Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-12-56068/USCOURTS-ca9-12-56068-1/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

SAM FRANCIS FOUNDATION; ESTATE

OF ROBERT GRAHAM; CHUCK

CLOSE; LADDIE JOHN DILL,

Plaintiffs-Appellants,

v.

CHRISTIES, INC., a New York

corporation,

Defendant-Appellee.

No. 12-56067

D.C. No.

2:11-cv-08605-

MWF-FFM

SAM FRANCIS FOUNDATION; ESTATE

OF ROBERT GRAHAM; CHUCK

CLOSE; LADDIE JOHN DILL,

Plaintiffs-Appellants,

v.

EBAY, INC., a Delaware corporation,

Defendant-Appellee.

No. 12-56068

D.C. No.

2:11-cv-08622-

MWF-PLA

ESTATE OF ROBERT GRAHAM;

CHUCK CLOSE; LADDIE JOHN DILL,

individually and on behalf of all

others similarly situated,

Plaintiffs-Appellants,

No. 12-56077

D.C. No.

2:11-cv-08604-

MWF-FFM

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2 SAM FRANCIS FOUND. V. CHRISTIES

v.

SOTHEBY’S, INC., a New York

corporation,

Defendant-Appellee.

OPINION

Appeals from the United States District Court

for the Central District of California

Michael W. Fitzgerald, District Judge, Presiding

Argued and Submitted En Banc

December 16, 2014—Pasadena, California

Filed May 5, 2015

Before: Sidney R. Thomas, Chief Judge, and Harry

Pregerson, Stephen Reinhardt, Diarmuid F. O’Scannlain, 

Barry G. Silverman, Susan P. Graber, M. Margaret

McKeown, Marsha S. Berzon, Consuelo M. Callahan,

Carlos T. Bea, and Andrew D. Hurwitz, Circuit Judges.

Opinion by Judge Graber;

Partial Concurrence and Partial Dissent by

Judge Reinhardt;

Concurrence by Judge Berzon

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SAM FRANCIS FOUND. V. CHRISTIES 3

SUMMARY*

California’s Resale Royalty Act

The en banc court held that a clause of California’s Resale

Royalty Act regulating sales of fine art outside the state of

California facially violates the dormant Commerce Clause,

but the clause is severable from the remainder of the Act.

Artists and the estates of artists alleged that Christies,

Inc., EBay, Inc., and Sotheby’s, Inc., violated the Act by

failing to pay mandatory royalties on sales of fine art. The

Act requires the seller of fine art to pay the artist a five

percent royalty if “the seller resides in California or the sale

takes place in California.” Cal. Civ. Code § 986(a). The en

banc court held that the Act’s clause regulating sales outside

the state of California facially violated the “dormant”

Commerce Clause but that the offending provision was

severable from the remainder of the Act. Because the district

court held that the Act fell in its entirety, the district court did

not reach defendants’ alternative arguments, and the en banc

court returned the case to the three-judge panel for its

consideration of the remaining issues.

JudgeReinhardt concurred with the majority’s conclusion

that under the Supreme Court’s dormant Commerce Clause

jurisprudence, the out-of-state regulation of out-of-state

entities was unconstitutional, and therefore the auction house

defendants could not be subjected to the Act’s obligations

required of them in connection with sales that take place

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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4 SAM FRANCIS FOUND. V. CHRISTIES

outside of California. Judge Reinhardt dissented from the

majority’s extension of the dormant Commerce Clause to

declare a substantial portion of the Act unconstitutional.

Judge Berzon, joined by Judge Pregerson, concurred in

part, and would hold the Act unconstitutional as applied to

out-of-state art sales conducted by out-of-state agents, and go

no further. Judge Berzon stated that the majority opinion

unnecessarily decides that the Act is unconstitutional as

applied to out-of-state art sales by California residents.

COUNSEL

Eric M. George (argued) and Ira Bibbero, Browne George

Ross LLP, and Irving H. Greines and Gary D. Rowe, Greines,

Martin, Stein & Richland LLP, Los Angeles, California, for

Plaintiffs-Appellants.

Deanne E. Maynard (argued), Morrison & Foerster LLP,

Washington, D.C., and Paul T. Friedman, Morrison &

Foerster LLP, San Francisco, California; John C. Dwyer,

Angela L. Dunning, and Joshua M. Siegel, Cooley LLP, Palo

Alto, California; Michael G. Rhodes, San Francisco,

California; Jason D. Russell, Hillary A. Hamilton, Allon

Kedem, Michael McIntosh, Skadden, Arps, Slate, Meagher &

Flom, LLP , Los Angeles, California; and Steven A. Reiss,

Howard B. Comet, Weil Gotshal & Manges LLP, New York,

New York, for Defendants-Appellees.

Aimee Feinberg (argued), DeputySolicitor General, Gavin G.

McCabe, Supervising Deputy Attorney General, Kamala D.

Harris, Attorney General of California, Edward C. DuMont,

Solicitor General, Mark J. Breckler, Chief Assistant Attorney

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SAM FRANCIS FOUND. V. CHRISTIES 5

General, and Robert W. Byrne, Senior Assistant Attorney

General, San Francisco, California, for Amicus Curiae State

of California.

Steven A. Hirsch and Katherine M. Lovett, Keker & Van

Nest LLP, San Francisco, California; Craig A. Pinedo,

PinedoLaw, San Francisco, California, and Jesse H. Choper,

University of California School of Law (Boalt), Berkeley,

California; Michael Tenenbaum, Santa Monica, California;

Greg Christianson and Jeremy Esterkin, Morgan Lewis &

Bockius LLP, and Melissa Grant and Arnab Banerjee,

Capstone Law APC, Los Angeles, California, for Amici

Curiae.

OPINION

GRABER, Circuit Judge:

California’s Resale Royalty Act requires the seller of fine

art to pay the artist a five percent royalty if “the seller resides

in California or the sale takes place in California.” Cal. Civ.

