Is the California Resale Royalty Act for Art Alive or Dead?

The California Resale Royalty Act is a lightening rod for controversy in the art world.  It provides that a living artist (or his or her estate or heirs) is entitled to 5% of the resale of the artist’s work.  There are a number of conditions that apply, including the fact that either the artist or owner of the work lives in California, or that the sale takes place in California, and the sale must occur during the artist’s life or within 20 years of the artist’s death.  Although the Act is well-intentioned, it can be difficult to ascertain and enforce rights, and creates headaches for art dealers, galleries, and collectors.

Recently, a number of California artists sued Christie’s and Sotheby’s for millions of dollars, alleging that the auction houses had conspired to conceal California ties to art transactions in order to avoid paying royalties to artists.  In May of 2012, California District Court Judge Jacqueline Nguyen ruled that the Act violated the United States Constitution’s Commerce Clause, which affords the federal government with the power to regulate economic activity between states.   On its face, the ruling, which dismissed the lawsuits with prejudice, appeared to be a victory for galleries everywhere and a defeat for artists.

But Judge Nguyen was subsequently transferred to the appellate court, and the case was reassigned to Judge Michael Fitzgerald to oversee post-appellate issues.  The artists filed a motion to stay the application of the original order pending an appeal in order to allow continued enforcement of the Act.  In an interesting decision, Judge Fitzgerald found that there was nothing to stay, because although Judge Nguyen’s decision dismissed the case between those litigants, she did not have the power to bind any other parties to the district court level decision that found that the Act is invalid.

As such, the Act remains in place and must be followed until an appellate court finds otherwise.  So the battle continues, and we will continue to follow this interesting litigation.

If you would like further information, please write to Mike Bono at mbono@wcmlaw.com.