February 07, 2012 3:10pm PT by Eriq Gardner
Art Collector Dean Valentine Pays to Settle High-Profile Royalties Lawsuit (Exclusive)
In a development that could shake the art world, trend-setting collector Dean Valentine has agreed to pay famed painter Mark Grotjahn to end a lawsuit over enforcement of the California "resale royalty" law.
According to the terms of the settlement, Valentine will fork over 5 percent of his proceeds for selling Grotjahn artwork, plus he will pay some of the artist's attorney fees. The deal comes a few weeks before a jury trial was scheduled to begin in this closely-watched case and as other big-name artists fight for the right to collect royalties from art collectors and auction houses.
The idea that artists who become famous deserve the right to share in the spoils of resold art has been around since at least 19th century Europe, when artists were given a "droit de suite" to collect a fee from art sellers. But U.S. copyright law provides no such provision for American artists. Starting in the 1970s, artist Robert Rauschenberg started agitating for such a right upon word that one of his paintings, originally sold for $900, had gone for $85,000 at a Sotheby's auction.
In 1976, California granted Rauschenberg's wish and became the only state in the U.S. to have a law that entitled artists to claim 5 percent of resale royalties on any work sold for more than $1,000, so long as the seller resides or the transaction happens in California. For more than three decades, however, few artists paid much attention to the California Resale Royalty Act.
That's now changing.
Last year, many big artists including Chuck Close, Laddie John Dill and the estate of the sculptor Robert Graham joined together in a major class action lawsuit against Sotheby's, Christie's and online auction giant eBay, alleging they were owed significant money under the California Resale Royalty Act.
As the defendants in this ongoing class action now raise objections over the constitutionality of California's law, attention has turned to Grotjahn's lawsuit against Valentine, which was expected to bring an early test of the viability of artists' claims.
Grotjahn's lawsuit was first filed in state court, and then removed to the federal level, where a judge declined to get involved based on Valentine's own constitutional arguments. The California Resale Royalty Act, wrote the judge, "does not infringe on the exclusive rights delineated in the Copyright Act."
Sent back to LA Superior Court, Valentine's attorneys made a new attempt to dismiss the case by arguing that the work was sold by an "agent" who resided outside of California. Grotjahn's lawyers were aghast at this argument, saying it would "gut" California's law, which they argued was "never intended to be so easily circumvented."
Last month, judge Michael Solner held a hearing about the issue and dismissed Valentine's arguments without any written analysis or discussion. The development became the final straw in this battle between famed collector and famed artist. Later that afternoon, the parties gathered for a court-ordered mediation session. Valentine was prepared to end his defense.
"My client just decided to settle after doing the math and deciding it was simpler to pay," says Valentine's attorney, Joshua Kaufman at Venable LLP.
Kaufman added that Valentine was most concerned about excessive legal fees being demanded by Grotjahn's side, and that when the artist proposed a more reasonable legal fee figure, Valentine decided to take it. Since the judge had already foreclosed the "agency" argument, there were few legal weapons at the collector's disposal besides re-opening the "constitutionality" defense before a state judge, and then making an appeal.
To do so would have been expensive, with tolling legal fees, so Valentine decided to finally give in on the 5 percent royalty. The parties haven't revealed the precise figure in the settlement yet, but reportedly, the biggest sale in dispute was Grotjahn's untitled oil on linen painting from 2005 known as "Blue Face Grotjahn," which Valentine sold for $1.2 million.
Grotjahn's attorney, Lonnie Blanchard, says that this is a great day for artists hoping to get their fair share of resold artwork. "We believe in this law," he says. "Artists struggle just like recording artists, actors and so many creative people. These mechanisms have been created to reward their efforts, so you got to believe in it. That’s what my client and law firm did. We think we did some good."
Blanchard also believes that the outcome of this lawsuit could foreshadow what's going to happen in the big class action brought by major names in the art world. In January, Sotheby's, Christie's and eBay made an argument that California's Royalties Resale Act violates the U.S. Constitution by attempting to regulate interstate commerce.
Blanchard notes that U.S. District Court Judge Jacqueline H. Nguyen is the same one who presided over his case when it was briefly at the federal circuit. "To the extent that it is in front of same judge, I think it would be strange if the judge didn’t rule the same way," says Blanchard.
But don't count out the auction house powerhouses just yet.
Kaufman still believes in the merits of his arguments challenging the constitutionality of the law and that sales agents should be responsible for paying the royalty. "I still thing we were correct in the analysis," he says. "These will make appealable issues," he says.