Code § 986(a). Plaintiffs in these consolidated appeals are

artists and the estates of artists. Sitting en banc, we address

Plaintiffs’ allegation that Defendants—two auction houses

and an online retailer—violated the Act by failing to pay

mandatory royalties on sales of fine art. Reviewing de novo

the district court’s order dismissing this action, Zadrozny v.

Bank of N.Y. Mellon, 720 F.3d 1163, 1167 (9th Cir. 2013), we

hold that the Act’s clause regulating sales outside the state of

California facially violates the “dormant” Commerce Clause

but that the offending provision is severable from the

remainder of the Act. We return the case to the three-judge

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6 SAM FRANCIS FOUND. V. CHRISTIES

panel for its consideration of the additional issues raised by

the parties on appeal.

A. Background

The Act requires that, “[w]henever a work of fine art is

sold and the seller resides in California or the sale takes place

in California, the seller or the seller’s agent shall pay to the

artist of such work of fine art or to such artist’s agent 5

percent of the amount of such sale.” Cal. Civ. Code § 986(a). 

The artist’s right to the royalty may not be waived or reduced

by contract. Id. The Act defines “fine art” as “an original

painting, sculpture, or drawing, or an original work of art in

glass.” Id. § 986(c)(2). The Act exempts some sales,

including those for less than $1,000 and those involving an

artist who died before 1983. Id. § 986(b).

When art is sold by an agent, “the agent shall withhold 5

percent of the amount of the sale, locate the artist and pay the

artist.” Id. § 986(a)(1). If the seller or the seller’s agent

cannot locate the artist within 90 days, the seller or agent

must transfer the royalty to the California Arts Council. Id.

§ 986(a)(2). In that event, the Arts Council must attempt to

locate the artist and deliver the royalty. Id. § 986(a)(5). If

the artist still has not been located after seven years, the Arts

Council may use the funds for “acquiring fine art.” Id. If the

seller or the seller’s agent fails to comply with the Act, the

artist or the artist’s heirs may sue the seller or the seller’s

agent for the royalty plus reasonable attorney fees. Id.

§ 986(a)(3), (7).

Invoking the royalty provision, Plaintiffs brought three

separate class actions against Defendants Sotheby’s, Inc.,

Christie’s, Inc., and eBay, Inc., alleging that Defendants,

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SAM FRANCIS FOUND. V. CHRISTIES 7

acting as agents of sellers of fine art, failed to comply with

the Act’s requirements. Plaintiffs allege that some sales took

place in California and that other sales took place outside

California but on behalf of a seller who is a resident of

California. Defendants moved to dismiss the cases arguing,

among other things, that the Act violates the dormant

Commerce Clause.

The district court granted Defendants’ motions to dismiss. 

The court held that the Act’s regulation of sales outside

California is an impermissible regulation of wholly out-ofstate conduct, in violation of the dormant Commerce Clause. 

The court next held that the entire Act must be stricken as

unconstitutional, because the invalid portion of the Act could

not be severed. The court declined to reach the parties’

alternative arguments, such as Defendants’ argument that the

Act is preempted by federal copyright laws and Defendant

eBay’s argument that it is neither a seller nor a seller’s agent.

Plaintiffs timely appealed, and we consolidated the

separate appeals. A three-judge panel heard oral argument

last year. But, after argument, the panel directed the parties

to file simultaneous briefs setting forth their positions on

whether this case should be heard en banc. Thereafter, a

majority of nonrecused active judges voted to hear the case en

banc.

B. Dormant Commerce Clause

The Commerce Clause of the United States Constitution

assigns to Congress the authority “[t]o regulate Commerce

with foreign Nations, and among the several States.” U.S.

Const. art. I, § 8, cl. 3. Implicit in this “affirmative grant of

regulatory power to Congress” is a “’negative aspect,’

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8 SAM FRANCIS FOUND. V. CHRISTIES

referred to as the dormant Commerce Clause.” Conservation

Force, Inc. v. Manning, 301 F.3d 985, 991 (9th Cir. 2002). 

The dormant Commerce Clause is a “limitation upon the

power of the States,” Great Atl. & Pac. Tea Co. v. Cottrell,

424 U.S. 366, 371 (1976) (internal quotation marks omitted),

which “prohibits discrimination against interstate commerce

and bars state regulations that unduly burden interstate

commerce,” Quill Corp. v. North Dakota, 504 U.S. 298, 312

(1992) (citation omitted). This principle ensures that state

autonomy over “local needs” does not inhibit “the overriding

requirement of freedom for the national commerce.” Great

Atl. & Pac. Tea Co., 424 U.S. at 371 (internal quotation

marks omitted).

California’s Resale Royalty Act requires the payment of

royalties to the artist after a sale of fine art whenever “the

seller resides in California or the sale takes place in

California.” Cal. Civ. Code § 986(a) (emphasis added). 

Defendants challenge the first clause because it regulates

sales that take place outside California. Those sales have no

necessary connection with the state other than the residency

of the seller. For example, if a California resident has a parttime apartment in New York, buys a sculpture in New York

from a North Dakota artist to furnish her apartment, and later

sells the sculpture to a friend in New York, the Act requires

the payment of a royalty to the North Dakota artist—even if

the sculpture, the artist, and the buyer never traveled to, or

had any connection with, California. We easily conclude that

the royalty requirement, as applied to out-of-state sales by

California residents, violates the dormant Commerce Clause.

The Supreme Court has held that “our cases concerning

the extraterritorial effects of state economic regulation stand

at a minimum for the following proposition[]: . . . the

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SAM FRANCIS FOUND. V. CHRISTIES 9

Commerce Clause precludes the application of a state statute

to commerce that takes place wholly outside of the State’s

borders, whether or not the commerce has effects within the

State.” Healy v. Beer Instit., 491 U.S. 324, 336 (1989)

(ellipsis and internal quotation marks omitted); see also id.

(holding that “a statute that directly controls commerce

occurring wholly outside the boundaries of a State exceeds

the inherent limits of the enacting State’s authority and is

invalid regardless of whether the statute’s extraterritorial

reach was intended by the legislature”). Here, the state

statute facially regulates a commercial transaction that “takes

place wholly outside of the State’s borders.” Id.

