Several artists and estates of artists filed three separate
class action suits in 2011 against two auctions houses, Christies and Sotheby’s,
and with the online retailer and auctioneer eBay,
alleging that they had failed to pay them royalties on sales of fine arts, as
required by the California Resale Royalty Act, Cal.
Civ. Code § 986(a), (CRRA).
Defendants had moved to dismiss, arguing that the CRRA
violated the “dormant” Commerce Clause of the U.S. Constitution. The Central
District Court of California granted
Defendants ‘motion to dismiss in 2012, holding that the CRRA impermissibly
violates out-of-state conduct, and thus violates the “dormant” Commerce Clause.
On May 5, 2015, an en banc panel of
the Ninth Circuit held
that the CRAA indeed violates the “dormant” Commerce Clause.
The California Resale
Royalty Act
The California Resale Royalty Act (CRRA), Cal.
Civ. Code § 986(a), requires that sellers pay the author of the work sold a
five percent royalty if the work is a work of fine art, that is, “an original painting, sculpture, or
drawing, or an original work of art in glass.”The CRAA applies if the work is
sold in California, or if the seller resides in California, or if the sale
takes place in California. This type of royalties scheme is also known as droit de suite, and aims at giving artists
and their heirs a way to profit from the rising market value of the work. Indeed,
the heirs of a deceased artist can assert the artist's rights for 20 years
after the artist's death, § 986(a)(7). However, sales below $1,000 and those
involving an artist who died before 1983 are out of the scope of the CRRA.
The Dormant Commerce
Clause of the U.S. Constitution
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| Even Dormant, The Commerce Clause Can Strike Down State Law |
The Commerce
Clause of the United States Constitution, Article I, §8, gives Congress the
power to regulate commerce among the several States. This article has been
interpreted by the Supreme Court as restricting the States from discriminating
or burdening unduly interstate commerce, and this negative aspect of the
Commerce Clause, as it limits the power of the States, is referred to as the “dormant”
Commerce Clause.
The CRRA, § 986(c)(1), defines an “artist” as "the person who creates a work of fine art
and who, at the time of resale, is a citizen of the United States, or a resident
of the state who has resided in the state for a minimum of two years" and
thus applies to all artists who are U.S. citizens, regardless of the state in
which they reside, or to aliens who have resided in California for at least two
years.
The Ninth Circuit gave as an example a sale, which would
take place entirely outside of California, but which would nevertheless be within
the scope of the CRAA, as a sale where “a
California resident has a part-time apartment in New York, buys a sculpture in
New York from a North Dakota artist to furnish her apartment, and later sells
the sculpture to a friend in New York” noting , that, in this case, the
CRRA “requires the payment of a royalty
to the North Dakota artist—even if the sculpture, the artist, and the buyer
never traveled to, or had any connection with, California.” The Court thus,
“easily conclude[d] that the royalty
requirement, as applied to out-of-state
sales by California residents, violates the dormant Commerce Clause” (p.
8), as the CRAA “facially regulates a
commercial transaction that takes place wholly outside of [California]’s border”(p. 9). However,
the Ninth Circuit found that the CRAA’s provision offending the Commerce Clause
can be severed from the remainder of the Act.
As the District Court had found that the CRAA violated the
dormant Commerce Clause per se, and that
the entire Statute had therefore to be stricken down, it had not addressed Defendant’s
two additional arguments, the CRAA’s preemption by the Copyright Act and that it
was a taking of private property in violation of the United States and
California Constitutions. Therefore, the Ninth Circuit remanded the case to a
three-judge panel for considerations of these remaining issues, leaving to the panel’s
discretion the decision to address them on the merits or to remand them to the
lower court.
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