[1023] [1024] Courtney Grant Joslin, Katherine K. Ikeda, Orrick Herrington & Sutcliffe LLP, Paul Stephan Marchegiani, Morrison & Foerster LLP, San Francisco, CA, I. Neel Chatterjee, Theresa Ann Sutton, Orrick Herrington & Sutcliffe, Menlo Park, CA, Shannon Minter, Dominique Naomi Thomas, [1025] Alschuler Grossman Stein & Kahn, Santa Monica, CA, for Plaintiffs.

Benjamin Wyman Bull, Alliance Defense Fund, Scottsdale, AZ, Terry Lee Thompson, Terry L. Thompson, Attorney at Law, Alamo, CA, Byron Jeffords Babione, Dale Schowengerdt, Glen E. Lavy, Alliance Defense Fund, Scottsdale, AZ, David L. Llewellyn, Jr., Llewellyn Spann, Attorneys at Law, Citrus Heights, CA, Douglas Carter Fitzpatrick, Sedona, AZ, J. Hector Moreno, Jr., San Jose, CA, for Defendants.

ORDER RE CROSS-MOTIONS FOR SUMMARY JUDGMENT

HAMILTON, District Judge.

The parties' cross-motions for summary judgment came on for hearing on June 7, 2006. In July 2006, the California Supreme Court issued three decisions relevant to issues raised in the parties' motions: Kearney v. Salomon Smith Barney, Inc., 39 Cal.4th 95, 45 Cal.Rptr.3d 730, 137 P.3d 914 (2006); Californians for Disability Rights v. Mervyn's, LLC, 39 Cal.4th 223, 46 Cal.Rptr.3d 57, 138 P.3d 207 (2006); and Branick v. Downey Say. & Loan Ass'n, 39 Cal.4th 235, 46 Cal.Rptr.3d 66, 138 P.3d 214 (2006). The court subsequently instructed the parties to submit further briefing addressing those decisions.

Having read the parties' papers and carefully considered their arguments and the relevant legal authority, and good cause appearing, the court hereby DENIES plaintiffs' motion and GRANTS defendants' motions IN PART and DENIES them IN PART, as follows.

INTRODUCTION

Defendants Dale R. Gwilliam and Nathan W. Gwilliam ("the Gwilliams") are Arizona residents who run businesses that operate adoption-related websites. These websites constitute the largest, most active, and most well-known Internet adoption-related business in the United States. One of the websites, ParentProfiles.com, offers a service that allows prospective adoptive parents, for a fee, to post "profiles" containing information about themselves, for review by women who have given birth or are about to give birth and plan to give up the children for adoption.

Plaintiffs Michael Butler and Richard Butler ("the Butlers") have been registered domestic partners in the state of California since 2000. In 2002, they were seeking to adopt a child. They were certified and approved to adopt in California, and applied to have their profile posted on ParentProfiles.com. Their application was rejected.

On January 12, 2004, plaintiffs filed suit against the Gwilliams and two Arizona limited liability companies owned and managed by the Gwilliams — Adoption Media LLC and Adoption Profiles LLC. Plaintiffs alleged violations of the Unruh Civil Rights Act ("the Unruh Act" or "the Act"), California Civil Code §§ 51 and 51.5; and violations of California's unfair competition and false advertising laws, California Business and Professions Code §§ 17200 and 17500. Plaintiffs subsequently amended the complaint to add three defendants — Adoption.com, True North, Inc., and Aracaju, Inc. — and to allege alter ego and successor liability. Plaintiffs amended the complaint a second time following the court's ruling on the motion to dismiss the first amended complaint. Plaintiffs seek damages and injunctive relief.

Each side has moved for summary judgment. Plaintiffs seek summary judgment on the issue of liability against Dale R. Gwilliam, Nathan W. Gwilliam, Adoption.com, and Adoption Profiles LLC, on the Unruh Act claims. Defendants seek summary judgment on the substantive [1026] causes of action and on the issues of alter ego and successor liability, and personal jurisdiction. They also argue that the injunctive relief requested would violate the First Amendment, that California substantive law may not be applied in this case, and that plaintiffs lack standing to bring the unfair competition and false advertising claims.

BACKGROUND

On August 31, 1999, Dale Gwilliam and Nathan Gwilliam formed an Arizona general partnership, known as Adoption.com. Dale and Nathan each owned, and continue to own, 50% of the Adoption.com partnership.

As of October 2002, the Adoption.com partnership owned a network of adoption-related websites, including Adoption.com, a website providing a variety of adoption-related information, and ParentProfiles.com, which allowed prospective adoptive parents to post information about themselves, for a monthly fee. In addition, in Dale and Nathan formed another general partnership in 2002, Adoption Internet Holdings, and through that partnership purchased a California business, the Adopting.org website.

Plaintiffs were certified and approved to adopt on October 3, 2002. The Independent Adoption Center ("IAC"), the oldest and largest adoption agency in California, which had a contract with the Adoption.com partnership relating to referrals to the ParentProfiles service, referred plaintiffs to the website, ParentProfiles.com, as part of plaintiffs' search for an adoptable child.

Plaintiffs filled out an application to become members of ParentProfiles.com. They obtained a log-in identification name and password to access the ParentProfiles website and upload their profile information. On October 21, 2002, plaintiffs submitted by facsimile copies of the ParentProfiles credit card authorization form and agreement and a certificate of compliance from the IAC.

On October 24, 2002, Michael Butler called Adoption.com's toll-free number to inquire about the status of the application. He spoke with Dale Gwilliam. In the course of the conversation, Dale told Michael that plaintiffs would not be permitted to use ParentProfiles.com's services.

The partnership had adopted a policy allowing only individuals in an opposite-sex marriage to post profiles on the website. Dale testified in his deposition that the "opposite gender component is an essential component of the policy." Nathan testified that a same-sex couple registered under California's domestic partnership law would not qualify under the policy because they are not married, and that even if same-sex couples were permitted to marry in all 50 states, defendants would still be reluctant to change the policy and would instead "look at all the evidence gathered altogether and make a decision" as to whether to modify their policy.

Michael e-mailed the Gwilliams five days later "confirming our conversation we had last Thursday afternoon" in which Dale "stated that it is your policy to not allow domestic partners to sign-up for your site." Michael asked that Dale "reconsider your policy against gay couples and allow us to join your site." The Gwilliams did not respond to the e-mail, and did not have any further direct communication with the plaintiffs. The partnership did not accept plaintiffs' application to use the services of ParentProfiles.com, and refused to post their profile on the website.

On January 2, 2003, the Gwilliam formed two Arizona limited liability companies, Adoption Media LLC and Adoption Profiles LLC. Each of the two LLCs was [1027] owned 50-50 by Dale and Nathan. At the formation of the LLCs, each was provided with $200 in cash assets.

On January 9, 2003, Dale and Nathan elected themselves the sole managers and officers of Adoption Media LLC and Adoption Profiles LLC. Nathan is the Chief Executive Officer, and Dale is the President and Secretary, of each LLC. Also on January 9, 2003, Dale and Nathan executed documents transferring most of the partnership assets of Adoption.com (the general partnership) to Dale and Nathan. Those assets included the Adoption.com and ParentProfiles.com domain names and related programming and intellectual property.

Dale and Nathan then transferred ownership of the Adoption.com website to Adoption Media LLC and ownership of the ParentProfiles.com website to Adoption Profiles LLC — all transfers or distributions to be effective as of 11:59:30 p.m. on January 31, 2003. The Adoption.com partnership retained the software used by the websites transferred to the LLCs, and also retained more than 1000 domain names, the operating website, the Adopting.org website, and other associated assets.

On January 15, 2003, Dale and Nathan dissolved the partnership Adoption Internet Holdings, and distributed all its assets, including the Adopting.org website, to the general partners as of 11:59:30 p.m. on January 31, 2003. Dale and Nathan transferred these assets to Adoption Media LLC as of 11:59:35 p.m. on January 31, 2003.

On June 2, 2003, Dale and his wife Kristie incorporated True North, Inc. ("True North") as an Arizona corporation; and Nathan incorporated Aracaju, Inc. ("Aracaju") as an Arizona corporation.

On June 6, 2003, Dale conveyed his 50% ownership in Adoption Media LLC and Adoption Profiles LLC to True North; and Nathan conveyed his 50% ownership in Adoption Media LLC and Adoption Profiles LLC to Aracaju. The transfers involved membership only, with no transfer of the underlying assets. That same day, Dale, as President of True North, designated himself as True North's representative relating to its membership interests in both LLCs; and Nathan as President of Aracaju, designated himself as Aracaju's representative relating to its membership interests in both LLCs. True North and Aracaju currently act as holding companies of the membership interests in the LLCs.

Adoption Profiles LLC continues the policy of allowing only married, opposite-sex couples to use the ParentProfiles service.

DISCUSSION

A. Legal Standard

Summary judgment is appropriate when there is no genuine issue as to material facts and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56. Material facts are those that might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute as to a material fact is "genuine" if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. Id. The court may not weigh the evidence, and is required to view the evidence in the light most favorable to the nonmoving party. Id.

A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion, and of identifying those portions of the pleadings and discovery responses that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. [1028] 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Where the moving party will have the burden of proof at trial, it must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. On an issue where the nonmoving party will bear the burden of proof at trial, the moving party can prevail merely by pointing out to the district court that there is an absence of evidence to support the nonmoving party's case. See id. If the moving party meets its initial burden, the opposing party must then set forth specific facts showing that there is some genuine issue for trial in order to defeat the motion. See Fed.R.Civ.P. 56(e); Anderson, 477 U.S. at 250, 106 S.Ct. 2505.

B. The Unruh Act

The Unruh Civil Rights Act, California Civil Code §§ 51 and 52, was enacted in 1959, although predecessor statutes had been enacted in 1897 and 1905, and the 1905 statute remained in effect until the effective date of the Unruh Act. See Harris v. Capital Growth Investors XIV, 52 Cal.3d 1142, 1150-52, 278 Cal.Rptr. 614, 805 P.2d 873 (1991). Civil Code § 51.5 was enacted in 1976.

While it has been amended several times since 1959, Civil Code § 51 has always provided that "[a]ll persons within the jurisdiction of this state are free and equal, and no matter what their [specified personal characteristics], . . . are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever." Cal. Civ.Code § 51(b). Section 51.5 provides, in part, that "[n]o business establishment of any kind whatsoever shall discriminate against, boycott or blacklist, or refuse to buy from, contract with, sell to, or trade with any person in this state on account of any characteristic listed or defined in subdivision (b) or (e) of Section 51. . . ." Cal. Civ.Code § 51.5(a).

The "specified personal characteristics" listed in the 1959 version of the Unruh Act were "race, color, religion, ancestry, or national origin." In 1970, the California Supreme Court applied the Unruh Act to a case involving the exclusion of a patron of a business establishment for reasons not involving the specified characteristics listed in the Act. In re Cox, 3 Cal.3d 205, 90 Cal.Rptr. 24, 474 P.2d 992 (1970). The question was whether a shopping center had the right to exclude a customer based only on his association with a young man who "wore long hair" and "dressed in an unconventional manner."

The court examined its previous decisions in Orloff v. Los Angeles Turf Club, 36 Cal.2d 734, 227 P.2d 449 (1951) and Stoumen v. Reilly, 37 Cal.2d 713, 234 P.2d 969 (1951), two cases brought under the Unruh Act's predecessor statute, the Civil Rights Act, which provided that "all citizens" were entitled to "full and equal accommodations, advantages, facilities, and privileges," and also prohibited "denying to any citizen, except for reasons applicable alike to every race or color," access to places of public accommodation. In Orloff, the court had held that the Civil Rights Act barred the manager of a race track from ejecting a patron (a convicted gambler) who had acquired a reputation as a man of immoral character. Orloff, 36 Cal.2d at 739, 227 P.2d 449. In Stoumen, the court had "recognized the right of homosexuals to obtain food and drink in a bar and restaurant." Stoumen, 37 Cal.2d at 716, 234 P.2d 969.

The California Supreme Court concluded that Orloff and Stoumen had "clearly established" that the Civil Rights Act prohibited all arbitrary discrimination in public accommodations. Cox, 3 Cal.3d at 214, [1029] 90 Cal.Rptr. 24, 474 P.2d 992.^[1] The court also noted that the Legislature had enacted the 1959 amendment to §§ 51 and 52 subsequent to the decisions in Orloff and Stoumen, neither of which had restricted discrimination to race, color, religion, ancestry, or national origin. Id. at 215, 90 Cal.Rptr. 24, 474 P.2d 992. Stating that "[w]e must, of course, presume that the Legislature was well aware of these decisions," the court refused to "infer from the 1959 amendment any legislative intent to deprive citizens in general of the rights declared by the statute and stanchioned by public policy." Id.

Based on the nature of the 1959 amendments, the past judicial interpretation of the Civil Rights Act, and the history of legislative enactments that extended the statutes' scope, the court concluded that "identification of particular bases of discrimination — color, race, religion, ancestry, and national origin — added by the 1959 amendment, is illustrative rather than restrictive." Id. at 216, 90 Cal.Rptr. 24, 474 P.2d 992. The court noted that while the legislation had been invoked primarily by persons alleging discrimination on the basis of race, "its language and its history compel the conclusion that the Legislature intended to prohibit all arbitrary discrimination by business establishments." Id.

In 1974, the Legislature amended §§ 51 and 52 to add "sex" to the list of "specified personal characteristics. The Legislature noted that section 51 applied to all arbitrary discrimination and that [t]he listing of possible bases of discrimination has no legal effect, but is merely illustrative."

In 1982, in Marina Point, Ltd. v. Wolfson, 30 Cal.3d 721, 180 Cal.Rptr. 496, 640 P.2d 115 (1982), the California Supreme Court applied Cox to hold that the owner of an apartment complex violated the Unruh Act by refusing to rent to families with minor children. The court again rejected the view that the Act was limited to the categories specifically enumerated. Id. at 732, 180 Cal.Rptr. 496, 640 P.2d 115. The court cited the legislative history of the Act, which reflected that in 1974, in sending the bill amending § 51 to the Governor for his signature, the Chairman of the Select Committee on Housing and Urban Affairs had stated that "[t]he listing of possible bases of discrimination [in the Act] has no legal effect but is merely illustrative." Id. at 734, 180 Cal.Rptr. 496, 640 P.2d 115. The court also cited various opinions of the California Attorney General, advising that non-enumerated characteristics — such as occupation, marital status, or status as students or welfare recipients — could provide a basis for an Unruh Act claim. Id. at 736, 180 Cal. Rptr. 496, 640 P.2d 115.

The following year, in O'Connor v. Village Green Owners Ass'n, 33 Cal.3d 790, 191 Cal.Rptr. 320, 662 P.2d 427 (1983), the court applied Marina Green to hold that a condominium development restricting residency to persons over 18 violated the Unruh Act (noting also, however, that an age limitation in a retirement community preserved for older citizens would likely not violate the Act). Id. at 793, 191 Cal.Rptr. 320, 662 P.2d 427.

In 1985, the California Supreme Court applied Cox and Marina Point to hold that the Boys' Club of Santa Cruz — a community recreation facility that was open (for a nominal annual fee) to all Santa Cruz boys between the ages of 8 and 18 — discriminated against girls in violation of the Unruh [1030] Act. Isbister v. Boys' Club of Santa Cruz, 40 Cal.3d 72, 219 Cal.Rptr. 150, 707 P.2d 212 (1985). The court's discussion focused primarily on the question whether the Boys' Club qualified as a "business establishment," but the court did reiterate its by-now familiar statement that "identification of particular bases of discrimination [in the Unruh, Act] is illustrative rather than restrictive." Id. at 86-87, 219 Cal.Rptr. 150, 707 P.2d 212 (quoting Cox, 3 Cal.3d at 216, 90 Cal.Rptr. 24, 474 P.2d 992).

During this same period — 1982 to 1984 — three appellate courts held that the Unruh Act prohibits discrimination based on sexual orientation. First, in Hubert v. Williams, 133 Cal.App.3d Supp. 1, 184 Cal. Rptr. 161 (App.Dep't., Super.Ct, L.A.County, 1982), a quadriplegic tenant who required 24-hour care was evicted from his apartment because he had hired a lesbian attendant. Relying on Marina Point, Cox, and Stoumen, the court held that discrimination on the basis of homosexuality violated the Unruh Act. Id. at 3-5, 184 Cal.Rptr. 161.

Second, in Curran v. Mt. Diablo Council of the Boy Scouts, 147 Cal.App.3d 712, 195 Cal.Rptr. 325 (1983), the Court of Appeal held that the expulsion of a person from membership in the Boy Scouts — the plaintiff was an Eagle Scout who had applied to be an adult leader — on the basis of his homosexuality was a violation of the Unruh Act. Id. at 733-34, 195 Cal.Rptr. 325.^[2]

Third, in Rolon v. Kulwitzky, 153 Cal. App.3d 289, 200 Cal.Rptr. 217 (1984), two lesbians filed suit against a restaurant owner after they were refused service in a semi-private booth in the restaurant, and were instead offered service at a table in the main dining room. The restaurant had a policy of allowing seating in the booths only by two people of the opposite sex. The Court of Appeal observed that while the Unruh Act "preserves the traditional broad authority of owners and proprietors of business establishments to adopt reasonable rules regulating the conduct of patrons or tenants," it does not permit the exclusion of an individual who has committed no such conduct, "solely because he falls within a class of persons whom the owner believes is more likely to engage in misconduct than some other group." Id. at 292, 200 Cal.Rptr. 217.

In 1987, the Legislature added "blindness or other physical disability" to the list of "specified personal characteristics."

In 1991, the California Supreme Court issued its decision in Harris v. Capital Growth Investors XIV The plaintiffs were a group of prospective tenants who sued under the Unruh Act to challenge a landlord's requirement that any prospective tenant have a monthly income of at least three times the apartment's monthly rent. The two issues in the case were whether the Act proscribes economic discrimination, and whether a plaintiff can state a claim under the Act for disparate impact (as opposed to disparate treatment).

The defendants asserted, based on the specific discriminatory classifications listed in the Act, that judicial expansion of those classifications to include whatever the courts might deem "arbitrary" could not be justified. They also argued that the court should overrule Cox, Marina Point, and O'Connor.

The court found some indication that the Legislature had intended to confine the [1031] scope of the Act to certain specified types of discrimination, but also found an "[in]sufficiently compelling reason" to overrule Cox and its progeny. Harris, 52 Cal.3d at 1155, 278 Cal.Rptr. 614, 805 P.2d 873. The court noted that while the Legislature had amended the Act several times in the 20 years since the Cox decision, it had taken no steps to overrule the cases that had found that the Unruh Act prohibited discrimination on the basis of unconventional dress or appearance (Cox), families with children (Marina Point), persons under 18 (O'Connor), and homosexuality (RoIon, Curran, and Hubert). Id.

The court reiterated that "[w]e generally presume the Legislature is aware of appellate court decisions," id. at 1155, 278 Cal. Rptr. 614, 805 P.2d 873, and cited Marina Point for the proposition that when the Legislature amends a statute without altering portions of the provision that have been previously judicially construed, "the, Legislature is presumed to have been aware of and to have acquiesced in the previous judicial construction." Id. at 1156, 278 Cal.Rptr. 614, 805 P.2d 873 (citing Marina Point, 30 Cal.3d at 734, 180 Cal.Rptr. 496, 640 P.2d 115). The court found the defendants' argument that the holdings of Cox, Marina Point, O'Connor, and other decisions extending the Unruh Act beyond its specified categories of discrimination had been somehow repudiated by the Legislature to be "untenable." Id.

The court also concluded, however, that the Legislature's decision to enumerate personal characteristics in the Act, and to omit financial or economic ones, did suggest a limitation on the scope of the statute. The court devised a three-part analysis to help answer the question whether, in view of the continued importance of the enumerated categories, and in light of the language and history of the Act and the probable impact on its enforcement of the competing interpretations urged by the parties, the Act could nonetheless be extended to claims of economic status discrimination. Id. at 1159, 180 Cal.Rptr. 496, 640 P.2d 115.

First, the court considered the language of the statute, noting an essential difference between economic status (the basis for the plaintiffs' claims) and the Act's enumerated categories and those added by judicial construction. The common element shared by the enumerated categories and those added by judicial construction was that they "involve personal as opposed to economic characteristics." Id. at 1160, 180 Cal.Rptr. 496, 640 P.2d 115. The court found no case in which distinctions based on financial or economic status (as opposed to personal characteristics) had been subjected to scrutiny under the Act; and found no support in the language or history of the Act to support plaintiffs' contention that economic distinctions and criteria were within the scope of the Act. Id. at 1161-62, 180 Cal.Rptr. 496, 640 P.2d 115.

Second, the court asked whether a legitimate business interest justified the minimum income policy at issue in the case, and concluded that it did. Id. at 1164, 180 Cal.Rptr. 496, 640 P.2d 115. The court observed that "[b]usiness establishments have an obvious and important interest in obtaining full and timely payment for the goods and services they provide," and noted that it had previously "recognized that the Unruh Act did not prohibit businesses from making economic distinctions among customers so long as the criteria used were not based on personal characteristics and could conceivably be met by any customer." Id. at 1162-63, 180 Cal.Rptr. 496, 640 P.2d 115. The court found that the minimum income policy was "not `arbitrary' in the same way that race and sex [1032] discrimination are arbitrary." Id. at 1164, 180 Cal.Rptr. 496, 640 P.2d 115.

Third, the court considered the potential consequences of allowing claims for economic status discrimination to proceed under the Act, and suggested the possibility that courts would become involved in a multitude of microeconomic decisions they are ill prepared to make, and the possibility that landlords might abandon neutral criteria such as income, and use subjective criteria that might promote the kind of discrimination the Unruh Act prohibits. Id. at 1165-69, 180 Cal.Rptr. 496, 640 P.2d 115.

Although Harris did not overrule Cox, Marina Point, or O'Connor, several decisions issued by the court of appeal during the post-Harris period reflected a new unwillingness to expand the number of protected characteristics under the Unruh Act. For example, in 1991, the court in Gayer v. Polk Gulch, Inc., 231 Cal.App.3d 515, 282 Cal.Rptr. 556 (1991), found that the Unruh Act did not encompass a retaliatory discrimination claim by a patron who had a pending discrimination suit against a bar. In 1994, the court in Roth v. Rhodes, 25 Cal.App.4th 530, 30 Cal. Rptr.2d 706 (1994), found that a podiatrist could not maintain a claim under the Unruh Act against the operator of a medical building who refused to lease space to him. In 2001, the court in Hessians Motorcycle Club v. J.C. Flanagans, 86 Cal.App.4th 833, 103 Cal.Rptr.2d 552 (2001), found that the Unruh Act did not prohibit a sports bar from denying admittance to motorcycle club members who refused to remove their "colors."

In 1992, a California appellate court held that the Unruh Act should not be expanded to include "marital status" as an additional basis of prohibited discrimination. See Beaty v. Truck Ins. Exchange, 6 Cal. App.4th 1455, 8 Cal.Rptr.2d 593 (1992). The plaintiffs, a same-sex couple, sued the defendant insurance company because it refused to sell them a joint umbrella policy under the terms and conditions offered to married couples. The court acknowledged that prior California decisions (Stoumen, Rolon, Curran, and Hubert) had held that discrimination against individuals on the basis of sexual orientation violates the Unruh Act. However, the court found that the case did not involve discrimination on the basis of sexual orientation, because the insurance company treated all unmarried individuals the same with regard to the issuance of umbrella policies, without regard to sexual orientation. Id. at 1460-61, 8 Cal.Rptr.2d 593.

The court then considered' the claim of discrimination on the basis of marital status. While recognizing that the Unruh Act had previously been extended to cover categories not enumerated in the statute, the court noted that "no court has extended the Unruh Act to claimed discrimination on the basis of marital status," and declared that "we shall not be the first to do so." Id. at 1462, 8 Cal.Rptr.2d 593. The court interpreted Harris as accepting that the Unruh Act had previously been extended to unenumerated categories, but also as requiring that any future expansion of prohibited categories should be "carefully weighed to insure a result consistent with legislative intent." Id.

The court applied the second two prongs of Harris' three-part analysis (legitimate business interest and consequences of allowing the type of claim brought by plaintiffs). In place of the first prong (examination of the language of the statute, and determination whether the proposed basis of discrimination — marital status — was similar to either the enumerated characteristics or the judicially-construed characteristics), the court simply concluded that marital status, like the economic status at [1033] issue in Harris, was a characteristic the Act was not intended to reach.

The court found that the "strong policy in [California] in favor of marriage" categorically precluded recognition of marital status discrimination under the Act. In the context presented, the court found that the policy in favor of marriage would not be furthered and, in the case of an unmarried heterosexual couple, would actually be thwarted, by including marital status among the prohibited categories. Id. at 1462-63, 8 Cal.Rptr.2d 593. The court also observed that the Legislature had included "marital status" in scores of statutes, but had never taken the opportunity to include it in the Unruh Act. Id.

Thus, as of 2002, when defendants denied the Butlers' request to post their profile on ParentProfiles.com, the Unruh Act specifically prohibited discrimination on the basis of race, color, religion, ancestry, national origin, sex, disability, and medical condition.^[3] The California Supreme. Court had repeatedly stated, however, that the enumerated categories were "illustrative rather than restrictive," and the Legislature had never acted to repudiate that construction, despite having amended the Act several times in the interim. The Harris court had slightly narrowed the earlier construction, holding that the Unruh Act did not apply to prohibit discrimination based on "financial or economic status," or other characteristics falling outside the realm of "personal characteristics."

Also as of 2002, a number of California appellate courts had ruled that the Unruh Act prohibited discrimination on the basis of sexual orientation. While at least one appellate court had held that the Unruh Act did not prohibit discrimination on the basis of marital status, the California Supreme Court had indicated that it was an open question,^[4] and had also repeatedly held that the Unruh Act's list of bases of discrimination was illustrative rather than restrictive.

In 2004, plaintiffs filed the complaint in this action, alleging discrimination based on marital status, sexual orientation, and sex, in violation of Civil Code §§ 51 and 51.5.

In 2005, the California Supreme Court issued its opinion in Koebke v. Bernardo Heights Country Club, 36 Cal.4th 824, 31 Cal.Rptr.3d 565, 115 P.3d 1212 (2005). In that case, a same-sex couple who were registered domestic partners sued a country club to which one of them belonged, alleging that the club's refusal to extend to them certain benefits it extended to married couples constituted marital status discrimination under the Unruh Act.

The court first summarized its prior decisions (Cox, Marina Point, O'Connor, Isbister, [1034] and Harris), and then applied the three-part Harris analysis to plaintiffs' marital status discrimination claim. As an initial matter, the court found that marital status involves a personal characteristic, like those categories already covered by the Act, and disagreed with the defendant country club's argument that marital status is nothing more than a legal status imposed by the state. Koebke, 36 Cal.4th at 842, 31 Cal.Rptr.3d 565, 115 P.3d 1212.

The court then discussed the Beaty decision at length. The court acknowledged the strong policy in California favoring marriage, and the practical interests served by that policy. Id. at 844-45, 31 Cal.Rptr.3d 565, 115 P.3d 1212. The court found, however, that "[t]hese policy considerations cannot justify denial of Unruh Civil Rights Act protection to domestic partners, whatever their application to other unmarried individuals and couples." Id. at 845, 31 Cal.Rptr.3d 565, 115 P.3d 1212. The court concluded that the Domestic Partner Rights and Responsibilities Act of 2003 (effective January 1, 2005), by which the Legislature granted legal recognition comparable to marriage both procedurally and in terms of substantive rights and obligations, was supported by policy considerations similar to those that favor marriage. Id. Thus, the court found, discrimination against registered domestic partners in favor of married couples is a type of discrimination that falls within the ambit of the Unruh Act. Id. at 846, 31 Cal. Rptr.3d 565, 115 P.3d 1212.

The court then analyzed the second and third prongs of the Harris test, while simultaneously distinguishing the Beaty court's findings. In particular, the court found the Beaty court's concerns inapplicable to registered domestic partners. Id. at 846-48, 31 Cal.Rptr.3d 565, 115 P.3d 1212. The court also addressed the Beaty court's argument that the Legislature's failure to add marital status to the list of characteristics protected under the Unruh Act was somehow significant, declaring that the Legislature's failure to amend the Act to expressly prohibit discrimination against domestic partners "is a particularly weak barometer of legislative intent." The court added, "No specific legislative declaration is required for this court to infer from the statement of legislative intent accompanying the Domestic Partner Act an intent that registered domestic partners should not be discriminated against in favor of married couples in public accommodations." Id. at 849, 31 Cal.Rptr.3d 565, 115 P.3d 1212.

Finally, while it found that the defendant country club's spousal benefit policy did not constitute impermissible marital status discrimination on its face prior to the effective date of the Domestic Partner Act, the court indicated that it would consider whether plaintiffs should be able to proceed on a claim that the policy, as applied, violated the Unruh Act prior to January 1, 2005. Id. at 851-52, 31 Cal. Rptr.3d 565, 115 P.3d 1212.

With regard to sexual orientation, plaintiffs had argued that using marriage as a criterion for allocating benefits necessarily denied such benefits to all the country club's homosexual members, who, like plaintiffs, were unable to marry in California. The court compared this claim to the claim in Harris, where the plaintiffs had argued that the defendant landlord's minimum income policy constituted gender discrimination because of its disparate impact on women, who were more likely to be receiving public assistance and who generally had lower-paying jobs than men did. Id. at 853, 31 Cal.Rptr.3d 565, 115 P.3d 1212 (citing Harris, 52 Cal.3d at 1170, 278 Cal.Rptr. 614, 805 P.2d 873). The court noted that it had previously rejected this theory, on the basis that the Unruh Act [1035] prohibits intentional acts of discrimination, not disparate impact. Id. at 853-54, 31 Cal.Rptr.3d 565, 115 P.3d 1212.

The court recognized, however, that the plaintiffs had cast their claim as one of disparate treatment rather than disparate impact, by alleging that discriminatory intent was established by country club's adoption of marriage as the criterion by which to extend benefits to some of its members, but not to others, for the reason that gays and_ lesbians cannot marry in California. Plaintiffs had also asserted that a policy or classification, in itself permissible, may nonetheless be illegal if it is merely a device employed to accomplish the prohibited discrimination. Nevertheless, the court found no evidence supporting plaintiffs' claim that the country club had adopted its spousal benefit policy to accomplish discrimination on the basis of sexual orientation, and concluded that plaintiffs' argument still seemed to be based on the effects of a facially neutral policy. Id. at 854, 31 Cal.Rptr.3d 565, 115 P.3d 1212.

The court did find evidence, however, that the country club had not applied its facially neutral policy in an impartial manner — specifically, evidence that unmarried, heterosexual members of the country club were granted membership privileges to which they were not entitled, while plaintiffs were denied such privileges purportedly pursuant to the country club's spousal benefit policy. Id. There was also evidence that the directors of the country club were motivated by animus toward plaintiffs because of their sexual orientation. Id. The court determined that the plaintiffs should be allowed to try to establish that, prior to 2005, the spousal benefit policy was applied in a discriminatory fashion in violation of the Unruh Act. Id. at 855, 31 Cal.Rptr.3d 565, 115 P.3d 1212.

Later that year (2005), the Legislature amended the Unruh Act to substitute "medical condition, marital status, or sexual orientation" for "or medical condition." See 2005 Cal. Legis. Serv. Ch. 420 (A.B. 1400). This amendment was effective January 1, 2006. In addition, the Legislature appended the following findings:

(a) Even prior to the passage of the Unruh Civil Rights Act, California law afforded broad protection against arbitrary discrimination by business establishments. The Unruh Civil Rights Act was enacted to provide broader, more effective protection against arbitrary discrimination. California's interest in preventing that discrimination is longstanding and compelling.

(b) In keeping with that history and the legislative history of the Unruh Civil Rights Act, California courts have interpreted the categories enumerated in the act to be illustrative rather than restrictive. It is the intent of the Legislature that these enumerated bases shall continue to be construed as illustrative rather than restrictive.

(c) The Legislature affirms that the bases of discrimination prohibited by the Unruh Civil Rights Act include, but are not limited to, marital status and sexual orientation, as defined herein. By specifically enumerating these bases in the Unruh Civil Rights Act, the Legislature intends to clarify the existing law, rather than to change the law, as well as the principle that the bases enumerated in the act are illustrative rather than restrictive.

(d) It is the intent of the Legislature that the amendments made to the Unruh Civil Rights Act by this act do not affect the California Supreme Court's rulings in [Marina Point] and [O'Connor].

[1036] Cal. Civ.Code. § 51, Historical Notes — Historical and Statutory Notes.

Thus, as of January 1, 2005, based on the Koebke decision, the Unruh Act clearly prohibited marital status discrimination against registered domestic partners in California. As of January 1, 2006, based on the 2005 amendments to the Unruh Act and the Legislative findings, the Unruh Act clearly prohibits discrimination based on marital status (regardless of whether the affected, persons are registered domestic partners) and also based on sexual orientation (though this, had previously been established by judicial decisions, dating back to the mid-1980s). The Legislature has also confirmed that the enumerated characteristics should be construed as illustrative rather than restrictive.

C. The Parties' Motions

1. Choice of Law

Defendants argue that California law does not apply to plaintiffs' substantive claims, while plaintiffs contend that it does.

a. Standard for Determining Applicable Law

Federal courts sitting in diversity look to the law of the forum state when making a choice-of-law determination. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Sparling v. Hoffman Const, Co., Inc., 864 F.2d 635, 641 (9th Cir.1988); see also Fields v. Legacy Health Sys., 413 F.3d 943, 950 (9th Cir.2005). Thus, because the complaint in the present action was filed in California, California's choice-of-law rules apply.

In the absence of an effective choice of law by the parties, California applies the "governmental interest" test. Washington Mutual Bank FA v. Superior Court, 24 Cal.4th 906, 919-20, 103 Cal.Rptr.2d 320, 15 P.3d 1071 (2001). Under that analysis,

a court carefully examines the govern mental interests or purposes served by the applicable statute or rule of law of each of the affected jurisdictions to determine whether there is a "true conflict." If such a conflict is found to exist, the court analyzes the jurisdictions' respective interests to determine which jurisdiction's interests would be more severely impaired if that jurisdiction's law were not applied in the particular con text presented by the case.

Kearney v. Salomon Smith Barney, Inc., 39 Cal.4th 95, 100, 45 Cal.Rptr.3d 730, 137 P.3d 914 (2006) (citing Reich v. Purcell, 67 Cal.2d 551, 63 Cal.Rptr. 31, 432 P.2d 727 (1967); Hurtado v. Superior Court, 11 Cal.3d 574, 114 Cal.Rptr. 106, 522 P.2d 666 (1974); Bernhard v. Harrah's Club, 16 Cal.3d 313, 128 Cal.Rptr. 215, 546 P.2d 719 (1976); Offshore Rental Co. v. Continental Oil Co., 22 Cal.3d 157, 148 Cal.Rptr. 867, 583 P.2d 721 (1978)).

Kearney reflects the California Supreme Court's most recent thinking regarding the application of the "governmental interest" test. In that case, two California clients of Salomon Smith Barney ("SSB") filed a class action alleging that telephone calls they had made to brokers at SSB's Georgia office had been tape-recorded without the clients' consent, in violation of California Penal Code § 637.2. Penal Code § 637.2 authorizes a civil cause of action for any violation of California's invasion-of-privacy statutory scheme, and Penal. Code § 632 is the specific portion of that scheme that governs the unlawful recording of telephone conversations. Plaintiffs also alleged a cause of action under California Business & Professions Code § 17200. Kearney, 39 Cal.4th at 102, 45 Cal.Rptr.3d 730, 137 P.3d 914.

SSB demurred to the complaint. The trial court sustained the demurrer, concluding that under both Georgia anti federal [1037] law, recordings may be lawfully made in Georgia by one party without the other party's knowledge or consent, and that SSB's conduct could therefore not be viewed as unlawful or unfair or deceptive under § 17200. The court found further that any attempt to apply Penal Code § 632 to recordings made in Georgia would be preempted by federal law and would violate the Commerce Clause. Id. at 102-03, 45 Cal.Rptr.3d 730, 137 P.3d 914.

The court of appeal affirmed the trial court's judgment, but on the basis that under the specific facts of the case, Georgia had a greater interest in having its law applied. Id. at 103, 45 Cal.Rptr.3d 730, 137 P.3d 914. The California Supreme Court granted the petition for review to address what it termed the "novel choice-of-law issue presented by this case." Id. The court initially disposed of SSB's arguments regarding personal jurisdiction, legislative jurisdiction and extraterritorial application of state law, federal preemption, and the Commerce Clause, id. at 103-07, 45 Cal.Rptr.3d 730, 137 P.3d 914, and then addressed the choice-of-law issue, which it termed "the only substantial issue presented by the case." Id at 107, 45 Cal.Rptr.3d 730, 137 P.3d 914.

The court summarized the governmental interest approach, as follows.

First, the court determines whether the relevant law of each of the potentially affected jurisdictions with regard to the particular issue in question 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" . . . and then ultimately applies "the law of the state whose interest would be the more impaired if its law were not applied."

Id. at 107-08, 45 Cal.Rptr.3d 730, 137 P.3d 914 (citation omitted).

The court then reviewed four of its previous decisions on the issue — Reich, Hurtado, Bernhard, and Offshore Rental. The first two cases — Reich and Hurtado — presented "no true conflict" because in each case, only one of the states involved had an interest in having its law applied. The last two cases — Bernhard and Offshore Rental — each presented a "true conflict," because in those cases, each state had an interest in having its law applied, which required the court to conduct a "comparative impairment" analysis.

In Reich, a 1967 decision, the plaintiffs — Mr. Reich and one of his children — filed a wrongful death action after Mrs. Reich and the Reichs' other child were killed in an automobile accident while traveling through Missouri. The Reichs were residents of Ohio at the time of the accident. After the accident, Mr. Reich and the surviving child moved to California.

The suit was filed in a California court. The trial court held that Missouri law applied because the accident had taken place in Missouri. Missouri had a limit of $25,000 on wrongful death damages, while Ohio and California had no such limits. The question was whether the law of Missouri, California, or Ohio should apply.

The California Supreme Court rejected the "law of the place of the wrong" rule, and instead adopted the "governmental interest" test. Reich, 67 Cal.2d at 555-56, 63 Cal.Rptr. 31, 432 P.2d 727. The court found that California had no interest in the [1038] case because plaintiffs were not California residents at the time of the accident, and because California law did not limit damages. The court found further that Missouri's interest was local, and did not apply to extend protection to travelers from another state. Ohio had a substantial interest in having its law applied, while Missouri did not. Thus, the court found, the case did not present a true conflict and Ohio law applied.

The facts in Hurtado, a 1974 decision, were somewhat similar to the facts in Reich. The plaintiffs (widow and children of Antonio Hurtado) filed a wrongful death action in California. Antonio Hurtado had been riding in an automobile owned and operated by his cousin, defendant Manuel Hurtado, and was killed when Manuel Hurtado's automobile collided with a pickup truck owned and operated by defendant Jack Rexius. The plaintiffs (Widow Hurtado and children) and the decedent (Antonio Hurtado) were residents of Mexico, and defendants Manuel Hurtado and Jack Rexius were California residents. All vehicles were registered in California.

At the time of the accident, Mexico had a law that limited damages in wrongful death actions, while California had no limit. The question was whether the court should apply the law of California or the law of Mexico.

The California Supreme Court noted the importance of correctly identifying the various interests in a particular type of action. The court concluded that where a state's laws limit damages in a wrongful death action, the interest of the state is to protect defendants from excessive financial burdens or exaggerated claims. This interest is local, because it is designed to protect residents of the state. However, the court found that Mexico had no interest in applying its limitation of damages because it had no defendant residents to protect with such limitation — it was the plaintiffs who were the residents of Mexico, not the defendants. Hurtado, 11 Cal.3d at 583-84, 114 Cal.Rptr. 106, 522 P.2d 666.

In Bernhard, a 1976 decision, the California Supreme Court was confronted with a "true conflict" case for the first time since adopting the "governmental interest" analysis. Bernhard was a dramshop-liability case. The plaintiff, a resident of California, was injured in California by a drunk driver. The defendant, Harrah's Club, was the owner of a Nevada tavern that had served alcohol to the driver who injured the plaintiff.

Plaintiff filed suit in California, under a law that allowed a person injured by an intoxicated driver to file a civil action to recover damages from a negligent tavern owner.^[5] In Nevada, by contrast, while it was a crime to sell alcohol to an intoxicated person, the state courts had ruled that a tavern owner could not be held civilly liable in tort for injuries caused by that intoxicated person.

The court found that this presented a true conflict because each state had an interest in the application of its respective law of liability, and the interests of the two states conflicted. Nevada had an interest in having its decisional rule applied to protect its tavern owners from being subjected to a form of civil liability that Nevada declined to impose. California, on the other hand, had an interest in applying its rule imposing liability in such circumstances, because the rule was intended to protect members of the public from injuries to persons and property resulting from excessive use of intoxicating liquor. [1039] California also had a special interest in extending this protection to California residents injured in California. Bernhard, 16 Cal.3d at 322-24, 128 Cal.Rptr. 215, 546 P.2d 719. The question was whether California or Nevada law applied.

The court applied the third part of the governmental interest test — the "comparative impairment" analysis — to determine which state's interest would be more impaired if its policy were subordinated to the policy of the other state. Id. at 320, 128 Cal.Rptr. 215, 546 P.2d 719. The court first noted that Harrah's "by the course of its chosen commercial practice" had "put itself at the heart of California's regulatory interest, namely to prevent tavern keepers from selling alcoholic beverages to obviously intoxicated persons who are likely to act in California in the intoxicated state." Id. at 322, 128 Cal.Rptr. 215, 546 P.2d 719.