Accordingly, it violates the dormant Commerce Clause. See

also Valley Bank of Nev. v. Plus Sys., Inc., 914 F.2d 1186,

1189–90 (9th Cir. 1990) (“Direct regulation occurs when a

state law directly affects transactions that take place . . .

entirely outside of the state’s borders. Such a statute is

invalid per se . . . .” (citation and internal quotation marks

omitted)).

Cases such as Rocky Mountain Farmers Union v. Corey,

730 F.3d 1070 (9th Cir. 2013), and Association des Eleveurs

de Canards et d’Oies du Quebec v. Harris, 729 F.3d 937 (9th

Cir. 2013), do not apply here. Unlike this case—which

involves regulation of wholly out-of-state conduct—Corey

and Harris concerned state laws that regulated in-state

conduct with allegedly significant out-of-state practical

effects. See Corey, 730 F.3d at 1080 (California’s imposition

of a low-carbon fuel standard, which applied to fuels

“consumed in California” (emphasis added)); Harris,

729 F.3d at 941–43 (California’s ban on the in-state sale of

certain types of foods, including foie gras made by the

plaintiffs).

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Nor do cases that concerned the validity of state-imposed

taxes, such as Quill Corp., 504 U.S. 298, and Complete Auto

Transit, Inc. v. Brady, 430 U.S. 274 (1977), control here. The

rules applied in those cases do not govern because the Act

does not impose a tax; it regulates conduct among private

parties. The Act requires the seller or the seller’s agent to pay

a royalty to the artist, a private party, not to the government. 

Cal. Civ. Code § 986(a). The Act even spells out additional

procedural requirements for agents of sellers: “the agent shall

withhold 5 percent of the amount of the sale, locate the artist

and pay the artist.” Id. § 986(a)(1). The agent must withhold

the royalty, undertake affirmative efforts to locate the artist

and, once found, pay the artist. Nothing of the sort is

required by an ordinary tax law, such as those at issue in

Quill Corp. and Complete Auto.

1

It matters not that, in some circumstances, the royalty

amount eventually may wind up, through a form of escheat,

in a special fund of the State’s coffers. If the seller or the

agent withholds the royalty, attempts unsuccessfully to locate

the artist, remits the royalty to the Arts Council after 90 days,

and if the Arts Council attempts unsuccessfully to locate the

artist for seven years, only then does “the right of the artist

terminate[],” and an amount equal to the royalty may be used

by the Arts Council to purchase fine art. Id. § 986(a)(5). 

That contingent consequence seven-and-a-quarter years after

1 For the same reasons, we reject the partial concurrence’s assertion that

the Act is “only a minor regulation of the proceeds.” Partial concurrence

at 17. The Act requires the seller or the seller’s agent affirmatively to look

for the artist and to pay the artist a royalty. If the seller or the seller’s

agent fails to locate the artist adequately, the artist may sue for damages

plus attorney fees. The Act’s regulation of the conduct of the seller and

the seller’s agent is neither “minor” nor a “regulation of the proceeds”

alone.

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SAM FRANCIS FOUND. V. CHRISTIES 11

the sale does not change the fact that the Act directly

regulates the conduct of the seller or the seller’s agent for a

transaction that occurs whollyoutside the State. Accordingly,

Healy governs. Under Healy, the Act’s clause regulating outof-state art sales where “the seller resides in California,” Cal.

Civ. Code § 986(a), and no other connection to California

need exist, violates the dormant Commerce Clause as an

impermissible regulation of wholly out-of-state conduct.

The partial concurrence urges us to impose an artificial

limitation—one never urged by any party—on that

straightforward holding by limiting it to agents and not

deciding the issue with respect to sellers. We decline for the

simple reason that the constitutional doctrine that we apply

operates without regard to that distinction. Under Healy, “the

Commerce Clause precludes the application of a state statute

to commerce that takes place wholly outside of the State’s

borders.” 491 U.S. at 336 (ellipsis and internal quotation

marks omitted). As we explain above, the Act’s regulation of

out-of-state sales runs afoul of that constitutional rule;

accordingly, we must strike that portion of the Act as an

impermissible regulation of wholly out-of-state commerce.

The scope of our holding is neither improper nor

inconsistent with the Supreme Court’s guidance. It is always

possible to narrow a holding. For example, we could limit

our holding today to agents from New York and reserve the

question with respect to agents from, say, Pennsylvania. Or

we could limit our holding to corporate agents and reserve the

question with respect to natural persons. But, where the

constitutional rule applies without regard to those facts,

issuing an artificially constrained opinion serves no purpose;

indeed, it would confuse the issue and lead to judicial

inefficiency. Contrary to the partial concurrence’s assertion,

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12 SAM FRANCIS FOUND. V. CHRISTIES

we neither “anticipate a question of constitutional law” nor

“formulate a rule of constitutional law.” United States v.

Raines, 362 U.S. 17, 21 (1960); partial concurrence at 19. 

We merely apply the simple, well established constitutional

rule summarized in Healy.

C. Severability

We next consider whether we may sever the invalid

clause—“the seller resides in California or”—from the

remainder of the Act. “Severability is . . . a matter of state

law.” Leavitt v. Jane L., 518 U.S. 137, 139 (1996) (per

curiam). In California, courts “look first to any severability

clause.” Cal. Redev. Ass’n v. Matosantos, 267 P.3d 580, 607

(Cal. 2011). Here, the California legislature enacted the

following provision:

If any provision of this section or the

application thereof to any person or

circumstance is held invalid for any reason,

such invalidity shall not affect any other

provisions or applications of this section

which can be effected, without the invalid

provision or application, and to this end the

provisions of this section are severable.

Cal. Civ. Code § 986(e). That broadly worded clause covers

the situation here. Accordingly, there is “a presumption in

favor of severance.” Cal. Redev. Ass’n, 267 P.3d at 607; see

also Santa Barbara Sch. Dist. v. Superior Court, 530 P.2d

605, 618 (Cal. 1975) (holding that “a severability clause

normally calls for sustaining the valid part of the enactment”

(internal quotation marks omitted)).

