This article first appeared in Entertainment Law Matters, a Frankfurt Kurnit legal blog.
On October 18, 2011, a group of artists including Chuck Close and Laddie John Dill filed three class action lawsuits against Sotheby's, Christie's and eBay, Inc., respectively, alleging violations of the rarely-enforced 1977 California Resale Royalty Act.
Under California's Resale Royalties Act, when the sale of an "original painting, sculpture, or drawing or an original work of art in glass" at an auction exceeds the seller's purchase price, and the seller resides in California or the sale takes place in California, the auctioneer is required to withhold 5% of the resale price and locate and pay the artist (or, within 20 years of the artist's death, the artist's estate) within 90 days. Although unique in the United States, the California's Resale Royalties Act is similar to the well-established "droit de suite" laws in the E.U.
These class action lawsuits allege that the auctioneer defendants violated the California Resale Royalties Act by routinely refusing to pay resale royalties and engaging in a "pattern of conduct" intended to conceal that sales or sellers were in California. The lawsuits also allege violations of California's Unfair Competition Law. The plaintiffs seek unspecified disgorgement, compensatory and punitive damages.
The California Resale Royalty Act has previously received little attention.
Indeed, legal scholars have suggested that California's Resale Royalties Act constitutes an impermissible physical taking under the Fifth Amendment. Yet, the Artists' Rights Society, the chief copyright and licensing collecting agency in the U.S., has been recently lobbying for legislation that would make droit de suite federal law. If the California Resale Royalties Act is held unconstitutional, this federal effort may be stymied. However, if successful, a federal "droit de suite" law might gain traction and art auctioneers and galleries will need to re-think how they handle resales in California and potentially nationwide.
A spokeswoman for Christie's told the Los Angeles Times that Christie's looks forward to debating the validity of the law itself in court.
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