The court observed that California "cannot reasonably effectuate its policy if it does not extend its regulation to include out-of-state tavern-keepers such as defendant who regularly and purposefully sell intoxicating beverages to California residents," under circumstances in which it is likely that intoxicated persons will return to California while still in an intoxicated state. Id. at 322-23, 128 Cal.Rptr. 215, 546 P.2d 719. The court found that California's interest would be significantly impaired if its policy were not applied to defendant Harrah's. Id. at 323, 128 Cal. Rptr. 215, 546 P.2d 719.

In Offshore Rental, a 1978 decision, a California corporation filed suit in California against an out-of-state corporation (which did business in California, Louisiana, and other states), alleging damage to business interests. The California corporation sought to recover damages for loss of services of one of its key corporate officers, who was injured at the defendant corporation's Louisiana premises. The question was whether California or Louisiana law applied.

Although Louisiana law allowed a "master" to bring an action "against any man for beating or maiming his servant," Louisiana courts had ruled that a corporate plaintiff could not state a cause of action under that law for loss of services of its officer. California cases, on the other hand, seemed to support a cause of action under California Civil Code § 49, which provided that "[t]he rights of personal relations forbid . . . any injury to a servant which affects his ability to serve his master." California courts had indicated that a corporation could assert a claim under Civil Code § 49 against a third party for negligent injury to a key employee.

The California Supreme Court found that the laws of Louisiana and California were directly in conflict, and looked at the governmental policies underlying the laws of the two states, in order to determine whether either state had an interest in applying its policy to the case.

Louisiana's refusal to permit recovery for loss of a key employee's services was predicated on a policy of "protect[ing] negligent resident tort-feasors acting within Louisiana's borders from the financial hardships caused by the assessment of excessive legal liability or exaggerated claims resulting from the loss of services of a key employee." Offshore Rental, 22 Cal.3d at 163-64, 148 Cal.Rptr. 867, 583 P.2d 721. "Clearly," the court observed, "the present defendant is a member of the class which Louisiana law seeks to protect, since defendant is a Louisiana `resident' whose negligence on its own premises has caused the injury in question," and "negation of plaintiff's cause of action serves Louisiana's policy of avoidance of extended financial hardship to the negligent defendant." Id. at 164, 148 Cal.Rptr. 867, 583 P.2d 721.

[1040] The court recognized as "equally clear," however, that "application of California law to the present case will further California's interest," noting that California, through Civil Code § 49, "expresses an interest in protecting California employers from economic harm because of negligent injury to a key employee." Id. Moreover, "California's policy of protection extends beyond such an injury inflicted within California, since California's economy and tax revenues are affected regardless of the situs of physical injury." Id.

Having found a true conflict between the law of Louisiana and the law of California, the court proceeded with the analysis to determine which state's interest would be more impaired if its policy were subordinated to the policy of the other state. This analysis, according to the court, does not involve "weighing" the conflicting governmental interests, in the sense of determining which interest is "worthier" or expresses the "better" social policy, but rather can be viewed as an attempt to determine "the relative commitment of the respective states to the laws involved." Id. at 165-66, 148 Cal.Rptr. 867, 583 P.2d 721 (citations omitted). "The approach incorporates several factors . . . [including] the history and current status of the states' laws; [and] the function and purpose of those laws." Id. at 166, 148 Cal.Rptr. 867, 583 P.2d 721.

The court characterized the Louisiana law as being in the "main stream" of American jurisdictions, as the majority of states that had considered the question did not sanction actions for harm to business employees. Id. at 167-68, 148 Cal.Rptr. 867, 583 P.2d 721. By contrast, California had exhibited little interest in applying Civil Code § 49, no California court had squarely held that California law provides a cause of action for harm to business employees, and no California court had recently considered the issue at all. Id. at 168, 148 Cal.Rptr. 867, 583 P.2d 721. Thus, to the extent that § 49 provided a cause of action for injuries to key corporate employees, it nonetheless constituted a law that was "archaic and isolated in the context of the laws of the federal union," and California's interest in the application of its unusual and outmoded statute was comparatively less strong than Louisiana's corollary interest in its "prevalent and progressive law." Id.

The court found further that while the "law of the place of the wrong" is not necessarily the applicable law for all tort actions, "the situs of the injury remains a relevant consideration." Id. The court found that Louisiana had a "vital interest in promoting freedom of investment and enterprise within Louisiana's borders, among investors incorporated both in Louisiana and elsewhere," and that the imposition of liability on the defendant would "strike at the essence of a compelling Louisiana law." Id. The court also noted that the plaintiff corporation was particularly able to calculate risks and plan accordingly, by purchasing "key employee" insurance — and indeed, should have anticipated a need for such protection — whereas defendant reasonably did not anticipate a need for insurance to protect against "key employee" losses at its Louisiana facility, as that type of loss is not actionable under Louisiana law. Id. at 168-69, 148 Cal. Rptr. 867, 583 P.2d 721.

Following its review of the Reich, Hurtado, Bernhard, and Offshore Rental decisions, the Kearney court turned to an examination of the facts of the case before it, in order to determine whether California law or Georgia law apply to the recording of a telephone conversation that occurs between a person in California and a person in Georgia.

[1041] The court first analyzed the California statutory scheme, noting that Penal Code § 632 — the law prohibiting the recording of telephone conversations without the knowledge of both participants — was part of California's broad, protective invasion-of-privacy statute. Kearney, 39 Cal.4th at 115-16, 45 Cal.Rptr.3d 730, 137 P.3d 914. Further, the legislatively prescribed purpose of the 1967 invasion-of-privacy statute "is to `protect the privacy of the people of this state.'" Id. at 119, 45 Cal.Rptr.3d 730, 137 P.3d 914 (citing Penal Code § 630).

The court found that the stated purpose "certainly supports application of the statute in a setting in which a person outside California records, without the Californian's knowledge or consent, a telephone conversation of a California resident who is within California." Id. "The privacy interest protected by the statute is no less directly and immediately invaded when a communication within California is secretly and contemporaneously recorded from outside the state than when this action occurs within the state." Id.

The court then turned to the Georgia law. The basic provision of the Georgia statute is the prohibition of the employment of devices that would permit the clandestine "overhearing, recording or transmitting of conversations or observing of activities which occur in a private place." Id. at 121, 45 Cal.Rptr.3d 730, 137 P.3d 914 (citing Ga.Code Ann. § 16-11-62). The policy underlying the statute is the public policy of the state to "`protect the citizens of this State from invasions upon their privacy.'" Id. At the same time, however, another provision of that statutory scheme provides that nothing in § 16-11-62 "shall prohibit a person from intercepting a wire, oral, or electronic communication where such person is a party to the communication or one of the parties to the communication has given prior consent to such interception." Id. (citing Ga.Code Ann. § 26-11-66).

Georgia courts have long interpreted the Georgia privacy statutes as not applicable when a conversation is recorded by one of the participants in the conversation. Id. at 121-22, 45 Cal.Rptr.3d 730, 137 P.3d 914. Thus, the court noted, Georgia law differs from California law in this respect, although nothing in either law addresses whether the law is intended to apply to a telephone call in which one of the parties is in another state. Id. at 122, 45 Cal. Rptr.3d 730, 137 P.3d 914.

The Kearney court concluded that the case presented a true conflict — California had a legitimate interest in having its law applied because the plaintiffs were California residents whose telephone conversations in California were recorded without their knowledge or consent; and Georgia had a legitimate interest in not having liability imposed on persons or businesses who acted in Georgia in reliance on the provisions of Georgia law, because the conduct at issue in the case involved activity engaged in by defendant's employees in Georgia. Id. at 123, 45 Cal.Rptr.3d 730, 137 P.3d 914.

The court then considered which state's interest would be more impaired if its policy were subordinated to the policy of the other state. Id. at 124, 45 Cal.Rptr.3d 730, 137 P.3d 914. The court first looked at the degree of impairment of California's interest that would result if Georgia law rather than California law were applied. The court noted that unlike the situation in Offshore Rental, the California statute in question was not "ancient" or "little used." Rather, California courts have repeatedly invoked and vigorously enforced the provisions of Penal Code § 632. Id.

Moreover, the court noted, in recent years the California Legislature has continued [1042] to add provisions and make modifications to the invasion-of-privacy statutory scheme at issue, which, along with California's constitutional privacy provision (Cal. Const., art. I, § 1) was enacted specifically to protect Californians from overly intrusive business practices. Id. at 125, 45 Cal.Rptr.3d 730, 137 P.3d 914. The court concluded that California had a strong and continuing interest in the full and vigorous application of all the provisions of Penal Code § 632 prohibiting the recording of telephone conversations, and that the failure to apply the statute would substantially undermine the protection it afforded. Id.

The court concluded that the application of California law would have a relatively less severe effect on Georgia's interests, than would the application of Georgia law on California's interests. Id. at 126, 45 Cal.Rptr.3d 730, 137 P.3d 914. First, because California law was more protective of privacy interests than the comparable Georgia statute, the application of California law would not violate any privacy interest protected by Georgia law. Id. at 126-27, 45 Cal.Rptr.3d 730, 137 P.3d 914.

Second, with regard to businesses in Georgia that record telephone calls, California law would apply only to those calls made to or received from California, not to all calls to and from such Georgia businesses, and it would be easy to identify both the calls being made to California residents, and the calls coming in from California residents. Id. at 127, 45 Cal. Rptr.3d 730, 137 P.3d 914.

Third, applying California law to a Georgia business' recording of telephone calls between its employees and California customers would not severely impair Georgia's interests. The calls could still be made and could still be recorded — the only requirement would be that the recording not be secret or undisclosed. Id. Further, to the extent that the Georgia law is intended to protect a business' ability to secretly record calls to and from its customers, the application of California law to those calls made to and from California customers "would represent only a relatively minor impairment of Georgia's interests." Id.

The court concluded that because the interests of California would be severely impaired if Georgia law were applied, and because the interests of Georgia would not be significantly impaired if California law were applied, California law should apply in determining whether the alleged secret recording of telephone conversations at issue in the case constitutes an unlawful invasion of privacy. Id. at 127-28, 45 Cal. Rptr.3d 730, 137 P.3d 914.

b. Whether California Law Applies in the Present Action

In issuing its decision in Kearney, the California Supreme Court did not change the law regarding choice-of-law analysis. The "governmental interest" test, as previously articulated and applied in Reich, Hurtado, Bernhard, and Offshore Rental, still provides the basis for determining which state's law applies in a case involving multi-state interests.

This court now considers whether, in light of this analysis, plaintiffs can assert claims under California law in the present case.

i. whether the laws of Arizona differ from the laws of California

The parties agree — though for different reasons — that Arizona law differs from California law. Defendants assert that the issue for choice-of-law analysis is not merely whether Arizona and California treat sexual orientation and marital status discrimination differently, but whether the acts about which plaintiffs complain could support a claim under Arizona law. They [1043] argue that Arizona does not permit same-sex couples to adopt jointly, and that same-sex couples have no claim for discrimination based on being treated differently than married couples when it comes to adoption or marriage. They also contend that because a same-sex couple cannot jointly adopt in Arizona, there can be no claim for discrimination in Arizona based on the refusal to "publish" a profile for a same-sex couple.

Plaintiffs, on the other hand, focus on the fact that while California law prohibits discrimination on the basis of sexual orientation and marital status, Arizona law does not affirmatively permit Arizona businesses to discriminate against gays or lesbians or domestic partners, Arizona's public accommodation statute is silent with regard to discrimination on the basis of sexual orientation and marital status, and Arizona courts have not ruled on the question whether the state's public accommodation statute forbids discrimination against same-sex couples. Plaintiffs contend that while Arizona has no state law prohibiting sexual orientation discrimination by business establishments, it does not condone such discrimination. They also note that various localities in Arizona have promulgated local policies prohibiting discrimination based on sexual orientation or marital status in public accommodation and other areas.

Both Arizona and California have enacted anti-discrimination laws, and laws governing adoption and marriage. California's Unruh Act is discussed at length above. The Arizona Civil Rights Act of 1965 prohibits discrimination in places of public accommodation, "against any person because of race, color, religion, sex, national origin or ancestry." Ariz.Rev.Stat. § 41-1442. It is unlawful under this statute to deny or withhold "accommodations, advantages, facilities, or privileges thereof' based on the enumerated characteristics, or to make any distinction "with respect to any person" based on the enumerated characteristics, "in connection with the price or quality of any item, goods or services offered by or at any place of public accommodation." Id.

"Places of public accommodation" under § 41-1442 include

all public places of entertainment, amusement or recreation, all public places where food or beverages are sold for consumption on the premises, all public places which are conducted for the lodging of transients or for the benefit, use or accommodation of those seeking health or recreation, and all establishments which cater or offer their services, facilities or goods to solicit patronage from members of the general public.

Ariz.Rev.Stat. § 41-1441.

On its face, the Arizona statute is similar to the pre-1987 version of the Unruh Act — prior to addition of disability, medical condition, marital status, and sexual orientation to the list of protected characteristics — except that it uses the term "public accommodations" rather than "business establishments." As interpreted by the Arizona courts, however, there is a significant difference. No Arizona court has ever held, as has the California Supreme Court with regard to the Unruh Act, that the categories specified in ARS § 41-1442 are "illustrative" only. Moreover, the Arizona statute was enacted in 1965; prior to that time, Arizona had no state laws prohibiting discrimination in public accommodations.

The adoption and marriage laws of the two states are similar in some respects, but different in others. Under Arizona law, "[a]ny adult resident of this state, whether married, unmarried or legally separated is eligible to qualify to adopt children. A husband and wife may jointly [1044] adopt children." Ariz.Rev.Stat. § 8-103. This statute was adopted in 1970, and has not been amended since.

Because the statute allows adoption by "[a]ny" adult resident, it does not regulate adoption on the basis of the sexual orientation of a single adoptive parent. Moreover, in April 2006, HB 2696, a bill that would have given married couples preference over single people in adopting children, was defeated in the Arizona Legislature. See http://www.azleg.gov/Format Document.asp?inDoc =/legtext/471eg/2r/ bills/hb1696o.asp.

Arizona law does not say anything about joint adoptions, other than that a "husband and wife" may jointly adopt. Arizona does have a law, added in 1996, providing that "[m]arriage between persons of the same sex is void and prohibited." Ariz.Rev.Stat. § 25-101(C).^[6] With the same bill, the Legislature amended the law relating to marriages contracted in other states, to provide that "[m]arriages valid by the laws of the place where contracted are valid in this state, except marriages that are void and prohibited by § 25-101." Ariz.Rev. Stat. § 25-112.^[7]

Thus, since same-sex couples cannot marry in Arizona, and if married in another state, will not be considered married in Arizona, they presumably would not qualify under the "joint" adoption provision of § 8-103. However, Arizona law does not specifically prohibit joint adoptions by same-sex couples.

Arizona allows stepparent adoption. In Arizona, "stepparent adoption" refers to "adoption by the spouse of the child's parent." Ariz.Rev.Stat. § 8-117(C); see also Ariz.Rev.Stat. § 25-409(F) (visitation granted to grandparents or great-grandparents automatically terminates if child is placed for adoption, except where the child is adopted "by the spouse of a natural parent if the natural parent remarries"). Based on this language — specifically, the reference to the "spouse" of the child's parent — it is likely that a person of the same sex as the child's parent would not be eligible to adopt as a stepparent under Arizona law, because that person cannot be a "spouse" (husband or wife).

Arizona law is silent with regard to second-parent adoption. "Second-parent" adoption has been defined in California as "an independent adoption whereby a child born to [or legally adopted by] one partner is adopted by his or her non-biological or non-legal second parent, with the consent of the legal parent, and without changing the latter's rights and responsibilities." Sharon S. v. Superior Court, 31 Cal.4th 417, 422 n. 2, 2 Cal.Rptr.3d 699, 73 P.3d 554 (2003) (citation omitted).

California permits "any adult" to adopt a minor child. Cal. Fam.Code § 8600. The adult must be at least 10 years older than the child, unless the adult is a stepparent or sister, brother, aunt, uncle or first cousin. Cal. Fam.Code § 8601. A married person may not adopt a child without consent of his or her spouse. Cal. Fam.Code § 8603. Thus, Arizona and California both permit single adoption without any limitation as to sexual orientation, and joint adoption by married couples.

California allows stepparent adoption, defined as the "adoption of a child by a stepparent where one birth parent retains [1045] custody and control of the child." Cal. Fam.Code § 8543; see also Cal. Fam.Code §§ 9000-9007. However, unlike Arizona, California does not classify stepparent adoption as adoption by the "spouse" of the child's parent.

Second-parent adoption is also legal in California. While there has never been a statute expressly authorizing second-parent adoption, California adoption statutes have always permitted adoption without regard to the marital status of prospective adoptive parents. Sharon S., 31 Cal.4th at 433, 2 Cal.Rptr.3d 699, 73 P.3d 554. At least as early as 1999, the California Department of Social Services — the agency that oversees county child welfare agencies that perform home studies in adoption cases — had a stated policy that unmarried couples seeking to adopt were to be evaluated on the same basis as married couples. Id. at 433 n. 8, 2 Cal.Rptr.3d 699, 73 P.3d 554. The `California Supreme Court in Sharon S. noted that as of 2003, published materials indicated that between 10,000 and 20,000 second-parent adoptions had been granted in California over the years. However, it was not until August 4, 2003, that the California Supreme Court (in Sharon S.) officially recognized the validity of second-parent adoptions.

On March 8, 2000, the voters passed Proposition 22, an initiative providing that "[o]nly marriage between a man and a woman is valid or recognized in California." This law is codified as California Family Code § 308.5. Pursuant to this statute, California will not recognize samesex marriages even if those marriages are validly formed in other jurisdictions that permit same-sex marriage.^[8] Thus, like Arizona, California does not allow samesex couples to marry.

However, unlike Arizona, the California Legislature has enacted legislation allowing civil unions (domestic partnerships). California created a "domestic partner registry" in 1999. See Cal. Fam.Code § 297 (effective January 1, 2000). The statute was subsequently amended to expand the rights and obligations of domestic partners. In 2001, the California Legislature enacted AB 25, which became effective on January 1, 2002. Among other things, AB 25 provided that registered domestic partners were entitled to use the streamlined step-parent adoption procedures. See Cal. Fam.Code § 9000(g). Thus, AB 25 equalized registered domestic partners with married spouses with regard to the issue of adoption in California.

As of January 1, 2005, California's domestic partner law provides most of the same rights and responsibilities of spouses under California law, such as complete inheritance rights, community property, joint responsibility for debt, and the right to request support from the other partner upon dissolution of the partnership. Cal. Fam.Code § 297.5.^[9]

While Arizona law does not authorize civil unions, the voters of the state recently rejected an attempt to make the enactment of such laws impossible in the future, [1046] by rejecting Proposition 107 in the Arizona November 2006 state-wide election. Proposition 107 would have amended the Arizona Constitution to state that marriage consists of a union of one man and one woman, and to prohibit the state and its political subdivisions from creating or recognizing any legal status for unmarried persons that is similar to that of marriage. See http://www.azsos.gov/election/2006/ General/ballotmeasures.htm.

Thus, as of 2002, when the Butlers sought to have their profile posted on ParentProfiles.com, Arizona state law did not prohibit discrimination on the basis of sexual orientation or marital status; any single person could petition to adopt in Arizona; there was no prohibition against single homosexual persons becoming adoptive parents; there was no law prohibiting joint adoptions by same-sex couples, although the law explicitly provided for joint adoptions only by "husband and wife;" and there was no law explicitly prohibiting same-sex second-parent adoptions. The law regarding adoptions is the same today — plus, the Arizona Legislature recently defeated a bill that would have given preference to married couples over single people in adoption.

As of 2002, California prohibited discrimination in public accommodations on the basis of sexual orientation; it was an open question whether discrimination on the basis of marital status was also prohibited; any single person could adopt in California; there was no law prohibiting adoptions by same-sex couples; and California allowed stepparent and second-parent adoptions without reference to sexual orientation or marital status, and had equalized registered domestic partners with married spouses with regard to the issue of adoption.

Having determined that the laws of the two states differ in some respects, as explained above, the court now considers whether a true conflict exists.

ii. whether a true conflict exists

Both plaintiffs and defendants argue that no true conflict exists in this case. Defendants contend that there is no true conflict because Arizona has an interest in applying its own laws under the facts of this case, while California does not. Defendants assert that Arizona has an interest in determining which business practices that occur in Arizona will subject Arizona businesses to liability; in ensuring that businesses operating within its borders are not subjected to liability for activities or practices that are legal in Arizona; and, in assuring that its citizens are not penalized when they enter into or refuse to enter into contracts in Arizona with persons from the minority of states with substantially different laws, such as those that prohibit marital status discrimination or sexual orientation discrimination.

Defendants contend that California has a limited interest — if any — in applying its law. They claim that the "policy" interests upon which plaintiffs rely are still developing within California — noting that the California Legislature only recently included sexual orientation discrimination or marital status discrimination in the list of prohibited conduct under the Unruh Act; claiming that it was not clear until recently that two "unrelated" persons (presumably meaning "unmarried") had the right to adopt a child under California law; and asserting that no court has found that marital status discrimination was prohibited under the Unruh Act prior to January 1, 2005. Thus, they contend, California cannot be deemed to have had a strong commitment in 2002 to the policies underlying plaintiffs' claims.

Defendants also argue that the Unruh Act's stated purpose — "to guarantee access [1047] to public accommodations on the part of all persons [in California] regardless of race, sex, religion, or other characteristics that have no bearing on a person's status as a responsible consumer," Harris, 52 Cal.3d at 1168, 278 Cal.Rptr. 614, 805 P.2d 873 — makes it clear that California's interest relates to accommodations in California. Defendants argue that because Adoption.com's business operations, office facilities, and "Internet servers"^[10] are located in Arizona, and because ParentProfiles.com may be accessed in California only after a person in California sends a request for information to the Internet server located in Arizona, a resident of California must, in effect, go to Arizona in order to obtain services from defendants. Thus, according to defendants, the public accommodation at issue is in Arizona rather than in California. They contend that California has no interest in mandating a public accommodation in another state.

Plaintiffs also claim that there is no true conflict in this case. However, they argue that the absence of a true conflict means that California is entitled to apply its own law. They submit that there is no true conflict between the laws of the two states because only California law is affected, asserting that a true conflict exists only where, as stated by the court in Offshore Rental, "each of the states involved has a legitimate but conflicting interest in applying its own law will we be confronted with a true conflicts case." Offshore Rental, 22 Cal.3d at 163, 148 Cal.Rptr. 867, 583 P.2d 721 (emphasis added).

Plaintiffs contend that this case directly implicates the primary purpose of the Unruh Act — to guarantee access to public accommodations for all Californians — and that California courts have invoked and vigorously enforced the Unruh Act from its inception to the present. They also note that the 2005 amendments to the Unruh Act added language expressly codifying the prohibition against discrimination on the basis of sexual orientation and marital status. Thus, they argue, as in Kearney, "California must be viewed as having a strong and continuing interest in the full and vigorous application" of its law in this case. See Kearney, 39 Cal.4th at 124-25, 45 Cal.Rptr.3d 730, 137 P.3d 914. Plaintiffs assert that Arizona has no legitimate interest in a policy of discrimination on the basis of sexual orientation or marital status.

The California Supreme Court found a "true conflict" in Bernhard, in Offshore Rental, and in Kearney because in each of those cases, the laws of two states were in conflict, and that conflict reflected competing state interests. In Bernhard, Nevada law held that tavern owners were not liable for injuries caused by drunk drivers who had obtained alcohol from the tavern owners, while California law imposed liability on the tavern owners for such injuries. In Offshore Rental, Louisiana law held that a corporate plaintiff could not bring a claim for the loss of services of one of its officers, while California law arguably allowed such a claim. In Kearney, it was legal under Georgia law to record a [1048] telephone conversation if only one of the participants knew it was being recorded, but illegal under California law to record such a conversation unless both participants were aware of the recording.

In the present case, neither the Arizona Civil Rights Law nor the Unruh Act specifically prohibited discrimination on the basis of sexual orientation or marital status in 2002. However, while there are no reported Arizona cases holding (even up to the present) that either of those characteristics can provide a basis for a claim of discrimination in public accommodations under the Arizona Civil Rights Law, a number of California cases had held by 1984, at least with regard to discrimination on the basis of sexual orientation, that such discrimination was prohibited by the Unruh Act. As of January 2006, of course, the Unruh Act unambiguously prohibits discrimination on the basis of both sexual orientation and marital status.

Also as of October 2002, both Arizona and California allowed any single person to adopt. Neither Arizona nor California had a law prohibiting adoptions by same-sex couples — although Arizona law explicitly provided for joint adoptions only by "husband and wife," and defined "stepparent" adoption as adoption by the "spouse" of the child's parent; while California allowed both stepparent and second-parent adoptions, regardless of the gender of the adoptive parents.

While the differences between the laws of Arizona and California are not as distinct as the differences at issue in Bernhard, Offshore Rental, and Kearney, this case arguably presents a true conflict, if only for the reason that it is unlikely that plaintiffs could have brought a similar discrimination claim under Arizona law. California has a strong interest in enforcing its anti-discrimination laws. It is less clear what interest Arizona might have in allowing discrimination in public accommodations on the basis of sexual orientation or marital status, or in applying its own law to California residents. The only interest plaintiffs have articulated is Arizona's interest in protecting its resident businesses from uncertainty.

Plaintiffs have supported their position with citations to the Unruh Act and the cases that have interpreted it, while defendants have provided no support for their claim that Arizona has a strong interest in protecting its businesses from "surprise" penalties in the form of liability under the anti-discrimination laws of other states. It is true that the courts in Kearney, Offshore Rental, and Bernhard considered a similar interest under the facts of those cases with regard to Georgia, Louisiana, and Nevada, respectively. See Kearney, 39 Cal.4th at 128-29, 45 Cal.Rptr.3d 730, 137 P.3d 914; Offshore Rental, 22 Cal.3d at 168, 148 Cal.Rptr. 867, 583 P2d 721; and Bernhard, 16 Cal.3d at 318, 128 Cal. Rptr. 215, 546 P.2d 719. But defendants have not pointed to any Arizona statute or judicial decision establishing that Arizona has a paramount interest in ensuring certainty in business dealings for Arizona businesses. Moreover, as the court in Kearney pointed out, "a company that conducts business in numerous states ordinarily is required to make itself aware of and comply with the law of a state in which it chooses to do business." Kearney, 39 Cal.4th at 105, 45 Cal.Rptr.3d 730, 137 P.3d 914; see also Bernhard, 16 Cal.3d at 322-23, 128 Cal.Rptr. 215, 546 P.2d 719. Nevertheless, in view of this finding that the interests of the two states are not entirely in accord, the court will consider the "comparative impairment" of each state's interest.

iii. which state's interest would be more impaired if its law were not applied

Once it has determined that a true conflict exists, the court must carefully [1049] evaluate and compare 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," and must apply the law of the state whose interest would be more impaired if its law were not applied. See Kearney, 39 Cal.4th at 107-08, 45 Cal.Rptr.3d 730, 137 P.3d 914.

Defendants argue that even if the court were to conclude that California has some interest in having its laws applied, Arizona's interest would be more impaired if its policy were subordinated to the policy of California. Specifically, defendants contend that Arizona's interest in promoting freedom of investment and enterprise within its borders would be impaired if Arizona businesses have no assurance of what laws apply to "Arizona activities." They argue that applying California law in this case would impair Arizona's ability to provide the benefits and protections of its laws to Arizona businesses, while applying Arizona law would not impede California's ability to protect its own citizens from discrimination within the bounds of its territorial jurisdiction.

The basis of California's interest in applying its law in Kearney was that the principal purpose of California's privacy law is to protect the privacy of confidential communications of California residents while they are in California. See Kearney, 39 Cal.4th at 119-20, 45 Cal.Rptr.3d 730, 137 P.3d 914. Defendants argue that the nature of secretly recording a phone call enables a person to reach out from another state and perform the tort of invading the privacy of a person in California, but that California has no similar interest in protecting its residents' access to public accommodations in other jurisdictions. Defendants claim that in order to find that California has an interest in applying the Unruh Act in this case, the court would have to find that the California Legislature intended to impose a duty on foreign Internet businesses to make their services available to California residents.

Plaintiffs, on the other hand, argue that California's interest would be more impaired if California law were not applied in this case. They argue that California's strong interest is shown in this case by the facts that the principal purpose underlying the Unruh Act is the protection of California residents from discrimination in California business transactions, and that the Legislature has continued to modify the Act and the courts have vigorously enforced it. Plaintiffs also contend that California has a significant interest in this case because this case involves family and adoption-related issues — issues that traditionally lie in the domain of the states. Plaintiffs claim that in light of these strong public policies, California's interests would be significantly impaired by the failure to apply California law.

Plaintiffs argue further that defendants have not shown and cannot show that Arizona has an actual or significant stake in this litigation or that its interests will be impaired if California law is applied. With regard to defendants' claim that Arizona has an interest in promoting "free enterprise," plaintiffs argue that defendants have not shown that this alleged interest would be promoted by permitting defendants to discriminate against same-sex couples.

In sum, plaintiffs argue that the factors that led the Kearney court to find that California law applied to the recording of telephone conversations between California residents and persons located in other states also apply in this action, while defendants maintain that California's interest does not come into play because this case does not involve discrimination against [1050] California residents in California. Defendants submit that all the activity occurred in Arizona, where defendants and Parent-Profiles.com's server are located. They argue that plaintiffs, in contacting defendants via the Internet, "traveled" from California to Arizona, and were therefore "in" Arizona at the time of the alleged discrimination. They argue that California has no interest in having its law applied extraterritorially.

Defendants claim that the Kearney court's finding of a California interest that would be severely impaired unless California law were applied — that is, the interest in protecting individuals in California from the secret recording of confidential communications by or at the behest of another party to the communication — has no relevance to the Unruh Act claims at issue here.

Defendants contend that it is well-established that the Unruh Act cannot be invoked to regulate activities conducted in another state, even though the welfare of California citizens may be affected when they travel to that state. In support, they cite Chaplin v. Greyhound Lines, Inc., 1995 WL 419741 (N.D.Cal., July 3, 1995); State of Calif. Auto. Dismantlers Ass'n v. Interinsurance Exchange, 180 Cal.App.3d 735, 225 Cal.Rptr. 676 (1986); and Archibald v. Cinerama Hawaiian Hotels, Inc., 73 Cal.App.3d 152, 140 Cal.Rptr. 599 (1977).

In Archibald, the plaintiff asserted that the defendant Hawaiian hotel's policy of charging California residents a higher rate than it charged Hawaii residents was discriminatory in violation of the Unruh Act. The court found, however, that the Unruh Act, by its express language, applied only within California, and could not be extended into the Hawaiian jurisdiction. The court cited Bigelow v. Virginia, 421 U.S. 809, 95 S.Ct. 2222, 44 L.Ed.2d 600 (1975), for the proposition that a state cannot regulate or proscribe activities conducted in another state or supervise the internal affairs of another state in any way, even though the welfare or health of its citizens may be affected when they travel to that state.^[11] Archibald, 73 Cal.App.3d at 159, 140 Cal.Rptr. 599 (citing Bigelow, 421 U.S. at 824-25, 95 S.Ct. 2222).

In Chaplin, the plaintiff asserted a claim under the Unruh Act for discriminatory conduct that occurred while plaintiff was traveling on one of defendant's buses in Texas. The court repeated the holding from Archibald (the language taken from Bigelow) that a state cannot regulate or proscribe actions conducted in another state, even though the welfare or health of its citizens may be affected when they travel to that state. Chaplin, 1995 WL 419741 at *5 (citing Archibald, 73 Cal. App.3d at 159, 140 Cal.Rptr. 599). Similarly, in Auto Dismantlers, the court relied on Archibald and Bigelow to support its ruling that licensed auto dismantlers could not seek to have California dismantling [1051] laws applied to buyers wild took vehicles out of the state to dismantle them. Auto. Dismantlers, 180 Cal.App.3d at 746, 225 Cal.Rptr. 676.

Defendants argue that just as in Archibald, Chaplin, and Auto Dismantlers, this case involves a wholly "extraterritorial" application of the Unruh Act to "conduct taking place outside the state." Defendants contend that plaintiffs have provided no evidence of any activity of any specific defendant within California that would provide the basis for the lawsuit. They claim that they have never contacted the plaintiffs, and that the only connection the events have with California is that the plaintiffs live in California and attempted, from California, to do business with an Arizona business.

Defendants also dispute plaintiffs' assertion that defendants have "actively and consistently court[ed] California consumers and businesses." They claim that the undisputed facts in the summary judgment record show no evidence that Adoption Profiles LLC has ever solicited a California consumer or business. Defendants assert that as of the filing of this lawsuit, Adoption "Profiles had done less than $38,000 worth of business with California residents.

Thus, according to defendants, California has no interest in applying the Unruh Act to Adoption Profiles' Arizona policy of "publishing," via its Arizona servers, potential adoptive parent profiles of married husbands and wives only.

Plaintiffs on the other hand argue that defendants' combined physical and virtual presence in California is substantial and significant, warranting application of California law in the present case. They contend that defendants should not be permitted to escape liability for injury they have caused simply because their offices are physically located in another state, and note that the court previously rejected defendants' assertion that all the actions of which plaintiffs complain occurred in Arizona, and that the court found that plaintiffs' claims arise directly from defendants' California-related contacts.

Where an out-of-state business solicits California customers and does business with customers living in California, California has an interest in ensuring that the out-of-state business does not discriminate against the California customers. Contrary to defendants' arguments, this is not a case that involves extraterritorial application of California law, as did the case against the Hawaiian hotel in Archibald; or the case against Greyhound based on the incident at the Texas bus terminal in Chaplin; or the case against the insurance company in Auto Dismantlers.

Archibald and Chaplin were brought by California residents seeking the protections of the Unruh Act in connection with events occurring when the California residents were physically located in other states. Auto Dismantlers involved an attempt to apply California law to the dismantling of automobiles outside of California's borders. By contrast, defendants in this case discriminated against California residents in California — not in Arizona or in any other state. Plaintiffs in this case were not in Arizona when the Gwilliams and the Adoption.com partnership refused to do business with them. As residents of California, they have been present in California from October 2002 until the present. Defendants have not cited any case in which a court has declined to apply California law to an out-of-state business that intentionally solicits California customers and intentionally harms California residents in California, in violation of California law.

[1052] In Kearney, SSB also argued that the plaintiffs there were seeking to impose California law on activities conducted outside of California, as to which California had no legitimate or sufficient state interest. The California Supreme Court rejected SSB's argument, stating that the case was based on SSB's policy and practice of recording telephone calls of California clients, while the clients were in California, without the clients' knowledge or consent; and held that California had an interest in protecting the privacy of telephone conversations of California residents while they were in California that was sufficient to permit California to exercise legislative jurisdiction over such activity. Kearney, 39 Cal.4th at 104-05, 45 Cal.Rptr.3d 730, 137 P.3d 914.

The Kearney court distinguished the situation in which California law is applied to out-of-state businesses to protect California residents while they are in California, from the situation in which California "would be applying its law in order to defeat a defendant's conduct in another state vis-a-vis another state's residents" or to "alter [a company's] nationwide policy." Id. at 104, 45 Cal.Rptr.3d 730, 137 P.3d 914.

Plaintiffs argue that the same reasoning applies in the present case, because the Butlers' claim is based on defendants' acknowledged policy and practice of applying its discriminatory policy to California residents, while such residents were in California. They claim that just as in Kearney, defendants' conduct here constitutes a "multi-state event" in which a crucial element — denial of services to California residents — occurred in California after defendants engaged in substantial and continuous efforts to attract California consumers.

The Kearney court found, with regard to the impairment of California's interest, that the failure to apply California law in that case would "substantially undermine the protection afforded by the statute" because it would permit out-of-state companies doing business in California to invade the privacy of California residents in contravention of 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. If businesses could maintain a regular practice of secretly recording all telephone conversations with their California clients or customers at 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.

Id. at 126, 45 Cal.Rptr.3d 730, 137 P.3d 914.

The court finds that the failure to apply California law in the present case would undermine the Unruh Act for the same reasons. If businesses with headquarters in other states could maintain a regular practice of discriminating against California residents, that practice would substantially impair the protection afforded by the statute.

The court is not persuaded by defendants' argument that Arizona's interests would be seriously impaired by applying California law. In Kearney, the court found that because California law was more protective of privacy interests than the comparable Georgia statute, "the application of California law would not violate any interest protected by Georgia law." Id. at 126-27, 45 Cal.Rptr.3d 730, 137 P.3d 914. Moreover, the court noted, because there was "nothing in Georgia law that requires any person or business to record [1053] a telephone call without providing notice to the other parties to the call, . . . persons could comply with Georgia law without violating any provision of Georgia law." Id. at 127, 45 Cal.Rptr.3d 730, 137 P.3d 914.

Similarly, in the present case, the Unruh Act is more protective of consumers than the comparable Arizona law. Application of California law would not violate any right protected by Arizona law, and the Unruh Act merely provides protections in addition to those specifically enumerated protections in Arizona. Arizona law does not require, or even permit, discrimination by businesses against same-sex couples.

Thus, defendants can comply with California law while doing business in California without violating any provision of Arizona law, and any interest Arizona may have in its own law would not be seriously impaired by the application of California law. As in Kearney,' where the court found that it would be feasible for a business located outside California to identify the calls that its employees were making to California residents, or were taking from California residents, it would be feasible in the present case for defendants to identify those potential customers of ParentProfiles.com who were living in, and certified to adopt in, California.

In a final argument, defendants contend that applying California law to regulate the policies of foreign Internet businesses would be a direct regulation of interstate commerce (citing American Civil Liberties Union v. Johnson, 194 F.3d 1149, 1160-61 (10th Cir.1999); American Booksellers Found. v. Dean, 342 F.3d 96, 102, 104 (2d Cir.2003); PSINet, Inc. v. Chapman, 362 F.3d 227, 239-40 (4th Cir.2004)). They claim that there is no justification for permitting one state to exert such control over the Internet.

Defendants raised this same argument in their original motion to dismiss, filed in April 2004. In the order denying that motion, the court specifically distinguished the cases cited by defendants in this motion — American Booksellers Found. v. Dean, ACLU v. Johnson, and PSINet v. Chapman — on the basis that each of those cases dealt with statutes that addressed Internet activities — specifically, laws prohibiting the dissemination of material harmful to minors via the Internet. The court then noted that, by contrast, the Unruh Act is an anti-discrimination statute that contains no reference to Internet-content distribution, and thus, on its face, places no burden on interstate commerce. See Order, May 3, 2004, at 17-18.

Moreover, defendants have provided no evidence that the application of California law would pose an undue and excessive burden on interstate commerce by making it impossible or infeasible for defendants to comply with the requirements of the Unruh Act without altering their conduct with regard to ParentProfiles.com's non-California clients.

In Kearney, the application of California law to the out-of-state defendant was "limited to the defendant's surreptitious or undisclosed recording of words spoken over the telephone by California residents while they are in California." Kearney, 39 Cal.4th at 104, 45 Cal.Rptr.3d 730, 137 P.3d 914. As plaintiffs point out, the same geographic limitation applies in the present case, as they are seeking to prevent defendants from discriminating against California residents while they are in California. The evidence shows that defendants already require all persons who wish to use the ParentProfiles service to identify their state of residence and where they are certified to adopt. Thus, defendants can easily distinguish California residents from others, and the application of California [1054] law will not require defendants to alter their policy or practice with regard to residents of other states.

2. The Unruh Act Claims

Plaintiffs allege in the second amended complaint that defendants' refusal to offer same-sex domestic partners the adoption-related services on ParentProfiles.com, on the same terms and conditions offered married couples, constitutes unlawful discrimination on the basis of marital status, sexual orientation, and sex, in violation of the Unruh Act.

Plaintiffs seek summary judgment on the issue of liability against Dale Gwilliam, Nathan Gwilliam, Adoption.com (the partnership), and Adoption Profiles, LLC. Defendants also seek summary judgment, arguing that Adoption.com (the partnership) did not violate the Unruh Act in 2002, and that the injunctive relief sought by plaintiffs under the Unruh Act is unconstitutional.

a. Liability under the Unruh Act

Plaintiffs argue that the Adoption.com partnership, and Dale Gwilliam and Nathan Gwilliam as general partners, were directly liable for violating the Unruh Act in 2002 because the partnership was the owner of the ParentProfiles.com website when plaintiffs were denied access to the ParentProfiles services. Plaintiffs assert that Adoption Profiles LLC is directly liable for the continuing violation of the Unruh Act as the current owner of ParentProfiles.com, which continues to discriminate against the plaintiffs and other same-sex couples, and that Dale and Nathan are also liable for discriminating against plaintiffs in connection with their role as managers of Adoption Profiles LLC.

i. marital status

Defendants argue that plaintiffs' application was denied solely because they were not married, and that plaintiffs were treated no differently than other unmarried couples who sought to post their profiles on ParentProfiles.com. They also assert that the Adoption.com partnership cannot be liable for discrimination on the basis of marital status in connection with the October 2002 denial of plaintiffs' application because the Unruh Act did not prohibit marital status discrimination against registered domestic partners until January 1, 2005.

Plaintiffs contend, however, that defendants' refusal to provide equal benefits and services to registered domestic partners discriminates on the basis of marital status, and did so in October 2002. They argue that the distinction made by the Koebke court between pre-2005 and post-2005 conduct does not apply in this case because the plaintiffs there were not registered domestic partners at the time the defendant country club initially denied their request for equal access to the services provided to married members.

They also assert that marital status has been a protected category under the Unruh Act for well over two decades. In support, they cite to Marina Point, in which the California Supreme Court cited an opinion of the California Attorney General stating that discrimination in rental housing on the basis of occupation, marital status, and number of children would violate the Unruh Act. See Marina Point, 30 Cal.3d at 736, 180 Cal.Rptr. 496; 640 P.2d 115 (citing 58 Ops. Cal. Atty. Gen. 608, 613 (1975), 1975 WL 22578).