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SAM FRANCIS FOUND. V. CHRISTIES 13

We must also look to “three additional criteria: The

invalid provision must be grammatically, functionally, and

volitionally separable.” Cal. Redev. Ass’n, 267 P.3d at 607

(internal quotation marks omitted). The first two criteria are

met easily. After severance, the revised provision reads: 

“Whenever a work of fine art is sold and . . . the sale takes

place in California, the seller or the seller’s agent shall pay to

the artist of such work of fine art or to such artist’s agent 5

percent of the amount of such sale.” Cal. Civ. Code § 986(a)

(severed clause replaced with ellipsis). Grammatical

separability exists because “the invalid part[] can be removed

as a whole without affecting the wording or coherence of

what remains”; the revised provision above is perfectly

coherent.2 Cal. Redev. Ass’n, 267 P.3d at 607 (internal

quotation marks omitted). Similarly, there is functional

separability because “the remainder of the statute is complete

in itself.” Id. at 608 (internal quotation marks omitted). The

revised provision has a reduced scope, of course, because it

applies only to in-state sales; but it is complete, has coherent

functionality, and does not conflict with any of the Act’s

other provisions.

2

If we adopted the partial concurrence’s approach, the grammatical

separability test almost certainly would fail, and we would be required to

invalidate the Act in its entirety. The partial concurrence refutes that

conclusion by citing an earlier California Supreme Court case that

purportedly does not require grammatical separability. Partial

concurrence at 22–23 n.9 (citing People v. Kelly, 222 P.3d 186 (Cal.

2010)). Because the latest California Supreme Court precedent plainly

requires grammatical separability, though, we apply that test. See also

Vivid Entm’t, LLC v. Fielding, 774 F.3d 566, 574–75 (9th Cir. 2014)

(applying the grammatical separability test from California

Redevelopment Ass’n).

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14 SAM FRANCIS FOUND. V. CHRISTIES

The volitional separability test, although not facially

obvious, also is met. We conclude that “the remainder [of the

statute] would have been adopted by the legislative body had

[it] foreseen the partial invalidation of the statute.” Id.

(internal quotation marks omitted). Indeed, we think that the

legislature actually foresaw the partial invalidation of the

statute. In detailed letters to the bill’s legislative sponsor and

to the governor, while deliberations were underway and

before the Act’s passage, legislative counsel explained that

the law’s “application to sales which occur outside of the

State of California” would violate the Commerce Clause. 

But, counsel opined, the law “would be valid . . . as to sales

which occur in California.” Despite those warnings, the

enacted version of the law included regulation of both in-state

sales and out-of-state sales in easily separable clauses. 

Perhaps most tellingly, the enacted version also added the

severability clause, which expressly states the legislature’s

intent that “the provisions of this section are severable” if

“any provision of this section or the application thereof to any

person or circumstance is held invalid for any reason.” Cal.

Civ. Code § 986(e). We find no reason to deviate from the

“presumption in favor of severance.” Cal. Redev. Ass’n,

267 P.3d at 607.

D. Conclusion

California Civil Code section 986 regulates out-of-state

and in-state sales of fine art. We hold that the provision

regulating out-of-state sales violates the dormant Commerce

Clause but that the provision is severable from the remainder

of the Act. Because the district court held that the Act fell in

its entirety, the court did not reach Defendants’ alternative

arguments. We return this case to the three-judge panel for

its consideration of the remaining issues. We leave to the

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SAM FRANCIS FOUND. V. CHRISTIES 15

panel’s discretion the decision whether to address those issues

on the merits or to remand them for the district court’s

determination in the first instance.

REMANDED to the three-judge panel.

REINHARDT, Circuit Judge, concurring in part and

dissenting in part.

In 1976, California passed the California Resale Royalty

Act (the Act) — a law that, for the last 39 years, has secured

invaluable benefits for talented artists. The Act requires that

when a fine art sale takes place in California or the seller of

the art (sometimes referred to in this opinion as the owner)

resides in California, the seller or the seller’s agent must pay

a five-percent royalty to the artist. Cal. Civ. Code § 986(a).1

Under the Act, when a wealthy collector of modern art

purchases for several million dollars a work of art that the

prior owner bought for a minimal amount from a thenunknown young artist, the now-well-known artist will for the

first time receive a measure of reasonable compensation for

the art that he created.2

1 The statute contains various exceptions. See Cal. Civ. Code § 986(b). 

It does not apply, for example, to resales after the death of the artist, id.

§ 986(b)(3), unless the artist died after January 1, 1983, in which case “the

rights and duties created under [the Act] shall inure to his or her heirs,

legatees, or personal representative, until the 20th anniversary ofthe death

of the artist,” id. § 986(a)(7).

2 Of course, the compensation the artist receives is by no means

excessive. If a painting sells for $1 million, the artist does not become a

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16 SAM FRANCIS FOUND. V. CHRISTIES

In the case before us, the defendants who challenge the

statute are not the seller, the buyer, or even the artist, but two

New York auction houses who under the Act are the sellers’

agents.3 The Act imposes certain duties on them with respect

to the disbursement of the royalty payments. The auction

houses argue that because the Act imposes those duties in

connection with art sales that take place outside of California,

it violates the dormant Commerce Clause.

4

I agree that, for

better or worse, the majority is compelled to conclude that,

under the Supreme Court’s dormant Commerce Clause

jurisprudence, the out-of-state regulation of out-of-state

entities is unconstitutional and that, as a result, the auctionhouse defendants cannot be subjected to the obligations

required of them in connection with sales that take place

outside of California. That, however, has little to do with the

fundamental purpose and operation of the Act, or with the

majority’s unwarranted extension of the dormant Commerce

Clause to declare a substantial portion of the Act

unconstitutional — specifically, the portion that obligates

Californians to pay to the creators of the work of art a small

part of the proceeds from the fine art that they sell at a profit

regardless of where the actual sale takes place.

millionaire; he receives $50,000, while the individual who was wise

enough to purchase the painting originally retains $950,000.

