

Article

Despite the fact that state jurisdiction generally does not extend beyond its borders, there are times when the state passes a law which affects companies which have no location in the state and may not even sell to consumers there.  A compliant business must, therefore, look to national rules, such as the Telemarketing Sales Rule, but also “national” state laws of such importance that calls to the entire nation are affected.

Here are three examples of different ways this can happen.

First, California’s law regarding monitoring or interception of telephone conversations has national effect.  As many of you know, federal law requires that one party to a conversation consent to it being monitored to avoid liability under federal wiretapping laws.  Several states, including California, require that both or all parties to a conversation consent to it being monitored or recorded or the state wiretapping law (more restrictive in these states) is violated.  Until 2006, however, these state statutes were uniformly interpreted to apply only to incidences of monitoring occurring in that state, e.g. the equipment used to monitor a conversation was in the state of Florida.  This is generally consistent with criminal statutes which usually apply only to acts in that state, rather than acts in some other jurisdiction (Bill Clinton demonstrated a famous example of this proposition during his study-abroad years in England).

In 2006, however, the California Supreme Court determined that its call monitoring statute was more akin to a consumer protection statute than a criminal statute and applied its monitoring law to any call originating from or received in the state of California regardless of the location of the monitoring. Kearney v. Salomon Smith Barney. Because California’s population is so large, any business with national calling needs to consider this more restrictive state rule, and if the business wants one solution, rather than varying disclosures depending on the state, it must disclose monitoring to all calls nationwide.  If you have called any credit card customer service number, you likely have experienced this “one size fits all” solution as all these numbers disclose potential monitoring to all callers, not just callers from California.  Thus, in 2006 the California Supreme Court made national law in its interpretation of its state monitoring statute.

The next example is more specific.  The state of Texas just amended its statute regulating that businesses must give consumers notice when their private information is obtained by a third-party through a security breach. HB 300.  Prior to this bill, the law required that a person who conducts business in the state and owns data, including sensitive personal information, disclose any breach of security to residents of the state whose sensitive personal information was acquired by an unauthorized person.  The new law amended this language to require disclosure to any individual, regardless of residency, if such a breach occurs involving a company conducting business in the state of Texas.  Very few states do not require disclosure security breaches in such situations, but even in these states, a national company must make a security disclosure based on Texas’ new law.  Further, a compliant company must review both Texas law and the law of each state where affected individuals live to determine which is more restrictive and comply with both laws.

Finally, the state of Maine has a unique statute requiring registration for transient sellers of consumer merchandise.  The definition of “transient seller” is not limited to mobile merchants but applies to any company which does not have a permanent place of business in the state of Maine.  This law, then, requires licensure of almost every business selling merchandise to Maine consumers if that business has no location in the state.

Although the law is still on the books, it is my opinion that it is unconstitutional and would be struck down if challenged in court because of this naked discrimination against out of state companies required to pay a license, sometimes at significant expense.

Your compliance counsel should be able to determine applicable law in each jurisdiction, even if such applicable law is not from that state or a federal rule but another state’s law which explicating or implicitly regulates conduct in another jurisdiction.