Enter to open, tab to navigate, enter to select
Ninth Circuit Limits California's Resale Royalty Act
Practical Law Legal Update 0-611-9106 (Approx. 3 pages)
Ninth Circuit Limits California's Resale Royalty Act
by Practical Law Intellectual Property & Technology
| Published on 06 May 2015 • USA (National/Federal) |
In Sam Francis Foundation v. Christies, Inc. the US Court of Appeals for the Ninth Circuit held that California's Resale Royalty Act's regulation of sales of fine art outside of California unconstitutionally violated the dormant Commerce Clause.
On May 5, 2015, in Sam Francis Foundation v. Christies, Inc., an en banc panel of the US Court of Appeals for the Ninth Circuit held that a clause in California's Resale Royalty Act (CRRA) imposing a five percent royalty on sales of fine art outside the state of California facially violates the dormant Commerce Clause (No. 12-56067, (9th Cir. May 5, 2015)). Because the clause was severable from the remainder of the CRRA, however, the en banc panel returned the case to the assigned three-judge panel to consider additional issues raised by the parties.
The CRRA requires that the seller of a work of fine art pay the artist five percent of the sale if either:
- The sale takes place in California.
- The seller resides in California.
In 2011, certain artists and artists' estates alleged that two auction houses and an online retailer (Sellers) violated the CRRA by failing to pay the CRRA-required royalties on art sales. Sellers moved to dismiss, arguing, among other things, that the CRRA violated the dormant Commerce Clause. The US District Court for the Central District of California granted the motion to dismiss, holding that the entire CRRA unconstitutionally violated the Commerce Clause (for more information on the district court's decision, see Legal Update, District Court Strikes Down California Resale Royalties Act). After a three-judge panel heard oral argument, the Ninth Circuit heard the case en banc.
The en banc court noted that the CRRA regulates both out-of-state and in-state sales of fine art, but only addressed the clause imposing royalties on out-of-state sales. It held that the clause concerning out-of-state royalties:
- Facially violated the dormant Commerce Clause.
- Was severable from the remainder of the CRRA.
It concluded that the CRRA's royalty requirement for out-of-state sales by California residents was unconstitutional because:
- The Commerce Clause bars state regulations that unduly burden interstate commerce.
- This CRRA requirement regulates sales that take place wholly outside of California's borders.
The en banc court also held that this clause was severable from the remainder of the statute. It explained that since the CRRA included a severability provision, there was a presumption of severability. In addition, the court looked at three additional factors supporting its conclusion. Specifically, the court noted that the provision was:
- Grammatically separable because removing the invalid clause did not affect the wording or coherence of the remainder of the statute.
- Functionally separable because the remainder of the statute was complete.
- Volitionally separable because the remainder of the statute would have been adopted by the legislature if it had foreseen the partial invalidation of the statute.
Since the district court held that the entire CRRA was unconstitutional, it did not reach Sellers' alternative arguments. The en banc court therefore returned the case to the three-judge panel to decide whether to address those issues on the merits or to remand to the district court.