3 The third defendant, eBay, is not an “agent” within the meaning of the

Act, and is therefore not subject to the Act. Cf. Cal. Att’y Gen. Op. No.

02-111 (2003) (“eBay does not act as an ‘agent’ for either the seller or

buyer during the auction bidding process.” (citingCal Civ. Code § 2295)).

4 The defendant auction houses in this case are Christie’s, Inc., and

Sotheby’s, Inc.

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SAM FRANCIS FOUND. V. CHRISTIES 17

It is unfortunate that the majority goes far beyond

deciding the constitutionality of the Act as applied to the outof-state auction-house defendants. It decides a question

entirely unnecessary to the resolution of this case when it

holds the Act unconstitutional as applied to California art

owners who ultimately receive proceeds from out-of-state

sales and are then responsible for the payments to the artists. 

The majority does so despite the fact that no California art

owners are a party to the case, and despite the fact that we

could and should affirm the district court’s grant of the

auction-house defendants’ motion to dismiss on far narrower

constitutional grounds.

To make matters worse, the majority not only decides an

unnecessary, highly disputable question regarding California

art owners, but it decides it incorrectly. Indeed, I strongly

disagree with the majority that Californians who sell their art

by means of out-of-state transactions may not be required by

California law to remit a portion of the proceeds they

ultimately receive to the artists who created the works of art. 

If I found it necessary or even permissible to reach this issue,

I would hold that the Act as applied to California art owners

is not an extraterritorial regulation. In fact, the California

statute represents only a minor regulation of the proceeds

received from art sales by a small number of wealthy

Californians.5It in no way regulates the actual extra5 The majority takes exception to my characterization of the Act as

constituting only a “minor regulation of the proceeds.” See Majority Op.

at 10 n.1. Although I disagree with the majority’s view that requiring

wealthy art owners to remit a five-percent royalty payment fromprofitable

art sales to the artists of the works sold is more than “minor,” that

disagreement is entirely immaterial to the legal issue before us: whether

the Act, as-applied to California art owners, regulates out-of-state

transactions and thus violates the dormant Commerce Clause.

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territorial sales. Indeed, it in no way affects such sales, but

only imposes on Californians who dispose of their art for

profit6an obligation to remit a small part of the proceeds to

a third party after the transaction has been completed. 

Moreover, unlike in the Court’s extraterritorial regulation

cases under the dormant Commerce Clause, the Act does not

regulate the price or terms of sales in other states, nor require

Californians whose art is sold out-of-state, or the buyers of

such art, to seek regulatory approval in California before the

institution or completion of such sales. For the above

reasons, I dissent from the majority opinion to the extent that

it holds the Act unconstitutional as applied to the actions of

a California owner whose work of art is sold out-of-state.

As to the only question it is necessary for the court to

answer — the application of the Act to out-of-state “agents”

of California art sellers whose business is to sell art whether

its owners are in-state or out-of-state residents — this case

presents an entirely different legal question. That question is

whether under the dormant Commerce Clause a California

law may impose duties on out-of-state business entities that

engage in out-of-state transactions. The defendant auction

houses that sell the art work of Californians and the residents

of numerous other states are New York entities engaged in

the business of selling art primarily in New York. That the

defendants are called agents of the owners of the art work is,

for purposes of the dormant Commerce Clause, of no legal

significance. The Supreme Court’s current case law requires

us to hold unconstitutional the requirement by state laws that

out-of-state entities take or refrain from taking actions outside

6 The Act does not apply “[t]o the resale of the work of fine art for a

gross sales price less than the purchase price paid by the seller.” Cal. Civ.

Code § 986(b)(4).

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of the regulating state. The California statute does just that. 

Therefore, although I have serious doubts that this aspect of

the Supreme Court’s dormant Commerce Clause

jurisprudence is wise, I reluctantly concur in the majority’s

judgment that the Act is not constitutional as applied to the

imposition of obligations on out-of-state agents (i.e.,

professional sellers of art, including the auction houses) of

California art owners with respect to sales that are conducted

outside of California.

I. California Art Owners

A. The Majority’s Unnecessary and Improper

Decision

The Supreme Court has made clear that we are “bound by

two rules . . . : one, never to anticipate a question of

constitutional law in advance of the necessity of deciding it;

the other, never to formulate a rule of constitutional law

broader than is required by the precise facts to which it is to

be applied.” United States v. Raines, 362 U.S. 17, 21 (1960)

(citation and internal quotation marks omitted).7 By deciding

7

See also New York v. Ferber, 458 U.S. 747, 768 (1982) (“By focusing

on the factual situation before us, and similar cases necessary for

development of a constitutional rule, we face ‘flesh-and-blood’ legal

problems with data ‘relevant and adequate to an informed judgment.’”

(footnotes omitted)); Broadrick v. Oklahoma, 413 U.S. 601, 610–11

(1973) (“[U]nder our constitutional system courts are not roving

commissions assigned to pass judgment on the validity of the Nation’s

laws. Constitutional judgments . . . are justified only out of the necessity

of adjudicating rights in particular cases between the litigants brought

before the Court. . . .” (citations omitted)).

The above principles, of course, do not apply to the First Amendment

overbreadth doctrine, under which the Supreme Court has “allowed

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a constitutional question entirely unnecessary to the

resolution of this case, the majority flagrantly violates both of

these rules.

We have before us two lawsuits in which the defendants

are out-of-state auction houses that acted as agents in New

York for California art owners. They have moved to dismiss

lawsuits filed against them as a result of their alleged

noncompliance with the Act. We may affirm the district

court’s grant of the defendants’ motions to dismiss by simply

holding that the Act is unconstitutional as applied to the outof-state agents. We need do no more, and under Raines, we

therefore must do no more. By striking down not only the

Act’s out-of-state applications to the two out-of-state agents,

but also its applications to the in-state actions of California

art owners who receive money from out-of-state sales, the

majority opinion goes far beyond what is necessary to decide

the case. Indeed, it decides a constitutional question

regarding the application of the dormant Commerce Clause

to California residents that is both highly disputable and

wholly unprecedented. In doing so, the majority formulates

a constitutional rule far broader than is necessary to decide

this case, in direct contravention of Raines.

