Estate of Graham v. Sotheby's Inc.
860 F. Supp. 2d 1117
C.D. Cal.2012Background
- Defendants Sotheby’s and Christie’s moved to dismiss the complaints under Rule 12(b)(6).
- Plaintiffs allege the California Resale Royalties Act (CRRA) requires a 5% resale royalty on art sales and that defendants failed to pay it when acting as seller’s agents.
- CRRA applies to sales with California connections and imposes duties on sellers’ agents to withhold and remit royalties.
- The court granted the motion to dismiss with prejudice after determining CRRA cannot withstand Commerce Clause scrutiny.
- The court analyzed whether CRRA violates the dormant Commerce Clause and concluded it does.
- The court also held that severability fails and thus the entire CRRA must fall.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does CRRA violate the Dormant Commerce Clause per se? | Plaintiffs argue CRRA regulates extraterritorial sales. | Defendants contend CRRA is unconstitutional as applied to interstate art sales. | Yes; CRRA violates the Dormant Commerce Clause per se. |
| Does CRRA survive Commerce Clause scrutiny under intermediate/modified tests? | Plaintiffs rely on economic impact and territorial reach. | Defendants contend regulation serves California interests and is evenhanded. | Court still finds Commerce Clause violation per se, so severability moot. |
| Can the CRRA be severed to save valid portions? | Severability would preserve nonextraterritorial provisions. | Extraterritorial reach is central; severing would rewrite the statute’s intent. | No; the offending extraterritorial provisions cannot be severed; entire statute falls. |
Key Cases Cited
- National Collegiate Athletic Ass'n v. Miller, 10 F.3d 633 (9th Cir. 1993) (commerce clause scrutiny; two-tier approach)
- Healy v. Beer Institute, Inc., 491 U.S. 324 (U.S. 1989) (extraterritorial reach invalid if regulating conduct wholly outside state)
- Valley Bank of Nev. v. Plus Sys., Inc., 914 F.2d 1186 (9th Cir. 1990) (per se invalid when statute favors in-state over out-of-state)
- United States v. Lopez, 514 U.S. 549 (U.S. 1995) (three broad categories of activity Congress may regulate)
- Citizens Bank v. Alafabco, Inc., 539 U.S. 52 (U.S. 2003) (aggregate effect of regulation; economy-wide impact allowed)
- Morseburg v. Balyon, 621 F.2d 972 (9th Cir. 1980) (addressed preemption/Contract/Due Process; cited on CRRA context)
- S.D. Myers, Inc. v. City and County of San Francisco, 253 F.3d 461 (9th Cir. 2001) (out-of-state contract effects and local interests)
- Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573 (U.S. 1986) (binding state regulation to protect legitimate interests; balancing test)
- Regan v. Time, Inc., 468 U.S. 641 (U.S. 1984) (severability standard and legislative intent)
- Alaska Airlines, Inc. v. Brock, 480 U.S. 678 (U.S. 1987) (severability and congressional intent in statutory construction)