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Artists vs. Auction Houses: Litigating the California Resale Royalty Law

First page of California Arts Council’s pamphlet on the Resale Royalty Act

Let me say this for the record (and then prepare to dodge the brickbats): I’m in favor of resale royalties for artists.

The fact that California’s Resale Royalty Act is “little known” (as the Wall Street Journal‘s Kelly Crow describes it in her article today) is no excuse for ignoring it. This law is anomalous in the U.S., but not in Europe. It is surely well known to Sotheby’s and Christie’s legal counsel.

The two auction houses have just been sued in U.S. District Court, Central District of California, by New York artist Chuck Close, California artist Laddie John Dill and the heirs of Robert Graham (and also, in Christie’s case, the Sam Francis Foundation). They are seeking compensatory and punitive damages, as well as attorneys’ fees, under the California law.

The full text of their class-action complaint against Sotheby’s is here. (The complaint against Christies is listed on the court’s website but its full text is not yet available online.)

So what does the 1976 California law actually say? Here are its key provisions:

Whenever a work of fine art is sold and the seller resides in California or the sale takes place in California, the seller or the seller’s agent shall pay to the artist of such work of fine art or to such artist’s agent 5 percent of the amount of such sale….

When a work of fine art is sold at an auction [emphasis added] or by a gallery, dealer, broker, museum, or other person acting as the agent for the seller, the agent shall withhold [emphasis added] 5 percent of the amount of the sale, locate the artist and pay the artist.

If the seller or agent is unable to locate and pay the artist within 90 days, an amount equal to 5 percent of the amount of the sale shall be tranferred to the [California] Arts Council [which then is charged with trying to locate the artist or estate representative].

You can read the full text of California’s Resale Royalty Act, here (at 986).

On a webpage titled, Attention: Looking for Artists, updated on Monday, the California Arts Council has posted a list of artists or their estate representatives whom it has not been able to locate, as well as another list of artists or estate representatives who “have been notified, and not yet responded or sent responses which are not yet complete.” Among the big names on the latter list: Jean-Michel Basquiat, Jennifer Bartlett, George Condo and (better know for his music than his art) Jerry Garcia.

The provisions of the law and the auction houses’ obligations under it seem clear enough. But both Sotheby’s and Christie’s, according to Crow’s report, intend to fight the claim in court, if necessary. My guess is that they’ll attempt to attack the validity of the law itself.

My own concern about the law is that it takes 5% of the total resale price, not a percentage of the profits. It does not apply, however, if the resale price is less than the purchase price. Nor does it apply to resales under $1,000.

In my art-law bible, the three-volume Art Law: The Guide for Collectors, Investors, Dealers, & Artists (2005 edition), co-authors Ralph Lerner (counsel for major collectors who could be adversely affected by resale royalties) and Judith Bresler assert that “some question remains as to the constitutionality” of California’s law. Noting that only two cases had been brought challenging the law (which was upheld), Lerner and Bresler write:

Perhaps the lack of interpretive activity under this statute is a reflection of art resale transactions being conducted elsewhere—to avoid the burdens of enforcement. Or perhaps resale transactions are being conducted in California under a statute largely ignored. Whichever is the case, the dearth of case law does not bode well for the future vitality of this statute…

…or perhaps new case law is about to be made, which could significantly bolster the future “vitality” of resale royalties.

As if this weren’t enough, Sotheby’s is facing a more immediate problem—the prospect of picket lines and demonstrators marring next month’s presale exhibitions and major evening auctions of Impressionist/modern and contemporary art. The auction house’s long-running labor dispute with art handlers has caught the attention of Occupy Wall Street demonstrators, who interrupted an auction and also created disruptions at two of restaurateur Danny Meyer‘s upscale establishments. Meyer is a Sotheby’s board member. (So is Diana Taylor [scroll down], Mayor Bloomberg‘s long-time partner.)

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