The justification the majority puts forth for not narrowing

its constitutional decision is plainly insufficient. The

majority “decline[s]” to narrow its decision “for the simple

reason that the constitutional doctrine that we apply operates

without regard to” the distinction between out-of-state agents

and in-state sellers. Majority Op. at 11. Here, the majority

persons to attack overly broad statutes even though the conduct of the

person making the attack is clearly unprotected and could be proscribed

by a law drawn with the requisite specificity.” Ferber, 458 U.S. at 769.

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“simply” assumes the answer to the fundamental question in

this case — whether the imposition of obligations on out-ofstate agents conducting business outside of the regulating

state is constitutionally indistinguishable from that state’s

regulation of monetary proceeds received by its own

residents. However one may ultimately resolve that question,

it is at least clear that it is a highly controversial one on which

we lack clear precedent. When such a question exists, but it

is not necessary to decide it in the case before us, Raines is

clear: we must not decide it.8

There is no other justification for the majority’s decision

to disregard Supreme Court precedent and decide an

unnecessary constitutional issue. That the defendants have

asked us to decide a broader question that does not affect

them is no excuse for such an unnecessary constitutional

holding. Nor is the majority’s approach justified by the fact

that the district court relied on broader reasoning than is

necessary to grant the motions to dismiss. “We may affirm

a district court’s judgment on any ground supported by the

record, whether or not the decision of the district court relied

on the same grounds or reasoning we adopt.” Atel Financial

8

In contrast to the distinction between out-of-state agents and in-state

sellers, the hypothetical distinctions offered by the majority — between

New York agents and Pennsylvania agents, and between corporate agents

and natural persons — obviously do not present highly controversial

questions relevant to this case; indeed, they do not present any questions

relevant to this case, and thus would provide no basis for narrowing the

decision. The majority’s hypothetical distinctions, unlike the differences

that lie at the heart of the constitutional question that divides us, are, for

all purposes, as irrelevant as the brown-cow / spotted-cow distinction

about which most first-year law students learn during their first week’s

class attendance, even at the law school that the majority opinion’s author

and I attended.

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Corp. v. Quaker Coal Co., 321 F.3d 924, 926 (9th Cir. 2003). 

The majority has simply decided an unnecessary

constitutional question without any need or cause to do so, in

blatant disregard of the Supreme Court’s instructions to the

contrary.

9

9 The majority is incorrect that the limited approach that Rainesrequires

would, if applied here, compel the invalidation of the entire Act. See

Majority Op. at 13 n.2. To the contrary, under California law, were we to

hold the statute unconstitutional as applied to the defendants “the

appropriate remedy . . . is to disapprove, or disallow, only the

unconstitutional application of[theAct], thereby preserving any residuary

constitutional application with regard to the other provisions ofthe [Act].” 

People v. Kelly, 222 P.3d 186, 213 (Cal. 2010). The Act’s severability

clause expressly provides that “[i]f any . . . application [of the Act] to any

person or circumstance is held invalid for any reason, such invalidity shall

not affect any other provisions or applications of [the Act] which can be

effected, without the invalid . . . application . . . .” Cal. Civ. Code

§ 986(e) (emphasis added). “A severability clause, although not

conclusive, ‘normally calls for sustaining the valid part of the enactment

. . . . The final determination depends on whether ‘the remainder . . . is

complete in itself and would have been adopted by the legislative body

had the latter foreseen the partial invalidation of the statute.’” Walnut

Creek Manor v. Fair Emp’t & Hous. Comm’n, 814 P.2d 704, 717 (Cal.

1991) (citation omitted) (internal quotation marks omitted). These

requirements are clearly met in this case, as all of the duties imposed by

the Act on agents are imposed in the alternative on California art owners. 

Indeed, after holding the Act unconstitutional as applied to the defendants,

all of the duties imposed by the Act in connection with out-of-state sales

would be fully “effected,” as they would simply fall on California art

owners alone, and all could be performed in California following the

receipt of the proceeds by those owners. As to what the legislature would

have done, even the majority acknowledges that it would have adopted the

Act regardless of its partial invalidation.

The majority also protests that the application of the Raines

requirement would fail the grammatical separabilitytest. The grammatical

separability requirement exists, however, only when we sever invalid

portions of a statute, as the majority mistakenly does. See Cal. Redev.

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B. The Act Is Not Extraterritorial As Applied to

Californians

Although the majority should not have reached the issue

whether the Act is constitutional as applied to the conduct of

California art owners, it compounded its error by deciding it

incorrectly. The Supreme Court has explained that “the

‘Commerce Clause . . . precludes the application of a state

statute to commerce that takes place wholly outside of the

State’s borders, whether or not the commerce has effects

within the state.’” Healy v. Beer Inst., 491 U.S. 324, 336

(1989) (citation omitted). From this principle, the majority

concludes that the Act must fall as to Californians who

arrange for the sale of their art in New York or other states

outside of California. Its rationale is that requiring

Californians to give the artists a portion of the proceeds they

receive from out-of-state sales of the art they created “facially

regulates a commercial transaction that ‘takes place wholly

outside of the State’s borders.’” Majority Op. at 9 (quoting

Healy, 491 U.S. at 336). Contrary to the majority, were we

permitted to resolve this question I would hold that the Act’s

requirement that California art owners remit to the original

Assn. v. Matosantos, 267 P.3d 580, 607 (Cal. 2011) (applying that

requirement when determining “whether the invalid portions of a statute

can be severed” (emphasis added)). In contrast, the limited approach that

is required here would not invalidate any portions of the Act, but would

rather hold only that its application in particular circumstances is

unconstitutional, as the court did in Kelly and Walnut Creek. No

grammatical separability requirement applies in California when a court

holds a statute unconstitutional as applied in particular circumstances, as

no words of the Act must be stricken in doing so. See Walnut Creek,

814 P.2d at 716. Indeed, neither Kelly nor Walnut Creek applied the

grammatical separability requirement, despite the fact that such

requirement preceded those cases in California law. See Calfarm Ins. Co.

v. Deukmejian, 771 P.2d 1247, 1256 (Cal. 1989).