In Kearney, the California Supreme Court found that California law applied under the facts of the case. However, with regard to the question of damages for conduct pre-dating the court's decision on [1055] the choice-of-law question, the court found that it would "maximize each affected state's interest to the extent feasible" to restrain the application of California law with regard to the imposition of liability for acts that occurred in the past in order to accommodate Georgia's interest in protecting persons who acted in Georgia in reasonable reliance on Georgia's law from being subjected to liability on the basis of such an action. Kearney, 39 Cal.4th at 128-31, 45 Cal.Rptr.3d 730, 137 P.3d 914.

The court based its decision not to apply California law to SSB's past actions on two considerations. The court noted the existence of conflicting lower court decisions from various jurisdictions, which might have given SSB cause to believe that Georgia law would apply to the recording of a telephone conversation between a person in Georgia and a person in California. The court also found that the damages for invasion of privacy might prove difficult to calculate.

Plaintiffs argue that the facts in this case do not warrant a result similar to the result in Kearney, because there are no conflicting decisions on point from other states. They contend that the relevant facts in this case are more like the facts in Bernhard, where the court found that California's dramshop-liability law applied to impose liability on a Nevada tavern owner who had served alcohol to an intoxicated patron, after that intoxicated individual injured a California resident in an automobile accident in California. The court's ruling was based in part on a finding that the tavern owner had actively solicited California patronage. Bernhard, 16 Cal.3d at 322-23, 128 Cal.Rptr. 215, 546 P.2d 719.

Plaintiffs also assert that unlike the uncertain and potentially massive damages at issue in Kearney, plaintiffs' damages under the Unruh Act are set by statute and are minimal in the context of this dispute. In addition, they contend, unlike the violations of California law alleged in Kearney, the violations in this case are ongoing, as defendants have refused to alter their discriminatory policy, which they continue to apply to the Butlers and to other California residents. Plaintiffs contend that awarding damages will have a deterrent effect, but will not significantly impair any Arizona interest.

Defendants maintain that their consistent practice of requiring all customers to agree to Arizona law and venue limits the foreseeability of being subjected to liability under California law for actions that are lawful under Arizona law. They claim that Arizona's interest in protecting Arizona companies from liability for reasonable reliance on Arizona law could certainly by impaired if California law were applied in this case.

The question as the court sees it, however, is not whether defendants in this case should have reasonably relied on Arizona law. Unlike the dispute in Kearney regarding the application of the California statute, this case presents no conflicting decisions on point from other jurisdictions. As plaintiffs point out, the relevant facts in this case are more like the facts in Bernhard. Defendants in this case have actively sought business connections with Californian consumers, and as of October 2002, their Internet business was more closely tied to California than to any other state (based on the profiles posted by residents of various states). California has a strong interest in regulating defendants' activities because of defendants' penetration into the California economy, and the likelihood of exposure for violating California law was a foreseeable and reasonable business expense.

As explained in some detail above, the question whether the Unruh Act prohibited marital status discrimination was not [1056] completely resolved in 2002. In 2005, however, the California Legislature clearly stated its agreement with the California Supreme Court's rulings, going back 35 years, that the categories listed in the Unruh Act should be considered illustrative rather than restrictive; and also "affirmed" that the bases of discrimination prohibited by the Unruh Act include marital status and sexual orientation.

Defendants assert that plaintiffs' application to post their profile was denied in October 2002 pursuant to a policy that only opposite-sex married couples should be permitted to use the ParentProfiles service. They claim that this policy was applied evenly and was not personal to plaintiffs. The court finds that there is a triable issue as to whether the policy of not allowing unmarried couples to post profiles on ParentProfiles.com amounts to marital status discrimination.

The court finds, given the status of California law in 2002, that defendants should not be subjected to damages for marital status discrimination in connection with their rejection of plaintiffs' application. However, the claim for injunctive relief can go forward.

ii. sexual orientation

Defendants argue that there is no evidence that their "married-couples-only" policy discriminated on the basis of sexual orientation. They contend that their "editorial policy" focusing on adoption by married couples cannot be used to infer an intent to discriminate because it disparately impacts same-sex couples, because the Unruh Act prohibits only intentional discrimination. They also claim that Adoption Profiles LLC has legitimate business reasons for its policy; and that the Parent-Profiles.com website is not a "business establishment" because it is a vehicle for "publishing" the Gwilliams' opinion that children should be adopted by heterosexual married couples only.^[12]

In response, plaintiffs contend that defendants are operating a public business, and do not have the option under the Unruh Act to violate the law based on their own beliefs. The also assert that defendants' allegedly neutral policy was and is applied in a discriminatory manner. They argue that the policy was applied in a discriminatory fashion in 2002, by virtue of the fact that defendants made exceptions to their policy for single people, but not for same-sex couples. They also assert that defendants have admitted that they do not provide services to gays and lesbians.

The court is not persuaded by defendants' claim that ParentProfiles.com is not a "business establishment." As described herein, the ParentProfiles.com website is plainly a business establishment as defined under California law. See Isbister, 40 Cal.3d at 78-79, 219 Cal.Rptr. 150, 707 P.2d 212 (in enacting the Unruh Act, the Legislature intended that "business establishments" be interpreted in the broadest 'sense reasonably possible).

[1057] With regard to the claim that Adoption Profiles LLC has legitimate business reasons for its "married-couples-only" policy — which the court notes appears to conflict with the claim that ParentProfiles.com is not a "business establishment" — the court finds that defendants have not actually articulated any such legitimate business reason.

Defendants assert that the Gwilliams believe it is in the best interests of infants to be placed for adoption with a married mother and father, and that anyone involved in adoption-related activities should act in the best interests of children. This is not a "business reason." The Gwilliams and the Adoption.com partnership were not in the business of arranging adoptions in 2002, and Adoption Profiles LLC has not been in that business during the period beginning in January 2003. Defendants sell products and services that are of interest to people who are seeking to adopt or who have recently adopted, but their own beliefs regarding the suitability of certain prospective parents over others have little relevance to the conduct of their business.

With regard to the merits of the claim of discrimination on the basis of sexual orientation, defendants are correct that a claim of disparate effect cannot proceed under the Unruh Act. Thus, to the extent that plaintiffs may be arguing that defendants' married-couples-only policy is facially discriminatory because it has the effect of discriminating on the basis of sexual orientation, that claim is barred. See Koebke, 36 Cal.4th at 853-54, 31 Cal.Rptr.3d 565, 115 P.3d 1212; Harris, 52 Cal.3d at 1170-74, 278 Cal.Rptr. 614, 805 P.2d 873.

With regard to disparate treatment on the basis of sexual orientation — the claim that the Gwilliams and Adoption.com (the partnership) rejected plaintiffs' application to post their profile on ParentProfiles.com because plaintiffs are not heterosexual, and that Adoption Profiles continued the policy for the same reason after January 2003 — the court finds that disputed issues of material fact preclude summary judgment, and that the claim must be tried to a jury. For example, the evidence suggests that the policy may not have been applied evenly; and also raises questions with, regard to whether the Gwilliams developed the "married-couples-only" policy because they are biased toward gays and lesbians, and whether the employees of the Adoption.com partnership and the LLCs advocated and enforced the defendants' policy with a discriminatory motive.

iii. sex

Defendants argue that there is no evidence in the record showing that they treated men and women unequally. They submit that no California court has ever found sex discrimination under the Unruh Act absent evidence of preferential treatment of one sex over the other.

Plaintiffs assert, however, that by mandating that each of the individual prospective parents be in a relationship with a person of the opposite sex, defendants have discriminated on the basis of the sex of the person with whom each of the individuals associates.

There is no dispute that the Unruh Act has long prohibited discrimination on the basis of sex. However, the court is hard-pressed to find any distinction between the sex discrimination claim as described by plaintiffs in their own motion and in their opposition to defendants' motion, and the claim that defendants discriminated against plaintiffs based on sexual orientation. To the extent that plaintiffs are able to articulate a difference, this claim may also be tried to the jury.

[1058] b. Propriety of Injunctive Relief

Defendants argue that the injunctive relief sought by plaintiffs is not appropriate for two reasons. They contend that the proposed injunction would violate their constitutional rights, and that plaintiffs cannot obtain an injunction based on the 2005 amendment to the Unruh Act because there has been no ongoing relationship between plaintiffs and defendants since plaintiffs' application was rejected in October 2002.

With regard to the constitutional argument, defendants assert that plaintiffs are seeking to use California law to compel Adoption Profiles LLC to accept for "publication" on its websites adoption information that is inconsistent with the purposes for which the website is operated, which defendants claim is to promote adoption by married husband and wife couples. Defendants argue that using the courts to compel a "private publisher" to "grant access to its Internet publications" for the speech of another private party violates the free speech protections of the California Constitution and the First Amendment to the United States Constitution.

Defendants contend that this issue is controlled by the U.S. Supreme Court's decision in Hurley v. Irish-American Gay, Lesbian and Bisexual Group of Boston, 515 U.S. 557, 115 S.Ct. 2338, 132 L.Ed.2d 487 (1995). In that case, the Irish-American Gay, Lesbian and Bisexual Group of Boston sued for sexual orientation discrimination under a Massachusetts law similar to the Unruh Act, after the organizers of a private St. Patrick's Day parade refused to let the group march in their parade. The Massachusetts state court ruled in the plaintiff group's favor, but the U.S. Supreme Court found that the compelled inclusion of the group unconstitutionally interfered with the freedom of expression of the private parade organizers.

Defendants claim that compelling them to post plaintiffs' profiles on their "web publication" ParentProfiles.com would similarly constitute compelled speech, and would also interfere with their constitutional right to decide what not to say. They argue, in essence, that their website ParentProfiles constitutes "expressive speech," and that just as a newspaper cannot be compelled to publish particular writings by outsiders, defendants cannot be compelled to publish plaintiffs' "writings."

Defendants maintain that the fact that they accept money for posting the profiles does not change the analysis, because newspapers also accept money for printing advertisements, but cannot be compelled to accept every advertisement that anyone wants to have printed. They claim that the speech on the ParentProfiles.com website is not commercial speech because it does not propose commercial transactions (as accepting money for adoptions would constitute the unlawful selling of babies). They assert that civil rights laws cannot be used to compel people to change their speech.

In response, plaintiffs argue that defendants do not have a First Amendment right to engage in discriminatory conduct, and that statutes prohibiting discrimination in public accommodation do not violate the First Amendment because they are not aimed at the suppression of speech. They contend that the Unruh Act affects what defendants must do to engage in business activities in California — refrain from engaging in discrimination — not what defendants may say or not say regarding their beliefs about gay people, adoption, marriage, or parenting. They claim the Unruh Act does not require defendants to espouse or denounce any particular viewpoint, but rather to refrain from discriminatory conduct. Plaintiffs contend that [1059] under defendants' view, any business that claimed ideological opposition to serving women, African-Americans, gays and lesbians, or people with disabilities would be entitled to do so on First Amendment grounds, simply by asserting that they wished to "send a message." Plaintiffs assert that if defendants' position were correct, it would eviscerate governments' ability to eliminate discrimination.

Finally, plaintiffs argue that any speech that is incidentally affected by application of the Unruh Act is commercial speech at best, and note that commercial speech does not receive the same level of constitutional protection as other types of protected speech. Plaintiffs claim that the only expression by defendants on Parent-Profiles.com is related to the commercial advertising services they provide to prospective parents, and that any conduct or decision associated with such speech is properly considered commercial speech.

The court finds that defendants' argument is without merit. The defendants in the present case are selling adoption-related services. It is undisputed that none of the defendants is a licensed adoption agency, and that none of the defendants is authorized by any state to pass on the fitness of any person to become an adoptive parent. The Gwilliams operate various adoption-related commercial enterprises via the Internet. Some of these enterprises offer information and advice regarding adoption to Internet users without charge. Others offer adoption-related merchandise for sale.

The website ParentProfiles.com is not "expressive speech." It is a commercial enterprise, consisting of a website where prospective parents post profiles for a fee. Indeed, ParentProfiles.com is more akin to a commercial Internet dating service than it is to an Internet. "publication." The "service" requires that the prospective parents be pre-approved for adoption by the appropriate agency in their own states of residence, but apart from that, it operates as any matchmaking service. Just as the operators of Internet dating services do not schedule dates or perform marriages, but rather simply provide interested individuals with a vehicle for making contact and arranging introductions, the operators of ParentProfiles.com do not preside over meetings between birth mothers and prospective adoptive parents, and do not broker or arrange any adoptions. The website simply provides an opportunity for prospective parents — for a fee — to post information about themselves on a website in the hope that a birth mother will select them as the adoptive parents for their babies.

Nor is it "undisputed" that defendants are "Internet publishers." The language in the profiles that are posted on the site is not defendants' language — it is the language of defendants' paying customers. Simply "publishing" information written by prospective parents does not suffice to transform defendants' discriminatory conduct into "speech itself." Plaintiffs are not seeking to place any restrictions on what defendants are permitted to say or to compel them to say anything. It is the discriminatory conduct that is at issue here — defendants' refusal to do business with plaintiffs, based on their sexual orientation and/or marital status. The key component of defendants' business is the selling of adoption-related services to the public, and the fact that there may be some speech involved in that business does not entitle them to First Amendment protection.

The Supreme Court found that the organizer of the parade in Hurley was an expressive organization carrying on an expressive activity. The Court made clear, however, that anti-discrimination laws do not, as a general matter, violate the First [1060] or Fourteenth Amendments, because such laws generally do not "target speech" but rather prohibit "the act of discriminating." Hurley, 515 U.S. at 572, 115 S.Ct. 2338; see also Roberts v. U.S. Jaycees, 468 U.S. 609, 623-24, 104 S.Ct. 3244, 82 L.Ed.2d 462 (1984) (statutes prohibiting discrimination in public accommodation do not violate the First Amendment because they are not aimed at suppression of speech). Defendants cite no reported decision extending the holding of Hurley to a commercial enterprise carrying on a commercial activity.

The Supreme Court recently further clarified the distinction between regulating conduct and speech in Rumsfeld v. Forum for Acad. and Inst. Rights, Inc., 547 U.S. 47, 126 S.Ct. 1297, 164 L.Ed.2d 156 (2006), where it rejected the argument that a federal law requiring law schools to give access to military recruiters violated the schools' First Amendment rights. Commenting that "[l]aw schools remain free under the statute to express whatever views they may have on the military's congressionally mandated employment policy," the Court found that, as a general matter, the federal law at issue "regulates conduct, not speech." Id., 126 S.Ct. at 1307.

Moreover, even if the ParentProfiles.com website were deemed to have some expressive component, defendants still cannot prevail in their First Amendment argument. Under the test set forth in United States v. O'Brien, 391 U.S. 367, 88 S.Ct. 1673, 20 L.Ed.2d 672 (1968), a governmental regulation that places a burden on expressive activity is sufficiently justified if it is within the constitutional power of the government, if it furthers an important or substantial governmental interest, and if the incidental restrictions on alleged First Amendment freedoms are no greater than is essential to the furtherance of that interest. Id. at 377, 88 S.Ct. 1673. In this case, California has the constitutional authority to bar discrimination on the basis of sexual orientation in public accommodations, California's interest in combating discrimination on the basis of sexual orientation is compelling, and the Unruh Act prohibits such discrimination in order to eliminate the harms caused by the discriminatory conduct, not to silence particular viewpoints.

Defendants' second argument is that plaintiffs cannot state a present cause of action for injunctive relief with regard to the claim of marital status discrimination. They assert that an injunction based on a change in law presumes the existence of an ongoing relationship over which the court has jurisdiction, but where, as here, the rejection of plaintiffs' application was not unlawful in October 2002, and there was no ongoing relationship between plaintiffs and the defendants, plaintiffs cannot obtain injunctive relief.

In support, defendants cite White v. Davis, 13 Cal.3d 757, 120 Cal.Rptr. 94, 533 P.2d 222 (1975), and American Fruit Growers v. Parker, 22 Cal.2d 513, 140 P.2d 23. (1943). In White, the plaintiff — a University of California history professor and a taxpayer — filed a taxpayer's suit to enjoin the Chief of the Los Angeles Police Department from spending public funds in connection with the police department's conduct of covert intelligence gathering activities at UCLA. Among other things, the complaint alleged that the challenged conduct violated students' and teachers' constitutional right to privacy. Shortly after the trial court sustained the defendant's demurrer, the voters amended Article I, Section 1 of the California Constitution to provide explicit protection to every individual's interest in "privacy."

The court of appeal noted that although the new constitutional provision had not [1061] been adopted until after the filing of the lawsuit, the complaint nonetheless stated a prima facie violation of the constitutional right of privacy. White, 13 Cal.3d at 776, 120 Cal.Rptr. 94, 533 P.2d 222. The court found the provision controlling on the appeal because the complaint sought only injunctive relief to restrain the continuation of the alleged surveillance and data collecting practice in the future. The court cited American Fruit Growers for the proposition that "[r]elief by injunction operates in futuro, and the right to it must be determined as of the date of the decision by an appellate court." White, 13 Cal.3d at 773 n. 8, 120 Cal.Rptr. 94, 533 P.2d 222 (citing American Fruit Growers, 22 Cal.2d at 515, 140 P.2d 23).

The court does not agree that the principle stated in White bars plaintiffs' claim for injunctive relief in this case. White does not stand for the proposition that an injunction based on a change in law presumes the existence of an ongoing relationship over which the court has jurisdiction. White simply holds that an appellate court must apply the law in effect at the time it issues its opinion in a case.

3. Unfair Competition and Misleading Advertising Claims

The court finds that both claims brought under California Business & Professions Code must be dismissed. Plaintiffs have indicated their intention to dismiss the claim brought under § 17500, and the § 17200 claim must be dismissed for lack of standing.

California law previously permitted any person acting for the general public to sue for relief from unfair competition. See Californians for Disability Rights v. Mervyn's, LLC, 39 Cal.4th 223, 227, 46 Cal. Rptr.3d 57, 138 P.3d 207 (2006). Proposition 64, which was passed by the voters on November 2, 2004, amended California's unfair competition law to require that any plaintiff have "suffered injury in fact and [have] lost money or property as a result of . . . unfair competition." Cal. Bus. & Prof.Code § 17203, as amended by Prop. 64 § 2; Id. § 17204, as amended by Prop. 64 § 3. In CDR, the. California Supreme Court held that these new requirements apply to cases pending at the time the proposition became effective. CDR, 39 Cal.4th at 232-33, 46 Cal.Rptr.3d 57, 138 P.3d 207.

Defendants argue that the California Supreme Court's decision in CDR eliminates plaintiffs' unfair competition claim. Defendants contend that it is undisputed that plaintiffs have not "lost money or property as a result of any conduct at issue in this litigation, noting that neither the first amended complaint nor the second amended complaint contains any such allegation, and that plaintiffs have never produced any evidence showing that they "lost money or property as a result of defendants' actions.

In response, plaintiffs argue that while Proposition 64 eliminated the standing of certain plaintiffs to bring unfair competition claims, it did not affect their standing in this case. Plaintiffs argue that even though the California Supreme Court has ruled that Proposition 64 is retroactive, plaintiffs — as injured parties here — can still pursue their claims as individuals (rather than as private attorneys general), Plaintiffs assert that they do not plan to seek class certification in this case and intend to seek an injunction based on their personal injury.

Plaintiffs submit that unlike the plaintiffs in CDR, and its companion case, Branick v. Downey Say. & Loan Ass'n, 39 Cal.4th 235, 46 Cal.Rptr.3d 66, 138 P.3d 214 (2006) — none of whom could allege any direct personal injury as a result of the actions of the defendants in those cases — [1062] they (plaintiffs here) have been injured by defendants' business practices, and thus have standing to sue to enjoin those practices.

Plaintiffs contend that they have suffered both "injury in fact" and a "loss of money or property" as a result of defendants' conduct. Plaintiffs claim that they have been injured in fact by defendants' unlawful denial of access to defendants' business services and their false and misleading statements regarding those services, and that they continue to suffer the ongoing stigmatizing injury that defendants' actions have caused.

Plaintiffs also note that while they seek statutory damages rather than compensatory damages, they did expend time and money preparing and submitting their application to defendants, only to have defendants refuse to allow them to use defendants' business services. They contend that this economic loss is sufficient to support standing under § 17200.

The court finds, however, that plaintiffs do not have standing to assert the § 17200 claim. The court agrees with defendants, who argue that statutory damages cannot be considered a "loss of money or property." As defendants point out, plaintiffs have not previously identified any loss of money or property in connection with their unfair competition claims, and cannot now attempt to establish such a loss. Plaintiffs have previously taken the position that they should not be required to respond to deposition questions regarding damages, for the reason that they had disclaimed any claim to damages other than the statutory minimum.

Moreover, plaintiffs' expenditure of time and money preparing an application is not the kind of loss of money or property that is necessary for standing under the new version of the unfair competition law. Restitution, which is the only monetary recovery possible under § 17200, involves the payment or return of money or property that belongs to the plaintiff. See, e.g.; Montecino v. Spherion Corp., 427 F.Supp.2d 965, 967 (C.D.Cal.2006). The time and expenditure of preparing the application to ParentProfiles is not the type of loss of money or property that is necessary for standing under § 17200.

4. Successor Liability and Alter Ego

a. Plaintiffs' Allegations as to Successor Liability and Alter Ego

Plaintiffs allege in the second amended complaint that Adoption Media LLC and Adoption Profiles LLC are the successors in-interest of Adoption.com (the partnership) and its general partners Dale and Nathan Gwilliam. They also assert that each defendant is the alter ego of the other defendants.

In October 2002, when defendants refused to post plaintiffs' profile on Parent-Profiles.com, the general partnership Adoption.com, consisting of Dale and Nathan, owned the vast majority of the adoption-related websites operated by the Gwilliams. Between that time and June 2003, Dale and Nathan created the two LLCs, transferred ownership of the partnership's websites to the LLCs (while leaving the partnership in place), created the corporations, and transferred the membership interests in the LLC's from themselves, as sole members of the LLCs, to the corporations.

Plaintiffs assert that in so doing, defendants erected a complex array of corporate structures that involve only two people — Dale Gwilliam and Nathan Gwilliam. Plaintiffs allege that the two LLCs are the successors-in-interest of the Adoption.com partnership and its partners. Plaintiffs assert that the LLCs received two vital assets from the general partnership — the [1063] Adoption.com website and the ParentProfiles.com website. They note that Dale and Nathan, the sole general partners of the general partnership, were also at that time the sole members and officers of the LLCs, and claim that this resulted in a mere continuation of ownership and control over day-to-day operations of all broad policy decisions regarding the websites.

Plaintiffs also argue that the business entity defendants are all alter egos of the Gwilliams because the Gwilliams have failed to maintain the separateness among the various entity defendants, and have often confused the various entities. Plaintiffs assert that it was the intent of the Gwilliams to create a business structure in which no single entity or individual can be held responsible for the October 2002 decision not to allow plaintiffs to post their profile on ParentProfiles.com, or for the current policy of not allowing same-sex couples to post on ParentProfiles.com.

b. Defendants' Motion

Defendants seek summary judgment on the claims of successor and alter ego liability. Both plaintiffs and defendants argue, however, that an inquiry into successor and alter ego liability would be superfluous — though for different reasons. Plaintiffs contend that there is no need to consider successor and alter ego liability because four of the defendants — Dale Gwilliam, Nathan Gwilliam, Adoption.com (the partnership), and Adoption Profiles LLC — are directly liable for violations of the Unruh Act. Plaintiffs claim that each of these defendants affirmatively made the decision to discriminate in violation of the Unruh Act because of their consistent application of the discriminatory policy and express rejection of same-sex couples.

Defendants, on the other hand, contend that the inquiry would be superfluous because the court does not have personal jurisdiction over any defendant. They assert that in its previous orders, the court merely found personal jurisdiction as to "defendants," and that plaintiffs made no showing to justify a finding of personal liability as to any specific defendant. Defendants also argue that if plaintiffs cannot establish that Adoption Profiles LLC is the successor in liability to, or the alter ego of, the Adoption.com partnership, they cannot establish personal jurisdiction over Adoption Profiles LLC, and cannot obtain the injunctive relief they seek.

i. successor liability

Defendants assert that plaintiffs cannot establish successor liability because neither Adoption Media LLC nor Adoption Profiles LLC is a successor to the Adoption.com partnership. Under California law, when one corporation sells or transfers all its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor unless one of four exceptions applies:^[13]

(1) there is an express or implied agreement of assumption, (2) the transaction amounts to a consolidation or merger of the two corporations, (3) the purchasing corporation is a mere continuation of the seller, or (4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts.

Ray v. Alad Corp., 19 Cal.3d 22, 28, 136 Cal.Rptr. 574, 560 P.2d 3 (1977). Defendants argue that neither Adoption Media LLC nor Adoption Profiles LLC falls within any of these exceptions to the general rule against successor liability.

[1064] With regard to the first exception, defendants contend that there is no express or implied agreement of assumption — that the partnership expressly retained liability, and the transfer of assets from the partnership to Dale and Nathan and from Dale and Nathan to the LLCs expressly disclaimed any intent to transfer liability.

With regard to the second exception, defendants contend that courts recognize de facto mergers only when four conditions apply:

(1) there was a continuation of the enterprise of the seller in terms of continuity of management, personnel, physical location, assets, and operations; (2) there is a continuity of shareholders [ac complished by paying for the acquired corporation with shares of stock]; (3) the seller ceases operations, liquidates, and dissolves as soon as legally and practically possible; and (4) the purchasing corporation assumes the obligations of the seller necessary for the uninterrupted continuation of business.

See Louisiana-Pacific Corp. v. Asarco, Inc., 909 F.2d 1260, 1264 (9th Cir.1990); see also Marks v. Minnesota Mining and Mfg. Co., 187 Cal.App.3d 1429, 1436, 232 Cal.Rptr. 594 (1986) (de facto merger where original business became a part of defendant, corporation ceased to exist, and result was the same as a statutory merger). Defendants argue that this exception does not apply because the Adoption.com general partnership still exists and still has assets, and could readily pay any judgment for the minimum statutory damages at issue in this litigation.

With regard to the third exception, the "mere continuation" doctrine also requires that the selling entity dissolve — because only one corporation may remain after the transaction. Ferguson v. Arcata Redwood Co., LLC, 2004 WL 2600471 at *5 (N.D.Cal., Nov.12, 2004); State of Washington v. United States, 930 F.Supp. 474, 478 (W.D.Wash.1996). As with the first exception, defendants contend that because the Adoption.com partnership still survives and has assets, there can be no successor liability under this exception.

With regard to the fourth exception, defendants contend that Dale and Nathan made no effort to escape liability for prior debts or actions, and that there can therefore be no question of any fraudulent purpose of escaping liability.

In opposition, plaintiffs assert that successor liability is an equitable doctrine, and that because of the great variety of factual circumstances in which successorship issues may arise, and because of the different legal consequences that may be at issue in different cases, no single, mechanical formula can be devised to resolve all successorship issues. They argue that because the origins of successor liability are equitable, fairness is a prime consideration in its application.

Plaintiffs concede that many California courts have followed the four-part formulation set forth in the California Supreme Court's decision in Ray, but argue that courts working within that framework have applied the factors differently. For example, they note, the court in Franklin v. USX Corp., 87 Cal.App.4th 615, 105 Cal.Rptr.2d 11 (2001), observed that "the common denominator, which must be present in order to avoid the general rule of successor nonliability, is the payment of inadequate cash consideration." Id. at 627, 105 Cal.Rptr.2d 11. Plaintiffs also contend that some courts have gone outside the "traditional" exceptions, when the case before them warrants another application of the equitable doctrine to reach an equitable result. They dispute defendants' suggestion that successor liability can never be imposed in the context of partnerships, noting that courts have recognized [1065] the existence of successors-in-interest to a partnership where the facts and equitable considerations warrant such a finding.

Plaintiffs argue further that under the traditional successor liability standard, Adoption Profiles and Adoption Media are liable. They dispute defendants' assertion that the "mere continuation" exception does not apply, and cite McClellan v. Northridge Park Townhome Owners Ass'n, Inc., 89 Cal.App.4th 746, 107 Cal.Rptr.2d 702 (2001), for the proposition that corporations cannot escape liability by a mere change of name or a shift of assets when and where it is shown that the new corporation is in reality but a continuation of the old.

In McClellan, a condominium association failed to pay a contractor for repair work. When the contractor commenced an arbitration proceeding, the condominium association created a new homeowners association for the condo complex. A court entered the arbitration award for the contractor two weeks later, and the original condominium association filed for bankruptcy two weeks after that. The trial court amended the judgment to include the new homeowners association, which appealed.

The appellate court found that the mere continuation exception applied and that the new homeowners association was liable as a successor because it was a homeowners association for the same condominium complex, because the same management company remained in place, and because the new association derived its income from the same source as the original condominium association — homeowner dues assessed to the membership. Id. at 756, 107 Cal.Rptr.2d 702. The court held that successor liability applied even though there was no evidence that the predecessor had been dissolved or had wound up its affairs. Id.

Plaintiffs argue that in this case, Adoption Profiles LLC continues to offer the same profile posting service as the predecessor general partnership, operates the same website (ParentProfiles.com), and derives its revenues from the same source — the fee charged to prospective adoptive parents to use the profile posting service. Plaintiffs claim that the ParentProfiles.com coordinator responsible for accepting and processing applications to post on the website was continuously employed in that position from January 2002 to November 2003 — first by the partnership, then by Adoption Media. Plaintiffs assert that the fact that the partnership continues to own assets and develop new products is immaterial. They argue that the rule articulated in McClellan applies because the Gwilliams have attempted to frustrate plaintiffs' right to injunctive relief by a "mere change of name" and a "shift of assets" from the partnership to Adoption Profiles and Adoption Media, despite the fact that the new business entities are essentially but a continuation of the old.

Plaintiffs also assert that courts have applied the fourth Ray exception — the "fraudulent transfer" exception — to hold a successor business liable for the obligations of a successor when the transfer of assets occurs "for the fraudulent purpose of escaping liability." Ray, 19 Cal.3d at 28, 136 Cal.Rptr. 574, 560 P.2d 3. They claim that California courts have applied this exception, when they find that a transfer of assets is undertaken to escape liability for a predecessor's existing or perceived future liabilities.

Plaintiffs claim that in the present case, defendants attempted to frustrate plaintiffs' statutory right to injunctive relief, by transferring the assets of the general partnership to two newly-formed limited liability companies. Plaintiffs note that Nathan [1066] and Dale initiated formation of the LLCs and the asset transfers less than one month after responding to a letter from plaintiffs attorney, which had put them on notice of the potential for legal action to stop their discrimination against same-sex couples. Plaintiffs claim that defendants have indicated their intent to evade liability by their assertions that Adoption Profiles LLC and Adoption Media LLC cannot be liable for discrimination because they did not exist at the time the events at issue in this case occurred.

Plaintiffs argue further that because they seek an injunction to remedy an ongoing discriminatory practice, the application of successor liability in the context of other discrimination statutes is more apt than its application to claims for monetary relief. They contend that courts analyzing federal laws have held that prospective relief against a successor is appropriate where the facts indicate that the successor will continue the predecessor's practices, including where a successor will continue the predecessor's practices, such as a violation of civil rights. They also submit that the key component is notice by the successor — in other words, while a business cannot be held liable for its predecessor's liabilities if it did not assume those liabilities, it can be held to account for the obligations of a predecessor where it had knowledge of unfair or discriminatory practices by the predecessor.

The court finds that under the standard articulated by the California Supreme Court in Ray, neither Adoption Media LLC nor Adoption Profiles LLC can be considered a successor to the partnership. There is no evidence of any express or implied agreement of assumption of debts and liabilities; the conditions required to effectuate a de facto merger do not apply; the LLCs cannot be considered a "mere continuation" of the Adoption.com partnership because the partnership still exists in its previous legal form; and there is no evidence that the Gwilliams transferred the partnership's assets to the, LLCs for the fraudulent purpose of escaping liability for the debts of the partnership.

The facts in this case are distinguishable from the facts in McClellan. In McClellan, the transfer and abandonment of the original homeowners association was deemed invalid because it had not been accomplished with the required percentage of votes of the membership. The new association was therefore a mere continuation of the old because while it was collecting dues from the condominium owners, it did not actually have any members. See McClellan, 89 Cal.App.4th at 756, 107 Cal. Rptr.2d 702. Here, by contrast, the Adoption.com partnership, which remains legally viable, sold or transferred assets including the ParentProfiles.com website to the newly created LLCs. While there may have been a continuation of part of the enterprise of the partnership (the operation of ParentProfiles.com), the partnership itself was not dissolved and the LLCs did not assume all of the obligations of the partnership.

ii. alter ego liability

Defendants also argue that none of the defendants meets the requirements for alter ego liability. Under California law, a plaintiff seeking to invoke the alter ego doctrine must establish two elements: that there is a unity of interest and ownership between the corporation and its equitable owner such that the separate personalities of the corporation and the shareholder do not really exist; and that there will be an inequitable result if the acts in question are treated as those of the corporation alone. Sonora Diamond Corp. v. Superior Court, 83 Cal.App.4th 523, 538, 99 Cal.Rptr.2d 824 (2000).

[1067] The alter ego doctrine "arises when a plaintiff comes into court claiming that an opposing party is using the corporate form unjustly and in derogation of the plaintiff's interests." Mesler v. Bragg Mgmt. Co., 39 Cal.3d 290, 300, 216 Cal. Rptr. 443, 702 P.2d 601 (1985). The alter ego doctrine prevents individuals or other corporations from misusing the corporate laws by the device of a sham corporate entity formed for the purpose of committing fraud or other misdeeds. Assoc. Vendors, Inc. v. Oakland Meat Co., 210 Cal.App.2d 825, 842, 26 Cal.Rptr. 806 (1962). California also applies the alter ego doctrine to LLCs. See, e.g., People v. Pacific Landmark, 129 Cal.App.4th 1203, 1212, 29 Cal.Rptr.3d 193 (2005).

Courts have identified a number of factors that may bear on the question whether there is a unity of interest and ownership. Although no single factor is dispositive, they include

the commingling of funds and other assets; the failure to segregate funds of the individual and the corporation; the unauthorized diversion of corporate funds to other than corporate purposes; the treatment by an individual of corporate assets as his own; the failure to seek authority to issue stock or issue stock under existing authorization; the representation by an individual that he is personally liable for corporate debts; the failure to maintain adequate corporate records; the intermingling of individual and corporate records, the ownership of all the stock by a single individual or family; the domination or control of the corporation by the stockholders; the use of a single address for the individual and the corporation; the inadequacy of the corporation's capitalization; the use of the corporation as a mere conduit for an individual's business; the concealment of the ownership of the corporation; the disregard of formalities and the failure to maintain arm's-length transactions with the corporation; and the attempts to segregate liabilities to the corporation.

Mid-Century Ins. Co. v. Gardner, 9 Cal. App.4th 1205, 1213 & n. 3, 11 Cal.Rptr.2d 918 (1992) (citation omitted). Because no one factor governs, the court should look at all the circumstances to determine whether the alter ego doctrine applies. Sonora Diamond, 83 Cal.App.4th at 539, 99 Cal.Rptr.2d 824.

Defendants argue, however, that many of those factors do not apply in the case of an LLC, because the members of the LLC are permitted by statute to actively participate in the management and control of the company. Defendants also argue that Adoption Profiles LLC and Adoption Media LLC do not have a unity of ownership and interest with each other or with the Adoption.com partnership, because Dale and Nathan own the partnership, while True North and Aracaju own the LLCs.^[14]

In addition, defendants contend that the business operations of Adoption Media LLC and Adoption Profiles LLC are distinct, with Adoption Media LLC focusing on publishing adoption-related information, and Adoption Profiles LLC focusing on publishing profiles of potential adoptive parents for a fee, neither of which business interests are shared by the Adoption.com partnership. Defendants contend that cases that have found "unity" between affiliated corporations have involved businesses that were engaged in a joint effort to accomplish the same purpose.

[1068] Defendants also argue that alter ego liability cannot apply to True North and Aracaju, because there is no evidence of self-dealing between the corporate defendants, the Gwilliams, and the LLCs. Defendants contend that the essence of the analysis is whether the corporate owners have engaged in some sort of self-dealing to the detriment of the plaintiffs, and argue that there can be no alter ego liability absent some bad faith. Moreover, they assert, an inequitable result cannot be demonstrated merely by showing that a plaintiff is unable to obtain the relief sought without piercing the corporate veil.

Defendants contend that there is no genuine issue of material fact regarding defendants' good faith. They claim that the Gwilliams chose to form the LLCs and then later, to incorporate, for legitimate business reasons, to avoid personal liability for future corporate obligations, and for various reasons relating to estate planning. They also contend that the timing of the formation of the LLCs does not raise any inference of bad faith, asserting that Dale Gwilliam, who is an attorney, attended a CLE seminar on tax issues for LLCs in. June 2002, some four months before plaintiffs attempted to post their profile in October 2002, and also noting that Dale has stated in his declaration that he and Nathan made the decision to begin operating as LLCs before September 2002. Defendants also assert that when they decided to form the LLCs, and when they denied plaintiffs' application to post their profile, they had no reason to believe that they were violating California law, or that forming the LLCs or later incorporating would eliminate a remedy (injunctive relief) that a potential claimant might have.

As for plaintiffs' assertion that Dale and Nathan's common ownership of the Adoption.com partnership, the LLCs, and the corporations supports alter ego liability, defendants argue that this claim is not supported by California law. Defendants contend that officers and directors of parent companies routinely serve as officers and directors of subsidiaries. They assert that corporate entities remain distinct, and argue that a parent may be involved in, the subsidiary's activities so long as that involvement is consistent with the parent's investor status. In sum, they contend, that there can be no unity of ownership, between Aracaju and True North, as they are separately owned and have separate interests — Aracaju being owned by Nathan, and True North being owned by Dale.

Finally, defendants argue that the alter ego doctrine cannot justify an injunction against the LLCs or the corporate defendants for the Adoption.com partnership's alleged violation of plaintiffs' rights. Defendants assert that plaintiffs' total damages in this case are the statutory minimum damages of $24,000, and that plaintiffs can' easily recover that amount from the partnership. They contend that because Adoption.com no longer owns the ParentProfiles.com website, and no longer engages in the behavior about which the plaintiffs complain, it will not be possible for this court to grant any injunctive or other preventive relief against the partnership, because there can be no possibility of future injury where the defendant has ceased owning the business.

Defendants contend that plaintiffs can seek injunctive relief only on the basis of current, ongoing activities, and personal jurisdiction for that relief will have to be based on something other than the contacts that the Adoption.com partnership had with California in October 2002. In a related argument, they assert that plaintiffs cannot obtain injunctive relief against Adoption Media, True North, or Aracaju, [1069] because there is no evidence that any of those defendants discriminated against plaintiffs.

In opposition, plaintiffs argue that the defendants are liable as alter egos. They contend that California courts state that there is no specific "litmus test" for identifying whether an individual or entity is an alter ego of another, but that the main concern is equity. They argue that the equitable remedy of injunction is required in this case to prevent an inequitable result for the plaintiffs. They dispute defendants' claim that there must be a finding of "bad faith" before liability can be imposed on a theory of alter ego. They assert instead, that the doctrine is designed to prevent what would be fraud or injustice if accomplished.

Plaintiffs contend that California courts have defined "inequitable result" to include a situation where a corporate entity is used to evade the law or to accomplish some other wrongful or inequitable purpose. They argue that where a corporation is established to avoid the effect of a statute, the court may look at factors including the strength of the policy behind the statutory enactment. They note that California courts have disregarded the corporate form where an individual attempts to create multiple business entities to evade coverage of a statute.

Plaintiffs dispute defendants' assertion that the doctrine of alter ego cannot apply because the partnership still exists and can pay any judgment. They note that defendants rely on cases that sought only monetary damages from the alleged alter ego defendant. They argue that plaintiffs can obtain complete relief in this case only by obtaining an injunction.

Plaintiffs argue that a finding of alter ego liability is appropriate where, as here, there is common equitable ownership and control over all companies by the same individuals. In support, they cite Elliott v. Occidental Life Ins. Co. of Calif, 272 Cal. App.2d 373, 77 Cal.Rptr. 453 (1969). In that case, the court upheld the jury's finding that the Oroweat Baking Company of San Francisco (a corporation) was an alter ego of the Oroweat Oakland Bakery (a partnership), where the same three individuals owned all the stock in the corporation and also constituted the three partners of the bakery. All the baking was done by the San Francisco company, and the Oakland company acted as the distributor. Both companies were represented by the same attorney, and the records and correspondence of both companies was kept in the San Francisco office. Both companies used the same employees and the same business locations. Id. at 375-77, 77 Cal.Rptr. 453.

Plaintiffs assert that `there is evidence that many of the relevant factors cited by the Elliott court support a finding of alter ego in this case. First, they note that Dale and Nathan are each 50% owners of the partnership; that Dale and wife are the sole owners of True North, and Nathan is the sole owner of Aracaju; and that Dale and Nathan are the controlling owners of the sole corporate members of Adoption Media LLC and Adoption Profiles LLC, giving them effective and exclusive control over both LLCs.

Plaintiffs also contend that the evidence shows, based on defendants' tax returns and W-2 statements for employees, that defendants are located at the same business address and share their employees. Plaintiffs also assert that the ParentProfiles.com development agreement details the symbiotic relationship between the two LLCs; and that the defendants' internal financial documents (general ledger and balance sheets) reveal that the entities share their assets and liabilities as a normal course of business, thus failing to [1070] maintain arms'-length relationships among themselves.

Second, plaintiffs argue that Adoption Media, Adoption Profiles, True North, and Aracaju were all undercapitalized at their formation. Plaintiffs assert that the attempt to do corporate business without providing a sufficient basis of financial responsibility to creditors is an abuse of the separate entity and will be ineffectual to shield shareholders from liability. They argue that where a corporation is set up with insufficient capital to meet its debts, it would be inequitable to allow shareholders to escape personal liability by means of such a flimsy organization. Plaintiffs assert that in light of the volume of business that defendants conducted, the initial capitalization ($100 from Dale and $100 from Nathan for each of the LLCs) was inadequate as a matter of law.

