On May 17, 2012, the United States District Court for the Central District of California granted Sotheby’s and Christie’s joint motion to dismiss a complaint filed by artists alleging violations of the California Resale Royalties Act (“CRRA”).
In moving to dismiss, Sotheby’s and Christie’s argued that the CRRA (1) violates the dormant Commerce Clause, (2) is a “taking” of private property in violation of the U.S. and California constitutions, and (3) is preempted by the Copyright Act of 1976.
The court held that the CRRA violates the dormant Commerce Clause. The Commerce Clause in Article I of the U.S. Constitution expressly grants Congress the power to regulate commerce “among the several states.” There is no actual “Dormant Commerce Clause” found in the U.S. Constitution. Rather, it is a judge-made doctrine that has been inferred from the Commerce Clause and limits the States’ power to regulate interstate commerce.
The court found that the dormant Commerce Clause applies to the CRRA because works of fine art are sold from one state into another, and because the large number of such transactions has a “substantial effect” on interstate commerce.
The court then found that the CRRA violates the dormant Commerce Clause per se, because of its “problematic reach.” Under its clear terms, the CRRA regulates sales of fine art occurring wholly outside of California, so long as the seller resides in California. According to the court, the CRRA therefore exceeds the inherent limits of California’s authority.
Although the CRRA contains a severability provision, the court nonetheless struck down the entire statute. After analyzing the CRRA’s legislative history, the court concluded that the California legislature would not have enacted the CRRA without its extraterritorial reach. Thus, if the court were to sever the extraterritorial provisions of the CRRA, it would create a law that the legislature never intended to enact.
Because the court found that the CRRA violates the dormant Commerce Clause, it did not address the preemption and Takings Clause arguments.
Plaintiffs’ counsel intends to appeal this decision.