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Federal Court Finds California Resale Royalties Act Unconstitutional

Overthrowing Royalty: Judge Jacqueline H. Nguyen

The U.S. District Court, Central District of California, struck down the California Resale Royalties Act (CRRA) on Thursday, saying that it violated the U.S. Constitution’s Interstate Commerce Clause. This handed a victory to Sotheby’s and Christie’s, which had sought dismissal of lawsuits brought against them by several artists (including Chuck Close) and estates of artists (including Sam Francis). The plaintiffs were seeking royalty payments that they said were owed to them by the auction houses.

Under the California law, auction houses and dealers, wherever located throughout the country, were directed to “withhold 5 percent of the amount of the sale, locate the artist and pay the artist,” whenever the sold work was created by a California-based artist or was sold by a California resident.

In dismissing the artists’ complaint, Judge Jacqueline H. Nguyen noted that the impact of state laws on interstate commerce (a federally regulated activity) “must only be ‘incidental‘” but “the CRRA substantially affects interstate commerce” [emphasis added].

Judge Nguyen added:

The Court finds that the CRRA explicitly regulates applicable sales of fine art occurring wholly outside California [emphasis added]. Under its clear terms, the CRRA regulates transactions occurring anywhere in the United States, so long as the seller resides in California. Even the artist—the intended beneficiary of the CRRA—does not have to be a citizen of, or reside in, California….Therefore, the CRRA violates the Commerce Clause of the United States Constitution.

But it’s not over till the Court of Appeals sings. Eric George, one of the lawyers for the artists, sent me this statement when I asked whether his clients would appeal:

The artist protection law was properly enacted by California’s legislative and executive processes, pursuant to powers the U.S. Constitution reserves to the states. For a single federal judge to invalidate the law, more than 35 years later and without allowing any evidence to be taken, marks a departure from established constitutional law.

We are confident, as both sides have always believed, this case will ultimately be resolved by the 9th Circuit Court of Appeals, which already upheld this very statute in 1981. Stay tuned.

Wait a minute! The LA Times reported two weeks ago that “the Senate confirmed Jacqueline H. Nguyen of Los Angeles to the U.S. 9th Circuit Court of Appeals…, making her the first Asian American woman to sit on a federal appellate court.” (I guess she’ll have to recuse herself from hearing the appeal of her own decision.)

For what it’s worth, Judge Nguyen did, in her own ruling, refer to the prior decision that upheld the CRRA (Morseburg v. Baylon), noting that the judge in that case had failed to consider the relevance of the Interstate Commerce Clause.

Perhaps the best answer to the question of how best to secure artists resale royalties (which I support) would be to enact federal legislation. But history tells us that’s not a high-percentage play.

As Judge Nguyen recounted in her decision:

Several attempts by Congress to introduce resale royalty legislation have failed. In December 1992, the Copyright Office issued a report concluding that it was “not persuaded that sufficient economic and copyright policy justification exists to establish droit de suite [resale royalties] in the United States.”

I think it’s time to revisit that.

[NOTE: The docket numbers for these court cases are 2:11-cv-08604 for the suit against Sotheby’s; 2:11-cv-08605 against Christie’s.]

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