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artist a portion of the proceeds they receive from art sales is

not in any respect a “regulat[ion of] a commercial

transaction.” In my view, what the Act regulates is the use of

the money that Californians ultimately receive from the

transaction — not the transaction itself, and certainly not any

out-of-state transaction.

Nowhere in its opinion does the majority explain how

requiring Californians to remit a small percentage of the

proceeds they ultimately receive from an out-of-state sale of

art constitutes “regulat[ing] a commercial transaction,” let

alone a “commercial transaction that ‘takes place wholly

outside of the state’s borders.’” In fact, the Act in no way

regulates the sale.10 With respect to Californians whose art is

sold out of state, the Act operates only after the transaction is

completed, just as it does in the case of art sold in-state. In

both cases, the Act deals solely with the income received by

Californians — a clearly permissible subject of California’s

regulatory authority. The Act tells Californians only that

when they receive profits from a sale of fine art, they must

comply with the obligations the law places on them. As

applied to Californians, the Act is plainly a regulation of

Californians’ in-state obligations — not a regulation of outof-state entities, and not a regulation of out-of-state

transactions. In sum, the Act is simply a regulation of the

proceeds that Californians have received from the sale of art,

regardless of where the sale takes place.

10 In this section, I assume that the obligations placed on out-of-state

agents by the Act are stricken, and all of the proceeds from the sale are

transmitted to the California seller. Under this assumption, it is the

Californian and not the agent who has the obligation to remit a small

royalty payment to the artist.

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My conclusion is further supported by the Court’s cases

that strike down laws as having an impermissible

extraterritorial reach. In all such cases, the laws at issue have

had a direct effect on out-of-state commercial transactions by

regulating the price or terms of such transactions, see, e.g.,

Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511 (1935), or by

otherwise requiring “an out-of-state merchant to seek

regulatory approval in one State before undertaking a

transaction in another,” Healy, 491 U.S. at 337 (citation

omitted); Brown-Forman Distillers Corp. v. New York State

Liquor Auth., 476 U.S. 573 (1986); Edgar v. MITE Corp.,

457 U.S. 624, 641–43 (1982) (plurality opinion). The Act, as

applied to California art owners, is far different. It does not

in any respect affect out-of-state actors or their transactions. 

Indeed, nothing in the Act dictates the price that a California

art seller may charge when selling art outside of the state, and

California does not impose any preconditions whatsoever on

sales by Californians who wish to dispose of their art out-ofstate. The Court’s cases striking down state laws as

extraterritorial regulations simply do not apply.

If we were permitted to reach this issue, I would uphold

the Act as applied to Californians who sell their art in-state or

out-of-state, in this country or elsewhere. I would hold that

the Act’s requirement that Californians pay to the artists a

portion of the proceeds they receive as a result of the sale of

their art does not violate the dormant Commerce Clause.

II. Out-of-State Agents of California Art Owners

The constitutionality of the Act as applied to out-of-state

agents of California art sellers presents a far different

constitutional question. In an attempt to make the Act more

effective, the legislature provided that whenever fine art is

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sold by an agent of a Californian — even if the agent is not a

Californian, and even if the sale takes place outside of

California — “the agent shall withhold 5 percent of the

amount of the sale, locate the artist and pay the artist.” Cal.

Civ. Code § 986(a)(1). The agents that the law contemplates

are primarily major auction houses, such as defendants

Christie’s and Sotheby’s, which, along with major auction

houses in other countries, have the ability and experience to

obtain the widest buyer pool and the highest prices for the

sale of fine art. They also have the resources necessary to

locate artists all over the world and to comply with the terms

of the Act by remitting to them a portion of the proceeds. By

relying on major auction houses to locate and pay artists,

however, the Act imposes obligations on out-of-state entities

with respect to transactions that occur outside of California. 

That obligation is a part of the transaction they conduct, and

their role in that transaction is not completed until they have

disbursed a portion of the funds they have received to the

artist when he can be located.

Unlike the obligations imposed bythe Act onCalifornians

after they receive monetary proceeds from the sale of their art

regardless of where it is sold, it cannot be said that the Act’s

imposition of special obligations on out-of-state agents for

out-of-state transactions represents a regulation solely of the

actions of the residents of the regulating state. Nor can it be

said that as applied to out-of-state agents this case is a

“practical effects” case — i.e., a case concerning an intrastate

regulation with possibly significant practical effects on outof-state commerce. Majority Op. at 9. Instead, as applied to

the actions of out-of-state agents in conducting a sale of art

outside of California, the Act directly applies “to commerce

that takes place wholly outside of the State’s borders,” and is

therefore per se invalid under the Court’s dormant Commerce

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Clause jurisprudence. Healy, 491 U.S. at 336 (citation

omitted); see also Valley Bank v. Plus System, Inc., 914 F.2d

1186, 1190 (9th Cir. 1990).

I have serious doubts that such a per se rule is wise as a

matter of policy or that it is within the purview of the

dormant Commerce Clause as properlyframed. The Supreme

Court has explained that the “crucial inquiry” under the

dormant Commerce Clause is whether the law at issue is “a

protectionist measure, or whether it can fairly be viewed as a

law directed to legitimate local concerns.” City of

Philadelphia v. New Jersey, 437 U.S. 617, 624 (1978); see

also McBurney, 133 S. Ct. at 1719 (“Our dormant Commerce

Clause jurisprudence . . . is driven by a concern about

‘economic protectionism — that is, regulatory measures

designed to benefit in-state economic interests by burdening

out-of-state competitors.’” (citation omitted)). In its

extraterritoriality cases, however, the Court neglects this

central concern of the dormant Commerce Clause. Indeed,

the Court’s requirement that we invalidate all state laws that

apply extraterritorially “has nothing to do with favoritism. 