Third, plaintiffs also contend that during the first year that the LLCs were in operation, defendants touted ParentProfiles.com as part of the "Adoption.com Family," where "millions of pages are visited each month," and Adoption Media LLC described the Adoption.com website as "the foremost authority for adoption on the Internet."

Fourth, plaintiffs argue that the Gwilliams themselves have disregarded distinctions among the various defendants, and failed to maintain adequate records because they and their employees confused the records of the separate entities. For example, plaintiffs claim that the corporations' meeting minutes refer to Dale and Nathan in their individual capacities, rather than as representatives of True North or Aracaju; and that despite the alleged transfer of the membership of the LLCs into distinct corporations, the LLCs continued to list Dale and Nathan as "members" of those entities. Plaintiffs also note that minutes of a special meeting of Adoption Profiles, LLC, held on January 21, 2003, refers to Adoption Media, LLC, in the body, and that defendants used the Tax ID number for the Adoption.com partnership to submit filings for Adoption Media LLC.

Finally, plaintiffs assert that the Gwilliams used the defendant business entities for their own personal economic benefit, treating the assets of the entities as their own. Plaintiffs cite to an incident involving Dale Gwilliam, who attempted to use funds from Adoption Media LLC to pay a penalty assessed against him by the State Bar of Arizona. However, plaintiffs note, because the matter to which the penalty related had occurred prior to the formation of Adoption Media LLC, he could not rightfully claim that Adoption Media should be paying fines incurred by its counsel. Plaintiffs claim that this demonstrates Dale's willingness to use Adoption Media's assets as his own and to use them to settle his personal debts.

Plaintiffs have provided some evidence suggesting a material dispute with regard to whether there is a unity of interest and ownership among the Gwilliams and the entity defendants, although the evidence that Dale and Nathan from time to time may have disregarded the corporate formalities or disregarded distinctions among the entities is not particularly compelling under the facts of this case. Where a corporation is closely held, as True North, Aracaju, and the LLCs appear to be, "the interests of the corporation's management and stockholders and the corporation itself generally fully collide." Gottlieb v. Kest, 141 Cal.App.4th 110, 151, 46 Cal.Rptr.3d 7 (2006). Moreover, lack of formality is not unusual in a closely-held corporation. See Nelson v. Anderson, 72 Cal.App.4th 111, 125 n. 7, 84 Cal.Rptr.2d 753 (1999).

[1071] The Elliott case, however, is not persuasive authority. Elliott involved an action on a certificate of life insurance issued under a group policy, and neither of the Oroweat entities was a defendant in the action. Thus, the court noted, "[T]he situation is therefore not one where the plaintiff was seeking to pierce the corporate veil and impose liability upon one company for the acts of the other." Elliott, 272 Cal. App.2d at 376, 77 Cal.Rptr. 453. The court simply cited the alter ego factors as support for its decision, to reverse the judgment for the defendant notwithstanding the verdict.

More importantly, however, the court finds that plaintiffs have provided no evidence of bad faith, or evidence that Dale and Nathan created the LLCs or the corporations as separate entities in order to avoid the operation of a statute. Plaintiffs have not refuted defendants' evidence that there was a legitimate business reason for the formation of the LLCs, and later, the corporations. In order to invoke the alter ego doctrine, plaintiffs must demonstrate how the corporate structure was intended to deprive them of a right, or how it has been used to do so.

Finally, to the extent that plaintiffs have raised triable issues with regard to alter ego liability, the court finds that such disputed facts are not material, as plaintiffs have argued that an inquiry into alter ego liability would be superfluous.

5. Personal Jurisdiction

Defendants argue that the undisputed material facts show that the court does not have personal jurisdiction over any defendant. Plaintiffs respond that the court has repeatedly analyzed the issue of personal jurisdiction, and has ruled that sufficient minimum contacts exist to establish both general and specific jurisdiction. They argue that defendants' motion does not identify any undisputed issues of material fact, or any case law, that would warrant a different ruling on summary judgment.

California permits the exercise of personal jurisdiction to the full extent permitted by due process. Cal. Civ.Code § 410.10. Absent one of the traditional bases for personal jurisdiction (presence, domicile, or consent), due process requires that the defendant have certain "minimum contacts" with the forum state, "such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945). The extent to which a federal court can exercise personal jurisdiction will depend on the nature and quality of presence, or the nature and quality of the defendant's contacts with the forum state.

If the defendant's activities in the forum state are "substantial, continuous, and systematic," a federal court can (if permitted by the state's "long arm" statute) exercise jurisdiction as to any cause of action, even if unrelated to the defendant's activities within the state. Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437, 445, 72 S.Ct. 413, 96 L.Ed. 485 (1952). This is referred to as "general jurisdiction." If a non-resident's contacts with the forum state are not sufficiently continuous and systematic for general jurisdiction, that defendant may still be subject to "specific jurisdiction" on claims related to its activities or contacts in the forum. See Tuazon v. R.J. Reynolds Tobacco Co., 433 F.3d 1163, 1169 (9th Cir.2006).

When a defendant moves to dismiss a complaint for lack of personal jurisdiction, the plaintiff bears the burden of demonstrating that jurisdiction is proper. Rio Properties, Inc. v. Rio Int'l Interlink, 284 F.3d 1007, 1019 (9th Cir.2002). Where the motion is based on written materials rather [1072] than on an evidentiary hearing, the plaintiff need only make a prima facie showing of jurisdictional facts. Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir.2004). In such cases, the court need only inquire into whether the plaintiffs pleadings and affidavits make a prima facie showing of personal jurisdiction. Id. Although the plaintiff cannot rest on the bare allegations of the complaint, uncontroverted allegations in the complaint must be taken as true. Id. Conflicts between the parties over statements contained in affidavits must be resolved in the plaintiffs favor. Id.

Presenting a prima facie case of personal jurisdiction, however, does not necessarily guarantee jurisdiction over the defendant at the time of trial. Lake v. Lake, 817 F.2d 1416, 1420 (9th Cir.1987). If the pleadings or other declarations raise issues of credibility or disputed questions of fact, the court may, in its discretion, order a preliminary hearing to resolve the contested issues. In that situation, the plaintiff must establish the jurisdictional facts by a preponderance of the evidence. Data Disc, Inc. v. Systems Tech. Assoc., Inc., 557 F.2d 1280, 1285 (9th Cir.1977). Alternatively, the plaintiff must prove the jurisdictional facts at trial by a preponderance of the evidence. Id. at 1289 n. 5.

The court previously found, in orders issued on May 3, 2004, on April 25, 2005, and on March 13, 2006, that plaintiffs had established a prima facie case of personal jurisdiction. Nevertheless, defendants now assert that the previous rulings are to no effect because the court failed to find personal jurisdiction as to each defendant, individually. Defendants also contend that the previous rulings were made before the record in this case was fully developed, and are not "evidence" and cannot be considered as such.

Plaintiffs argue in response that the court has repeatedly analyzed the issue of personal jurisdiction, and has ruled that sufficient minimum contacts exist to satisfy both general and specific jurisdiction. They contend that the record is replete with evidence supporting the court's exercise of personal jurisdiction over defendants as well as the propriety of applying California law to this case. They also assert that it is undisputed that the court has jurisdiction over four of the defendants — Dale Gwilliam, Nathan Gwilliam, Adoption.com (the partnership), and Adoption Profiles LLC.

a. General Jurisdiction

For general jurisdiction to exist over defendants in this case, defendants must have engaged in "continuous and systematic general business contacts" in the forum. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984) (citing Perkins, 342 U.S. 437, 72 S.Ct. 413). "This is an exacting standard, . . . because a finding of general jurisdiction permits a defendant to be haled into court in the forum state to answer for any of its activities anywhere in the world." Schwarzenegger, 374 F.3d at 801. In considering whether it has general jurisdiction over a defendant, the court should look at all the defendant's activities that impact the state, including whether the defendant makes sales, solicits or engages in business in the state, serves the state's markets, designates an agent for service of process, holds a license, or is incorporated there. Bancroft & Masters, Inc. v. Augusta Nat'l Inc., 223 F.3d 1082, 1086 (9th Cir.2000).

Defendants argue that no defendant has sufficient contacts for general jurisdiction. They contend that the Adoption.com partnership and Dale and Nathan as general partners currently have no substantial or continuous contacts with California, and [1073] have had no contacts with California since the partnership distributed the Adoption.com and ParentProfiles.com websites to Dale and Nathan in January 2003.

Thus, defendants assert, to the extent that the general partners or the partnership ever had any substantial or continuous contacts with California, those contacts ceased, never to be renewed, nearly eleven months before the present lawsuit was filed. Based on these facts, defendants contend that neither the general partners nor the partnership may be subjected to general jurisdiction. Defendants contend that the corporate defendants likewise have had no contacts with California, and cannot be subjected to general jurisdiction.

Defendants argue that Adoption Profiles LLC and Adoption Media LLC are the only defendants with current contacts with California. However, defendants assert, those contacts cannot be deemed "continuous and systematic," as neither LLC has directed or currently directs solicitations toward California businesses or residents. Defendants claim that the only advertising defendants do is directed at a nationwide audience, and assert that advertisements over the Internet cannot be used to subject a business to general jurisdiction.

In opposition, plaintiffs argue that the court has found general jurisdiction on numerous occasions, based on its analysis of the record evidence in the case. They quote at length from the court's previous order of May 3, 2004, denying the original defendants' motion to dismiss, and the order of April 25, 2005, denying the original defendants' motion for reconsideration of the portion of the May 3, 2004, order finding that plaintiffs had established a prima facie case of personal jurisdiction; and also cite to the declarations filed by plaintiffs in support of their oppositions to those motions.

They contend that the Internet-based activities of Adoption Profiles LLC are sufficient to support general jurisdiction, given that those activities are targeted at California residents and have resulted in contacts with California residents.

b. Specific Jurisdiction

Specific personal jurisdiction requires that the plaintiff make a three-part showing. The plaintiff must show 1) that the out-of-state defendant purposefully directed its activities toward residents of the forum state or otherwise established contacts with the forum state; 2) that the plaintiffs cause of action arises out of or from the defendant's forum-related contacts; and 3) that the forum's exercise of personal jurisdiction in the particular case is reasonable — that it comports with fair play and substantial justice. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477-78, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985). In addition, courts including the Ninth Circuit have adopted a "flexible approach" that may allow personal jurisdiction with a lesser showing of minimum contacts where dictated by considerations of reasonableness. See Ochoa v. J.B. Martin & Sons Farms, Inc., 287 F.3d 1182, 1188 n. 2 (9th Cir.2002).

The first requirement is that the defendant must have purposefully directed its activities at residents of the forum, or purposefully availed itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of local law. Hanson v. Denckla, 357 U.S. 235, 253-54, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958). In examining "purposeful direction" — most often used in cases involving tort claims — courts apply the "effects test," which requires that the defendant have 1) committed an intentional act, 2) expressly aimed at the forum state, 3) causing harm that the defendant knows is likely to be suffered in the forum [1074] state. Schwarzenegger, 374 F.3d at 802-03; see also Panavision Int'l L.P. v. Toeppen, 141 F.3d 1316, 1320-22 (9th Cir.1998).

Defendants contend that no defendant has sufficient contacts for specific jurisdiction. They assert that plaintiffs' claims involve their October 2002 application to have their profile posed on ParentProfiles.com, and the rejection of that application by Adoption.com and its general partners. Defendants contend that apart from this lawsuit, plaintiffs have never had any contact with the LLC defendants or with the corporate defendants. Thus, they argue, there is no basis for a finding of specific jurisdiction over Adoption Media LLC, Adoption Profiles LLC, True North, or Aracaju, or against Dale Gwilliam or Nathan Gwilliam as officers, directors, or managers of those entities.

Defendants also argue there is no basis in the record for subjecting the Adoption.com general partnership or its general partners to specific jurisdiction. They claim that there is no evidence that the partnership committed an intentional act, aimed at California, which caused plaintiffs harm, or that the general partners knew was likely to cause harm. They assert that under Schwarzenegger, 374 F.3d at 804-05, general foreseeability that an injury could occur in another state, standing alone, is insufficient for the exercise of personal jurisdiction under the effects test. They contend that under Yahoo! Inc. v. La Ligue Contre Le Racisme et L'Antisemitisme, 433 F.3d 1199, 1206 (2006), there must be more than "mere untargeted negligence" to meet the effects test. They assert that what plaintiffs are complaining about in this case is "mere untargeted acts," which defendants argue is not the kind of activity necessary to satisfy the "effects" test.

Defendants concede that Dale and Nathan, as general partners of the Adoption.com partnership, undertook numerous intentional acts that involved California, including purchasing the Adopting.org website. But they maintain that no intentional act expressly aimed at California is the source of plaintiffs' injuries. They argue that the act that caused the alleged Unruh Act violation was an act of "considered decision, dictated by their consciences and best judgment as to the best interests of children," to limit ParentProfiles.com's customers to prospective parents who were heterosexual married couples.

Defendants claim that their refusal to enter into a contract is not the type of activity necessary to satisfy the "effects" test. They assert that while Dale and Nathan may have undertaken numerous intentional acts that involved California, such as purchasing the Adopting.org website, no intentional act expressly aimed at California is the source of plaintiffs' alleged injuries.

Defendants contend that apart from this lawsuit, plaintiffs have never had contact with the LLC defendants or the corporate defendants. They also note that neither the LLC defendants nor the corporate defendants existed in October 2002. Thus, they assert, there is no basis for a finding of specific jurisdiction over Adoption Media LLC, Adoption Profiles LLC, True North, Aracaju, or Dale and Nathan Gwilliam in their capacity as officers, managers, or directors of those entities.

Defendants also contend that plaintiffs have failed to show any "but-for" causation, to establish specific jurisdiction. In other words, they argue that plaintiffs have failed to provide evidence showing that but for defendants' contacts with California, plaintiffs would not have applied to ParentProfiles.com. Defendants claim that the alleged Unruh Act injuries could not have arisen out of the relationship between the Adoption.com partnership and IAC, [1075] because IAC's recommendation that plaintiffs post their profile on ParentProfiles.com was not based on a relationship with the Adoption.com partnership, and because IAC did not actually recommend that plaintiffs post their profile on defendants' website.

In opposition, plaintiffs argue that the court's previous findings continue to support specific jurisdiction, again quoting from the May 3, 2004, and April 25, 2005, orders, and citing to the declarations filed by plaintiffs in opposition to defendants' motions. They contend that the evidence referenced therein, as well as the evidence previously submitted, supports the fact that defendants do more business in California than in any other state, including Arizona.

Plaintiffs argue that the court has specific jurisdiction, because the original injury in 2002 arose out of plaintiffs' contacts with the Adoption.com partnership, Dale Gwilliam, and Nathan Gwilliam. They assert that defendants discriminated against people they knew to be California residents, and that defendants knew that the brunt of the injury would be felt by them in California. They contend that these injuries were not the result of plaintiffs' unilateral overtures to the partnership and the Gwilliams, but rather were the result of defendants' successful and deliberate attempts to solicit business from California residents through California adoption agencies.

Plaintiffs also contend that Adoption Profiles LLC is subject to specific jurisdiction because its policy, from January 2003 to the present, has denied access to the Butlers and other same-sex couples in California who would like to use the services of ParentProfiles.com. They argue that Adoption Profiles LLC simply continued the discriminatory policy initiated by the Gwilliams while the Adoption.com partnership owned the ParentProfiles.com website. They claim that this intentional action was expressly aimed at California. As well, they assert that Adoption Profiles LLC encourages adoption agencies located in California to recommend that prospective adoptive parents apply to be listed on ParentProfiles.com, and has entered into agreements with California businesses, including IAC.

Plaintiffs assert that Dale and Nathan Gwilliam, as the sole officers and managers of Adoption Profiles LLC, created and exclusively control the policies of the LLC. They assert that the Gwilliams' active participation in denying access to the Butlers and other California same-sex couples makes them individually subject to personal jurisdiction for claims arising out of that denial.

c. Analysis

It is true, as defendants argue, that personal jurisdiction, if challenged, must be established as to each defendant individually. See Rush v. Savchuk, 444 U.S. 320, 331-32, 100 S.Ct. 571, 62 L.Ed.2d 516 (1980). However, both the original defendants' motion to dismiss for lack of personal jurisdiction and their motion for reconsideration of the order denying the motion to dismiss for lack of personal jurisdiction referred throughout to "defendants' activities in California" and "defendants' contacts with California." Thus, the orders issued by the court on May 3, 2004, and April 25, 2005, were also directed to the California activities and contacts of "defendants."

Moreover, the May 3, 2004, and April 25, 2005, orders did address the contacts of the individual defendants by implication. That is, where the orders discussed jurisdiction over "defendants" in connection with the events that occurred in late 2002 (rejection of the Butlers' ParentProfiles.com [1076] application), the ruling applied to Dale Gwilliam and Nathan Gwilliam, as the Gwilliams had not yet created the LLCs at that point. Where the orders discussed jurisdiction over "defendants" in connection with the post-2002 activities, the ruling applied to the LLCs.

The ruling as to the Gwilliams can also be extended to the Adoption.com partnership.^[15] The Gwilliams, as general partners in the partnership, developed and implemented the "married-couples-only" policy. In both California and Arizona, a partner is an agent of the partnership when carrying on the business of the partnership in the usual way. Cal. Corp.Code § 16301(1); Ariz.Rev.Stat. § 29-1021(1). For purposes of personal jurisdiction, the actions of an agent are attributable to the principal. Sher v. Johnson, 911 F.2d 1357, 1362 (9th Cir.1990) (interpreting former Cal. Corp. Code § 15009(1), repealed effective Jan. 1, 1999, and replaced with Cal. Corp.Code § 16301). Thus, the actions that warrant the exercise of specific jurisdiction over the Adoption.com general partnership, as set forth in the earlier orders, were undertaken by the Gwilliams, as general partners.

Defendants argue, of course, that there can be no personal jurisdiction over the Gwilliams and the Adoption.com partnership with regard to the October 2002 denial of plaintiffs' application to post their profile on ParentProfiles.com, because the website was transferred to Adoption Profiles LLC in January 2003. Thus, according to defendants, because the Adoption.com partnership no longer owned ParentProfiles.com when the complaint in this action was filed in January 2004, the court cannot exercise jurisdiction over the partnership. The court declines to adopt this theory. The court is satisfied, based on the evidence heretofore provided, that it has jurisdiction over the partnership and the general partners based on their activities vis-à-vis California prior to January 2003.

After plaintiffs amended the complaint, defendants again moved to dismiss for lack of personal jurisdiction. The motion filed by the original defendants (the Gwilliams and the LLCs) and the motion filed by the Adoption.com partnership and Dale and Nathan as general partners made essentially the same arguments they had made in the previous motions and the same arguments they are making here — that neither Dale and Nathan Gwilliam, nor the LLC defendants had sufficient contacts with California for general jurisdiction; that plaintiffs could not establish specific jurisdiction over the original defendants because the lawsuit did not arise out of those defendants' contacts with California; that the LLC defendants could not be subject to specific jurisdiction because they did not exist in October 2002; and that plaintiffs had not adequately pled alter ego liability. The motion filed by True North and Aracaju argued both that the court did not have personal jurisdiction over the corporate defendants because the corporate defendants had no contacts with California, and that plaintiffs had not adequately pled alter ego liability.

In its order filed March 13, 2006, the court denied the original defendants' motion and the motion of the general partners on the ground that it had previously found that plaintiffs had stated a prima facie case of personal jurisdiction. The court denied the motions of the partnership and the corporate defendants on the ground that plaintiffs had established a [1077] prima facie case of alter ego liability. Thus, the only defendants as to which the court has not specifically found a prima facie case of personal jurisdiction are the corporate defendants.

As the court has now found that summary judgment should be granted on plaintiffs' alter ego and successor liability claims, the basis for finding personal jurisdiction over the corporate defendants has evaporated. Based on plaintiffs' failure to establish a prima facie case of personal jurisdiction over True North and Aracaju, the court finds that those defendants must be dismissed for lack of personal jurisdiction.

With regard to the remaining defendants, apart from the analysis provided above, the court is not inclined to again revisit the same arguments previously made by the defendants. Defendants describe their motion regarding personal jurisdiction as "not technically a motion for [s]ummary [j]udgment." Although they do not say what kind of motion it is, the court is evidently meant to consider it as another Rule 12(b)(2) motion.

In the June 21, 2005, order regarding the plaintiffs' motion to strike the affirmative defenses, the court denied the motion to strike the first through fourth affirmative defenses, in which defendants alleged that the court does not have personal jurisdiction over, respectively, Adoption Media LLC, Adoption Profiles LLC, Dale Gwilliam, and Nathan Gwilliam. The denial was based on the rule stated in Data Disc, — that even when a plaintiff succeeds in making a prima facie showing of jurisdictional facts, "he must still prove jurisdictional facts at trial by a preponderance of the evidence." Data Disc, 557 F.2d at 1286 n. 2.

Thus, the June 21, 2005, order directed defendants, no later than 60 days prior to trial; to "submit a list of the alleged disputed facts or credibility considerations, which they intend to present to the jury for determination on the factual aspects of' the dispute regarding personal jurisdiction. That order did not contemplate a renewal of defendants' previous Rule 12(b)(2) arguments. Accordingly, defendants motion as to personal jurisdiction is DENIED, except as to True North and Aracaju.

6. Objections to Evidence and Motions to Strike Evidence

The parties have submitted objections to evidence and motions to strike evidence. The court has reviewed the objections, and finds that the evidence at issue appears to have been submitted primarily in support of or in opposition to the motions for summary judgment on liability under the Unruh Act, the motion for summary judgment on the claims of alter ego and successor liability, or the motion to dismiss for lack of personal jurisdiction. Because the court has not granted any of those motions in reliance on the disputed evidence, the objections are OVERRULED. Defendants have also objected to plaintiffs' request for judicial notice, filed December 8, 2006. That objection is also OVERRULED.

CONCLUSION

In accordance with the foregoing, plaintiffs' motion for summary judgment is DENIED; defendants' motion for summary judgment is GRANTED as to the claims under Business and Professions Code §§ 17200 and 17500; GRANTED as to the claims of alter ego and successor liability; and DENIED as to the claims under the Unruh Act. Defendants' motion to dismiss for lack of personal jurisdiction is GRANTED as to True North and Aracaju, and DENIED as to the remaining defendants.

[1078] The court will conduct a case management conference to discuss the trial schedule on Thursday, April 26, 2007, at 2:30 p.m.

IT IS SO ORDERED.

[1] The court added a qualification, however, stating that businesses subject to the Unruh Act retained the right "to establish reasonable regulations that are rationally related to the services performed and facilities provided." Id. at 212, 217 & n. 13, 90 Cal.Rptr. 24, 474 P.2d 992.

[2] This ruling was subsequently reversed, on the ground that the Boy Scouts are not a "business establishment" governed by the provisions of the Unruh Act. See Curran v. Mt. Diablo Council of Boy Scouts of America, 17 Cal.4th 670, 700, 72 Cal.Rptr.2d 410, 952 P.2d 218 (1998).

[3] The Legislature again amended the Unruh Act in 1992, deleting "blindness or other" from the phrase "blindness or other disability," and adding "or medical condition" after "disability" in 2000.

[4] In Smith v. Fair Employment & Housing Comm'n, 12 Cal.4th 1143, 51 Cal.Rptr.2d 700, 913 P.2d 909 (1996), the California Supreme Court held that the Fair Employment and Housing Act, Cal. Gov't Code § 12900, et seq., protects unmarried cohabitants from housing discrimination. The plaintiffs had also raised an Unruh Act claim, asserting discrimination on the basis of marital status, but the court found it unnecessary to address that claim in light of the ruling on the FEHA claim. The court noted the conflict on the issue, citing Beaty, where the court ruled that marital status discrimination was not actionable under the Unruh Act; and also citing Marina Point, where the California Supreme Court had stated to the contrary in dicta, see Marina Point, 30 Cal.3d at 736, 180 Cal.Rptr. 496, 640 P.2d 115, and Frantz v. Blackwell, 189 Cal.App.3d 91, 95, 234 Cal.Rptr. 178 (1987) (same). Smith, 12 Cal.4th at 1160 n. 11, 51 Cal.Rptr.2d 700, 913 P.2d 909.

[5] This law was subsequent abrogated by the California Legislature. See Cory v. Shierloh, 29 Cal.3d 430, 435, 174 Cal.Rptr. 500, 629 P.2d 8 (1981).

[6] The Court of Appeals of Arizona held in 2003 that Arizona's prohibition of same-sex marriages is constitutional. Standhardt v. Superior Court, 206 Ariz. 276, 77 P.3d 451 (Ariz. App.2003).

[7] Prior to 1996, the relevant statute had provided that "[m]arriages valid by the laws of the place where contracted are valid in this state." Ariz.Code of 1939 § 63-108 (currently codified as Ariz.Rev.Stat. § 25-112(A)).

[8] Section 308.5 is being challenged in the California courts. See In re Marriage Cases, 49 Cal.Rptr.3d 675, review granted and opinion superseded by In re Marriage Cases, 149 P.3d 737, 53 Cal.Rptr.3d 317 (Cal.2006).

[9] Section 297.5 was unsuccessfully challenged in the California courts. The plaintiffs argued that § 297.5 impermissibly amended Family Code § 308.5 (marriage is between a man and a woman) without voter approval in violation of the California Constitution. The Court of Appeal found that the language of Proposition 22 said nothing about precluding the Legislature from granting rights to domestic partners that were the equivalent of rights granted to married couples. See Knight v. Superior Court, 128 Cal.App.4th 14, 26 Cal. Rptr.3d 687 (2005).

[10] Defendants refer to "Internet server" and "Web server" interchangeably, without defining those terms. Although the court could not locate a definition for "Internet server," a "Web server" can be either 1) a computer that is responsible for accepting HTTP requests from clients, which are known as Web browsers, and serving them HTTP responses along with optional data contents, which are usually Web pages such as HTML documents and linked objects (images, etc.); or 2) a computer program that provides the functionality described in the first sense of the term. See http://en.wikipedia.org/wiki/Web server (last visited March 30, 2007). Since plaintiffs appear to be talking about the physical location of the server, they must be referring to a computer.

[11] Bigelow was a First Amendment case, in which a Virginia newspaper editor challenged his conviction in Virginia for the crime of "encouraging or prompting the procuring of an abortion." The editor had published an advertisement indicating that abortion was legal in New York and that there was no residency requirement. It was in that context that the Supreme Court noted that Virginia possessed no authority to regulate services provided in New York, and observed that "[a] State does not acquire power or supervision over the internal affairs of another State merely because the welfare and health of its own citizens may be affected when they travel to that State . . . [and] may not, under the guise of exercising internal police powers, bar a citizen of another State from disseminating information about an activity that is legal in that State." Bigelow, 421 U.S. at 824-25, 95 S.Ct. 2222.

[12] Defendants also attempt to distinguish Koebke on the basis that the policy of the country club was solely commercial, whereas the "editorial policy" of the defendants is to promote adoption by heterosexual married couples, and is based on the defendants' protected rights to freedom of thought, conscience, religion, belief, and expression, which they assert are recognized defenses under the Unruh Act. In support, they cite North Coast Women's Care Med. Group, Inc. v. Superior Court, 40 Cal.Rptr.3d 636 (2006). The California Supreme Court granted review in that case on June 14, 2006, however, and the opinion therefore cannot be cited. See North Coast Women's Care Med. Group, Inc. v. Superior Court, 139 P.3d 1, 46 Cal.Rptr.3d 605 (Cal.2006). In addition, plaintiffs assert that defendants denied in their depositions that their policy is based on their religious or philosophical beliefs.

[13] Here, of course, it was the assets of the Adoption.com partners which were transferred to the LLCs.

[14] However; True North and Aracaju are both closely-held corporations, as Dale" Gwilliam and his wife own 100% of True North, and Nathan Gwilliam owns 100% of Aracaju.

[15] In their motion for leave to file the FAC, plaintiffs explained that at the time the original complaint was filed, they were unaware that Adoption.com was both a website and a general partnership, and had not yet learned of the existence of True North and Aracaju.

[733] Markun Zusman & Compton, David S. Markun, Pacific Palisades, Edward S. Zusman and Kevin K. Eng, San Francisco, for Plaintiffs and Appellants.

Bill Lockyer, Attorney General, Richard M. Frank, Chief Assistant Attorney General, Herschel T. Elkins, Assistant Attorney General, and Margaret Reiter, Deputy Attorney General, as Amici Curiae on behalf of Plaintiffs and Appellants.

Orrick, Herrington & Sutcliffe, William F. Alderman and Alejandro Vallejo, San Francisco, for Defendant and Respondent.

National Chamber Litigation Center, Robin S. Conrad, Washington, DC, Stephanie A. Martz; Mayer, Brown, Row & Maw, Donald M. Falk, Palo Alto, and Fatima Goss Graves for the Chamber of Commerce of the United States of America as Amicus Curiae on behalf of Defendant and Respondent.

Deborah J. La Fetra and Timothy Sandefur, Sacramento, for Pacific Legal Foundation as Amicus Curiae on behalf of Defendant and Respondent.

GEORGE, C.J.

The complaint in this case alleges that employees at the Atlanta-based branch of defendant Salomon Smith Barney (SSB) — a large, nationwide brokerage firm that has numerous offices and does extensive business in California — repeatedly have recorded telephone conversations with California clients without the clients' knowledge or consent. These facts give rise to a classic choice-of-law issue, because the relevant California privacy statute generally prohibits any person from recording a telephone conversation without the consent of all parties to the conversation, whereas the comparable Georgia statute does not prohibit the recording of a telephone conversation when the recording is made with the consent of one party to the conversation.

In this proceeding, several California clients of SSB filed a putative class action against SSB seeking to obtain injunctive relief against its Atlanta-based branch's continuing practice of recording telephone conversations, resulting from calls made to and from California, without knowledge or consent of the California clients, and also seeking to recover damages and/or restitution based upon recording that occurred in the past. SSB filed a demurrer to the complaint, maintaining that no relief is warranted, because the conduct of its Atlanta-based employees was and is permissible under Georgia law.

The trial court sustained SSB's demurrer and dismissed the action. The Court of Appeal affirmed the judgment rendered by the trial court, concluding that application of Georgia law is appropriate and supports the denial of all relief sought by plaintiffs. We granted review to consider the novel choice-of-law issue presented by this case.

Past decisions establish that in analyzing a choice-of-law issue, California courts apply the so-called governmental interest analysis, under which a court carefully examines the governmental interests or purposes served by the applicable statute or rule of law of each of the affected jurisdictions to determine whether there is a "true conflict." If such a conflict is found to exist, the court analyzes the jurisdictions' respective interests to determine which jurisdiction's interests would be more severely [734] impaired if that jurisdiction's law were not applied in the particular context presented by the case. (See, e.g., Reich v. Purcell (1967) 67 Cal.2d 551, 63 Cal.Rptr. 31, 432 P.2d 727; Hurtado v. Superior Court (1974) 11 Cal.3d 574, 114 Cal.Rptr. 106, 522 P.2d 666; Bernhard v. Harrah's Club (1976) 16 Cal.3d 313, 128 Cal.Rptr. 215, 546 P.2d 719; Offshore Rental Co. v. Continental Oil Co. (1978) 22 Cal.3d 157, 148 Cal.Rptr. 867, 583 P.2d 721 (Offshore Rental).)

For the reasons discussed at length below, we conclude that this case presents a true conflict between California and Georgia law, and that, as a general matter, the failure to apply California law in this context would impair California's interest in protecting the degree of privacy afforded to California residents by California law more severely than the application of California law would impair any interests of the State of Georgia.

As we shall explain, in light of the substantial number of businesses operating in California that maintain out-of-state offices or telephone operators, a resolution of this conflict permitting all such businesses to regularly and routinely record telephone conversations made to or from California clients or consumers without the clients' or consumers' knowledge or consent would significantly impair the privacy policy guaranteed by California law, and potentially would place local California businesses (that would continue to be subject to California's protective privacy law) at an unfair competitive disadvantage vis-à-vis their out-of-state counterparts. At the same time, application of California law will not have a significant detrimental effect on Georgia's interests as embodied in the applicable Georgia law, because applying California law (1) will not adversely affect any privacy interest protected by Georgia law, (2) will affect only those business telephone calls in Georgia that are made to or are received from California clients, and (3) with respect to such calls, will not prevent a business located in Georgia from implementing or maintaining a practice of recording all such calls, but will require only that the business inform its clients or customers, at the outset of the call, of the company's policy of recording such calls. (As explained below, if a business informs a client or customer at the outset of a telephone call that the call is being recorded, the recording would not violate the applicable California statute.)

Although we conclude that the comparative impairment analysis supports the application of California law in this context, we further conclude that because one of the goals of that analysis is "the `maximum attainment of underlying purpose by all governmental entities'" (Offshore Rental, supra, 22 Cal.3d 157, 166, 148 Cal.Rptr. 867, 583 P.2d 721, italics added), it is appropriate in this instance to apply California law in a restrained manner that accommodates Georgia's reasonable interest in protecting persons who in the past might have undertaken actions in Georgia in reasonable reliance on Georgia law from being subjected to monetary liability for such actions. Prior to our resolution of this case it would have been reasonable for a business entity such as SSB to be uncertain as to which state's law — Georgia's or California's — would be applicable in this context, and the denial of monetary recovery for past conduct that might have been undertaken in reliance upon another state's law is unlikely to undermine significantly the California interest embodied in the applicable invasion-of-privacy statutes. We therefore conclude that it is Georgia's, rather than California's, interest that would be more severely impaired were monetary liability to be imposed on SSB for such past conduct. Under these circumstances, we conclude it is appropriate [735] to decline to impose damages upon SSB (or to require it to provide restitution) on the basis of such past conduct.

Accordingly, we conclude that plaintiffs' action should be permitted to go forward with respect to the request for injunctive relief, but that the judgment rendered by the Court of Appeal should be affirmed insofar as it upholds the dismissal of plaintiffs' claim for damages or restitution based on SSB's past conduct.

I

Because the trial court dismissed plaintiffs' action after sustaining a demurrer without leave to amend, for purposes of this appeal we assume the truth of all well-pleaded factual allegations of the complaint. (See, e.g., Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

According to the complaint, the named plaintiffs — Kelly Kearney and Mark Levy — are California residents who were employed in California by MFS Communications Company (MFS) when that company was acquired in 1996 by WorldCom (a large nationwide telecommunications firm). After the acquisition, both plaintiffs continued to work for WorldCom in California and, during the course of their employment, both were granted stock options in WorldCom that could be exercised only through defendant SSB. The complaint alleges that in 1998, WorldCom's Human Relations Department informed Levy that the Atlanta branch office of SSB handled financial matters for WorldCom employees, and that this department "directed" him to that branch office with regard to matters involving the exercise of his stock options. Both Levy and Kearney opened accounts with SSB's Atlanta office and, during the course of their relationships with SSB, each plaintiff, while in California, made and received numerous telephone calls from individual brokers in the Atlanta office.

At some point, Kearney and Levy filed claims against SSB with the National Association of Securities Dealers, alleging that SSB and its individual brokers had engaged in "malfeasance, fraud, and breach of fiduciary duties" in providing advice to them. Apparently in the course of the litigation of those claims, Kearney and Levy learned that numerous telephone calls that were made and received by SSB's Atlanta office to and from California clients, while the clients were in California, were tape-recorded by SSB employees without the clients' knowledge or consent.

Kearney and Levy then filed the present action, seeking relief on their own behalf and on behalf of all other clients of SSB who resided in California and whose accounts were serviced by the Atlanta branch of SSB. The complaint alleged that during the course of their relationship with SSB, the named plaintiffs and other members of the class took part in numerous telephone conversations concerning their personal financial affairs, had an expectation of privacy in those communications, were unaware that their conversations were being recorded, and did not give consent to the recording of such conversations. The complaint further alleged that SSB intentionally recorded such conversations without disclosing that it was doing so.

The complaint maintained that the conduct of SSB alleged in the complaint provided a basis for a civil cause of action under section 637.2 of the Penal Code — a provision of California's invasion of privacy statutory scheme — as well as under section 17200 of the Business and Professions Code, a provision of California's unfair competition law that provides a civil remedy against (among other things) unlawful [736] business practices. The complaint sought (1) injunctive relief to restrain SSB in the future "from using its practice/policy of illegally recording telephone conversations with its clients," and (2) damages and restitution based upon SSB's past conduct.

SSB filed a demurrer to the complaint, and after briefing and a hearing on the legal issues, the trial court sustained the demurrer without leave to amend, concluding 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 California Business & Professions § 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."^[1]

On appeal, the Court of Appeal — although noting that the parties had failed to identify or brief the correct legal issue (that is, the choice-of-law issue) in either the trial court or, initially, in the Court of Appeal — nonetheless affirmed the judgment rendered by the trial court, concluding "that, on the specific facts of this case, Georgia has the greater interest in having its law applied." The Court of Appeal was of the view that "[a]ny other result would bless a legalistic `gotcha': the office of a financial services organization in a state which, like the majority of states, has a statute which permits it to record routine telephone calls to and from its clients without their specific consent is left at risk that a client in one of the minority of states that requires both parties [to] consent will sue it in the client's home state and attempt to apply that state's law."

As noted above, we granted plaintiffs' petition for review to address the novel choice-of-law-issue presented by this case.^[2]

II

Before addressing the choice-of-law issue, we believe it is useful to explain briefly why the numerous legal theories and authorities upon which SSB placed its initial reliance — and which SSB continues to advance in its briefing in this court — do not support the trial court's ruling sustaining SSB's demurrer without leave to amend.

To begin with, although SSB cites and relies upon a number of cases dealing with personal jurisdiction, it is clear there can be no constitutional objection to California's exercising personal jurisdiction over SSB by adjudicating this civil action in a California court. The complaint alleges that SSB "systematically and continually does business" in California, and SSB does not deny that it maintains numerous offices and does extensive business in this state. Furthermore, this action — involving SSB's alleged recording of telephone conversations relating to business transactions — plainly arises directly out of SSB's [737] business activity in this state. Under these circumstances, SSB is clearly subject to the personal jurisdiction of California courts under both the "general" and "specific" categories of personal jurisdiction. (See, e.g., Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 445-446, 58 Cal.Rptr.2d 899, 926 P.2d 1085.)

Second, contrary to SSB's strenuous argument, the application of California law in the setting of this case clearly would not exceed the constitutional limits imposed by the federal due process clause on a state's legislative jurisdiction, by seeking to impose California law on activities conducted outside of California as to which California has no legitimate or sufficient state interest. The present legal proceedings are based upon defendant business entity's alleged policy and practice of recording telephone calls of California clients, while the clients are in California, without the clients' knowledge or consent. 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. (See, for example, Yu v. Signet Bank/Virginia (1999) 69 Cal.App.4th 1377, 1391, 82 Cal.Rptr.2d 304 [California may regulate business's out-of-state "distant forum abuse" against California consumers]; People v. Fairfax Family Fund, Inc. (1964) 235 Cal.App.2d 881, 883-885, 47 Cal. Rptr. 812 [upholding application of California Small Loan Law to out-of-state company that solicited business in California by mail].) This is not a case in which California would be applying its law in order to alter a defendant's conduct in another state vis-à-vis another state's residents. (Cf. BMW of North America, Inc. v. Gore (1996) 517 U.S. 559, 572-573, 116 S.Ct. 1589, 134 L.Ed.2d 809["[B]y attempting to alter BMW's nationwide policy, Alabama would be infringing on the policy choices of other States. To avoid such encroachment, the economic penalties that a State such as Alabama inflicts on those who transgress its laws ... must be supported by the State's interest in protecting its own consumers or its own economy"].) Instead, application of California law would be limited to the defendant's surreptitious or undisclosed recording of words spoken over the telephone by California residents while they are in California. This is a traditional setting in which a state may act to protect the interests of its own residents while in their home state. (See, e.g., Watson v. Employers Liability Corp. (1954) 348 U.S. 66, 72, 75 S.Ct. 166, 99 L.Ed. 74 [in upholding Louisiana's application of a Louisiana statute permitting an injured person to bring a "direct action" against an insurer doing business in Louisiana even though the insurance policy in question was issued in Massachusetts and contained a clause prohibiting direct actions, the United States Supreme Court explained: "As a consequence of the modern practice of conducting widespread business activities throughout the entire United States, this Court has in a series of cases held that more states than one may seize hold of local activities which are part of multistate transactions and may regulate to protect interests of its own people, even though other phases of the same transactions might justify regulatory legislation in other states"].)

As is recognized by the cited cases — and numerous others — the federal system contemplates that individual states may adopt distinct policies to protect their own residents and generally may apply those policies to businesses that choose to conduct business within that state. (See, e.g., Allstate Ins. Co. v. Hague (1981) 449 U.S. 302, 317-318, 101 S.Ct. 633, 66 [738] L.Ed.2d 521 (plur. opn. by Brennan, J.); id. at pp. 329-331, 101 S.Ct. 633 (conc. opn. by Stevens, J.); id. at pp. 337-338, 101 S.Ct. 633 (dis. opn. by Powell, J.); Clay v. Sun Ins. Office, Ltd. (1964) 377 U.S. 179, 181-182, 84 S.Ct. 1197, 12 L.Ed.2d 229.) It follows from this basic characteristic of our federal system that, at least as a general matter, a company that conducts business in numerous states ordinarily is required to make itself aware of and comply with the law of a state in which it chooses to do business. As is demonstrated by the above cases, a state generally does not exceed its constitutional authority when it applies its law in such a setting, even if the law may implicate some action or failure to act that occurs outside the state.

Third, contrary to SSB's contention and the conclusion of the trial court, past decisions establish that although SSB's alleged conduct would not violate the provisions of the applicable federal law relating to the recording of telephone conversations (18 U.S.C. § 2511(2)(d)), federal law does not preempt the application of California's more protective privacy provisions.

