Central District of California: Decision in Graham v Sotheby’s.

On March 17, 2017, Judge Nguyen of the Central District of California struck down the California Resale Royalty Act (CRRA) as violative of the Due Process Clause of the United States Constitution (Graham v. Sotheby’s).  The Court stated that the CRRA is invalid because it regulates transactions that take place wholly outside of the State of California, and therefore violates the Commerce Clause of the United States Constitution.

Specifically, the CRRA provides that “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… 5 percent of the amount of such sale”.

The Court illustrated the problem with the CRRA as follows: “Assume a California resident places a painting by a New York artist up for auction at Sotheby’s in New York, and at the auction a New York resident purchases the painting for $1,000,000.  In such a situation, the transaction that the CRRA regulates – the one between the New York auction house and the New York purchaser – occurs wholly in New York.  Despite the fact that even the artist receiving the royalty is a New York resident, the CRRA reaches out to New York and regulates the transaction…”

Thus, the Court finds that the CRRA violates the Commerce Clause of the United States, and because the offending provisions cannot be severed, the entire statute is struck down.