Sam Francis Foundation v. Christies, Inc.
784 F.3d 1320
9th Cir.2015Background
- California Resale Royalty Act (§ 986) requires a 5% royalty to the artist when fine art is sold if the seller resides in California or the sale occurs in California; agents must withhold, locate, and pay the artist.
- Plaintiffs (artists and estates) sued Sotheby’s, Christie’s, and eBay alleging failure to pay royalties; some challenged sales occurred in California, others were out-of-state sales by California-resident sellers.
- Defendants moved to dismiss arguing the Act violates the dormant Commerce Clause (extraterritorial regulation), among other defenses (copyright preemption, eBay not an agent).
- The district court dismissed the suits, holding the Act’s application to out-of-state sales unconstitutional and striking the entire Act as non-severable.
- The Ninth Circuit (en banc) held the clause applying the Act to out-of-state sales by California residents/transactions was facially unconstitutional under the dormant Commerce Clause but severable from the remainder of the Act, and remanded remaining issues to the panel.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Act’s clause applying to sales that occur outside California (based solely on seller residency) violates the dormant Commerce Clause | The Act is a valid state regulation to compensate artists for resale and applies lawfully to California residents’ sales | The provision impermissibly regulates commerce that occurs wholly outside California and thus is extraterritorial | Clause applying to out-of-state sales based on seller residency violates the dormant Commerce Clause (invalid) |
| Whether the Act’s application to out-of-state agents (auction houses conducting out-of-state sales) violates the dormant Commerce Clause | Plaintiffs: agents can be required to withhold/pay to make the law effective | Defendants: imposing withholding/location/payment duties on out-of-state agents directly regulates out-of-state commerce | Act unconstitutional as applied to out-of-state agents conducting out-of-state sales (invalid) |
| Severability of the invalid clause from the remainder of the Act | Plaintiffs: remaining statute (sales in California) can function independently | Defendants: entire statute should fall if extraterritorial clause invalid | California severability clause + grammatical, functional, volitional separability satisfied; invalid clause severed, remainder upheld |
| Disposition of other defenses (copyright preemption; eBay agent status) | Plaintiffs sought royalties against all defendants | Defendants raised preemption and that eBay is not an agent | Court did not decide; remanded to three-judge panel to address remaining issues or remand to district court |
Key Cases Cited
- Healy v. Beer Inst., 491 U.S. 324 (1989) (state statute cannot be applied to commerce occurring wholly outside the State)
- Quill Corp. v. North Dakota, 504 U.S. 298 (1992) (dormant Commerce Clause prohibits discriminatory state burdens on interstate commerce; tax nexus principles)
- Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) (framework for state tax obligations on interstate commerce)
- Valley Bank of Nev. v. Plus Sys., Inc., 914 F.2d 1186 (9th Cir. 1990) (invalidates statutes that directly regulate wholly out-of-state transactions)
- Rocky Mountain Farmers Union v. Corey, 730 F.3d 1070 (9th Cir. 2013) (distinguishes in-state regulation with out-of-state effects from extraterritorial regulation)
- Assoc. des Eleveurs de Canards et d’Oies du Quebec v. Harris, 729 F.3d 937 (9th Cir. 2013) (upholding in-state sales ban with out-of-state effects; contrasted with extraterritorial rule)
- Leavitt v. Jane L., 518 U.S. 137 (1996) (severability is a matter of state law)