In People v. Conklin (1974) 12 Cal.3d 259, 270-273, 114 Cal.Rptr. 241, 522 P.2d 1049, this court specifically addressed the question whether the provisions of title III of the federal Omnibus Crime Control and Safe Streets Act of 1968 (18 U.S.C. §§ 2510-2520, hereafter title III) — relating to the wiretapping or recording of telephone conversations — preempted the application of the more stringent provisions embodied in California's invasion of privacy law. Reviewing the legislative history of title III, the court in Conklin determined that "Congress intended that the states be allowed to enact more restrictive laws designed to protect the right of privacy" (12 Cal.3d at p. 271, 114 Cal.Rptr. 241, 522 P.2d 1049), pointing out that a legislative committee report prepared in conjunction with the consideration of title III specifically observed that "`[t]he proposed provision envisions that States would be free to adopt more restrictive legislation, or no legislation, but not less restrictive legislation.'" (12 Cal.3d at p. 272, 114 Cal.Rptr. 241, 522 P.2d 1049.) Accordingly, the court in Conklin rejected the preemption claim.

Although an amicus curiae brief in the present case urges that the decision in Conklin be reconsidered (see amicus curiae brief of U.S. Chamber of Commerce, pp. 20-23), the brief fails to point to any developments in the almost four decades since Conklin that would warrant such reconsideration, and omits reference to the numerous sister-state and federal decisions that have reached the same conclusion as Conklin with regard to the preemption issue. (See, e.g., Roberts v. Americable Intern. Inc. (E.D.Cal.1995) 883 F.Supp. 499, 503, fn. 6; United States v. Curreri (D.Md.1974) 388 F.Supp. 607, 613; Bishop v. State (1999) 241 Ga.App. 517, 526 S.E.2d 917, 920; People v. Pascarella (1981) 92 Ill.App.3d 413, 48 Ill. Dec. 1, 415 N.E.2d 1285, 1287; see also Warden v. Kahn (1979) 99 Cal.App.3d 805, 810, 160 Cal.Rptr. 471.) Indeed, the Georgia privacy statute that we shall examine below is itself in some respects more restrictive than the applicable federal provision, and Georgia — like this court in Conklin — specifically has rejected the argument that the federal statute precludes a state from adopting a policy more protective of privacy than the policy established by federal law. (Bishop v. State, supra, 241 Ga.App. 517, 526 S.E.2d 917, 920-921.) Accordingly, there is no basis for concluding that application of California law is preempted by federal [739] law.^[3]

Fourth and finally, application of California law in this setting would not, at least on its face, constitute a violation of the federal commerce clause. (U.S. Const., art. I, § 8, cl. 3.) In advancing the contrary claim, SSB relies heavily on language in the United States Supreme Court's decision in Healy v. The Beer Institute (1989) 491 U.S. 324, 336, 109 S.Ct. 2491, 105 L.Ed.2d 275, to the effect that "the `Commerce Clause ... precludes the application of a state statute to commerce that takes place wholly outside the State's borders, whether or not the commerce has effects within the State.'" The quotation from Healy is inapplicable not only because the occurrences here at issue quite clearly did not take place "wholly outside [California's] borders," but also because SSB's argument ignores the remainder of the quoted sentence from Healy, which goes on to state: "and, specifically, a State may not adopt legislation that has the practical effect of establishing `a scale of prices for use in other states.'" (491 U.S. at p. 336, 109 S.Ct. 2491.) As the entirety of the quoted sentence suggests, the decision in Healy addressed the validity of a state statute that purported to regulate a business entity's pricing practices in the forum state with reference to the prices charged by the entity in other states, and found the statute violative of the commerce clause because of the inevitable effect that the statute would have on the prices charged by the entity in its sales to residents in other states.

On its face, application of the California law here at issue would affect only a business's undisclosed recording of telephone conversations with clients or consumers in California and would not compel any action or conduct of the business with regard to conversations with non-California clients or consumers. (Compare Edgar v. MITE Corp. (1982) 457 U.S. 624, 644, 102 S.Ct. 2629, 73 L.Ed.2d 269 [in invalidating an Illinois statute that effectively authorized Illinois to determine whether a nationwide tender offer could proceed anywhere, the court observed that "[w]hile protecting local investors is plainly a legitimate state objective, the State has no legitimate interest in protecting nonresident shareholders"].) Although SSB may attempt to demonstrate, at a later stage in the litigation, that application of the California statute would pose an undue and excessive burden on interstate commerce by establishing [740] that it would be impossible or infeasible for SSB to comply with the California statute without altering its conduct with regard to its non-California clients and that the burden that would be imposed upon it "is clearly excessive in relation to the putative local benefits" (Pike v. Bruce Church, Inc. (1970) 397 U.S. 137, 142, 90 S.Ct. 844, 25 L.Ed.2d 174), SSB clearly cannot prevail on such a theory at the demurrer stage of the proceeding.

Accordingly, we believe that the only substantial issue presented by the case is the choice-of-law issue. We turn to that issue.

III

Beginning with Chief Justice Traynor's seminal decision for this court in Reich v. Purcell, supra, 67 Cal.2d 551, 63 Cal.Rptr. 31, 432 P.2d 727 (hereafter Reich), California has applied the so-called governmental interest analysis in resolving choice-of-law issues. In brief outline, the governmental interest approach generally involves three steps. First, the court determines whether the relevant law of each of the potentially affected jurisdictions with regard to the particular issue in question 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" (Bernhard v. Harrah's Club, supra, 16 Cal.3d 313, 320, 128 Cal.Rptr. 215, 546 P.2d 719), and then ultimately applies "the law of the state whose interest would be the more impaired if its law were not applied." (Ibid.)

A review of several of the leading decisions of this court applying the governmental interest analysis illustrates how this approach actually operates in practice.

A

In Reich, supra, 67 Cal.2d 551, 63 Cal. Rptr. 31, 432 P.2d 727, for example, the plaintiffs filed a wrongful death action in California as a result of an automobile accident that occurred in Missouri. One of the cars involved in the accident was owned and operated by the defendant (Purcell), who was a California resident. The other car was owned and operated by Mrs. Reich, an Ohio resident, who was traveling with her two children. Mrs. Reich and one of her children were killed in the accident; the other child was injured. After the accident, Mr. Reich and his surviving child moved to California and then brought the wrongful death action against Purcell. The issue in the case related to the damages that the plaintiffs could recover in their wrongful death action.

In this setting there were three potentially affected jurisdictions — Missouri, Ohio, and California. Missouri law limited the recovery of damages in wrongful death actions to $25,000; by contrast, neither Ohio law nor California law placed a dollar limit on recovery in such actions. The trial court in that case held that Missouri law applied because the accident had occurred in that state, and limited the plaintiffs' recovery to $25,000. On appeal, however, this court rejected the prior "law of the place of the wrong" rule as the appropriate choice-of-law analysis, and instead adopted in its place the governmental interest analysis. (Reich, supra, 67 Cal.2d at pp. 553, 554, 555, 63 Cal.Rptr. 31, 432 P.2d 727.)

[741] In applying that analysis to the facts before it, the court in Reich, supra, 67 Cal.2d 551, 63 Cal.Rptr. 31, 432 P.2d 727, initially concluded that California had no interest in applying its law, because plaintiffs had not been California residents at the time of the accident and because inasmuch as California law did not limit damages it had no particular interest in applying its law to defendant. In considering the respective interests of Missouri and Ohio, the court observed that although Missouri's limitation on damages in wrongful death actions expressed a concern for avoiding the imposition of excessive financial burdens on defendants, that concern was primarily a local concern. The court explained that it failed "to perceive any substantial interest Missouri might have in extending the benefits of its limitation of damages to travelers from states having no similar limitation. Defendant's liability should not be limited when no party to the action is from a state limiting liability and when defendant, therefore, would have secured insurance, if any, without any such limit in mind.... Under these circumstances giving effect to Ohio's interest in affording full recovery to injured parties does not conflict with any substantial interest of Missouri." (67 Cal.2d at p. 556, 63 Cal.Rptr. 31, 432 P.2d 727.) Because the court found that Ohio had a substantial interest in having its law applied while Missouri did not, the case did not present a true conflict, and the court had little trouble determining that Ohio law should apply in that case with regard to the amount of damages recoverable in a wrongful death action. (Id. at pp. 556-557, 63 Cal.Rptr. 31, 432 P.2d 727.)

B

Hurtado v. Superior Court, supra, 11 Cal.3d 574, 114 Cal.Rptr. 106, 522 P.2d 666 (hereafter Hurtado), presented an issue and a fact pattern comparable to those presented in Reich, supra, 67 Cal.2d 551, 63 Cal.Rptr. 31, 432 P.2d 727, and afforded our court an opportunity to provide further guidance on the appropriate mode of analysis under the governmental interest approach that had been adopted in Reich, supra, 67 Cal.2d 551, 63 Cal.Rptr. 31, 432 P.2d 727. In Hurtado, as in Reich, the specific question at issue was the amount of damages recoverable in a wrongful death action that had been filed in a California court. In Hurtado, the plaintiffs in the wrongful death action — as well as the decedent — were residents of Mexico at the time of the accident, but the accident that had resulted in the decedent's death occurred in California, each of the defendant drivers was a California driver, and all the vehicles were registered in California. The two potentially affected jurisdictions were Mexico and California, and the question before the court was which jurisdiction's law should determine the amount of damages recoverable by the plaintiffs.

In analyzing the issue, the court first examined the law of each of the jurisdictions and found that whereas Mexico limited the amount survivors could recover in a wrongful death action (to 24,334 pesos), California placed no dollar limit on the damages that could be recovered in such an action. In continuing its analysis under the governmental interest approach, the court in Hurtado observed that "[a]lthough the two potentially concerned states have different laws, there is still no problem in choosing the applicable rule of law where only one of the states has an interest in having its law applied." (Hurtado, supra, 11 Cal.3d at p. 580, 114 Cal. Rptr. 106, 522 P.2d 666.) The court then found that in the setting of that case, Mexico did not have an interest in having its law applied, explaining that "[t]he interest of a state in a tort rule limiting damages for wrongful death is to protect defendants [742] from excessive financial burdens or exaggerated claims" (id. at pp. 580-581, 114 Cal.Rptr. 106, 522 P.2d 666) and that "this interest `to avoid the imposition of excessive financial burdens on [defendants] ... is ... primarily local[,]' [citations]; that is, a state by enacting a limitation on damages is seeking to protect its residents from the imposition of these excessive financial burdens. Such a policy `does not reflect a preference that widows and orphans should be denied full recovery.' [Citation.] Since it is the plaintiffs and not the defendants who are the Mexican residents in this case, Mexico has no interest in applying its limitation of damages — Mexico has no defendant residents to protect and has no interest in denying full recovery to its residents injured by non-Mexican defendants." (Id. at p. 581, 114 Cal.Rptr. 106, 522 P.2d 666.) Because Mexico had no interest in applying its limitation on wrongful death damages, Hurtado, like Reich, did not present a true conflict, and the court consequently concluded that California law should apply. (Id. at pp. 581-582, 63 Cal.Rptr. 31, 432 P.2d 727.)

Although that case was readily resolved because it presented a false conflict, the court in Hurtado, supra, 11 Cal.3d 574, 114 Cal.Rptr. 106, 522 P.2d 666, went on to elaborate on a number of distinct issues that must be carefully considered in resolving choice-of-law questions in wrongful death actions, issues that had not always been carefully separated and analyzed by the lower courts in other cases decided in the wake of Reich. After a fairly extended discussion (11 Cal.3d at pp. 582-584, 114 Cal.Rptr. 106, 522 P.2d 666), the court in Hurtado summarized its conclusions by emphasizing that "[i]t is important . . . to recognize the three distinct aspects of a cause of action for wrongful death: (1) compensation for survivors, (2) deterrence of conduct and (3) limitation, or lack thereof, upon the damages recoverable. Reich v. Purcell recognizes that all three aspects are primarily local in character. The first aspect, insofar as plaintiffs are concerned, reflects the state's interest in providing for compensation and in determining the distribution of the proceeds, said interest extending only to local decedents and local beneficiaries ...; the second, insofar as defendants are concerned, reflects the state's interest in deterring conduct, said interest extending to all persons present within its borders; the third, insofar as defendants are concerned, reflects the state's interest in protecting resident defendants from excessive financial burdens. In making a choice of law, these three aspects of wrongful death must be carefully separated. The key step in this process is delineating the issue to be decided." (Hurtado, supra, 11 Cal.3d at p. 584, 114 Cal.Rptr. 106, 522 P.2d 666.) This discussion in Hurtado teaches the importance, in applying the governmental interest analysis, of carefully examining what might at first blush appear to be a single subject or rule of law in order to identify the distinct state interests that may underlie separate aspects of the issue in question.

C

Unlike Reich, supra, 67 Cal.2d 551, 63 Cal.Rptr. 31, 432 P.2d 727, and Hurtado, supra, 11 Cal.3d 574, 114 Cal.Rptr. 106, 522 P.2d 666 — cases that were found, upon analysis, to present a false conflict — the case of Bernhard v. Harrah's Club, supra, 16 Cal.3d 313, 128 Cal.Rptr. 215, 546 P.2d 719 (hereafter Bernhard) for the first time presented this court with the task of resolving a true conflict pursuant to the governmental interest analysis. In Bernhard, the plaintiff, a California resident, was injured while in California by a drunk driver who allegedly had been served drinks, while intoxicated, at a tavern owned by the defendant (Harrah's Club) that was located [743] in Nevada. The plaintiff sued the defendant in California, contending that the defendant should be held liable because the plaintiff's injury was proximately caused by the defendant's negligence in serving alcohol to an intoxicated patron. When Bernhard was decided, California law authorized a person who was injured by an intoxicated driver to recover damages from a negligent tavern owner under such circumstances (see Vesely v. Sager (1971) 5 Cal.3d 153, 95 Cal.Rptr. 623, 486 P.2d 151), but under Nevada law — although it was a crime to sell alcohol to an intoxicated person — the courts specifically had ruled that a tavern owner could not be held civilly liable in tort for the injured person's damages. (Hamm v. Carson City Nugget, Inc. (1969) 85 Nev. 99, 450 P.2d 358.) The question in Bernhard was whether California or Nevada law should be applied in determining whether the defendant tavern owner should be held liable.

In analyzing the issue, the court in Bernhard first found that the case presented a true conflict. Nevada had an interest in having its decisional rule applied in order to protect its resident tavern owners — like the defendant in that case — from being subjected to a form of civil liability that Nevada had declined to impose. At the same time, California also had an interest in applying its contrary rule imposing liability in such circumstances, inasmuch as the rule was intended to protect members of the general public from injuries to persons and property resulting from the excessive use of intoxicating liquor. California had a special interest in applying its law to a California resident — like the plaintiff in that case — who was injured by a drunk driver within California. Under these circumstances, the court in Bernhard recognized that it was required to determine "the appropriate rule of decision in a controversy where each of the states involved has a legitimate but conflicting interest in applying its own law in respect to the civil liability of tavern keepers." (Bernhard, supra, 16 Cal.3d at p. 319, 128 Cal.Rptr. 215, 546 P.2d 719.)

The court in Bernhard, supra, 16 Cal.3d 313, 128 Cal.Rptr. 215, 546 P.2d 719, went on to discuss the basic process and standard by which true conflicts should be analyzed and resolved under California's governmental interest doctrine. The court explained that "[o]nce [a] preliminary analysis has identified a true conflict of the governmental interests involved as applied to the parties under the particular circumstances of the case, the `comparative impairment' approach to the resolution of such conflict seeks to determine which state's interest would be more impaired if its policy were subordinated to the policy of the other state. This analysis proceeds on the principle that true conflicts should be resolved by applying the law of the state whose interest would be more impaired if its law were not applied. Exponents of this process of analysis emphasize that it is very different from a weighing process. The court does not "`weigh" the conflicting governmental interests in the sense of determining which conflicting law manifested the "better" or the "worthier" social policy on the specific issue. An attempted balancing of conflicting state policies in that sense ... is difficult to justify in the context of a federal system in which, within constitutional limits, states are empowered to mold their policies as they wish.... [The process] can accurately be described as ... accommodation of conflicting state policies, as a problem of allocating domains of law-making power in multi-state contexts — limitations on the reach of state policies — as distinguished from evaluating the wisdom of those policies.... [E]mphasis is placed on the appropriate scope of conflicting state policies rather than on the "quality" of those policies....'" [744] (16 Cal.3d at pp. 320-321, 128 Cal.Rptr. 215, 546 P.2d 719.)

In applying the comparative impairment approach to the circumstances of that case, the court in Bernhard initially observed that "[a]t its broadest limits [California's] policy would afford protection to all persons injured in California by intoxicated persons who have been sold or furnished alcoholic beverages while intoxicated regardless of where such beverages were sold or furnished. Such a broad rule would naturally embrace situations where the intoxicated actor had been provided with liquor by out-of state tavern keepers." (Bernhard, supra, 16 Cal.3d at p. 322, 128 Cal.Rptr. 215, 546 P.2d 719.) The court in Bernhard then continued: "We need not, and accordingly do not here determine the outer limits to which California's policy should be extended, for it appears clear to us that it must encompass defendant, who as alleged in the complaint, `[advertises] for and otherwise [solicits] in California the business of California residents at defendant HARRAH'S CLUB Nevada drinking and gambling establishments, knowing and expecting said California residents, in response to said advertising and solicitation, to use the public highways of the State of California in going and coming from defendant HARRAH'S CLUB Nevada drinking and gambling establishments.' Defendant by the course of its chosen commercial practice has put itself at the heart of California's regulatory interest, namely to prevent tavern keepers from selling alcoholic beverages to obviously intoxicated persons who are likely to act in California in the intoxicated state. It seems clear that California cannot reasonably effectuate its policy if it does not extend its regulation to include out-of-state tavern keepers such as defendant who regularly and purposely sell intoxicating beverages to California residents in places and under conditions in which it is reasonably certain these residents will return to California and act therein while still in an intoxicated state. California's interest would be very significantly impaired if its policy were not applied to defendant." (16 Cal.3d at pp. 322-323, 128 Cal.Rptr. 215, 546 P.2d 719.)

Although the court in Bernhard recognized that application of California law would result in "an increased economic exposure" for a tavern keeper such as defendant (Bernhard, supra, 16 Cal.3d at p. 323, 128 Cal.Rptr. 215, 546 P.2d 719), it noted that "for businesses which actively solicit extensive California patronage, [such increased exposure] is a foreseeable and coverable business expense." (Ibid.) Finally, the court in Bernhard declared that "Nevada's interest in protecting its tavern keepers from civil liability of a boundless and unrestricted nature will not be significantly impaired when as in the instant case liability is imposed only on those tavern keepers who actively solicit California business." (Ibid.) Accordingly, having found that "California has an important and abiding interest in applying its rule of decision to the case at bench [and] that the policy of this state would be more significantly impaired if such rule were not applied" (ibid.), the court in Bernhard concluded that California law should be applied.

D

The final precedent that we shall discuss is Offshore Rental, supra, 22 Cal.3d 157, 148 Cal.Rptr. 867, 583 P.2d 721, a case that, like Bernhard, involved a true conflict.

In Offshore Rental, the plaintiff, a California corporation, brought a negligence action against the defendant out-of-state corporation, seeking to recover damages that the plaintiff corporation allegedly sustained as a result of an injury that an [745] officer of the corporation suffered while the officer was on the defendant's premises in Louisiana. Prior to the commencement of the action, the defendant corporation already had compensated the injured officer for the damages that he had personally sustained, but, in the proceeding at issue in Offshore Rental, the plaintiff corporation sought to recover for the additional damages to its business interests that allegedly were caused by the injury to its officer.

In analyzing the choice-of-law issue, the court in Offshore Rental, supra, 22 Cal.3d 157, 148 Cal.Rptr. 867, 583 P.2d 721, initially reviewed the respective laws of the two potentially affected jurisdictions — Louisiana and California. The court first noted that a Louisiana court recently had interpreted the relevant Louisiana statute — which provided that "[t]he master may bring an action against any man for beating or maiming his servant" (La. Civ. Code Ann., art. 174) — as not supporting a cause of action by a corporate plaintiff for the loss of services of its officer. (See Bonfanti Industries v. Teke, Inc. (La.Ct. App.1969) 224 So.2d 15.) The court in Offshore Rental then explained that, by contrast, the few expressions in California cases ("although chiefly dicta" (Offshore Rental, supra, 22 Cal.3d at p. 162, 148 Cal.Rptr. 867, 583 P.2d 721)) supported the plaintiff's assertion that California Civil Code section 49 — which provides in part that "[t]he rights of personal relations forbid: [¶] ... [¶] (c) Any injury to a servant which affects his ability to serve his master" — authorizes an employer to maintain a cause of action against a third party for a loss sustained by the employer as a result of an injury to a key employee that was caused by the negligence of the third party. (See, e.g., Darmour Prod. Corp. v. H.M. Baruch Corp. (1933) 135 Cal.App. 351, 27 P.2d 664; Fifield Manor v. Finston (1960) 54 Cal.2d 632, 636, 7 Cal.Rptr. 377, 354 P.2d 1073.)

After determining that the applicable law of the two affected states apparently conflicted, the court in Offshore Rental examined the governmental interests involved in each state's law to determine whether, under the facts at issue, each state had an interest in having its law applied. The court found that, in view of the policies underlying the law of each state, both Louisiana and California had an interest in having its law applied in the case before it. Because Louisiana's law was aimed at protecting "negligent resident tortfeasors acting within Louisiana's borders from the financial hardships caused by the assessment of excessive legal liability or exaggerated claims resulting from the loss of services of a key employee" (Offshore Rental, supra, 22 Cal.3d at p. 164, 148 Cal.Rptr. 867, 583 P.2d 721), and because the defendant in the case was "a Louisiana `resident' whose negligence on its own premises has caused the injury in question" (ibid.), Louisiana clearly had an interest in having its law applied. And because California's law reflected an interest "in protecting California employers from economic harm because of negligent injury to a key employee inflicted by a third party" (ibid.) — an interest that "extends beyond such an injury inflicted within California, since California's economy and tax revenues are affected regardless of the situs of physical injury" (ibid.) — and because the plaintiff in that case was a California corporation that allegedly suffered loss as the result of the negligent injury of its key employee, California also had an interest in having its law applied. As a consequence, the court in Offshore Rental determined that the case involved a true conflict.

In thereafter undertaking the comparative impairment analysis set forth in Bernhard, [746] supra, 16 Cal.3d 313, 320, 128 Cal. Rptr. 215, 546 P.2d 719, and quoted above, the court in Offshore Rental, supra, 22 Cal.3d 157, 148 Cal.Rptr. 867, 583 P.2d 721, explained that although the Louisiana rule of law had been set forth in a quite recent Louisiana decision that was directly in point, California, by contrast, "has ... exhibited little concern in applying section 49 to the employer-employee relationship: despite the provisions of the antique statute, no California court has heretofore squarely held that California law provides an action for harm to business employees, and no California court has recently considered the issue at all. If . . . section 49 does provide an action for harm to key corporate employees, ... the section constitutes a law `archaic and isolated in the context of the laws of the federal union.'" (Offshore Rental, supra, 22 Cal.3d at p. 168, 148 Cal.Rptr. 867, 583 P.2d 721.) Under these circumstances, the court stated that "[w]e do not believe that California's interests in the application of its law to the present case are so compelling as to prevent an accommodation to the stronger, more current interest of Louisiana. We conclude therefore that Louisiana's interests would be the more impaired if its law were not applied, and consequently that Louisiana law governs the present case." (Id. at p. 169, 148 Cal.Rptr. 867, 583 P.2d 721.)

IV

Keeping in mind the choice-of-law principles and methodology set forth in these prior cases, we turn to the choice-of-law issue presented by the facts of this case. Here, the two potentially affected jurisdictions are California and Georgia, and the initial question is whether a conflict exists between the applicable law of each jurisdiction. In resolving that initial question, we must determine not only whether California law and Georgia law differ from one another, but also whether each state's law was intended to apply to a telephone conversation that occurs in part in California and in part in Georgia.

A

We begin with the California statutory scheme.

In 1967, the California Legislature enacted a broad, protective invasion-of-privacy statute in response to what it viewed as a serious and increasing threat to the confidentiality of private communications resulting from then recent advances in science and technology that had led to the development of new devices and techniques for eavesdropping upon and recording such private communications. (Stats. 1967, ch. 1509, § 1, pp. 3584-3588, enacting Pen.Code, §§ 630-637.2.)^[4] One of the provisions of the 1967 legislation — section 637.2 — explicitly created a new, statutory private right of action, authorizing any person who has been injured by any violation of the invasion-of-privacy legislation to bring a civil action to recover damages and to obtain injunctive relief in response to [747] such violation.^[5] Although other provisions of the statutory scheme authorize prosecutors to seek penal sanctions for violations of the statute, the imposition of criminal punishment on the basis of conduct that occurs in part outside of California presents potential constitutional and statutory questions different from those involved in the maintenance of a civil cause of action for damages or injunctive relief. (See, for example, Heath v. Alabama (1985) 474 U.S. 82, 87-93, 106 S.Ct. 433, 88 L.Ed.2d 387; People v. Betts (2005) 34 Cal.4th 1039-1047, 23 Cal.Rptr.3d 138, 103 P.3d 883; People v. Morante (1999) 20 Cal.4th 403, 427-430, 84 Cal.Rptr.2d 665, 975 P.2d 1071.) In the present case we have no occasion to consider the circumstances, if any, under which penal sanctions could or should appropriately be applied in such a factual context. The author of the 1967 legislation described the statutory provision establishing a private right of action as "perhaps the most effective enforcement mechanism available" for the privacy rights afforded by the enactment (Statement by Assem. Speaker Unruh Before Sen. Comm. on Judiciary re Assem. Bill No. 860 (1967-1968 Reg. Sess.) June 8, 1967, p. 4) [describing bill that became 1967 statute]), and our concern here is solely whether plaintiffs may maintain a civil cause of action for damages and/or injunctive relief under section 637.2 under the factual circumstances alleged in the complaint.^[6]

The recording of telephone conversations is governed by the provisions of section 632, one of the original provisions of the 1967 legislation. Under subdivision (a) of section 632, "[e]very person who, intentionally and without the consent of all parties to a confidential communication, by means of any electronic amplifying or recording device, ... records the confidential communication, whether the communication is carried on among the parties in the presence of one another or by means [748] of a telegraph, telephone, or other device" (italics added), violates the statute and is punishable as specified in the provision. Section 632, subdivision (b) provides in relevant part that "[t]he term `person' includes an individual, business association, . . . corporation, . . . or other legal entity, . . . but excludes an individual known by all parties to a confidential communication to be . . . recording the communication." (Italics added.) Section 632, subdivision (c), in turn, provides that "[t]he term `confidential communication' includes any communication carried on in circumstances as may reasonably indicate that any party to the communication desires it to be confined to the parties thereto,^[7] but excludes a communication made in a public gathering . . . or in any other circumstance in which the parties to the communication may reasonably expect that the communication may be overheard or recorded." (Italics added.)^[8]

[749] As made clear by the terms of section 632 as a whole, this provision does not absolutely preclude a party to a telephone conversation from recording the conversation, but rather simply prohibits such a party from secretly or surreptitiously recording the conversation, that is, from recording the conversation without first informing all parties to the conversation that the conversation is being recorded.^[9] If, after being so advised, another party does not wish to participate in the conversation, he or she simply may decline to continue the communication. A business that adequately advises all parties to a telephone call, at the outset of the conversation, of its intent to record the call would not violate the provision.^[10]

The language of section 632 does not explicitly address the issue whether the statute was intended to apply when one party to a telephone call is in California and another party is outside California. The legislatively prescribed purpose of the 1967 invasion of privacy statute, however, is "to protect the privacy of the people of this state" (§ 630), and that purpose certainly supports application of the statute in a setting in which a person outside California records, without the Californian's knowledge or consent, a telephone conversation of a California resident who is within California. Furthermore, the companion wiretapping provision of the 1967 act — set forth in section 631, subdivision (a) — specifically applies to any person who attempts to learn the content of any communication "while the same is in transit . . . or is being sent from, or received at any place within this state." (Italics added).^[11] [750] Nothing in the language or purpose of the 1967 legislation suggests that the related provisions of section 632 should not similarly apply to protect against the secret recording of any confidential communication that is sent from or received at any place within California.

SSB contends that section 632 should not be interpreted to apply in such a situation, because application of the statute in this setting would constitute a disfavored "extraterritorial" application of the statute. (See, e.g., North Alaska Salmon Co. v. Pillsbury (1916) 174 Cal. 1, 4, 162 P. 93.) Interpreting that statute to apply to a person who, while outside California, secretly records what a California resident is saying in a confidential communication while he or she is within California, however, cannot accurately be characterized as an unauthorized extraterritorial application of the statute, but more reasonably is viewed as an instance of applying the statute to a multistate event in which a crucial element — the confidential communication by the California resident — occurred in California. The privacy interest protected by the statute is no less directly and immediately invaded when a communication within California is secretly and contemporaneously recorded from outside the state than when this action occurs within the state. A person who secretly and intentionally records such a conversation from outside the state effectively acts within California in the same way a person effectively acts within the state by, for example, intentionally shooting a person in California from across the California-Nevada border. (See, for example, State v. Hall (1894) 114 N.C. 909, 19 S.E. 602, 602-606; see generally Leflar, American Conflicts Law (4th ed.1986) § 111, pp. 309-311.) Because there can be no question but that the principal purpose of section 632 is to protect the privacy of confidential communications of California residents while they are in California, we believe it is clear that section 632 was intended, and reasonably must be interpreted, to apply in this setting. Unlike the conduct at issue in the cases cited by SSB (see, for example, North Alaska Salmon Co. v. Pillsbury, supra, 174 Cal. 1, 4, 162 P. 93; Norwest Mortgage, Inc. v. Superior Court (1999) 72 Cal.App.4th 214, 222-223, 85 Cal. Rptr.2d 18), here SSB's employees allegedly acted to record conversations that were occurring contemporaneously in California. Although, as explained below in connection with the discussion of the relevant Georgia privacy statute, the privacy statute of another state also may apply to an interstate telephone call between California and the other state, we conclude that section 632 clearly is applicable in the present setting.^[12]

[751] Accordingly, construing section 632 in light of the language and purpose of the relevant statutory scheme as a whole, we conclude that section 632 applies when a confidential communication takes place in part in California and in part in another state.^[13]

B

We turn next to the applicable Georgia law.

Georgia, like California, has enacted a broad statute addressing eavesdropping upon or recording of private conversations. The basic provision of the Georgia privacy statute provides in relevant part that "[i]t shall be unlawful for: (1) Any person in a clandestine manner intentionally to overhear, transmit, or record or attempt to overhear, transmit, or record the private conversation of another which shall originate in any private place ..." (Ga.Code Ann. § 16-11-62.) The Georgia Supreme Court, in a decision concluding that the statute applied to one spouse's secret recording of telephone conversations of the other spouse, quoted a provision setting forth the general legislative intent underlying the statute: "`It is the public policy of this State and the purpose and intent of this Chapter to protect the citizens of this State from invasions upon their privacy. This Chapter shall be construed in light of this expressed policy and purpose. The employment of devices which would permit the clandestine overhearing, recording or transmitting of conversations or observing [752] of activities which occur in a private place has come to be a threat to an individual's right of privacy and, therefore, should be prohibited.'" (Ransom v. Ransom (1985) 253 Ga. 656, 324 S.E.2d 437, 438-439; see also Bishop v. State, supra, 241 Ga.App. 517, 526 S.E.2d 917 [interpreting Georgia statute to prohibit parents from recording their teenage child's telephone conversations without the teenager's consent].)

At the same time, however, another provision of the relevant Georgia statutory scheme explicitly provides that "[n]othing in Code Section 16-11-62 [that is, the foregoing statutory provision] shall prohibit a person from intercepting a wire, oral, or electronic communication where such person is a party to the communication or one of the parties to the communication has given prior consent to such interception." (Italics added.) (Ga.Code.Ann. § 16-11-66.) Georgia decisions long have interpreted the relevant Georgia privacy statutes as not applicable to a situation in which a conversation is recorded by one of the participants in the conversation. (See, for example, Mitchell v. State (1977) 239 Ga. 3, 235 S.E.2d 509, 510-511.) In this respect, of course, Georgia law differs from California law.^[14]

With regard to the further question whether the Georgia privacy statutes are intended to apply to a telephone call in which one of the parties is in Georgia and one of the parties is in another state, there is nothing in the language of the Georgia statutes that expressly addresses this issue. In light of the underlying purpose of the Georgia statute, however, we believe that — as we have concluded with regard to the California statute — the applicable Georgia statutes were intended, and reasonably should be interpreted, to apply to such a call.

A hypothetical example may help explain our conclusion in this regard. Consider a situation in which a third party — located in a state other than Georgia or California — were to wiretap or intercept a telephone call between a person in Georgia and a person in California without the knowledge or consent of either party to the conversation. In that setting, the wiretapping would violate the relevant privacy law of both California and Georgia, and each state clearly would have a legitimate and substantial interest in applying its statute to the unlawful invasion of privacy of the person located within its state, whereas the state in which the person who committed the wiretapping was situated would not have that interest (although it still might have an interest in permitting an action against the wiretapper if the conduct were unlawful under its state's law). As this example demonstrates, in light of the principal purpose underlying the kind of privacy provisions here at issue, it is most reasonable to conclude that a state's privacy statute should be interpreted to apply to a telephone call in which one or more of the parties to the call are located within the state.

Accordingly, we conclude that the Georgia statute, as well as the California statute, applies to the telephone calls at issue [753] in this case, and that the law of each state differs with regard to the legality of such conduct. Although it is unlawful under California law for a party to a telephone conversation to record the conversation without the knowledge of all other parties to the conversation, such conduct is not unlawful under Georgia law.

C

Plaintiffs maintain, however, that although California law and Georgia law differ, there nonetheless is no true conflict in this situation. Although it is evident that California has a legitimate interest in having its law applied in the present setting because plaintiffs are California residents whose telephone conversations in California were recorded without their knowledge or consent, plaintiffs contend that Georgia does not have an interest in having its law applied here, because the fundamental purpose of the Georgia statute is to protect the privacy of conversations that have some relationship to Georgia and in this case there is no claim that the privacy of any Georgia resident or any person or business in Georgia has been violated.

Although plaintiffs are correct that the facts of this case do not implicate the privacy interests protected by the Georgia statute, the Georgia statute also can reasonably be viewed as establishing the general ground rules under which persons in Georgia may act with regard to the recording of private conversations, including telephone calls. Because Georgia law prohibits the recording of such conversations except when the recording is made by one of the parties to the conversation or with such a party's consent, persons in Georgia reasonably may expect, at least as a general matter, that they lawfully can record their own conversations with others without obtaining the other person's consent, and Georgia has a legitimate interest in not having liability imposed on persons or businesses who have acted in Georgia in reasonable reliance on the provisions of Georgia law. Because the conduct of SSB that is at issue in this case involves activity that its employees engaged in within Georgia, we believe that Georgia possesses a legitimate interest in having its law applied in this setting.

Accordingly, we conclude that this case presents a true conflict of laws.

V

As discussed at some length earlier (ante, 45 Cal.Rptr.3d at pp. 742-746, 137 P.3d at pp. 924-928), the governing authorities establish that once a court's preliminary analysis has identified a true conflict, "the `comparative impairment' approach ... seeks to determine which state's interest would be more impaired if its policy were subordinated to the policy of the other state." (Bernhard, supra, 16 Cal.3d 313, 320, 128 Cal.Rptr. 215, 546 P.2d 719.) As our prior decisions have emphasized, in conducting this evaluation "[t]he court does not "`weigh" the conflicting governmental interests in the sense of determining which conflicting law manifest[s] the "better" or the "worthier" social policy on the specific issue'" (ibid.), because "`[a]n attempted balancing of conflicting state policies in that sense ... [would be] difficult to justify in the context of a federal system in which, within constitutional limits, states are empowered to mold their policies as they wish.'" (Ibid.) Instead, the comparative impairment process can more "`accurately be described as ... [an] accommodation of conflicting state policies'" (ibid.), attempting, to the extent practicable, to achieve "the `maximum attainment of underlying purpose by all governmental entities.'" (Offshore Rental, supra, 22 Cal.3d 157, 166, 148 Cal.Rptr. [754] 867, 583 P.2d 721.) Under the comparative impairment approach, true conflicts are resolved "by applying the law of the state whose interest would be the more impaired if its law were not applied." (Bernhard, supra, 16 Cal.3d at p. 320, 128 Cal.Rptr. 215, 546 P.2d 719.)

We proceed to evaluate the relative impairment of each state's interests that would result were the law of the other state to be applied in this setting, beginning with California's.

A

In considering the degree of impairment of California's interest that would result if Georgia law rather than California law were applied, we note initially that the objective of protecting individuals in California from the secret recording of confidential communications by or at the behest of another party to the communication was one of the principal purposes underlying the 1967 invasion of privacy enactment. When the proposed legislation — then designated Assembly Bill No. 860 — was before the California Legislature, Assembly Speaker Unruh, the principal author of the legislation, prepared a statement that he delivered before the Senate Committee on the Judiciary in conjunction with its consideration of the bill, in which he explained the impetus for the legislation and described "four major changes" in the law proposed in the bill. (Statement by Assem. Speaker Unruh Before Sen. Com. on Judiciary re Assem. Bill No. 860 (1967-1968 Reg. Sess.) June 8, 1967, p. 2.) The first of the major changes described in Speaker Unruh's statement concerned the issue in question here: "In the first place, whereas such invasions of privacy are presently legal if only one party consents to the listening in, Assembly Bill 860 would require that all parties must consent. This is a most reasonable requirement. [¶] Presently it is entirely legal for one who receives a call to be totally unaware that it is being listened to by another party. Likewise, a party may converse in person with another party who is secretly recording the conversation — he may be seriously injured by that conversation, either personally or in his business affairs — and he has no recourse at law. [¶] Assembly Bill 860 would correct this defect. It is a defect that was less meaningful before the recent development and widespread availability of eavesdropping devices, but as the advertising material which I have passed out to you indicates, it is a legal defect which is most apparent today." (Id., pp. 2-3, underlining in original.)

In addition, it is clear that this is most certainly not an instance like Offshore Rental, supra, 22 Cal.3d 157, 148 Cal.Rptr. 867, 583 P.2d 721, in which the court found that the California statute in question was "ancient" and rarely if ever utilized or relied upon and concluded that the state had little current interest in the application of its own law. (Id. at pp. 167-168, 148 Cal.Rptr. 867, 583 P.2d 721.) On the contrary, California decisions repeatedly have invoked and vigorously enforced the provisions of section 632 (see, e.g., Flanagan v. Flanagan, supra, 27 Cal.4th 766, 776, 117 Cal.Rptr.2d 574, 41 P.3d 575 ["the Privacy Act . . . protects against intentional, nonconsensual recording of telephone conversations regardless of the content of the conversation or the type of telephone involved]"; Ribas v. Clark (1985) 38 Cal.3d 355, 361, 212 Cal.Rptr. 143, 696 P.2d 637 ["secret monitoring denies the speaker an important aspect of privacy of communication — the right to control the nature and extent of the firsthand dissemination of his statements"]; Warden v. Kahn, supra, 99 Cal.App.3d 805, 812-814, 160 Cal.Rptr. 471) and have looked to the policy embodied in the provision in analyzing invasion-of-privacy [755] claims in related contexts. (See, e.g., Sanders v. American Broadcasting Companies (1999) 20 Cal.4th 907, 914-923, 85 Cal.Rptr.2d 909, 978 P.2d 67; Shulman v. Group W Productions, Inc. (1998) 18 Cal.4th 200, 234-235, 74 Cal.Rptr.2d 843, 955 P.2d 469.)

Furthermore, in recent years the California Legislature has continued to add provisions to and make modifications of the invasion-of-privacy statutory scheme here at issue (see, for example, Pen.Code, §§ 632.5-632.7 [cordless or cellular phones], 633.6 [permitting recording by victims of domestic violence upon court order]) and in addition repeatedly has enacted new legislation in related areas in an effort to increase the protection of California consumers' privacy in the face of a perceived escalation in the impingement upon privacy interests caused by various business practices. (See, e.g., Civ.Code, §§ 1798.80-1798.84 [disclosure of consumer records], 1798.85-1795.86 [Social Security numbers], 1798.90.1 [driver's license information], 1798.91 [medical information], 1799-1799.2 [business records], 1799.3 [disclosure of personal information by providers of video cassette sales or rental services].) In addition, California's explicit constitutional privacy provision (Cal. Const., art. I, § 1) was enacted in part specifically to protect Californians from overly intrusive business practices that were seen to pose a significant and increasing threat to personal privacy. (See, e.g., Hill v. National Collegiate Athletic Assn. (1994) 7 Cal.4th 1, 15-20, 26 Cal.Rptr.2d 834, 865 P.2d 633; White v. Davis (1975) 13 Cal.3d 757, 775, 120 Cal.Rptr. 94, 533 P.2d 222; cf. Rattray v. City of National City (9th Cir.1994) 51 F.3d 793, 797 ["Having one's personal conversations secretly recorded may well infringe upon the right to privacy guaranteed by the California Constitution"].)

Thus, we believe that California must be viewed as having a strong and continuing interest in the full and vigorous application of the provisions of section 632 prohibiting the recording of telephone conversations without the knowledge or consent of all parties to the conversation.