Even state laws that neither discriminate against out-of-state

interests nor disproportionately burden interstate commerce

may run afoul of extraterritoriality . . . .” American Beverage

Ass’n v. Snyder, 735 F.3d 362, 378 (6th Cir. 2013) (Sutton, J.,

concurring).

This case is one such example. The Act imposes

obligations on out-of-state entities not to serve any

protectionist purpose, but rather to make the law’s valid

requirement that Californians remit a portion of the proceeds

they receive from art sales more effective. It does not

provide any incentive for auction houses to sell the art of

Californians relative to other states’ residents, nor does it

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impose more stringent regulations on out-of-state auction

houses than it does on California auction houses. The Act, in

short, is simply not the type of law to which the Court’s

dormant Commerce Clause jurisprudence is primarily aimed;

it in no way provides an advantage to California residents or

discriminates against out-of-state businesses, and it serves a

clearly legitimate local goal — strengthening an in-state

regulation benefitting the arts.

Circuit courts in recent years have been compelled by the

Court’s extraterritoriality doctrine to invalidate other state

laws that serve no protectionist purpose whatsoever and that

further clearly legitimate state goals, for the sole reason that

they apply to out-of-state conduct directly. Michigan, for

example, promoted recycling byrequiring consumers for each

beverage container purchased to pay a ten-cent deposit that is

redeemable upon returning an empty container. Id. at 366

(majority opinion). In order to prevent the fraudulent

redemption of ten cents for a container not purchased in

Michigan, the state passed a law requiring that containers sold

in Michigan bear a unique mark, and that the unique mark

used on Michigan containers not be used on containers sold

in other states. Id. at 367. Although the Sixth Circuit

concluded that the law does not discriminate against interstate

commerce in any manner, id. at 370–73, it held that the law’s

unique-mark requirement was extraterritorial in violation of

the dormant Commerce Clause because it regulated the marks

on containers sold in other states, id. at 373–76. Like its Big

Ten rival (though surely not its primary one) to the north,

Indiana also had a laudable goal when it sought to protect its

residents from predatory lending. It did so by subjecting all

loan companies that advertise in Indiana and enter into a loan

transaction with a resident of Indiana — irrespective of

whether the loan company operates in Indiana — to Indiana

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lending regulations. Midwest Title Loans, Inc. v. Mills,

593 F.3d 660, 662–63 (7th Cir. 2010). Despite the fact that

this law, like the Michigan unique-mark law, did not

discriminate against or disadvantage out-of-state companies,

id. at 665, the Seventh Circuit —correctly under the Supreme

Court’s cases — held that the law’s application to an Illinois

loan company violated the dormant Commerce Clause, id. at

665–69.

It is unfortunate that Supreme Court jurisprudence

compels our Court in this case, and has compelled our fellow

circuit courts in others, to invalidate the extraterritorial

application of such innocuous and beneficial state laws. I

suspect that, in our increasingly interconnected country, we

will continue to see efforts from states to further legitimate

local goals even though, in some respects, they may directly

affect conduct outside of their borders. Some efforts may

well intrude on the autonomy of other states, and federal

courts may be forced to intercede. I have serious doubts,

however, that we should invalidate every state law that

applies to out-of-state conduct. In short, I would hope that,

given the numerous changes in commerce that have recently

occurred, the Supreme Court would reconsider whether the

per se rule it articulated in Healy remains a necessary aspect

of our dormant Commerce Clause jurisprudence.

In the meantime, I regret that my colleagues in the

majority have extended the extraterritoriality doctrine far

beyond where it has ever previously been invoked by

invalidating the California Resale Royalty Act not only as it

applies to out-of-state agents who conduct out-of-state

auctions or sales, but also as to its provisions that require

Californians to pay a royalty to artists following a profitable

fine art sale regardless of the site of the sale.

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BERZON, Circuit Judge, with whom Circuit Judge

PREGERSON joins, concurring in part.

I concur in the majority opinion insofar as it holds the

California Resale Royalty Act, Cal. Civ. Code § 986 (“the

Act”), unconstitutional as applied to out-of-state art sales

conducted by out-of-state agents. As the Act so applied

“directly controls commerce occurring wholly outside the

boundaries” of California, it violates the dormant Commerce

Clause. Healy v. Beer Inst., Inc., 491 U.S. 324, 336 (1989);

see also Valley Bank of Nev. v. Plus Sys., Inc., 914 F.2d 1186,

1189–90 (9th Cir. 1990).

But I would stop there. The majority opinion, in my

view, unnecessarily decides that the Act is unconstitutional as

applied to out-of-state art sales conducted by California

residents as well. The partial dissent also reaches this issue,

arriving at the opposite conclusion. Yet none of the parties

before us are California sellers, nor does the record contain

any evidence pertaining to out-of-state sales by California

residents. Furthermore, the Act imposes somewhat different

obligations on California sellers and sellers’ agents. 

Compare Cal. Civ. Code § 986(a) with id. § 986(a)(1).

That the Act’s requirement that out-of-state agents

“withhold 5 percent of the amount of [an out-of-state] sale,

locate the artist and pay the artist,” id., directly regulates

extraterritorial commercial transactions in violation of the

Supreme Court’s dormant Commerce Clause jurisprudence is

clear. It is not so clear to me, however, that the royalty

obligations the Act imposes on California sellers similarly

regulate commercial transactions, as opposed to the post-sale

income of Californian residents. But we need not decide the

latter question. Indeed, the disagreement between the

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majority opinion and the partial dissent as to whether the Act

“directly regulates the conduct of the seller,” Majority Op. at

10–11, or simply “regulat[es] . . . the proceeds that

Californians have received from the sale of art,” Partial

Dissent at 24, illustrates why we should not, in the absence of

sufficient information concerning the Act’s operation on outof-state sales by California residents, determine the

constitutionality of the Act more generally.

Consequently, I would hold the Act unconstitutional as

applied to out-of-state art sales by out-of-state agents, such as

the New York auction houses party to this case, and go no

further.

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