Federal judge finds California Resale Royalty Act unconstitutional

You can almost hear the sighs of relief coming from art galleries and auction houses up and down California: Federal Judge Jacqueline Nguyen has declared the California Resale Royalty Act unconstitutional.

The highly controversial, widely misunderstood and little enforced state law that took effect in 1977 was designed to provide artists with 5% of their resale prices under certain conditions. As written, the law would apply to a resale of an original work of art provided this sale takes place in California or the seller resides in California.

Nguyen of Central District Court in California found this last provision, which would allow for royalties to be collected on sales that take place in other states, overreaching in a way that invalidates the entire law. In granting a motion by Christie’s and Sotheby’s to dismiss a class-action suit brought against them by artists Chuck Close and Laddie John Dill and the estates of artists Robert Graham and Sam Francis, Nguyen wrote that the law “explicitly regulates applicable sales of fine art occurring wholly outside California” and thus violates the U.S. Constitution’s Interstate Commerce Clause.

Artists have very rarely gone to court over this law before, but Nguyen had some experience with it. She was the judge who sent artist Mark Grotjahn’s resale royalty suit against collector Dean Valentine back to state court in 2011, after Valentine had removed it to federal court arguing that the law interferes with the Copyright Act of 1976. (At the time she found that the Royalty Act “does not infringe on the exclusive rights delineated in the Copyright Act,” providing a “qualitatively different” right than copyright holders receive.)

Sotheby’s lawyers at Weil, Gotshal & Manges called this month’s decision “a major victory.”

L.A. attorney Eric George of Browne George Ross, who represents the plaintiffs in the class-action suit against the auction houses and has also led suits against nine California art galleries, said the matter isn’t over: “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 Ninth Circuit Court of Appeals, which already upheld this very statute in 1981.”

You can follow the writer on twitter @jorifinkel.

RELATED:

Valentine and Grotjahn settle over resale royalties

Artist Mark Grotjahn in battle royal over royalties

Galleries sued over resale royalties

Artists’ royalty suit may hinge on constitutional issues

Artists sue two auction houses