We also believe that the failure to apply section 632 in the present context would substantially undermine the protection afforded by the statute. 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. 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. As noted above (ante, 45 Cal.Rptr.3d at pp. 737-738, 137 P.3d at pp. 920-921), an out-of-state company that does business in another state is required, at least as a general matter, to comply with the laws of a state and locality in which it has chosen to do business. (See, e.g., Watson v. Employers Liability Assurance Corp., supra, 348 U.S. 66, 72, 75 S.Ct. 166, 99 L.Ed. 74.) As this court determined in Bernhard, supra, 16 Cal.3d 313, 322-323, 128 Cal.Rptr. 215, 546 P.2d 719, with regard to the need to apply California law relating to the liability of tavern owners to the out-of-state tavern owner at issue in that case, the failure to apply California law in the present context seriously would undermine the objective and purpose of the statute.

Moreover, if section 632 — and, by analogy, other similar consumer-oriented privacy statutes that have been enacted in California [756] — could not be applied effectively to out-of-state companies but only to California companies, the unequal application of the law very well might place local companies at a competitive disadvantage with their out-of-state counterparts. To the extent out-of-state companies may utilize such undisclosed recording to further their economic interests — perhaps in selectively disclosing recordings when disclosure serves the company's interest, but not volunteering the recordings' existence (or quickly destroying them) when they would be detrimental to the company — California companies that are required to comply with California law would be disadvantaged. By contrast, application of section 632 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.

In sum, we conclude that the failure to apply California law in the present context would result in a significant impairment of California's interests.

B

By contrast, we believe that, for a number of reasons, the application of California law rather than Georgia law in the context presented by the facts of this case would have a relatively less severe effect on Georgia's interests.

First, because California law, with regard to the particular matter here at issue, is more protective of privacy interests than the comparable Georgia privacy statute, the application of California law would not violate any privacy interest protected by Georgia law. In addition, there is, of course, nothing in Georgia law that requires any person or business to record a telephone call without providing notice to the other parties to the call, and thus persons could comply with California law without violating any provision of Georgia law.

Second, with respect to businesses in Georgia that record telephone calls, California law would apply only to those telephone calls that are made to or received from California, not to all telephone calls to and from such Georgia businesses. In considering the practicability of singling out California calls for distinct treatment, there would appear to be little question that it would be feasible for a business to identify those calls that its own employees are making to current or potential California clients. Similarly, with regard to calls received by a business in Georgia, it appears likely that technical tools — such as "caller ID" — are available that readily would make it possible to identify which calls received by the Georgia office are coming from California, and, even in the absence of such technological devices, there would appear to be no reason why an SSB employee, when answering a call, could not simply inquire where the client is calling from. Thus, application of California law would appear to affect only those telephone calls to or from California.

Furthermore, applying California law to a Georgia business's recording of telephone calls between its employees and California customers will not severely impair Georgia's interests. As discussed above (ante, 45 Cal.Rptr.3d at p. 749, 137 P.3d at p. 930), California law does not totally prohibit a party to a telephone call from recording the call, but rather prohibits only the secret or undisclosed recording of telephone conversations, that is, the recording of such calls without the knowledge of all parties to the call. Thus, if a Georgia business discloses at the outset of a call made to or received from a California customer that the call is being recorded, the parties to the call will not have a reasonable expectation that [757] the call is not being recorded and the recording would not violate section 632. Accordingly, to the extent Georgia law is intended to protect the right of a business to record conversations when it has a legitimate business justification for doing so, the application of California law to telephone calls between a Georgia business and its California clients or customers would not defeat that interest. The Court of Appeal, in reaching the conclusion that Georgia law should apply, thought it important to emphasize that Georgia has a legitimate interest in permitting a financial services entity, such as SSB, to routinely record telephone calls "for the perfectly understandable purpose of protecting themselves from the customer who might later claim the institution misunderstood his or her investment instructions," but the appellate court failed to recognize that the application of California law would not thwart that interest. Although the application of California law to telephone calls between Georgia and California would impair Georgia's interests to the extent Georgia law is intended to protect a business's ability secretly to record its customers' telephone calls, we believe that, particularly as applied to a business's blanket policy of routinely recording telephone calls to and from California customers, this consequence would represent only a relatively minor impairment of Georgia's interests.

For the foregoing reasons, we conclude that, as a realistic matter, the application of California law in this context would not result in a severe impairment of Georgia's interests.

C

Accordingly, because we have found that the interests of California would be severely impaired if its law were not applied in this context, whereas Georgia's interest would not be significantly impaired if California law rather than Georgia law were applied, we conclude that, with the one exception we discuss below, California law should apply in determining whether the alleged secret recording of telephone conversations at issue in this case constitutes an unlawful invasion of privacy.

VI

Although, for the reasons just discussed, we have concluded that, as a general matter, the comparative impairment analysis supports the application of California law in this context, we believe it is appropriate to make an exception with regard to one distinct issue — the question of SSB's potential monetary liability for its past conduct.

As we have noted above, prior California decisions establish that one of the objectives of the comparative impairment analysis "is the `maximum attainment of underlying purpose by all governmental entities . . . .'" (Offshore Rental, supra, 22 Cal.3d 157, 166, 148 Cal.Rptr. 867, 583 P.2d 721, italics added.) In seeking to maximize each affected state's interest to the extent feasible in the present context, we believe it is appropriate, for the reasons discussed below, to restrain the application of California law with regard to the imposition of liability for acts that have occurred in the past, in order to accommodate Georgia's interest in protecting persons who acted in Georgia in reasonable reliance on Georgia law from being subjected to liability on the basis of such action.

To begin with, we recognize that Georgia has a legitimate interest in ensuring that individuals and businesses who act in Georgia with the reasonable expectation that Georgia law applies to their conduct are not thereafter unexpectedly and unforeseeably subjected to liability for such actions. The Court of Appeal in the present case relied heavily upon this interest in reaching its conclusion, and we believe that [758] court's assessment of the substantiality of this state interest is reasonable. (Accord People v. One 1953 Ford Victoria (1957) 48 Cal.2d 595, 599, 311 P.2d 480 [recognizing propriety of accommodating reasonable expectations of persons who act in another state in reasonable reliance on the other state's law].)

To be sure, one legitimately might maintain that SSB reasonably should have anticipated that its recording of a telephone conversation with a California client when the client is in California would be governed by California law, regardless of where the SSB employee with whom the client is speaking happens to be located. (See NASD Notice to Members 98-52 (eff. Aug. 17, 1998), p. 394.)^[15] Although SSB would have reached that conclusion had it undertaken the extended choice-of-law analysis set forth above, we recognize that at the time of SSB's past actions the few lower court decisions that had considered a legal challenge to the recording of an interstate telephone conversation had reached differing conclusions as to which state's law should apply — the law of the state where the person who recorded the conversation was situated, or instead the law of the state where the person whose words were being recorded was located.^[16] Although none of the prior cases involved [759] the type of repeated recording of customer telephone calls by a business entity that is involved here, we nonetheless believe that prior to our resolution of the issue in this case a business entity reasonably might have been uncertain as to which state's law was applicable and reasonably might have relied upon the law of the state in which its employee was located. Under these circumstances, we believe Georgia has a legitimate interest in not having SSB subjected to liability on the basis of its employees' past actions in Georgia.

At the same time, although California law expressly authorizes the recovery of damages for violations of section 632 (§ 637.2, subd. (a)), we believe that it is appropriate to recognize that ascribing a monetary value to the invasion of privacy resulting from the secret recording of a telephone conversation is difficult in any event, and that the deterrent value of such a potential monetary recovery cannot affect conduct that already has occurred. Under these circumstances, we conclude that denying the recovery of damages for conduct that was undertaken in the past in ostensible reliance on the law of another state — and prior to our clarification of which state's law applies in this context — will not seriously impair California's interests.

Accordingly, although we conclude that in general California law is applicable in this setting and that plaintiffs may seek injunctive relief to require SSB to comply with California law in the future, we shall apply Georgia law with respect to SSB's potential monetary liability for its past conduct, thus relieving SSB of any liability for damages for its past recording of conversations. (Cf., e.g., Ex parte Archy (1858) 9 Cal. 147, 171 [applying clarification of choice-of-law rule prospectively].)^[17] In light of our decision, of course, 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 afforded by California law may be imposed for future violations.^[18]

VII

Finally, we briefly address a point raised by one of the amicus curiae briefs [760] that have been filed in this court, focusing specifically upon the potential application of California's unfair competition law (UCL) in this case. The brief of amicus curie Pacific Legal Foundation suggests that because, as compared to other states' consumer protection laws, the UCL "provides the broadest right of action to the widest number of people," the reach of the statute should be restrained in the application of California's choice-of-law principles.

In our view, we have no occasion in the present case to address the concerns advanced by amicus curiae, because this case does not present any of the potentially more controversial aspects of the UCL and the provisions of that law will not affect the potential relief that plaintiffs may obtain in this case. Here, we are not dealing with conduct that assertedly is simply "unfair" (see generally Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180-187, 83 Cal.Rptr.2d 548, 973 P.2d 527), but rather with alleged conduct that is "unlawful" and already subject to an express statutory private right of action. (§ 637.2.) Further, both the named plaintiffs and the members of the proposed class allegedly are direct victims of the unlawful conduct, rather than simply unharmed persons suing on behalf of the general public. (Cf., e.g., Consumers Union of United States, Inc. v. Fisher Development, Inc. (1989) 208 Cal.App.3d 1433, 1437-1444, 257 Cal.Rptr. 151; see also Prop. 64, Gen. Elec. (Nov. 2, 2004), amending Bus. & Prof.Code, § 17204.) In addition, an injunctive remedy is authorized not only by the terms of the UCL (Bus. & Prof.Code, § 17203), but by the terms of section 637.2 itself. Finally, as discussed earlier (ante, 45 Cal. Rptr.3d at p. 759, fn. 17, 137 P.3d at p. 938, fn. 17), to the extent plaintiffs seek reimbursement under the UCL for SSB's past conduct, we have concluded that such reimbursement is unavailable.

VIII

For the reasons discussed above, the judgment of the Court of Appeal is reversed insofar as it precludes plaintiffs from going forward with their action to obtain injunctive relief, and is affirmed insofar as it upholds the dismissal of the action with regard to the recovery of monetary damages and restitution. Plaintiffs shall recover their costs on appeal.

WE CONCUR: KENNARD, BAXTER, WERDEGAR, CHIN, MORENO, and CORRIGAN, JJ.

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[1] As explained below, Penal Code section 637.5 authorizes a civil cause of action for any violation of the applicable invasion of privacy statutory scheme, and Penal Code section 632 is the specific provision of that scheme that governs the unlawful recording of telephone conversations. (See, post, 45 Cal.Rptr.3d pp. 746-749, 137 P.3d pp. 928-930.)

[2]While this matter was pending before this court, plaintiff Kearney requested to be dismissed from the action in light of a settlement agreement she had entered into with SSB. We granted the request, noting that the dismissal would not affect the viability of the action, because plaintiff Levy remains a named plaintiff and a putative class representative.

We note also that in 2003, SSB formally changed its name to Citigroup Global Markets, Inc., but for purposes of this case we shall continue to refer to defendant as SSB.

[3] In conjunction with its federal preemption argument, SSB contends that in some instances federal law requires the kind of recording of telephone conversations that allegedly occurred at SSB's Atlanta branch, citing rule 3010 of the National Association of Securities Dealers (NASD). That rule requires firms that are members of the NASD and that employ a significant number of representatives who previously worked at firms that have been disciplined by the NASD to tape record alltelephone conversations between its representatives and existing and potential customers. Although SSB acknowledges that it is not subject to rule 3010, it argues that this rule demonstrates that, at least in some circumstances, the California statute is incompatible with federal law.

SSB, however, fails to point to anything in NASD rule 3010 that would preclude a firm that is subject to this rule from informing an existing or potential client, at the outset of a conversation, that the telephone call is being recorded for business purposes. As explained below, a business can comply with the applicable California statute by providing such information at the outset of a telephone conversation so that the client or customer will not have a reasonable expectation that the conversation is not being recorded. Indeed, plaintiffs point to a notice that NASD issued in 1998 in relation to its rule 3010, stating that "[t]he best practice in each case would be for member firms to notify their registered persons and customers that their telephone calls are being tape recorded." (NASD Notice to Members, 98-52, at p. 394.)

[4]The initial section of the 1967 legislation, codified as Penal Code section 630, reads in relevant part: "The Legislature hereby declares that advances in science and technology have led to the development of new devices and techniques for the purpose of eavesdropping upon private communications and that the invasion of privacy resulting from the continual and increasing use of such devices and techniques has created a serious threat to the free exercise of personal liberties and cannot be tolerated in a free and civilized society.

"The Legislature by this chapter intends to protect the right of privacy of the people of this state."

Unless specified, all further statutory references are to the Penal Code.

[5]Section 637.2 currently provides in full:

"(a) Any person who has been injured by a violation of this chapter may bring an action against the person who committed the violation for the greater of the following amounts:

"(1) Five thousand dollars ($5,000).

"(2) Three times the amount of actual damages, if any, sustained by the plaintiff.

"(b) Any person may, in accordance with Chapter 3 (commencing with Section 525) of Title 7 of Part 2 of the Code of Civil Procedure, bring an action to enjoin and restrain any violation of this chapter, and may in the same action seek damages as provided by subdivision (a).

"(c) It is not a necessary prerequisite to an action pursuant to this section that the plaintiff has suffered, or be threatened with, actual damages."

[6] Although the invasion of privacy statutory scheme appears in the Penal Code and the Legislature chose to impose penal as well as civil sanctions for conduct that is prohibited by the legislation, in determining the scope of the civil cause of action embodied in section 637.2, we properly must consider the substance, rather than the form, of the statutory scheme. The reach of section 637.2 would be the same if the Legislature had adopted three separate statutes — one declaring that the prohibited conduct was unlawful, a second specifying the civil sanctions that could be imposed upon such unlawful conduct, and a third specifying the penal sanctions that could be imposed for such conduct — and had placed the first two statutes in the Civil Code and the third in the Penal Code. As noted above, the issue presented here is whether plaintiffs may maintain a civil cause of action for damages and/or injunctive relief under 637.2 on the basis of the facts alleged in the complaint, and in resolving that issue there is no need to determine whether penal sanctions properly could or should be imposed under these circumstances. In accordance with traditional notions of judicial restraint, we believe it is appropriate and prudent to wait until we are faced with an instance in which a prosecutor has chosen to charge a criminal offense on the basis of such conduct before addressing the legal issues that might be raised in such a prosecution.

[7] In Flanagan v. Flanagan (2002) 27 Cal.4th 766, 772-777, 117 Cal.Rptr.2d 574, 41 P.3d 575, our court addressed the question of when a communication is "confidential" within the meaning of this provision, holding that "a conversation is confidential under section 632 if a party to that conversation has an objectively reasonable expectation that the conversation is not being overheard or recorded" (id. at pp. 776-777, 117 Cal.Rptr.2d 574, 41 P.3d 575). We explained that the statutory scheme "protects against intentional, nonconsensual recording of telephone conversations regardless of the content of the conversation or the type of telephone involved." (Id. at p. 776, 117 Cal.Rptr.2d 574, 41 P.3d 575.)

[8]Section 632 provides in full: "(a) Every person who, intentionally and without the consent of all parties to a confidential communication, by means of any electronic amplifying or recording device, eavesdrops upon or records the confidential communication, whether the communication is carried on among the parties in the presence of one another or by means of a telegraph, telephone, or other device, except a radio, 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, or in the state prison, or by both that fine and imprisonment. If the person has previously been convicted of a violation of this section or Section 631, 632.5, 632.6, 632.7, or 636, the person shall be punished by a fine not exceeding ten thousand dollars ($ 10,000), by imprisonment in the county jail not exceeding one year, or in the state prison, or by both that fine and imprisonment.

"(b) The term `person' includes an individual, business association, partnership, corporation, limited liability company, or other legal entity, and an individual acting or purporting to act for or on behalf of any government or subdivision thereof, whether federal, state, or local, but excludes an individual known by all parties to a confidential communication to be overhearing or recording the communication.

"(c) The term `confidential communication' includes any communication carried on in circumstances as may reasonably indicate that any party to the communication desires it to be confined to the parties thereto, but excludes a communication made in a public gathering or in any legislative, judicial, executive or administrative proceeding open to the public, or in any other circumstance in which the parties to the communication may reasonably expect that the communication may be overheard or recorded.

"(d) Except as proof in an action or prosecution for violation of this section, no evidence obtained as a result of eavesdropping upon or recording a confidential communication in violation of this section shall be admissible in any judicial, administrative, legislative, or other proceeding.

"(e) This section does not apply (1) to any public utility engaged in the business of providing communications services and facilities, or to the officers, employees or agents thereof, where the acts otherwise prohibited by this section are for the purpose of construction, maintenance, conduct or operation of the services and facilities of the public utility, or (2) to the use of any instrument, equipment, facility, or service furnished and used pursuant to the tariffs of a public utility, or (3) to any telephonic communication system used for communication exclusively within a state, county, city and county, or city correctional facility.

"(f) This section does not apply to the use of hearing aids and similar devices, by persons afflicted with impaired hearing, for the purpose of overcoming the impairment to permit the hearing of sounds ordinarily audible to the human ear."

[9] Other provisions of the statutory scheme identify a number of limited circumstances in which secret recording by one party to a communication is permissible, such as when the recording is made "for the purpose of obtaining evidence reasonably believed to relate to the commission by another party to the communication of the crime of extortion, kidnapping, bribery, any felony involving violence against the person, or a violation of Section 653m [making obscene phone calls with the intent to annoy]" (§ 633.5), or when a victim of domestic violence, acting pursuant to court authorization, records "any prohibited communication made to him or her by the perpetrator" of domestic violence (§ 633.6, subd. (a)). The calls at issue in this case do not fall within any of the statutorily authorized circumstances.

[10]In one passage in its opinion, the Court of Appeal suggested that even in the absence of an explicit advisement, clients or customers of financial brokers such as SSB "know or have reason to know" that their telephone calls with the brokers are being recorded. The Court of Appeal, however, did not cite anything in the record or any authority establishing such a proposition as a matter of law, and in light of the circumstance that California consumers are accustomed to being informed at the outset of a telephone call whenever a business entity intends to record the call, it appears equally plausible that, in the absence of such an advisement, a California consumer reasonably would anticipate that such a telephone call is not being recorded, particularly in view of the strong privacy interest most persons have with regard to the personal financial information frequently disclosed in such calls.

The complaint in this case explicitly alleges that plaintiffs had a reasonable expectation of privacy in the telephone calls in question, and because this case is before us after the sustaining of a demurrer, we cannot assume for purposes of this appeal that the telephone conversations here at issue were not "confidential communications" within the meaning of section 632.

[11] Section 631, subdivision (a) provides in relevant part: "Any person who, by means of any machine, instrument, or contrivance ... intentionally taps, or makes any unauthorized connection ... with any telegraph or telephone wire, ... or who ... without the consent of all parties to the communication ... attempts to ... learn the contents or meaning of any message, report, or communication while the same is in transit or passing over any wire, line, or cable, or is being sent from, or received at any place within this state" commits a violation of the provision.

[12] SSB concedes that this matter would not involve an improper extraterritorial application of a California statute if SSB's alleged wrongful conduct related to the content of a communication sent into California — for example, an obscene or harassing phone call (see, e.g., Schlussel v. Schlussel (1983) 141 Cal.App.3d 194, 197-198, 190 Cal.Rptr. 95 [holding that Pen.Code, § 653m, prohibiting the making of an obscene phone call with the intent to annoy, applies to a phone call made from Florida to California]) — but it maintains that this case is distinguishable because here the alleged wrongful conduct does not relate to the content of SSB's communications. Unlike the statute at issue in the Schlussel case to which SSB refers, however, the focus and purpose of the California statute here at issue is the protection of privacy, and the alleged conduct of SSB in question constitutes an invasion of privacy within California. Accordingly, for the same reason that the court in Schlussel concluded that the statute there at issue applied to an instance in which a phone call originating outside California inflicted, within California, the type of injury against which the relevant statute was intended to provide protection, we conclude that section 632 properly must be interpreted to apply to the invasion of privacy alleged to have occurred within California in the present case.

[13] In arguing that section 632 should not be interpreted to apply when a telephone call to or from California is recorded in another state, SSB relies upon a letter written by Assembly Speaker Jesse Unruh, the principal author of the 1967 invasion-of-privacy statute, in which he refers to an amendment to the 1967 act that he was considering introducing in the Legislature. Although the letter — which was not before, or considered by, the Legislature — does not appear to be a proper subject of judicial notice (see, for example, California Teachers Assn. v. San Diego Community College Dist.(1981) 28 Cal.3d 692, 699-701, 170 Cal.Rptr. 817, 621 P.2d 856), in any event we do not believe that the letter supports SSB's contention.

In the letter in question, the amendment that Speaker Unruh ostensibly proposed to introduce is set forth as follows: "No evidence obtained as a result of eavesdropping upon or recording a confidential communication in any other state, government, country or jurisdiction which if obtained in this state would have been obtained in violation of this section shall be admissible in any judicial, administrative, legislative, or other proceeding." The letter explains that "[t]he purpose of the above amendment is to cover under the statute's provision out-of-state testimony obtained by means illegal in California, and to rule out such testimony just as it would inadmissible if obtained in California." (Jesse M. Unruh, Speaker of the Assembly, letter to H. Lee Van Boven, California Law Review, Nov. 22, 1968.)

Although SSB apparently assumes that the amendment in question was intended to deal with the type of factual setting at issue in the present case, in our view it is more likely that the proposed amendment was intended to cover a situation in which the entire secretly recorded communication (telephone call or other) occurred outside of California, and in which a party in a lawsuit in California thereafter sought to introduce the recording of the communication into evidence in the California proceeding. There is nothing in the letter — or in any of the appropriately considered legislative history — indicating that Speaker Unruh (or, more importantly, the Legislature as a whole) believed the originally enacted version of section 632 would not apply to a telephone conversation in which an out-of-state participant secretly recorded what was said by a California party while within California.

[14] The dichotomy between the California and Georgia privacy statutes in this regard is representative of a division in analogous privacy statutes throughout the nation. Privacy statutes in a majority of states (as well as the comparable federal provision) — like the Georgia statute — prohibit the recording of private conversations except with the consent of one party to the conversation, but a sizeable minority of states (11 states, according to an apparently well-researched law review article) — including California — prohibit such recording without the consent of all parties to the conversation. (See Bast, What's Bugging You? Inconsistencies and Irrationalities of the Law of Eavesdropping (1998) 47 DePaul L.Rev. 837, 870.)

[15] This NASD document, issued in 1998 with regard to the application of NASD rule 3010 (see, ante,45 Cal.Rptr.3d at p. 739, fn. 3, 137 P.3d at p. 921, fn. 3), states in relevant part: "In complying with the Taping Rule, members must comply with federal and state civil and criminal statutes governing the tape recording of conversations. Each state has a statute governing wiretapping; there also is a federal statute governing wiretapping and electronic surveillance. The federal statute and the majority of the state statutes permit taping the telephone conversations with the consent of one party (one-party statutes); a minority of state statutes require the consent of all parties to the conversation (two-party statutes). Three issues arise from the proposed Rule; what is necessary to comply with one-party statutes; what is necessary to comply with two-party statutes; and how to comply where a conversation occurs between a person in a one-party state and a person in a two-party state.

"The question of which state law applies when a conversation occurs between a person in a one-party statute state and a person in a two-party statute state is an open issue that depends on the individual laws of each state and the individual facts. Firms would be required to independently determine that state laws are satisfied. The best practice in each case would be for member firms to notify their registered persons and customers that their telephone calls are being tape recorded." (NASD Notice to Members 98-52, p. 394, italics added, fns. omitted.)

[16] The prior cases involved the application of the law of four jurisdictions: Florida, Massachusetts, New York, and Texas, although not all of the cases analyzed the issue under choice-of-law principles. In Florida, an intermediate state appellate court held that Florida law — which, like California law, prohibits the recording of a telephone call without the consent of all parties — applied and rendered unlawful the recording in Georgia of a telephone call between the defendant in Georgia and the plaintiff in Florida. (Koch v. Kimball (Fla.Ct.App.1998) 710 So.2d 5.) In Massachusetts, a number of federal district court decisions applying Massachusetts law ruled that the law of the state in which the person is doing the recording should apply, and therefore rejected actions brought by Massachusetts residents (whose law — like California law — requires the consent of all parties) against defendants who recorded the calls in states where the consent of only one party is required. (MacNeill Engineering Co. v. Trisport, Ltd. (D.Mass.1999) 59 F.Supp.2d 199, 202; Pendell v. AMS/Oil, Inc (D.Mass.1986) 1986 WL 5286, 1986 U.S.Dist. Lexis 26089.) In New York, a federal district court applying New York law held that where the party whose conversation was secretly recorded was located in a state that permitted the recording of a conversation with the consent of one party, that party could not maintain an action even though the defendant who recorded the conversation was located in a state that required the consent of all parties to the conversation. (Wehringer v. Brannigan (S.D.N.Y. 1990) 1990 WL 200563, 1990 U.S. Dist. Lexis 16447; see also Locke v. Aston (2006) ___ A.D.3d ___, 814 N.Y.S.2d 38.) In Texas, a federal district court applying Texas's "most significant relationship" choice-of-law test concluded that Texas law (which required the consent of only one party to the conversation), rather than California law, should apply when a company employee in Texas recorded telephone conversations with other company employees in California. (Becker v. Computer Sciences Corp. (S.D.Tex.1982) 541 F.Supp. 694, 703-705.)

[17] For the same reasons that lead us to conclude that monetary damages may not be obtained on the basis of SSB's past actions, we also conclude that it would be inappropriate to require SSB to provide reimbursement under the provisions of the unfair competition law on the basis of such past actions.

[18]To avoid any misunderstanding regarding the scope of our ruling, we note that this case does not present the question whether secret recordings that were made prior to this decision would or would not be admissible in a judicial or other proceeding, and we express no opinion on that question.

Furthermore, because this case does not involve the isolated recording of a personal telephone call by an out-of-state individual in a nonbusiness setting, or the recording of a phone call by an out-of-state business that has a reasonable, individualized basis for believing that a particular caller is engaged in criminal or wrongful conduct, we have no occasion to determine how the comparative impairment analysis would apply in those or other comparable settings.

[73] Waters & Kraus, Waters Kraus & Paul, Paul C. Cook and Michael B. Gurien for Plaintiffs and Appellants.

Sedgwick, Detert, Moran & Arnold, Frederick D. Baker; Gordon & Rees and James G. Scadden for Defendant and Respondent.

[74] National Chamber Ligation Center, Inc., Robin S. Conrad; Shook, Hardy & Bacon and Patrick J. Gregory for American Tort Reform Association, Coalition for Litigation Justice, Inc., Chamber of Commerce of the United States of America, American Chemistry Council, American Insurance Association, National Association of Mutual Insurance Companies, Property Casualty Insurers Association of America, National Association of Manufacturers and the State Chamber of Oklahoma as Amici Curiae on behalf of Defendant and Respondent.

Fred J. Hiestand for The Civil Justice Association of California as Amicus Curiae on behalf of Defendant and Respondent.

Gordon & Rees, Michael Pietrykowski and Don Willenburg for Ingersoll-Rand Company and Leslie Controls, Inc., as Amici Curiae on behalf of Defendant and Respondent.

OPINION

GEORGE, C. J.

This case presents a choice-of-law issue arising in a lawsuit filed by plaintiff Terry McCann (plaintiff) to recover damages for an illness, mesothelioma, allegedly caused by his exposure to asbestos. Although the complaint seeks recovery from numerous defendants, the issue before us relates solely to the potential liability of a single defendant, Foster Wheeler LLC (Foster Wheeler), a company that specially designed, manufactured, and provided advice regarding the installation of a very large boiler at an oil refinery in Oklahoma in 1957. At the time the boiler was being installed at the Oklahoma refinery, plaintiff, then an Oklahoma resident and a newly hired engineering sales trainee employed by the construction company that was installing the boiler, allegedly was exposed to asbestos at various times over a two-week period while he observed the application of asbestos insulation to the boiler by an independent insulation contractor.

Eighteen years later, in 1975, after working at various jobs in Minnesota and Illinois, plaintiff moved to Dana Point, California, to take a position as executive director of Toastmasters International. In 2005, after having retired from his Toastmasters position in 2001 and continuing to reside in California, plaintiff was diagnosed with mesothelioma. A few months later, plaintiff filed this action in California, naming numerous defendants, including Foster Wheeler.

Prior to trial, Foster Wheeler moved for summary judgment on various grounds, including that plaintiff's action against it was governed by, and barred under, an Oklahoma statute of repose that required any cause of action [75] against a designer or constructor of an improvement to real property to be filed within 10 years of the substantial completion of the improvement. In opposing the motion, plaintiff contended, first, that his cause of action for an injury or illness caused by exposure to asbestos should be governed by the relevant California statute of limitations (under which the action would have been timely filed), rather than by Oklahoma law, and, second, that in any event Foster Wheeler's boiler was not an improvement to real property within the meaning of the relevant Oklahoma statute of repose.

After the trial court initially determined that Oklahoma, rather than California, law should apply to the timeliness issue but that there were disputed questions of fact regarding whether the action against Foster Wheeler fell within the reach of the Oklahoma statute of repose, the parties agreed that the trial court, instead of a jury, should determine whether the Oklahoma statute applied. After considering the declarations filed by each party and a number of judicial decisions interpreting the Oklahoma statute, the trial court found that Foster Wheeler was a designer of an improvement to real property within the meaning of the Oklahoma statute of repose and entered judgment dismissing Foster Wheeler as a defendant in plaintiff's underlying action.

On appeal, the Court of Appeal concluded that the trial court erred in determining that Oklahoma law rather than California law should apply in these circumstances; as a consequence, the Court of Appeal did not reach the question whether the trial court erred in finding that the action against Foster Wheeler fell within the reach of the applicable Oklahoma statute of repose. In analyzing the choice-of-law issue under the "governmental interest" approach endorsed by the governing California decisions, the Court of Appeal reasoned that California "has an obvious interest in providing a remedy to its long-term residents who sustain asbestos-related injuries," but that Oklahoma's interest in the application of its statute of repose "is substantially . . . an interest in protecting Oklahoma defendants from liability for conduct occurring in Oklahoma." Because Foster Wheeler's corporate headquarters was located in New York rather than in Oklahoma, the Court of Appeal found that Foster Wheeler was not "among the defendants in whose favor Oklahoma's statute of repose is primarily directed" and consequently that "any significant interest of Oklahoma in the application of its statute of repose . . . is difficult to discern." The Court of Appeal further concluded that even if it were assumed a "true conflict" exists in this case, the interests of California would be more impaired by the application of Oklahoma law than would be the interests of Oklahoma by the failure to apply its law. Accordingly, the appellate court held that the trial court erred in applying the Oklahoma statute of repose to McCann's claim against Foster Wheeler, and reversed the trial court's judgment in favor of Foster Wheeler.

[76] On petition by Foster Wheeler, we granted review primarily to consider whether the Court of Appeal was correct in determining (1) that Oklahoma's interest in the application of its statute of repose is substantially limited to application of the statute to companies headquartered in Oklahoma and does not equally encompass out-of-state companies who design or construct improvements to real property located in Oklahoma, and (2) that California's interests, rather than Oklahoma's interests, would be more impaired by the failure to apply the respective state's law on the facts presented here.

For the reasons discussed more fully below, we conclude that the decision of the Court of Appeal should be reversed. As we explain, prior California choice-of-law decisions demonstrate that, contrary to the conclusion reached by the Court of Appeal, Oklahoma's interest in the application of its statute of repose applies as fully to out-of-state companies that design and construct improvements to real property in Oklahoma as to Oklahoma companies that design and construct such improvements. Further, although California has a legitimate interest in affording a remedy to a resident of California whose asbestos-related illness first manifests itself when the individual is a California resident, past California cases indicate that it is generally appropriate for a court to accord limited weight to California's interest in providing a remedy for a current California resident when the conduct of the defendant from whom recovery is sought occurred in another state, at a time when the plaintiff was present in (and, in the present situation, a resident of) that other state, and where that other state has its own substantive law, that differs from California law, governing the defendant's potential liability for the conduct that occurred within that state. Taking these factors into consideration, we conclude that Oklahoma's interest would be more impaired by the failure to apply its law in these circumstances than would be California's interest by the failure to apply its law, and thus that the law of Oklahoma, rather than the law of California, should apply to the issue presented here.

I

A

The facts relevant to the choice-of-law issue before us are not in dispute.

As noted, Foster Wheeler's asserted liability for plaintiff's illness is based upon plaintiff's alleged exposure to asbestos in Oklahoma over a two-week period in July 1957, nearly 50 years prior to the time plaintiff was diagnosed with mesothelioma in 2005.

In July 1957, plaintiff, then an Oklahoma resident and a recent college graduate, was a newly hired engineering sales trainee employed by Tulsa [77] Refinery Engineering Company (TRECO), an oil refinery construction company that was engaged in constructing an expansion of an oil refinery owned by D'X Sunray Oil Company of Tulsa, Oklahoma (Sunray). In connection with the expansion, Sunray had ordered a specially designed steam generator from Foster Wheeler, a corporation headquartered in New York. The generator consisted of a custom-designed and extensively engineered boiler and related equipment that was to be designed and manufactured by Foster Wheeler in New York, and shipped in a disassembled condition to the refinery in Oklahoma, where it was to be assembled and installed by TRECO at the refinery, in consultation with an adviser employed by Foster Wheeler. The boiler in question was "huge"—more than 25 feet high and weighing many tons—and was to be installed on a specially poured foundation constructed by TRECO.

Pursuant to the terms of the contract between Sunray and Foster Wheeler, the generator was shipped to Sunray without insulation. The responsibility for installing the necessary insulation for the generator was to be borne by Sunray. Sunray hired an independent contractor—a company other than TRECO but not identified in the record—to install the insulation around the boiler. Plaintiff maintains that Foster Wheeler specified the need for insulation and knew or should have known the insulation was likely to contain asbestos.

As noted, at the time of the alleged exposure plaintiff was a newly hired engineering sales trainee employed by TRECO. Plaintiff testified at his deposition that his job responsibility at that time was simply to observe the ongoing construction at the refinery and to learn all there was to know about building a refinery. When plaintiff began work with TRECO, the assembly and installation of the Foster Wheeler boiler had been largely completed, and the independent contractor was in the process of installing insulation around the boiler and related equipment. Plaintiff acknowledged he did not assist in the actual application or installation of the insulation, but stated he observed the installation work for brief periods and occasionally stepped inside the boiler to take a look. He recalled observing the sawing of block insulation, the preparation and installation of insulating cement on the boiler, and the rising of dust clouds created by the mixing of the cement. In response to a question concerning the total amount of time he had been around the Foster Wheeler boiler, plaintiff stated that a "wild guess" would be "two or three days in total."

Construction of the generator and its insulation was completed within a few weeks of plaintiff's arrival at the Sunray refinery. After observing other aspects of the construction of the refinery expansion for more than a year, plaintiff moved to an office job in TRECO's Oklahoma headquarters in Tulsa.

[78] In 1965, plaintiff left Tulsa and moved to Minnesota, where he began working in the advertising industry. In 1967, plaintiff moved to Chicago, Illinois, to take a job as manager of education for a food industry trade association. While in Chicago, he earned an MBA degree from Loyola University Chicago.

In 1975, plaintiff moved to Dana Point, California, accepting the position of executive director of Toastmasters International, a nonprofit organization that assists individuals in becoming more competent and comfortable in public speaking. He remained director of Toastmasters for 26 years until retiring in 2001.

In April 2005, plaintiff, who continued to reside in California, was diagnosed with mesothelioma. He filed the complaint in the underlying action in July 2005, naming numerous defendants, including Foster Wheeler.^[1]

B

As noted above, prior to the commencement of trial Foster Wheeler filed a motion for summary judgment. Among other contentions, the summary judgment motion asserted that the timeliness of the action should be governed by Oklahoma law, rather than California law, and that under Oklahoma law plaintiff's cause of action against Foster Wheeler was barred by an Oklahoma statute of repose^[2] providing that any tort action for injury arising from "the [79] design, planning, supervision or observation of construction or construction of an improvement to real property" must be brought within 10 years of the "substantial completion" of the improvement. (Okla. Stat. tit. 12, § 109 (hereafter section 109).) Because plaintiff's lawsuit was filed long after the 10-year period specified in the Oklahoma statute of repose had expired, Foster Wheeler maintained that the action against it must be dismissed.

In support of this contention, the summary judgment motion first maintained that under the "governmental interest" analysis generally applied by California courts in resolving choice-of-law issues, the application of Oklahoma law rather than California law is appropriate. Thereafter, to support its claim that section 109—the Oklahoma statute of repose—applies to the facts of this case, the summary judgment motion relied upon an Oklahoma decision that determined the statute was applicable to the manufacturer and designer of a very large, specially designed piece of equipment installed in an industrial building. (Ball v. Harnischfeger Corp. (1994) 1994 OK 65 [877 P.2d 45] [holding § 109 applied to designer and manufacturer of large crane specially designed for installation in a particular building].) The motion attached a declaration of an engineer describing in detail the size and features of the boiler in question and the extensive engineering efforts that were entailed in designing and constructing the boiler to meet the particular specifications of the Sunray refinery.

In his opposition to the motion for summary judgment, plaintiff first maintained that section 361 of the Code of Civil Procedure (section 361)— California's so-called "borrowing statute," which we discuss below (pp. 83-87, post)—requires application of the California statute of limitations in this case without consideration of the governmental interest analysis that ordinarily governs the resolution of choice-of-law issues under California law. Although section 361 provides that, in general, a cause of action arising in another state cannot be maintained in California if the other state's law bars the action due to a lapse of time, this statute contains an exception for a person "who has been a citizen of this State, and who has held the cause of action from the time it accrued." The opposition to the summary judgment motion argued that plaintiff fell within this exception and that, as a consequence, section 361 mandated application of the relevant California statute of limitations without regard to the governmental interest analysis.

Plaintiff further argued that even if section 361 did not preclude resort to the governmental interest analysis, under a proper application of that analysis, [80] California law, rather than Oklahoma law, should be found applicable. Plaintiff maintained that California's governmental interest would be significantly impaired by application of the Oklahoma statute of repose to bar plaintiff's action against Foster Wheeler, whereas Oklahoma had no interest in barring a cause of action that, plaintiff claimed, arose outside Oklahoma's borders because plaintiff first incurred the symptoms and effects of mesothelioma while he was a longtime resident of California. Finally, plaintiff contended that even if Oklahoma law were applicable, Foster Wheeler did not fall within the reach of the Oklahoma statute of repose, because Foster Wheeler was merely the manufacturer of a defective product and should not be considered the designer of an improvement to real property within the meaning of the Oklahoma statute.

In ruling on the summary judgment motion, the trial court, although agreeing with Foster Wheeler's argument that Oklahoma law, rather than California law, should govern the timeliness of the action, nonetheless denied Foster Wheeler's motion for summary judgment, on the ground that there was a triable issue of fact concerning whether Foster Wheeler was a designer of an improvement to real property for purposes of the Oklahoma statute of repose.

Thereafter, Foster Wheeler filed a motion under Evidence Code section 402, seeking to have the trial court determine the "narrow factual question" whether Foster Wheeler was a designer of an improvement to real property under the terms of the Oklahoma statute of repose. Plaintiff joined in the request to have this question resolved by the trial court rather than by a jury, asking the trial court to rule in its favor on this issue and to preclude Foster Wheeler from bringing any evidence relating to the Oklahoma statute of repose before the jury.

After considering the evidence and legal argument presented by both parties on this issue, the trial court found that Foster Wheeler was a designer of an improvement to real property within the meaning of the Oklahoma statute of repose. Accordingly, the trial court entered judgment in favor of Foster Wheeler, dismissing plaintiff's action against Foster Wheeler.

C

In the Court of Appeal, plaintiff on a number of grounds challenged the trial court's judgment in favor of Foster Wheeler.

First, plaintiff asserted the trial court erred in failing to conclude that the timeliness of plaintiff's action should be governed by California law, rather than Oklahoma law. Plaintiff again argued initially that application of the [81] California statute of limitations was compelled under the provisions of section 361, California's borrowing statute, without any need to consider the governmental interest analysis generally applicable to choice-of-law issues. Further, plaintiff maintained that even if the governmental interest analysis were applied, under that analysis the California statute of limitations for asbestos-caused injuries or illnesses, rather than the Oklahoma statute of repose, should apply.

Second, plaintiff maintained that even if Oklahoma law were applicable, the trial court erred in finding that Foster Wheeler fell within the reach of the Oklahoma statute of repose, because the evidence failed to support the trial court's conclusion that the boiler was an improvement to real property for purposes of the Oklahoma statute. In advancing this argument, plaintiff relied primarily upon Foster Wheeler's failure to prove that the boiler had been taxed as real property in Oklahoma.

In addressing plaintiff's contentions, the Court of Appeal initially expressed skepticism regarding plaintiff's argument that the provisions of section 361 properly should be interpreted to compel application of the California statute of limitations, without consideration of the governmental interest analysis, whenever the plaintiff in an action filed in a California court is a citizen of California at the time his or her cause of action accrues. Instead, the Court of Appeal suggested that although the language of section 361 requires a California court to apply the law of a foreign state barring an action arising in the foreign state as untimely when the plaintiff is not a California citizen at the time the cause of action accrues, when the plaintiff is a California citizen when the cause of action accrues "the statute, on its face, permits the court to apply California law . . . but it does not expressly require the court to do so; it merely excepts California citizens from the mandatory application of foreign law. We doubt . . . that the statutory exception for plaintiffs who were citizens when their cause of action accrued requires the court to apply California law, in circumstances where the application of California's choice of law principles would dictate otherwise." The Court of Appeal went on to state, however, that "[w]e need not definitively determine the point," in light of that court's subsequent conclusion that in this case "California's choice of law principles require the application of California law rather than Oklahoma law."

