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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.
This alert provides general coverage of its subject area. We
provide it with the understanding that Frankfurt Kurnit Klein &
Selz is not engaged herein in rendering legal advice, and shall not
be liable for any damages resulting from any error, inaccuracy, or
omission. Our attorneys practice law only in jurisdictions in which
they are properly authorized to do so. We do not seek to represent
clients in other jurisdictions.
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