Thereafter, in discussing the choice-of-law issue, the Court of Appeal began by summarizing the governmental interest approach set forth in prior California decisions: "Three steps are involved. First, the court must determine whether the foreign law differs from California law. Second, if there is a difference, the court must determine whether a `true conflict' exists by determining whether both states have a legitimate interest in applying their [82] own law to the case at hand. [Citation.] Third, when both states have a legitimate interest in the application of their respective laws, the court analyzes the `comparative impairment' of the interests of the two states and applies the law of the state whose interest would be more impaired if its law were not applied. [Citation.]" The appellate court then proceeded to apply this approach to the circumstances here at issue.

The Court of Appeal first observed that the laws of Oklahoma and California clearly differ, because if the Oklahoma statute of repose applied, plaintiff's action against Foster Wheeler would be barred by the lapse of time, whereas plaintiff's action would be timely under the applicable California statute of limitations (Code Civ. Proc., § 340.2), which permits an action for injury or illness based upon exposure to asbestos to be brought within a year of the date the plaintiff first suffered disability and knew or reasonably should have known that such disability was caused by exposure to asbestos.

In considering the second step of the analysis—whether a "true conflict" exists—the Court of Appeal stated that "[w]e harbor serious doubt that a true conflict exists in this case between the interests of California and Oklahoma. California has an obvious interest in providing a remedy to its long-term residents who sustain asbestos-related injuries . . . . Oklahoma's interest—in protecting defendants who design or construct improvements to real property by placing a time limitation on their liability for tortious conduct—is considerably less evident in the circumstances of this case. Oklahoma's interest is substantially a local one, that is, an interest in protecting Oklahoma defendants from liability for conduct occurring in Oklahoma. [Citation.] In this case, however, Foster Wheeler is not a citizen of Oklahoma, and is therefore not among the defendants in whose favor Oklahoma's state of repose is primarily directed. Moreover, Foster Wheeler's allegedly tortious conduct was in the design and fabrication of the boiler, which conduct occurred in New York or some location other than Oklahoma. Consequently, any significant interest of Oklahoma in the application of its statute of repose—and hence a `true conflict'—is difficult to discern."

Finally, in the third step of the analysis, the Court of Appeal stated that even if it assumed Oklahoma has a legitimate interest in the application of its statute of repose in this case, California law should apply because California's interest would be more impaired than Oklahoma's interest if its law were not applied. In reaching this conclusion, the Court of Appeal reasoned: "California has a significant interest in permitting [plaintiff] to seek compensation for asbestos-related injuries manifesting themselves in California. [Plaintiff] has been a California resident for many years, his injury accrued in California, and he relied on California's health care facilities for his care. California has an interest in limiting health care costs that accrue as a result of barred [83] claims. This is particularly important in light of the prevalence of debilitating asbestos-related disease. California's interest in providing him with a remedy is far more significant than Oklahoma's interest in protecting a nonresident defendant from excessive financial burdens, particularly when the nonresident defendant's liability is premised on design and manufacturing activity that did not occur in Oklahoma. We therefore conclude that the interests of California would be more significantly impaired by the application of Oklahoma law than the converse. Accordingly, the trial court erred in applying the Oklahoma statute of repose to [plaintiff's] claim against Foster Wheeler."

Because it concluded the trial court erred in failing to apply California law in determining the timeliness of plaintiff's action against Foster Wheeler, the Court of Appeal did not reach plaintiff's alternative contention that the trial court erred in finding that, under Oklahoma law, Foster Wheeler was entitled to the protection of the Oklahoma statute of repose. Having concluded that plaintiff's action against Foster Wheeler was timely under California law, the Court of Appeal reversed the trial court's judgment in favor of Foster Wheeler.

We granted Foster Wheeler's petition for review.

II

(1) Traditionally, a state's general choice-of-law rules have been formulated by courts through judicial decisions rendered under the common law, rather than by the Legislature through statutory enactments. In California, over the past four decades this court's decisions have adopted and consistently applied the so-called "governmental interest" analysis as the appropriate general methodology for resolving choice-of-law questions in this state. (See, e.g., Reich v. Purcell (1967) 67 Cal.2d 551 [63 Cal.Rptr. 31, 432 P.2d 727] (Reich); Bernhard v. Harrah's Club (1976) 16 Cal.3d 313 [128 Cal.Rptr. 215, 546 P.2d 719] (Bernhard); Offshore Rental Co. v. Continental Oil Co. (1978) 22 Cal.3d 157 [148 Cal.Rptr. 867, 583 P.2d 721] (Offshore Rental); Kearney v. Salomon Smith Barney, Inc. (2006) 39 Cal.4th 95 [45 Cal.Rptr.3d 730, 137 P.3d 914] (Kearney).)

With respect to the category of statutes of limitation and statutes of repose, however, many jurisdictions have enacted specific statutory provisions that address the subject of choice of law. As discussed in a leading treatise and a number of law review articles, a majority of American states have adopted so-called "borrowing statutes" that direct the courts of a state, in lawsuits filed within that state, to apply or "borrow" the relevant statute of limitations or statute of repose of a foreign jurisdiction under the particular circumstances specified in the statute, rather than to apply the statute of limitations [84] of the forum jurisdiction. (See generally Leflar et al., American Conflicts Law (4th ed. 1986) §§ 127-128, pp. 348-354 (Leflar Treatise); Ester, Borrowing Statutes of Limitation and Conflict of Laws (1962-1963) 15 U.Fla. L.Rev. 33 (Ester Article); Vernon, Statutes of Limitation in the Conflict of Laws: Borrowing Statutes (1960) 32 Rocky Mtn. L.Rev. 287.)

The general popularity of borrowing statutes is explained by the common law background against which such statutes were enacted. Under early common law conflict-of-law principles, rules of law ordinarily were characterized as either "substantive" or "procedural," and procedural matters universally were held to be governed by the local or forum law. Because early common law decisions characterized statutes of limitations as procedural rather than substantive, the general rule at that time was that the local statute of limitations of the forum state—rather than another state's statute of limitations—applied to an action filed in the forum state, regardless of the location of the most significant events and circumstances underlying the cause of action or relating to the parties. (Leflar Treatise, supra, § 127, pp. 348-349.) Thus, even when a cause of action arose out of an accident in one state and all the parties were residents of that state, if a lawsuit was filed in a different state, the court in which the action was filed generally would apply its own state's statute of limitations, rather than the statute of limitations of the other state.

When the period specified in the forum state's statute of limitations was shorter than that in the other state's statute of limitations, application of the early common law rule would not necessarily create a serious problem or result in an unfair result, because if the forum's statute of limitations had expired the plaintiff, at least as a theoretical matter, still could bring the action in the other state. A more problematic situation was presented, however, when the period provided in the applicable statute of limitations of the forum state was longer than that in the applicable statute of limitations in the state where the cause of action arose. In that setting, a plaintiff who failed to timely file an action in the state in which the action arose would be provided the opportunity to search out another jurisdiction in which the applicable period under the relevant statute of limitations for the cause of action at issue was longer and in which the action could be maintained—a classic example of questionable forum shopping.

This is the principal problem to which borrowing statutes were generally addressed. (See, e.g., Pack v. Beech Aircraft Corporation (1957) 50 Del. 413 [132 A.2d 54, 57].) Although the provisions of the various states' borrowing statutes differ in a variety of respects, these enactments typically "borrow" the statute of another state when the cause of action in question "arose," "originated," or "accrued" in the other state and would be barred as untimely [85] in that state. (See Ester Article, supra, 15 U.Fla. L.Rev. 33, 45-56.) Many borrowing statutes, however, also include exceptions that exempt from the reach of the borrowing statute lawsuits that are filed in the courts of the enacting state by residents or citizens of that state. (See id., at pp. 69-72.)

California first enacted a borrowing statute very early in its history, in 1851, as part of the state's initial comprehensive legislation regulating proceedings in civil cases. (Stats. 1851, ch. 5, § 532, p. 134.)^[3] When the Code of Civil Procedure was adopted in 1872, the early 1851 statute was codified, with only a minor change in language, as section 361. The language of section 361, as enacted in 1872, remains unchanged to this day.

Section 361 provides in full: "When a cause of action has arisen in another State, or in a foreign country, and by the laws thereof an action thereon cannot there be maintained against a person by reason of the lapse of time, an action thereon shall not be maintained against him in this State, except in favor of one who has been a citizen of this State, and who has held the cause of action from the time it accrued."

(2) Section 361 thus creates a general rule that when a cause of action has arisen in another jurisdiction but cannot be maintained against a particular defendant in that jurisdiction because of the lapse of time, the action cannot be maintained against that defendant in a California court. The statute contains an exception, however, for a plaintiff "who has been a citizen of this State, and who has held the cause of action from the time it accrued." Past cases establish that this exception applies only where the plaintiff was a California citizen at the time the cause of action accrued, and does not extend to a plaintiff who became a citizen of California after the cause of action accrued but before the lawsuit in question was filed. (See, e.g., Biewend v. Biewend (1941) 17 Cal.2d 108, 115 [109 P.2d 701]; Grant v. McAuliffe (1953) 41 Cal.2d 859, 865 [264 P.2d 944]; accord, Miller v. Stauffler Chem. Co. (1978) 99 Idaho 299 [581 P.2d 345, 347-348].)

Although application of section 361 generally is straightforward in a case involving, for example, a typical automobile accident—in which the allegedly tortious conduct, the resulting injury, and compensable damage all occur at the same time and in the same place—proper application of the statute is more problematic in a case, like the present one, in which the defendant's allegedly injury-producing conduct occurred in another state at a much earlier [86] date but the plaintiff's resulting illness or injury does not become apparent and reasonably is not discovered until many decades later, at a time when the plaintiff has established residence in California.^[4] In the factual setting here at issue, it may be reasonably debatable whether plaintiff's cause of action against Foster Wheeler "arose" in Oklahoma or instead in California for purposes of section 361, and whether plaintiff was a citizen of California or of Oklahoma at the time the cause of action "accrued" within the meaning of the term as used in this borrowing statute.^[5]

(3) Even if we assume either that the cause of action at issue "arose" in California for purposes of section 361 or that plaintiff was a citizen of [87] California from the time the cause of action "accrued" within the meaning of this statute—and thus that section 361 does not require application of Oklahoma law rather than California law on the facts of this case—we agree with the Court of Appeal that this statute cannot properly be interpreted to compel application of the California statute of limitations without consideration of California's generally applicable choice-of-law principles. Although at the time section 361 was adopted, the then prevailing choice-of-law doctrine generally would have called for the application of the relevant California statute of limitations in a case in which section 361 did not mandate application of another jurisdiction's law (see, e.g., Royal Trust Co. v. MacBean (1914) 168 Cal. 642, 646 [144 P. 139]), nothing in section 361 indicates that this statute was intended to freeze the then prevailing general choice-of-law rules into a statutory command, so as to curtail the judiciary's long-standing authority to adopt and modify choice-of-law principles pursuant to its traditional common law role. (Cf. Li v. Yellow Cab Co. (1975) 13 Cal.3d 804, 813-823 [119 Cal.Rptr. 858, 532 P.2d 1226].) Accordingly, now that the earlier methodology for resolving choice-of-law issues has been replaced in this state by the governmental interest mode of analysis (see, e.g., Reich, supra, 67 Cal.2d 551, 553-557; Bernhard, supra, 16 Cal.3d 313, 316-321), in those instances in which section 361 does not mandate application of another jurisdiction's statute of limitations or statute of repose the question whether the relevant California statute of limitations (or statute of repose) or, instead, another jurisdiction's statute of limitations (or statute of repose) should be applied in a particular case must be determined through application of the governmental interest analysis that governs choice-of-law issues generally. (See, e.g., Ashland Chemical Co. v. Provence (1982) 129 Cal.App.3d 790, 793-794 [181 Cal.Rptr. 340] [holding that under California law, governmental interest analysis is applicable to resolve a choice-of-law issue relating to the statute of limitations]; Nelson v. International Paint Co. (9th Cir. 1983) 716 F.2d 640, 644 [same].)

Thus, we now turn to the task of applying the general governmental interest analysis to the circumstances before us in the present case.

III

(4) Recently, in Kearney, supra, 39 Cal.4th 95, we summarized the mode of analysis called for by the governmental interest approach. "In brief outline, the governmental interest approach generally involves three steps. First, the court determines whether the relevant law of each of the potentially affected jurisdictions with regard to the particular issue in question 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 [88] 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' [citation], and then ultimately applies `the law of the state whose interest would be more impaired if its law were not applied.'" (39 Cal.4th at pp. 107-108.)

A

With regard to the first of these steps, we agree with the Court of Appeal that "[t]he laws of Oklahoma and California clearly differ."

1

(5) Under section 109 (the Oklahoma statute of repose), plaintiff's cause of action would be barred by the lapse of time, because that statute "bars any tort action which arises more than ten years after the substantial completion of the improvement to real property." (Riley v. Brown and Root, Inc. (1992) 1992 OK 114 [836 P.2d 1298, 1300].)^[6] Although the Oklahoma statute in question has been interpreted not to bar products liability actions against the manufacturers and sellers of mass-produced products (see, e.g., Durham v. Herbert Olbrich GMBH & Co. (10th Cir. 2005) 404 F.3d 1249, 1254-1255; Uricam Corp. v. W.R. Grace & Co. (W.D.Okla. 1990) 739 F.Supp. 1493)— and thus would not preclude plaintiff from suing companies that manufactured or sold the asbestos insulation to which he was exposed (Uricam Corp. v. W.R. Grace & Co., supra, 739 F.Supp. at p. 1496)—the Oklahoma Supreme Court has interpreted the statute of repose to protect a manufacturer/designer of a specially designed improvement to real property. (Ball v. Harnischfeger Corp., supra, 877 P.2d 45, 50 ["If the manufacturer was acting as a designer, planner, construction supervisor or observer, or constructor, the statute of [89] repose will apply. It is the specialized expertise and rendition of particularized design which separates those protected from mere manufacturers and suppliers."]; see also Goad v. Buschman Co. (N.D.Okla. 2008) 2008 U.S.Dist. Lexis 27297, pp. *7-*21 and cases cited, affd. (10th Cir. 2009) 2009 U.S. App. Lexis 6058.)

Although, as we have explained above, plaintiff argued in the Court of Appeal and continues to maintain in this court that the trial court erred in finding that the boiler in question was an improvement to real property for purposes of the Oklahoma statute of repose, the Court of Appeal never reached that issue, because it concluded that even if Foster Wheeler fell within the reach of the Oklahoma statute, under California's choice-of-law principles California law would apply. In reviewing the conclusion reached by the Court of Appeal, we similarly shall assume for purposes of determining the choice-of-law issue that Foster Wheeler's conduct brought it within the reach of the relevant Oklahoma statute of repose.^[7] Under this premise, plaintiff's action against Foster Wheeler plainly would be untimely under Oklahoma law, because this action was filed more than 10 years after substantial completion of the improvement.^[8]

2

(6) By contrast, plaintiff's action against Foster Wheeler clearly would be timely if California law were applied. Although this state has enacted a [90] statute of repose applicable to causes of action arising out of a latent deficiency in the design or construction of an improvement to real property that is somewhat similar to the relevant Oklahoma statute of repose (see Code Civ. Proc., § 337.15),^[9] the California statute, unlike its Oklahoma counterpart, applies only to actions for injury to property, not to personal injury actions. (Martinez v. Traubner (1982) 32 Cal.3d 755, 757-761 [187 Cal.Rptr. 251, 653 P.2d 1046].) (7) Furthermore, California has enacted a special statute of limitations explicitly governing the time for bringing an action "for injury or illness based upon exposure to asbestos," which permits such an action to be brought up to one year after the plaintiff both (1) first suffered disability and (2) knew or reasonably should have known that the disability was caused or contributed to by exposure to asbestos. (Code Civ. Proc., § 340.2;^[10] see Hamilton v. Asbestos Corp. (2000) 22 Cal.4th 1127, 1138 [95 Cal.Rptr.2d 701, 998 P.2d 403].) Here, plaintiff, who previously had retired for reasons unconnected to his asbestos-related illness, filed this action within a few months after he first was diagnosed with mesothelioma, and thus the action clearly would be timely under the provisions of section 340.2. (See Hamilton v. Asbestos Corp., supra, 22 Cal.4th at pp. 1138-1147.)

Accordingly, the law of Oklahoma clearly differs from the law of California with respect to the timeliness of plaintiff's cause of action.

B

The second step of the governmental interest analysis requires us to examine "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." (Kearney, supra, 39 Cal.4th at pp. 107-108.)

[91] 1

Oklahoma decisions indicate that by establishing a relatively lengthy (10-year) period in which a cause of action for a deficiency in design of an improvement to real property may be brought, but at the same time terminating all liability after that deadline regardless of whether the plaintiff's injury had yet occurred or become manifest, the relevant statute of repose was intended to balance the interest of injured persons in having a remedy available for such injuries against the interest of builders, architects, and designers of real property improvements in being subject to a specified time limit during which they would remain potentially liable for their actions in connection with such improvements. (See, e.g., St. Paul Fire & Marine Ins. Co. v. Getty Oil Co., supra, 782 P.2d 915, 920-921.) The Oklahoma high court held in St. Paul Fire & Marine Ins. Co. that the statute of repose, by establishing this type of fixed time limit in which any cause of action must be brought, serves "the legitimate government objectives of providing a measure of security for building professionals whose liability could otherwise extend indefinitely." (Id. at p. 921.) The court further noted that the statute "also serves the legitimate objective of avoiding the difficulties in proof which arise from the passage of time." (Ibid.)

In discussing the interest of Oklahoma embodied in the statute, the Court of Appeal in the present case expressed the view that "Oklahoma's interest is substantially a local one, that is, an interest in protecting Oklahoma defendants from liability for conduct occurring in Oklahoma." The appellate court indicated that Oklahoma's interest in the application of this statute does not extend to, or at least does not apply as strongly to, a non-Oklahoma business that designs or constructs an improvement to real property located in Oklahoma. Because Foster Wheeler is a non-Oklahoma corporation (incorporated in Delaware, with its headquarters in New York), and because the design and manufacture of the boiler occurred in New York, the Court of Appeal expressed the view that "any significant interest of Oklahoma in the application of its statute of repose . . . is difficult to discern."

(8) We conclude that the Court of Appeal did not accurately assess the interest of Oklahoma embodied in the statute of repose here at issue. When a state adopts a rule of law limiting liability for commercial activity conducted within the state in order to provide what the state perceives is fair treatment to, and an appropriate incentive for, business enterprises, we believe that the state ordinarily has an interest in having that policy of limited liability applied to out-of-state companies that conduct business in the state, as well as to businesses incorporated or headquartered within the state. A state has a legitimate interest in attracting out-of-state companies to do business within the state, both to obtain tax and other revenue that such businesses may [92] generate for the state, and to advance the opportunity of state residents to obtain employment and the products and services offered by out-of-state companies. In the absence of any explicit indication that a jurisdiction's "business friendly" statute or rule of law is intended to apply only to businesses incorporated or headquartered in that jurisdiction (or that have some other designated relationship with the state—for example, to those entities licensed by the state), as a practical and realistic matter the state's interest in having that law applied to the activities of out-of-state companies within the jurisdiction is equal to its interest in the application of the law to comparable activities engaged in by local businesses situated within the jurisdiction.

This court's decision in Offshore Rental, supra, 22 Cal.3d 157, supports the foregoing conclusion. In Offshore Rental, the plaintiff was a California company that brought suit to recover economic damages it had suffered when one of its key employees had been injured in Louisiana, allegedly as a result of the negligence of one of the defendant company's employees in Louisiana. The case presented a choice-of-law issue because California law permits a company to maintain a cause of action for the economic damage suffered by the company as a result of an injury to a key employee (an action separate from, and independent of, the employee's own personal injury action), whereas Louisiana law does not permit an employer to maintain such a cause of action (permitting only the employee's personal injury action). The defendant company in Offshore Rental was a Delaware corporation, headquartered in New York, that did business in Louisiana, California, and other states.

In examining the question whether Louisiana had an interest in having its law (denying the plaintiff company's cause of action for injury to a key employee) applied in the circumstances of that case, the court in Offshore Rental, supra, 22 Cal.3d 157, explained: "The accident in question occurred within Louisiana's borders; although the law of the place of the wrong is not necessarily the applicable law for all tort actions [citation], the situs of the injury remains a relevant consideration. At the heart of Louisiana's denial of liability lies the vital interest in promoting freedom of investment and enterprise within Louisiana's borders, among investors incorporated both in Louisiana and elsewhere. The imposition of liability on defendant, therefore, would strike at the essence of a compelling Louisiana law." (22 Cal.3d at p. 168, italics added & omitted.) Thus, although the defendant in that case was an out-of-state company doing business in Louisiana, the California court [93] in Offshore Rental recognized that the interest of Louisiana in protecting companies from what the latter state viewed as excessive liability extended to such a company.^[11]

In concluding that Oklahoma had little or no interest in the application of its law to the present case because Foster Wheeler was not an Oklahoma company, the Court of Appeal relied upon two passages in Reich, supra, 67 Cal.2d 551, in which the court observed that "[t]he state of the place of the wrong has little or no interest in [the application of its statute limiting damages for wrongful death] when none of the parties reside there" (67 Cal.2d at p. 556), and that a state's interest in avoiding the imposition of excessive financial burdens on defendants is a "primarily local" interest. (Ibid.) The Court of Appeal also relied upon a similar passage in Hurtado v. Superior Court (1974) 11 Cal.3d 574 [114 Cal.Rptr. 106, 522 P.2d 666], which declared that "a state's interest in limiting recovery in wrongful death actions is in protecting resident defendants from excessive financial burdens." (11 Cal.3d at p. 586.) Both Reich and Hurtado, however, concerned automobile accidents involving private individuals, not commercial entities, and nothing in those decisions suggests that a state's interest in the application of a statute limiting liability for specified commercial activity carried on within the state applies only to local companies and not equally to out-of state companies doing business within the state. Unlike our decision in Offshore Rental, supra, 22 Cal.3d 157, Reich and Hurtado had no occasion to address that question.

(9) Furthermore, just as the Court of Appeal erred in relying on the non-Oklahoma location of Foster Wheeler's incorporation or headquarters as a basis for determining that Oklahoma lacked an interest in having its statute of repose applied here, the appellate court similarly erred in suggesting that Oklahoma's interest in having its statute applied was negated by the circumstance that the design and manufacture of the boiler in question occurred in New York rather than in Oklahoma. The statute of repose here at issue protects not only construction-related businesses that engage in their activities at the Oklahoma site of the improvement, but also commercial entities, such as establishments performing architectural and other design-improvement work, that conduct their activities away from the location of the improvement but whose potential liability flows from a plaintiff's interaction with, or exposure to, the real property improvement in Oklahoma. Under the premise that the activities of Foster Wheeler in this case bring it within the reach of the Oklahoma statute of repose (see, ante, at p. 89), we conclude that, for [94] purposes of the governmental interest analysis, Oklahoma clearly possesses an interest in having the statute applied in the present case and that its interest is not diminished by the circumstance that some of Foster Wheeler's activities occurred outside of Oklahoma.^[12]

Accordingly, contrary to the view expressed by the Court of Appeal, we conclude that Oklahoma has a real and legitimate interest in having its statute of repose applied under the circumstances presented here.

2

At the same time, we also recognize that California has an interest in having California law applied in this case.

(10) As discussed above, the applicable California statute—Code of Civil Procedure section 340.2—permits an action for injury or illness based upon exposure to asbestos to be brought up to one year after the plaintiff first suffered disability (as defined by the statute) and knew or reasonably should have known that the disability was caused or contributed to by such exposure. This statute, enacted in 1979 to lengthen the period of time in which an asbestos-related claim may be brought, reflects a state interest in providing persons who suffer injury or illness as a result of their exposure to asbestos a fair and reasonable opportunity to seek recovery for their injury or illness, taking into account not only the typically lengthy period between exposure to asbestos and the development of disease but also the often substantial period between the initial discovery or diagnosis of a disease and the time when the disease becomes disabling. (See, e.g., Hamilton v. Asbestos Corp., supra, 22 Cal.4th 1127, 1138-1139; Blakey v. Superior Court (1984) 153 Cal.App.3d 101, 105-106 [200 Cal.Rptr. 52]; Nelson v. Flintkote Co. (1985) 172 Cal.App.3d 727, 735 [218 Cal.Rptr. 562].) The language of section 340.2 does not specify the class of persons to whom the statute was intended to apply, but by its terms the provision is not limited only to persons who were exposed to asbestos in California. In view of the legislation's clear recognition of the unusual nature of asbestos-related injury and illness, and the statute's objective to provide injured or ill persons a fair and adequate opportunity to seek recovery for such asbestos-related harm, we conclude that [95] California has an interest in having this statute applied to a person, like plaintiff, who is a California resident at the time the person discovers that he or she is suffering from an asbestos-related injury or illness, even when the person's exposure to asbestos occurred outside California.

(11) A number of prior California cases support the conclusion that California has a legitimate interest in having a statutory provision that affords a remedy for or a benefit to an injured person or business applied when, as here, the injured person or business is a California resident or business, even when the injury-producing conduct occurs outside California. In Offshore Rental, supra, 22 Cal.3d 157, for example, although ultimately concluding that the Louisiana rule of law denying a cause of action for injury to a company's "key employee" should be applied, this court, in discussing the second step of the governmental interest analysis, determined that California had a real and legitimate interest in having its rule of law—permitting such a cause of action—applied in favor of a California company that had suffered such an injury, even though the injury to the company's key employee had occurred in another state. (See 22 Cal.3d at p. 164 ["California's economy and tax revenues are affected regardless of the situs of physical injury."].)

The decision in Castro v. Budget Rent-A-Car System, Inc. (2007) 154 Cal.App.4th 1162 [65 Cal.Rptr.3d 430] (Castro) also supports the conclusion recognizing a legitimate interest on the part of California under such circumstances. In Castro, the plaintiff, a California resident, was injured in a traffic accident that occurred in Alabama, allegedly caused by the negligence of the driver of a rented truck that was owned and leased by the defendant Budget Rent-A-Car. Under Alabama law, the owner of a motor vehicle is not liable for the negligence of a permissive user of the vehicle except under limited circumstances; under California law, by contrast, an owner of a motor vehicle generally is vicariously liable, up to a specified amount, for the negligence of a permissive user. (154 Cal.App.4th at p. 1179.) In discussing whether California had an interest in having its law applied under the circumstances presented by that case, the court in Castro first observed that a primary purpose of the California permissive user law—"motivating vehicle owners who allow others to use their vehicles within California to exercise care in the selection and supervision of such permissive users, and . . . protecting persons using California roadways" (id. at p. 1182)—would not be furthered by the application of California law in that case, because the accident in question occurred in Alabama rather than in California (id. at pp. 1181-1182). Nonetheless, the court in Castro concluded that California "does have a legitimate governmental interest in having its permissive user statute applied based on Castro's status as a California resident. Application of that statute to circumstances such as these would serve to ensure that California residents injured in traffic accidents in other states would be compensated for [96] their injuries and not become dependent on the resources of California for necessary medical, disability, and unemployment benefits." (Id. at p. 1182, italics added.)

Although, as we discuss further below (p. 100, post), the court in Castro ultimately concluded in the third step of the governmental interest analysis (the comparative impairment prong) that Alabama law rather than California law should apply in the circumstances of that case, the passage in Castro quoted above supports the conclusion that California has a legitimate governmental interest in having California law applied in the present case. Application of the California statute of limitations to a current California resident who suffers an injury or illness as a result of his or her prior exposure to asbestos in another jurisdiction would assist such residents in obtaining compensation for their injuries and in not becoming dependent on the resources of California for necessary medical, disability, and unemployment benefits.^[13]

Accordingly, California, as well as Oklahoma, has an interest in having its own law applied in this case.

Because the applicable laws of Oklahoma and California differ and each state has an interest in having its law applied under the circumstances of the present case, we are faced with a "true conflict." As explained above, in such instances we apply the so-called "comparative impairment" approach.

C

(12) Under the comparative impairment analysis, we must "carefully evaluate[] and compare[] the nature and strength of the interest of each jurisdiction in the application of its own law `to determine which state's [97] interest would be more impaired if its policy were subordinated to the policy of the other state.'" (Kearney, supra, 39 Cal.4th 95, 108.) In conducting this evaluation, our prior decisions emphasize that it is important to keep in mind that "[t]he court does not `"weigh" the conflicting governmental interests in the sense of determining which conflicting law manifested the "better" or the "worthier" social policy on the specific issue. An attempted balancing of conflicting state policies in that sense . . . is difficult to justify in the context of a federal system in which, within constitutional limits, states are empowered to mold their policies as they wish. . . . [Instead, the process] can accurately be described as . . . a problem of allocating domains of law-making power in multi-state contexts—[by determining the appropriate] limitations on the reach of state policies—as distinguished from evaluating the wisdom of those policies. . . . [E]mphasis is placed on the appropriate scope of conflicting state policies rather than on the "quality" of those policies . . . .'" (Bernhard, supra, 16 Cal.3d 313, 320-321.)

Accordingly, our task is not to determine whether the Oklahoma rule or the California rule is the better or worthier rule, but rather to decide—in light of the legal question at issue and the relevant state interests at stake—which jurisdiction should be allocated the predominating lawmaking power under the circumstances of the present case.

1

In light of the relevant facts of this case, we conclude that a failure to apply Oklahoma law would significantly impair Oklahoma's interest. The conduct for which plaintiff contends Foster Wheeler should be held liable—plaintiff's alleged exposure to asbestos during the application of insulation to a boiler designed and manufactured by Foster Wheeler—occurred in Oklahoma in 1957, at a time when plaintiff was present in Oklahoma and was an Oklahoma resident. As already discussed, the circumstance that Foster Wheeler is not an Oklahoma company—the circumstance relied upon by the Court of Appeal—is not a persuasive basis for finding that the failure to apply Oklahoma law would not significantly impair Oklahoma's interest. Oklahoma's interest in the application of its statute of repose applies equally to out-of-state businesses that design improvements to real property located in Oklahoma and to Oklahoma businesses that design such improvements situated within that state.

(13) Although California no longer follows the old choice-of-law rule that generally called for application of the law of the jurisdiction in which a defendant's allegedly tortious conduct occurred without regard to the nature of the issue that was before the court (see Reich, supra, 67 Cal.2d 551, 553), California choice-of-law cases nonetheless continue to recognize that a [98] jurisdiction ordinarily has "the predominant interest" in regulating conduct that occurs within its borders (Reich, supra, 67 Cal.2d 551, 556; see Cable v. Sahara Tahoe Corp. (1979) 93 Cal.App.3d 384, 394 [155 Cal.Rptr. 770]), and in being able to assure individuals and commercial entities operating within its territory that applicable limitations on liability set forth in the jurisdiction's law will be available to those individuals and businesses in the event they are faced with litigation in the future. (See, e.g., Offshore Rental, supra, 22 Cal.3d 157, 168; Castro, supra, 154 Cal.App.4th 1152, 1180; Cable, supra, 93 Cal.App.3d 384, 394.)

In the present case, in the event Foster Wheeler were to be denied the protection afforded by the Oklahoma statute of repose and be subjected to the extended timeliness rule embodied in California law, the subordination of Oklahoma's interest in the application of its law would rest solely upon the circumstance that after defendant engaged in the allegedly tortious conduct in Oklahoma, plaintiff happened to move to a jurisdiction whose law provides more favorable treatment to plaintiff than that available under Oklahoma law.

Although here it is clear that plaintiff's move to California was not motivated by a desire to take advantage of the opportunities afforded by California law and cannot reasonably be characterized as an instance of forum shopping (cf. Reich, supra, 67 Cal.2d 551, 555-556), the displacement of Oklahoma law limiting liability for conduct engaged in within Oklahoma, in favor of the law of a jurisdiction to which a plaintiff subsequently moved, would—notwithstanding the innocent motivation of the move—nonetheless significantly impair the interest of Oklahoma served by the statute of repose. If Oklahoma's statute were not to be applied because plaintiff had moved to a state with a different and less "business-friendly" law, Oklahoma could not provide any reasonable assurance—either to out-of-state companies or to Oklahoma businesses—that the time limitation embodied in its statute would operate to protect such businesses in the future. Because a commercial entity protected by the Oklahoma statute of repose has no way of knowing or controlling where a potential plaintiff may move in the future, subjecting such a defendant to a different rule of law based upon the law of a state to which a potential plaintiff ultimately may move would significantly undermine Oklahoma's interest in establishing a reliable rule of law governing a business's potential liability for conduct undertaken in Oklahoma. (Accord, Castro, supra, 154 Cal.App.4th 1162, 1181 [Alabama, whose law limited the potential liability of a vehicle owner for the negligence of a permissive user, has an interest "in not having vehicle owners and drivers in its jurisdiction subjected to different liabilities based on the fortuity of which state a plaintiff happens to be a resident. . . . Alabama has an interest in the uniform application of motor vehicle laws to owners and drivers in Alabama."]; see also Hancock, The Effect in Choice of Law Cases of the Acquisition of a New [99] Domicile After the Commission of a Tort or the Making of a Contract (1979) 2 Hastings Int'l & Comp. L.Rev. 215, 218-219.)

2

(14) By contrast, a failure to apply California law on the facts of the present case will effect a far less significant impairment of California's interest. Certainly, if the law of this state is not applied here, California will not be able to extend its liberal statute of limitations for asbestos-related injuries or illnesses to some potential plaintiffs whose exposure to asbestos occurred wholly outside of California. Nonetheless, our past choice-of-law decisions teach that California's interest in applying its laws providing a remedy to, or facilitating recovery by, a potential plaintiff in a case in which the defendant's allegedly tortious conduct occurred in another state is less than its interest when the defendant's conduct occurred in California. As we shall see, in a number of choice-of-law settings, California decisions have adopted a restrained view of the scope or reach of California law with regard to the imposition of liability for conduct that occurs in another jurisdiction and that would not subject the defendant to liability under the law of the other jurisdiction. Our view is that a similar restrained view of California's interest in facilitating recovery by a current California resident is warranted in evaluating the relative impairment of California's interest that would result from the failure to apply California law in the present setting.

Two California decisions discussed above are closely on point. As we have seen, in Offshore Rental, supra, 22 Cal.3d 157, the question before this court was whether Louisiana law (which barred an employer from maintaining an independent cause of action for economic damages resulting from an injury to a key employee) or California law (which permitted such a cause of action) should apply when an employee of a California company was injured in Louisiana allegedly as a result of the negligence of a company doing business in that state. Although recognizing that California had an interest in applying its law permitting recovery, because the plaintiff in that case was a California company, the court in Offshore Rental ultimately concluded that Louisiana law should apply, reasoning in part that "[b]y entering Louisiana, plaintiff `exposed [i]tself to the risks of the territory,' and should not expect to subject defendant to a financial hazard that Louisiana law had not created." (22 Cal.3d at p. 169.) By parity of reasoning, because plaintiff in the present case was in (and, indeed, a resident of) Oklahoma at the time of his exposure to asbestos, for which he claims Foster Wheeler should be held responsible, it is reasonable to conclude that he "should not expect to subject defendant to a financial hazard that [Oklahoma] law had not created," and that California has a lesser interest in applying its law in that setting than it would in a case in which a defendant is responsible for exposing a plaintiff to asbestos within California.

[100] Similarly, in Castro, supra, 154 Cal.App.4th 1162, the Court of Appeal reached a comparable conclusion in another choice-of-law case arising out of a factual setting in which a California resident was injured in another state and sought recovery from a commercial entity doing business in that other state. As described above, in Castro the California plaintiff was injured in Alabama in an accident allegedly caused by a negligent permissive user of a truck owned by defendant Budget Rent-A-Car, which had been leased in Alabama to an Alabama company. Alabama law provides that the owner of a motor vehicle who is not personally negligent is generally not liable for damages caused by the negligence of a permissive user of the vehicle, whereas California law generally imposes vicarious liability, up to a limited dollar amount, on a vehicle owner when a permissive user of the vehicle negligently injures another person. Although recognizing that California had a legitimate interest in the application of its law based upon Castro's status as a California resident (on the ground, as noted above, that application of California law "would serve to ensure that California residents injured in traffic accidents in other states would be compensated for their injuries and not become dependent on the resources of California for necessary medical, disability, and unemployment benefits" (154 Cal.App.4th at p. 1182)), the court in Castro concluded that such an interest was "not sufficient to reallocate Alabama's and California's `"respective spheres of lawmaking influence."' . . . [¶] . . . [B]y entering and driving in Alabama, Castro voluntarily exposed himself to the risks of that `territory,' and therefore plaintiffs should not expect to subject Budget to a `financial hazard' that Alabama law had not created. Based on the respective governmental interests of Alabama and California, Alabama's interest in allocating liability and deterring negligent driving within its borders would be more impaired by the application of California's permissive user statute than would California's interests if Alabama law is applied." (154 Cal.App.4th at p. 1182.) (See also Tucci v. Club Mediterranee (2001) 89 Cal.App.4th 180, 190-194 [107 Cal.Rptr.2d 401] [holding that other jurisdiction's law would be more impaired if defendant employer, who had obtained adequate workers' compensation insurance in compliance with the law of that jurisdiction, were to be subjected to a common law tort action, permitted under California law, that was filed by a California resident who was injured while working for defendant in the other jurisdiction]; Arno v. Club Med Inc., supra, 22 F.3d 1464, 1468 [holding that under California choice-of-law principles, French law, rather than California law, applied to tort action arising out of injury to California resident that occurred in France].)

(15) As these decisions demonstrate, in allocating the "`respective spheres of lawmaking influence'" (Offshore Rental, supra, 22 Cal.3d 157, 165) in cases in which a California resident is injured by a defendant's conduct occurring in another state, past California choice-of-law decisions [101] generally hold that when the law of the other state limits or denies liability for the conduct engaged in by the defendant in its territory, that state's interest is predominant, and California's legitimate interest in providing a remedy for, or in facilitating recovery by, a current California resident properly must be subordinated because of this state's diminished authority over activity that occurs in another state. Although under the circumstances of the present case this allocation of "lawmaking influence" results in the subordination of California's interest to the interest of Oklahoma, in other instances in which a defendant is responsible for exposing persons to the risks associated with asbestos or another toxic substance through its conduct in California, this general principle would allocate to California the predominant interest in regulating the conduct. (See, e.g., North American Asbestos Corp. v. Superior Court (1986) 180 Cal.App.3d 902, 907-908 [225 Cal.Rptr. 877] [holding California law applicable when the plaintiff was exposed to asbestos in California by a company incorporated in another state, where plaintiff's action against the company would have been barred as untimely under the other state's law].)

Plaintiff contends, however, that the foregoing analysis is erroneous and that cases such as Offshore Rental, supra, 22 Cal.3d 157, and Castro, supra, 154 Cal.App.4th 1162, are inapposite because the circumstances of the present case—in which plaintiff was a California resident when he was first diagnosed with an asbestos-related disease and when he incurred medical expenses in this state as a result of the disease—render this case analogous instead to the circumstances in Kearney, supra, 39 Cal.4th 95, in which the defendant's conduct, although engaged in within another state, had the direct effect of causing an injury in California. In our view, the proposed analogy to Kearney is not persuasive. The present situation is not similar to that presented in Kearney, in which the defendant, while outside of California, participated in an interstate telephone call with a California resident who was in California and, where the defendant, in violation of California privacy law, recorded (without the California resident's knowledge or consent) the words that were spoken by the California resident in California. Nor is this a case similar to one in which a defendant manufactures a product in another state and places the product in the stream of commerce under circumstances in which it is reasonably foreseeable that the product will make its way to California, and the product ultimately injures a person who uses it in California. (See, e.g., Buckeye Boiler Co. v. Superior Court (1969) 71 Cal.2d 893, 906 [80 Cal.Rptr. 113, 458 P.2d 57].) Instead, here plaintiff seeks to hold Foster Wheeler legally responsible for exposing him to asbestos in Oklahoma, and it is Oklahoma that bears the primary responsibility for regulating the conduct of those who create a risk of injury to persons within its borders.

[102] (16) In arguing that Foster Wheeler should be viewed as having caused an injury that occurred in California, plaintiff relies heavily upon the circumstances that he was a resident of California when his exposure to asbestos many years earlier in Oklahoma ultimately manifested itself as an illness and caused him to incur considerable medical expenses resulting from the disease. Those circumstances, however, do not realistically distinguish the present matter from a case, such as Castro, supra, 154 Cal.App.4th 1162, in which a California resident is seriously injured in an automobile accident in another state and returns home to California for extensive medical treatment and long-term care. Although in such a case the plaintiff's long-term medical expenses are likely to be incurred in California and, if the plaintiff's resources are insufficient, the state ultimately may expend considerable financial resources for his or her care, past California choice-of-law decisions as we have seen have not treated that type of case as one in which a defendant's conduct has caused an injury in California. Those decisions instead have applied the choice-of-law analysis discussed above, recognizing that the state in which the alleged injury-producing conduct occurred (and in which a significant risk of harm to others is posed) generally has the predominant interest in determining the appropriate parameters of liability for conduct undertaken within its borders. (Accord, Ferren v. General Motors Corp. (1993) 137 N.H. 423 [628 A.2d 265, 268-269] [choice-of-law decision applying law of state where exposure to lead dust occurred, rather than of state where the plaintiff resided when illness was later discovered]; Stephens v. Norwalk Hospital (D.Conn. 2001) 162 F.Supp.2d 36, 43-44 [choice-of-law decision applying statute of limitations of state where medical malpractice occurred, rather than of state where the plaintiff resided and where injury manifested itself].)

3

For the reasons discussed above, we conclude that Oklahoma's interest (as embodied in its statute of repose) would be more impaired if its law were not applied under the circumstances of this case than would be California's interest if its statute of limitations is not applied. Accordingly, we conclude that the Court of Appeal erred in holding that California law rather than Oklahoma law should apply to the issue before us.^[14]

[103] IV

The judgment of the Court of Appeal is reversed and the matter is remanded to that court with directions to address plaintiff's additional contention that the trial court erred in finding that the boiler in question constituted an improvement to real property within the meaning of the relevant Oklahoma statute of repose. (See, ante, at p. 89, fn. 7.)

Kennard, J., Baxter, J., Werdegar, J., Chin, J., Moreno, J., and Corrigan, J., concurred.

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[1]In addition to the causes of action seeking damages for plaintiff's illness, the complaint contains a cause of action on behalf of plaintiff's wife, Lucille McCann, for loss of consortium. Because there is no contention that the wife's loss of consortium action could be maintained against Foster Wheeler in the event her husband's action against Foster Wheeler is barred under the Oklahoma statute of repose, for convenience we employ the term "plaintiff" in the singular to refer to Terry McCann.

After judgment was entered in the trial court and while the case was pending on appeal, Terry McCann died. A motion was filed in the Court of Appeal to substitute his wife as successor in interest pursuant to Code of Civil Procedure section 377.32, and that court granted the motion.

On September 22, 2008, plaintiff filed a motion in this court, requesting that we take judicial notice of both the motion to substitute filed in the Court of Appeal and the Court of Appeal's order granting the motion. Because the documents in question already had been transmitted to this court by the Court of Appeal, we denied the request for judicial notice, explaining that the documents in question were part of the record on appeal transmitted to this court by the Court of Appeal.

[2] In Giest v. Sequoia Ventures, Inc. (2000) 83 Cal.App.4th 300, 305 [99 Cal.Rptr.2d 476], the court explained the general difference between a statute of limitations and a statute of repose: "[W]hile a statute of limitations normally sets the time within which proceedings must be commenced once a cause of action accrues, [a] statute of repose limits the time within which an action may be brought and is not related to accrual. Indeed, `the injury need not have occurred, much less have been discovered. Unlike an ordinary statute of limitations which begins running upon accrual of the claim, [the] period contained in a statute of repose begins when a special event occurs, regardless of whether a cause of action has accrued or whether any injury has resulted.' [Citation.] A statute of repose thus is harsher than a statute of limitations in that it cuts off a right of action after a specified period of time, irrespective of accrual or even notice that a legal right has been invaded. [Citation.]"

[3] The 1851 statute provided in full: "When a cause of action has arisen in another State, or in a foreign country, and by the laws thereof an action thereon cannot there be maintained against a person by reason of the lapse of time, an action thereon shall not be maintained against him in this State, except in favor of a citizen thereof, who has held the cause of action from the time it accrued." (Stats. 1851, ch. 5, § 532, p. 134.)

[4] In Buttram v. Owens-Corning Fiberglas Corp. (1997) 16 Cal.4th 520, 529 [66 Cal.Rptr.2d 438, 941 P.2d 71] (Buttram), we discussed some of the difficulties in determining when a cause of action for asbestos-related mesothelioma can be said to accrue: "Mesothelioma is a latent, progressively developing disease—decades can often pass between the time a person is first exposed to asbestos and the time he first develops a cancerous mesothelioma tumor. Moreover, although early formation of undetected cellular changes ultimately leads to contraction of the disease, it may be years before the cancerous cells will result in a tumor large enough to be detected, be medically diagnosed, or cause symptomatology of the disease. It has been observed generally that `diagnosis of toxic related disease is almost always an uncertain enterprise, particularly in the early stages of the disease. Lack of understanding of biological and physiological mechanisms, absence of serious dysfunction, and the slowly progressive nature of some diseases contribute to the difficulties of diagnosis. . . . [¶] The combination of lengthy latency periods and diagnostic difficulties is a unique feature of toxic substances cases for purposes of statutes of limitations analysis [or related legal issues]: No temporally discrete event exists that encompasses the defendant's breach and the plaintiff's injury. Instead, insidious disease litigation involves an extended chronology of causation unlike traditional snapshot torts.'" (Material in brackets added in Buttram.)

[5] As we explained in Buttram, supra,16 Cal.4th 520, 530, "a cause of action may be viewed in the eyes of the law as `accruing' [or `arising'] for different purposes on different dates, depending on the purpose for which the accrual [or the arising] determination is being sought." (Material in brackets added here.)

In the present circumstances, there may be some question whether, for purposes of section 361, plaintiff's cause of action should be considered to have "arisen" in Oklahoma, where plaintiff was exposed to the asbestos for which Foster Wheeler assertedly is responsible, or, instead, in California, where plaintiff resided when his illness first was diagnosed and gave rise to compensable damage that constitutes a necessary element of his cause of action. Similarly, it may be debatable whether plaintiff was a citizen of California when his cause of action "accrued" within the meaning of section 361 (because, under California law, the general rule is that "for statute of limitations purposes, . . . a cause of action for a latent injury does not accrue until the plaintiff discovers or reasonably should have discovered that he has suffered a compensable injury" (Buttram, supra, 16 Cal.4th 520, 530)), or, instead, plaintiff should be viewed as having been a citizen of Oklahoma when his cause of action "accrued" within the meaning of section 361 (to avoid the risk that persons who have been exposed to a toxic substance but have not yet suffered a compensable injury may "forum shop" by thereafter moving to California).

In a variety of settings, cases in other jurisdictions have reached differing conclusions in determining where a cause of action has "arisen" or "accrued" within the meaning of a borrowing statute. (See generally Annot. (1959) 67 A.L.R.2d 216, 221-223; Annot. (1944) 149 A.L.R. 1224, 1226-1227; Annot. (1931) 75 A.L.R. 203, 211-220.)

[6]Section 109 provides in full: "No action in tort to recover damages [¶] (i) for any deficiency in the design, planning, supervision or observation of construction or construction of an improvement to real property, [¶] (ii) for injury to property, real or personal, arising out of any such deficiency, or [¶] (iii) for injury to the person or for wrongful death arising out of any such deficiency, [¶] shall be brought against any person owning, leasing, or in possession of such an improvement or performing or furnishing the design, planning, supervision or observation of construction or construction of such an improvement more than ten (10) years after substantial completion of such an improvement."

Although section 109 was enacted in 1978, well after the boiler in question was designed and installed, Oklahoma decisions make clear that section 109 applies to tort actions for injuries resulting from improvements that predated the statute, and that such application does not improperly infringe upon an injured plaintiff's rights. (See, e.g., St. Paul Fire & Marine Ins. Co. v. Getty Oil Co. (1989) 1989 OK 139 [782 P.2d 915, 918-921]; Jaworsky v. Frolich (1992) 1992 OK 157 [850 P.2d 1052, 1054-1056]; Mooney v. YMCA of Greater Tulsa (1993) 1993 OK 33 [849 P.2d 414, 416].)

[7] Because the Court of Appeal did not address plaintiff's challenge to the trial court's determination that the boiler in question constituted an improvement to real property for purposes of the relevant Oklahoma statute, we conclude, in light of our determination that the appellate court erred in its resolution of the choice-of-law issue, that it is appropriate to remand this matter to the Court of Appeal to permit that court, in the first instance, to pass on plaintiff's challenge to the trial court's application of Oklahoma law to the circumstances of this case.

[8]While this matter was pending before this court, the Oklahoma Legislature enacted comprehensive "lawsuit reform" legislation that includes the following provision pertaining to asbestos-related claims: "Notwithstanding any other provision of law, with respect to any asbestos or silica claim not barred as of the effective date of this act, the limitations period shall not begin to run until the exposed person or claimant discovers, or through the exercise of reasonable diligence should have discovered, that the exposed person or claimant is physically impaired as set forth in this chapter by an asbestos- or silica-related condition." (2009 Okla. House Bill No. 1603, § 64, subd. A [chaptered as ch. 228].)

Although the initial clause of this provision ("Notwithstanding any other provision of law") could be interpreted to mean that the new statute creates an exception to the Oklahoma statute of repose for asbestos-related claims (permitting such claims to be brought so long as they satisfy all of the requirements and limitations embodied in the new statute), the new provision explicitly applies only "to any asbestos . . . claim not barred as of the effective date of this act" (italics added) and thus would not affect an action, like the present one, that was barred by the Oklahoma statute of repose long before the enactment of the new legislation. Accordingly, the Oklahoma statute of repose continues to represent the relevant Oklahoma law for purposes of the present proceeding.

[9] Code of Civil Procedure section 337.15 provides in relevant part: "(a) No action may be brought to recover damages from any person . . . who develops real property or performs or furnishes the design, specifications, surveying, planning, supervision, testing, or observation of construction or construction of an improvement to real property more than 10 years after the substantial completion of the development or improvement for any of the following: [¶] (1) Any latent deficiency in the design, specification, surveying, planning, supervision, or observation of construction or construction of an improvement to, or survey of, real property. [¶] (2) Injury to property, real or personal, arising out of any such latent deficiency."

[10] Code of Civil Procedure, section 340.2 provides in relevant part: "(a) In any civil action for injury or illness based upon exposure to asbestos, the time for the commencement of the action shall be the later of the following: [¶] (1) Within one year after the date the plaintiff first suffered disability. [¶] (2) Within one year after the date the plaintiff either knew, or through the exercise of reasonable diligence should have known, that such disability was caused or contributed to by such exposure. [¶] (b) `Disability' as used in subdivision (a) means the loss of time from work as a result of such exposure which precludes the performance of the employee's regular occupation."

[11] The defendant company in Offshore Rental, supra, 22 Cal.3d 157, owned property in Louisiana in addition to doing business in that state (id. at pp. 160-161, 164), but the policy underlying the applicable Louisiana rule—to protect businesses acting within Louisiana's borders "from the financial hardships caused by the assessment of excessive legal liability or exaggerated claims resulting from the loss of services of a key employee" (id. at p. 164)— would apply to all commercial entities doing business in Louisiana.

[12] Furthermore, although the Court of Appeal appears to have assumed that plaintiff's claim against Foster Wheeler rested solely upon that entity's conduct in New York, plaintiff asserted in his opposition to the summary judgment motion that, because Foster Wheeler "knew or should have known that the normal and intended operation of its boilers would include the use and application of asbestos containing insulation, and that end users, like [plaintiff], would be exposed to asbestos during the installation of that insulation[,] Foster Wheeler . . . had a duty to warn of this foreseeable hazard." To be effective, of course, such a warning would have to have been communicated to plaintiff in Oklahoma.

[13] One federal court has expressed skepticism regarding whether "a state has a legitimate interest in having one of its residents collect money from the resident of another jurisdiction based on conduct that occurred outside the state's boundaries." (Arno v. Club Med Inc. (9th Cir. 1994) 22 F.3d 1464, 1468, fn. 5.) Although a few early United States Supreme Court decisions demonstrate that under some circumstances a state's interest in affording a remedy to a current resident is insufficient in itself to justify the choice of forum law over the law of another much more significantly involved jurisdiction (see, e.g., John Hancock Ins. Co. v. Yates (1936) 299 U.S. 178 [81 L.Ed. 106, 57 S.Ct. 129]), more recent high court decisions indicate that a state's interest in affording a remedy for an injury suffered by a current state resident, even when the injury results from a defendant's conduct in another state, is a constitutionally legitimate interest that properly may be considered as a relevant factor in determining the validity of a state court's choice-of-law ruling. (See, e.g., Phillips Petroleum Co. v. Shutts (1985) 472 U.S. 797, 819-821 [86 L.Ed.2d 628, 105 S.Ct. 2965]; Allstate Ins. Co. v. Hague (1981) 449 U.S. 302, 318-320 [66 L.Ed.2d 521, 101 S.Ct. 633] (plur. opn. of Brennan, J.); see also Turcotte v. Ford Motor Co. (1st Cir. 1974) 494 F.2d 173, 173-174.)

[14] Because we conclude that under California's choice-of-law principles the law of Oklahoma should be applied to the issue presented by this case, we have no occasion to address Foster Wheeler's claims that application of California law under these circumstances would be so "arbitrary and unfair" as to violate the federal Constitution (see Phillips Petroleum Co. v. Shutts, supra, 472 U.S. 797, 818-822), or would violate the equal protection clauses of the California and federal Constitutions.

[1316] Majors & Fox, Frank J. Fox, Lawrence J. Salisbury, Steven T. Wlodek; Law Office of Mary A. Lehman and Mary A. Lehman for Plaintiff and Appellant.

Pillsbury, Winthrop, Shaw & Pittman, Richard M. Segal, Connie J. Wolfe; Diamond, McCarthy, Taylor, Finley & Lee, William T. Reid IV, Michael S. Truesdale and Lisa S. Tsai for Defendants and Respondents.

Edmund G. Brown, Jr., Attorney General, Tom Greene, Chief Assistant Attorney General, Albert Norman Shelden, Ronald A. Reiter, Kathrin Sears and Michele R. Van Gelderen, Deputy Attorneys General, as Amicus Curiae.

OPINION

BENKE, Acting P. J.

The principal defendant in this class action lawsuit, respondent Omni Loan Company, Ltd. (Omni),^[1] a Nevada corporation, engaged in consumer lending in California. Although Omni's activities would otherwise be subject to the California Finance Lenders Law (Finance Lenders Law) (Fin. Code,^[2] § 22000 et seq.), under choice-of-law provisions in Omni's loan agreements borrowers agreed Omni's loans would be governed by the law of Nevada. We conclude this choice of Nevada law is not enforceable.

In general, California courts will enforce a contractual choice of law if the state whose law was chosen has an interest in the parties' controversy. However, if application of the chosen law conflicts with a fundamental policy of this state, our courts must consider the impact application of the law will have on California's interests. If California's interests are materially greater than the interests of the state whose law was chosen by the parties, California will apply its law.

As we explain more fully below, here because application of Nevada law would conflict with fundamental California policy as manifested in the [1317] Finance Lenders Law and because California has a greater interest in the parties' transaction than Nevada, the parties' choice of law is not enforceable.

FACTUAL AND PROCEDURAL BACKGROUND

Omni is a Nevada corporation with its principal place of business in Las Vegas, Nevada.^[3] Omni is in the business of providing consumer loans to members of the military. Typically, Omni's loans are between $900 and $1,800, have repayment schedules of between nine and 18 months, and are funded by Omni on the same day Omni receives a borrower's application. In California, Omni's borrowers are nonresident members of the military, most of whom agree to repay their loans by way of deductions from their military paychecks. Omni's borrowers must also provide Omni with a security interest in personal property.

Commencing in July 1997 Omni attempted to obtain permission from the Commissioner of Corporations (the commissioner) to make loans in California to nonresident members of the military without complying with the requirements of the Finance Lenders Law. In seeking permission to make such loans, Omni relied on an early ruling the commissioner had provided to one of Omni's competitors, Pioneer Military Lending, Inc. (Pioneer). In 1996 Pioneer contacted the commissioner and described a loan program restricted to nonresident military personnel Pioneer planned to establish in California. Pioneer asked the commissioner for a ruling that its loan program was not subject to the Finance Lenders Law, and the commissioner provided it with such a ruling. In a letter to Pioneer, the commissioner stated "it is difficult to discern what the interest is of the State of California so as to require licensure of Pioneer under [Finance Lenders Law]." Thus, the commissioner advised Pioneer its loan program was not finance lending within the meaning of the Finance Lenders Law.

The commissioner declined to provide Omni with a ruling permitting it to operate its loan programs in California without a Finance Lenders Law license. In declining to grant Omni's request, the commissioner stated: "Omni's proposed lending activities are similar to Pioneer's, in that both lenders have represented to the Department that they will only be making loans to military personnel who are not residents of California. However, Omni appears to propose a greater business presence in California than Pioneer proposed to the Department. Pioneer represented to the Department that its loan paperwork would not be processed in California, and that the loans would be funded out-of-state. Thus, Pioneer represented that it would [1318] be making the loans from out-of-state to nonresidents stationed in California, and that its business activities within California would be minimal. Omni appears to propose a main California office to perform all functions related to making loans, and to further propose contracting with one to two independent contractors to facilitate the lending through the California main office. Omni is proposing to engage in more lending activities within the state of California than Pioneer, and is therefore more likely to be engaged in the business of a finance lender in California than Pioneer. In short, Omni has not chosen to structure its California lending activities in a manner identical to the Pioneer structure set forth in [the Pioneer letter]."

Omni challenged the commissioner's conclusion its business plan was materially different from Pioneer's. However, the commissioner declined to alter the Department of Corporations' determination: "As noted in [our earlier letter to you], the Department is unwilling to expand the reasoning in [the Pioneer letter] to include expanded business activity in California merely because the lending is to non-resident military personnel. Under the [Finance Lenders Law], California has a number of state interests in licensing finance lending activities beyond the protection of its citizens; therefore, any expansion of the business presence and business activities in California related to loans to non-resident military personnel could impact the state's interests and thus the Department would require licensure under the [Finance Lenders Law]."

Notwithstanding the commissioner's refusal to provide Omni with a ruling permitting it to operate in California without a license, in 2000 Omni opened a loan office in Oceanside, and in 2002 it opened another office in San Diego. In addition to the loan offices, Omni developed a retail partners program with California retailers by which Omni financed retail purchases by nonresident members of the military. Although Omni restricted lending from its California offices to nonresident members of the military, when California members of the military came into one of the Omni's offices, the California residents were directed to a computer terminal in the office and advised to go online and obtain financing through Omni's online affiliate, Militaryloans.com.

Plaintiff and appellant Joshua W. Brack was a nonresident member of the military stationed at Camp Pendleton. Brack initially applied electronically for a loan from Omni but was directed to complete his loan application at Omni's Oceanside office. Brack was not advised until he was presented with the loan agreement the interest rate would be 34.89 percent per annum. The loan was secured by Brack's personal property and included a $104.63 charge for property insurance and a prepaid finance charge. Like all of Omni's loans, Brack's loan agreement contained a choice-of-law provision, which stated: "You agree that this loan contract is subject to Nevada State law." Brack repaid his loan in October 2002.

[1319] In December 2003 Brack filed a class action lawsuit against Omni. Brack's principal allegation was that Omni's practices violated borrower's rights under the Finance Lenders Law. Brack alleged Omni's violations of the Finance Lenders Law gave rise to claims under the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq.) and the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) as well as under the Finance Lenders Law itself. Among other allegations, Brack alleged Omni was engaged in the business of a finance lender without obtaining a license from the commissioner and failed to prominently display in its offices a full and accurate schedule of its interest rate and other charges.

Omni answered the complaint and denied its material allegations. In addition, Omni asserted as an affirmative defense its contention that Brack's loan and all the loans of the putative class members contained a choice-of-law provision under which the borrowers agreed the loan would be governed by the law of Nevada. Omni also asserted Brack's claims were barred by the commerce clause of the United States Constitution.

Omni stipulated to class certification. The trial court then ordered trial of Omni's choice of law and commerce clause defenses be bifurcated from trial of Brack's affirmative claims. Omni's defenses were tried first by the court.

The trial court found Nevada had a substantial relationship to the loan agreements because Omni Loan Company, Ltd., was incorporated in Nevada and the loans were approved in Nevada. In its principal finding, the court determined California had no fundamental interest in the loan transactions which would require that its laws be applied in place of the law selected under the terms of the loan agreements. In reaching this conclusion, the trial court considered three circumstances. First, it looked to the fact that the department had permitted Pioneer to operate in California without a license and in many respects OMNI's activities were similar to what the department had authorized in its Pioneer letter. Secondly, the trial court found that, in any event, Omni's licensing status was strictly a regulatory matter and not a matter to be considered with respect to the enforceability of the choice-of-law provisions of Omni's loan agreements. Finally, aside from the requirement that finance lenders doing business here obtain a California license, the trial court found that the only difference between California and Nevada law which Brack established at trial was California's requirement that lenders post signs fully and accurately setting forth loan charges and the method of computing charges.

Although the trial court found California did not have a fundamental interest in applying its law, the trial court nonetheless found that because the loan agreements were made in California by consumers located here, [1320] California had a materially greater interest in the loan transactions than Nevada. In light of California's interest in the transactions, the trial court rejected Omni's commerce clause defense. The trial court entered judgment in favor of Omni.

Shortly after the judgment was entered, the commissioner rescinded the Pioneer letter. In its rescission letter, the commissioner set forth a number of interests it believed California has in applying its laws to transactions involving nonresident members of the military. By its terms, the rescission letter had no impact on Pioneer's prior business practices in California. In light of the rescission, Brack moved to set aside the judgment on the grounds the trial court could no longer rely on the Pioneer letter. The trial court denied Brack's motion.

Brack filed a timely notice of appeal.^[4]

DISCUSSION

I

Standard of Review

The interpretation of a choice-of-law provision on undisputed facts presents a purely legal question and is reviewed de novo. (Hambrecht & Quist Venture Partners v. American Medical Internat., Inc. (1995) 38 Cal.App.4th 1532, 1539, fn. 4 [46 Cal.Rptr.2d 33]; American Home Assurance Co. v. Hagadorn (1996) 48 Cal.App.4th 1898, 1907, fn. 6 [56 Cal.Rptr.2d 536].) Moreover, whether, on undisputed facts, the contractual choice-of-law provision supplants the law which would otherwise apply is also a question of law reviewed de novo. (See Hughes Electronics Corp. v. Citibank Delaware (2004) 120 Cal.App.4th 251, 257 [15 Cal.Rptr.3d 244].)

On the other hand, the trial court's resolution of disputed factual matters is subject to review under the substantial evidence standard. (Integral Development Corp. v. Weissenbach (2002) 99 Cal.App.4th 576, 585 [122 Cal.Rptr.2d 24].) Under this familiar standard, evidence must be reviewed in the light most favorable to the prevailing party, giving the benefit of any reasonable inferences and resolving all conflicts in favor of the trial court's finding. (SFPP v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 461-462 [17 Cal.Rptr.3d 96].)

[1321] II

Contractual Choice of Laws

A. Restatement Second of Conflict of Law Section 187

(1) The parties largely agree the choice-of-law issue confronting us is governed by the holdings in Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 464-469 [11 Cal.Rptr.2d 330, 834 P.2d 1148] (Nedlloyd), and Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906, 914-919 [103 Cal.Rptr.2d 320, 15 P.3d 1071] (Washington Mutual). In Nedlloyd a Hong Kong shipping company entered into a contract with three Dutch shipping companies. The contract contained a choice-of-law provision which required the contract be governed by Hong Kong law. When the Hong Kong company sued the other companies, it argued that notwithstanding the choice-of-law provision, its claims for breach of the covenant of good faith and fair dealing and breach of fiduciary duty should be governed by California law. In rejecting the Hong Kong companies' contention and finding the choice-of-law provision enforceable, the court held that in determining the enforceability of the contractual choice-of-law provisions, "California courts shall apply the principles set forth in Restatement section 187, which reflects a strong policy favoring enforcement of such provisions.

"More specifically, Restatement section 187, subdivision (2) sets forth the following standards: `The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either [¶] (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties choice, or [¶] (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.'

(2) "Briefly restated, the proper approach under Restatement section 187, subdivision (2) is for the court first to determine either: (1) whether the chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is any other reasonable basis for the parties' choice of law. If neither of these tests is met, that is the end of the inquiry, and the court need not enforce the parties' choice of law. If, however, either test is met, the court must next determine whether the chosen state's law is contrary to a fundamental policy of California. If there is no such conflict, the court shall [1322] enforce the parties' choice of law. If, however, there is a fundamental conflict with California law, the court must then determine whether California has a `materially greater interest than the chosen state in the determination of the particular issue....' (Rest., § 187, subd. (2).) If California has a materially greater interest than the chosen state, the choice of law shall not be enforced, for the obvious reason that in such circumstance we will decline to enforce a law contrary to this state's fundamental policy." (Nedlloyd, supra, 3 Cal.4th at pp. 464-466, fns. omitted.)

Of some significance here, in discussing whether there was a conflict between the law chosen by the parties and a fundamental policy of California, the court stated: "We perceive no fundamental policy of California requiring the application of California law to Seawinds's claims based on the implied covenant of good faith and fair dealing. The covenant is not a government regulatory policy designed to restrict freedom of contract, but an implied promise inserted in an agreement to carry out the presumed intentions of contracting parties. [Citation.]" (Nedlloyd, supra, 3 Cal.4th at p. 468, italics added.)

In Washington Mutual the subject contracts were consumer loans which contained uniform preprinted choice-of-law provisions. The plaintiffs alleged the defendant bank acted unlawfully under California law in placing property insurance, and the trial court certified a nationwide class without determining what law would apply to their claims. Notwithstanding the substantially different contexts, the court in Washington Mutual found that, as in Nedlloyd, enforceability of the choice-of-law provisions was governed by section 187 of the Restatement Second of Conflict of Laws (Restatement). "Even though Nedlloyd was decided in the context of a negotiated arm's length transaction between sophisticated business entities, its analysis appears suitable for a broader range of contract transactions. California, we observe, has no public policy against the enforcement of choice-of-law provisions contained in contracts of adhesion where they are otherwise appropriate. [Citations.] More importantly, Nedlloyd's analysis contains safeguards to protect contracting parties, including consumers, against choice-of-law agreements that are unreasonable or in contravention of a fundamental California policy. [Citation.] Under Nedlloyd, which adopted the Restatement approach and found the enforceability of choice-of-law clauses closely related to that of forum-selection clauses [citation], the weaker party to an adhesion contract may seek to avoid enforcement of a choice-of-law provision therein by establishing that `substantial injustice' would result from its enforcement (Rest., § 187, com. (b), p. 562) or that superior power was unfairly used in imposing the contract [citation]. In light of these protections, we conclude Nedlloyd's analysis is properly applied in the context of consumer adhesion contracts." (Washington Mutual, supra, 24 Cal.4th at pp. 917-918, fn. omitted.) Thus the Supreme Court directed the certification order be vacated and the trial court [1323] first consider what law would apply in light of the choice-of-law provisions in the class member's loan agreements.

B. States' Fundamental Policies

Because the trial court's judgment was based on its determination that no fundamental policy of California required that California law be applied to Omni's loan agreements, we must of necessity carefully consider this aspect of section 187 of the Restatement.

(3) To be fundamental, within the meaning of section 187 Restatement, a policy must be a substantial one. (Rest., § 187, com. g, p. 568.) Thus "a policy of this sort will rarely be found in a requirement, such as the statute of frauds, that relates to formalities .... Nor is such policy likely to be represented by a rule tending to become obsolete, such as a rule concerned with the capacity of married women ..., or by general rules of contract law, such as those concerned with the need for consideration...." (Ibid.) On the other hand the policy need not be as strong as is required when a state refuses to permit its courts to be used to prosecute a foreign cause of action. (Rest., § 187, com. g, p. 569.) In such cases, in which a state's obligations under the full faith and credit clause of the United States Constitution are implicated, the policy must involve "`some fundamental principle of justice, some prevalent conception of morals, some deep-seated tradition of the commonweal.'" (Rest., § 90, com. c, p. 267.)

The relative significance of a particular policy or statutory scheme can be determined by considering whether parties may, by agreement, avoid the policy or statutory requirement. In Hall v. Superior Court (1983) 150 Cal.App.3d 411, 418-419 [197 Cal.Rptr. 757], the court found the express antiwaiver provisions in the Corporate Securities Law of 1968 (Corp. Code, § 25000 et seq.) prevented enforcement of choice of law and forum selection clauses in a contract for the sale of securities. The court stated: "California's policy to protect securities investors, without more, would probably justify denial of enforcement of the choice of forum provision, although a failure to do so might not constitute an abuse of discretion; but [Corporations Code] section 25701, which renders void any provision purporting to waive or evade the Corporate Securities Law, removes that discretion and compels denial of enforcement." (Hall, at p. 418.) Relying on Hall v. Superior Court, the court in America Online, Inc. v. Superior Court (2001) 90 Cal.App.4th 1, 15 [108 Cal.Rptr.2d 699], reached the same conclusion with respect to the antiwaiver provisions of the Consumers Legal Remedies Act (CLRA): "[E]nforcement of AOL's forum selection clause, which is also accompanied by a choice of law provision favoring Virginia, would necessitate a waiver of the statutory remedies of the CLRA, in violation of that law's antiwaiver [1324] provision (Civ. Code, § 1751) and California public policy. For this reason alone, we affirm the trial court's ruling." (See also Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 174 [30 Cal.Rptr.3d 76, 113 P.3d 1100].)^[5]

Consistent with Hall v. Superior Court and America Online, Inc. v. Superior Court, the requirements of a statute may also be fundamental when the Legislature provides that an agreement entered into in violation of the statute is void. (See Interinsurance Exch. v. Bailes (1963) 219 Cal.App.2d 830, 836-837 [33 Cal.Rptr. 533]; Rest., § 187, com. g ["a fundamental policy may be embodied in a statute which makes one or more kinds of contracts illegal ..."].) When the Legislature acts in this manner, it is clear it has found the particular policies which underlie a statute are more important than the more general policy in favor of the freedom to contract. (See, e.g., Application Group, Inc. v. Hunter Group, Inc. (1998) 61 Cal.App.4th 881, 900-901 [72 Cal.Rptr.2d 73] (Application Group).)

The holding in Application Group is illustrative of the kind of policy which is fundamental within the meaning of section 187 of the Restatement. (Application Group, supra, 61 Cal.App.4th at pp. 899-901.) In Application Group the court considered an employment contract, which, by its terms, was governed by the law of Maryland. The contract contained a noncompetition clause, which, although lawful under Maryland law, violated the provisions of Business and Professions Code section 16600. The court found Business and Professions Code section 16600 reflected a fundamental policy within the meaning of section 187 of the Restatement such that it prevented use of the noncompetition clause in an action against an employee who had accepted a job from a California employer. (Application Group, supra, 61 Cal.App.4th at pp. 899-901.) "`California courts have consistently declared this provision an expression of public policy to ensure that every citizen shall retain the right to pursue any lawful employment and enterprise of their choice. Section 16600 has specifically been held to invalidate employment contracts which prohibit an employee from working for a competitor when the employment has terminated, unless necessary to protect the employer's trade secrets. [Citation.] The corollary to this proposition is that [a competitor] may solicit another's employees if they do not use unlawful means or engage in acts of unfair competition.' [Citation.]" (Id. at p. 900.)

[1325] IV

Applying the foregoing principles to this record, we conclude the trial court erred in enforcing the choice-of-law provisions of Omni's loan agreements.

Admittedly, because Omni is a Nevada corporation, there is a substantial relationship with Nevada such that the choice of Nevada law in the loan agreements was reasonable. (See Nedlloyd, supra, 3 Cal.4th at p. 467.) Thus under section 187 of the Restatement we must next determine whether Nevada's law conflicts with the fundamental policy of California, and, if there is such a conflict, whether California has a materially greater interest in the transactions than Nevada. (3 Cal.4th at p. 467.) We find there is such a conflict and that California's interest in the loan agreements is greater than Nevada's.

A. Finance Lenders Law

As we explain more fully below, in determining whether Nevada law conflicted with the fundamental policy of California, the trial court erred in its choice-of-law analysis. Rather than determining whether the application of the chosen state's law violated a fundamental policy of California, it isolated the difference between California's and Nevada's laws controlling finance lenders and then analyzed whether the isolated difference in the two states' laws—namely signage—was a fundamental policy. This approach led the trial court to consider each portion of the law separately and thereby minimize the impact of any deviation from the requirements of the law. As our analysis discloses, this approach was erroneous because it failed to consider the law as an integral whole, the particular parts of which reinforce each other.

In enacting the Finance Lenders Law, the Legislature directed that it "(a) ... be liberally construed and applied to promote its underlying purposes and policies, which are:

"(1) To ensure an adequate supply of credit to borrowers in this state.

"(2) To simplify, clarify, and modernize the law governing loans made by finance lenders.

"(3) To foster competition among finance lenders.

"(4) To protect borrowers against unfair practices by some lenders, having due regard for the interests of legitimate and scrupulous lenders.

[1326] "(5) To permit and encourage the development of fair and economically sound lending practices.

"(6) To encourage and foster a sound economic climate in this state...." (§ 22001.)

The expressly articulated policies set forth in section 22001—assuring an adequate supply of credit to consumers and protection of consumers from unfair practices—are on their face of some consequence. Here, in addition to the Legislature's statement of purposes, the remedies which the Legislature has provided and the enforcement mechanism it has created make it clear not only that the requirements of the Finance Lenders Law are matters of fundamental public policy which cannot be waived by way of agreement between the parties, but that the provisions of the law must be viewed together.

(4) We begin with section 22324, which states: "Any person who contracts for or negotiates in this state a loan to be made outside the state for the purpose of evading or avoiding the provisions of this division is subject to the provisions of this division." Section 22324, by expressly preventing parties from avoiding the strictures of the Finance Lenders Law by booking or otherwise making a loan out of state, strongly suggests the Finance Lenders Law may not be circumvented by a contractual choice-of-law provision.

The fundamental and unwaivable character of the Finance Lenders Law is also suggested in section 22750. Under section 22750 contracts made in willful violation of the Finance Lenders Law, including in particular violation of the requirement that a lender have a license issued by the commissioner, are void. If the violations are not willful, the lender must nonetheless forfeit any interest or charges. (§ 22752.) In addition, willful violations of the Finance Lenders Law are punishable with both civil and criminal penalties. (§§ 22713, 22753.)

Our conclusion that the provisions of the Finance Lenders Law are fundamental, unwaivable and integrated is buttressed by considering the licensing requirements of the law and the role licensing plays in enforcing the substantive provisions of the law. Section 22100 provides: "No person shall engage in the business of a finance lender or broker without obtaining a license from the commissioner." A finance lender is entitled to receive a license upon satisfying the commissioner that no one who has more than a 10 percent interest in the lender has been convicted of a crime or committed an act of dishonesty or fraud related to consumer lending. (§ 22109.) A licensee is required to make an annual report to the commissioner and maintain records of its transactions so the commissioner can determine whether the [1327] licensee is complying with the Finance Lenders Law and regulations promulgated by the commissioner. The commissioner may revoke or suspend a license whenever, among other matters, the commissioner finds "[t]he licensee has violated any provision of this division or any rule or regulation made by the commissioner under and within the authority of this division." (§ 22714, subd. (a)(2).)

Significantly, the substantive and procedural obligations of the Finance Lenders Law are imposed on licensees and subject to enforcement by the commissioner. Under section 22150, "The commissioner may make general rules and regulations and specific rulings, demands, and findings for the enforcement of this division, in addition to, and within the general purposes of, this division." Section 22163 provides: "The commissioner may require that rates of charge, if stated by a licensee, be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers." Section 22165 provides: "No advertising copy shall be used after its use has been disapproved by the commissioner and the licensee is notified in writing of the disapproval." Article 3 of the Finance Lenders Law, section 22300 et seq., imposes limitations on the conditions, rate of interest and charges licensees may impose on borrowers.^[6] Finally, the commissioner is given the power to suspend or revoke any license if the commissioner finds: "The licensee has violated any provision of this division or any rule or regulation made by the commissioner under and within the authority of this division." (§ 22714, subd. (a)(2).) There would be little, if any, utility in establishing this thorough licensing scheme and giving the commissioner power over licensees, if the licensing requirements of the law and the power of the department could be waived by simple agreement between lender and borrower.

(5) In sum, the Legislature, in expressly preventing any attempt to avoid its provisions by making loans outside the state, in voiding contracts made in violation of the Finance Lenders Law and in creating a licensing scheme through which it directly regulates the finance lenders market, has made it clear that the Finance Lenders Law is a matter of significant importance to the state and, like the provisions of Corporate Securities Law of 1968 and the CLRA, is fundamental and may not be waived. Just as importantly, it is obvious the statutory scheme, which depends upon both private remedies and administrative enforcement, is an integrated system of limitations and regulation which depend upon each other to achieve the overall goals of the [1328] Legislature. Although the Finance Lenders Law does not contain an express antiwaiver provision, as did the statutes analyzed in Hall v. Superior Court and America Online, Inc. v. Superior Court, when the statutory scheme is reviewed as a whole, it is clear it represents a fundamental policy of this state.

(6) Application of the choice-of-law provision in the Omni loan agreements would undermine the fundamental policy expressed in the Finance Lenders Law. Contrary to the findings of the trial court, the conflict between Nevada law and California law is far wider than simply differing standards as to signage. As we have seen, operation of the Finance Lenders Law depends in large measure upon private enforcement, licensing and the considerable power the corporation's commissioner exercises over licensees. The choice-of-law provisions in Omni's loan agreements immunized Omni's activities in this state from this entire regulatory scheme and thereby conflicted with it in a substantial manner.

B. California's Interest in Enforcing Its Law Is Greater Than Nevada's Interest in Enforcing Its Laws

(7) Importantly, we must recognize our analytical responsibility is not complete upon finding a conflict exists between a fundamental policy of California and the law selected by the parties. (Rest. § 187, subd. (2)(b).) Put more narrowly, a California consumer cannot avoid the obligations of a contract with an out-of-state business by simply arguing the transaction was covered by a California licensing and regulatory scheme. Under Restatement section 187, subdivision (b)(2), we must also determine whether California's interest in enforcing its law is greater than Nevada's interest in enforcing its laws. As the court in Application Group, supra, 61 Cal.App.4th at pages 898 to 899, stated: "[A] court can decline to enforce the parties' contractual choice-of-law provision only if the interests of the forum state are `materially greater' than those of the chosen state, and the forum state's interests would be more seriously impaired by enforcement of the parties' contractual choice-of-law provision than would the interests of the chosen state by application of the law of the forum state." (Fn. omitted.)

The trial court found and the record shows that in the broadest sense California has a materially greater interest in Omni's loan transactions than Nevada. As the trial court noted, Omni's 12,000 California loans were made to California consumers, secured with collateral located in California, and provided cash that was likely spent in this state. Moreover, Omni's California competitors who are subject to California's regulatory scheme were deprived of the opportunity to make those 12,000 loans. Nevada's interest is limited to the out-of-state activities of one of its corporate citizens.

[1329] In this regard, we reject Omni's reliance on the Pioneer letters as governing California's interest in its loan activities. The most relevant aspect of the commissioner's administrative decisionmaking is the commissioner's dogged refusal to give Omni an interpretative opinion permitting it to operate in California without a license. To the extent the commissioner's opinion was relevant in determining California's interest in Omni's activities, the commissioner's views about Omni's activities are clearly entitled to far more weight than the commissioner's views about a third party. Of course, further undermining the value of the Pioneer letter as an expression of California's interest in loans to nonresident members of the military is the fact that the commissioner has abandoned the reasoning in that letter.

(8) In any event, although relevant, the question we confront is more nuanced than simple consideration of which state has a greater economic interest in or connection to the parties' dispute. (See Application Group, supra, 61 Cal.App.4th at p. 903.) Rather, we must consider which state, in the circumstances presented, will suffer greater impairment of its policies if the other state's law is applied. (Ibid.)^[7] Here, application of Nevada law would deprive a substantial segment of the borrowing public in this state of the substantive and regulatory protection California affords all of its other consumers. Nevada on the other hand has no policy which prevents its lenders from subjecting themselves to the regulatory authority of other states. That is to say, nothing in Nevada law prevented Omni from fully complying with California law. Rather, Nevada's interest in applying its law is limited to its more general interest in enforcing the provisions of contracts made by one of its citizens. Given these circumstances, application of Nevada law would impair California's regulatory interests to a far greater extent than application of California law would impair Nevada's interests.

In sum, although there was a reasonable basis for selecting Nevada law in the loan agreements, its application here conflicted with a fundamental policy of this state in circumstances in which California has a greater interest than Nevada. Hence the choice-of-law provisions of Omni's loan agreements are not enforceable here. (See Nedlloyd, supra, 3 Cal.4th at p. 465.) Thus we reverse the judgment of dismissal. Plaintiff may proceed with the lawsuit. In [1330] doing so, we express no opinion as to Omni's liability, if any, or any other affirmative defense Omni may assert.

DISPOSITION

Judgment reversed.

Plaintiff to recover his costs of appeal.

Haller, J., and Irion, J., concurred.

[1] Omni Loan Company, Ltd., and Omni Financial Corporation were founded by Fred Nives, who was the principal shareholder of both corporations. All references to Omni include Omni Financial Corporation unless otherwise indicated.

[2] All further statutory references are to the Financial Code unless otherwise specified.

[3] Omni Financial Corporation is headquartered in New Rochelle, New York, and provides a variety of management services to Omni Loan Company and its affiliates.

[4] Omni filed a notice of cross-appeal from that portion of the trial court's judgment which rejected its commerce clause defense. However, according to its respondent's brief, Omni has elected not to appeal the trial court's judgment.

[5] We note many out-of-state cases have refused to enforce choice-of-law provisions because they would conflict with the antiwaiver provisions of applicable statutory schemes. (See Cottman Transmission Systems, LLC v. Kershner (E.D.Pa. 2007) 492 F.Supp.2d 461; Volvo Const. Equip. North America v. CLM Equip. (4th Cir. 2004) 386 F.3d 581, 607-610; Cromeens, Holloman, Sibert, Inc. v. AB Volvo (7th Cir. 2003) 349 F.3d 376, 391; Wright-Moore Corp. v. Ricoh Corp. (7th Cir. 1990) 908 F.2d 128, 132; Pinnacle Pizza Co. v. Little Caesar Enterprises (D.S.D. 2005) 395 F.Supp.2d 891, 898.)

[6] Sections 22300, 22301, 22303, 22304, and 22305 limit the charges and interest licensees may receive for small loans. Section 22320.5 regulates the amount of late fees and delinquency fees a licensee may charge. Section 22334 regulates the maximum term of small loans. Section 22337 regulates the documentation licensees must provide when a loan is made and when it has been paid.

[7] As the court in Application Group noted: "One of the difficulties in these cases is that the `materially greater interest' test of subdivision (2)(b) of section 187 of the Restatement overlaps with the `governmental interest' and `comparative impairment' analyses that must be conducted in California to determine which state `would be the state of the applicable law in the absence of an effective choice of law by the parties' [citation]. [None of the cases] disclosed by our research ... discusses the relationship between and among these tests. The approach utilized by the Ninth Circuit for dealing with that problem ... appears to have been to first examine the respective `governmental interests' of the chosen and forum states and then determine the extent to which those interests would be impaired by application of the other state's laws. [Citation.]" (Application Group, supra, 61 Cal.App.4th at p. 898, fn. omitted.)