Opinion
02 Civ. 1562 (GEL)
November 13, 2002
Dean T. Cho, Solomon, Zauderer, Ellenhorn. Frischer Sharp, New York, NY, for Plaintiff MD Sportswear, Inc.
Michael D. Pantalony, Gursky Ederer, LLP, New York, N.Y. (Louis S. Ederer, Neil S. Goldstein. on the brief), for Defendants PRL U.S.A. Holdings, Inc., Nike, Inc., adidas-Salomon AG. adidas International BV, and adidas America, Inc.
Louise Moed, Assistant Corporation Counsel, New York, N.Y. (Michael A. Cardozo, Corporation Counsel of the City of New York, Gabriel Taussig, Dana Biberman, on the brief), for Defendants City of New York, New York City Police Department, Property Clerk Division of the New York City Police Department, Robert T. Johnson, Bronx District Attorney, and David M. Hoovler.
OPINION AND ORDER
This action arises from the Bronx District Attorney's effort to crack down on traffickers in counterfeit clothing. MD Sportswear, Inc. ("plaintiff' or "MD"), was the target of one such investigation carried out by the District Attorney's office and the New York City Police Department (collectively, the "City defendants"), with the assistance of a group of designer clothing manufacturers (collectively, the "designer defendants"). MD asserts four claims against both sets of defendants, for violation of its constitutional rights, conversion, and replevin, all based on the joint investigation and the subsequent seizure and destruction of $2,555,089 worth of MD's merchandise. The designer defendants now move to dismiss all four claims as to them. For the reasons discussed below, the motion will be for the most part denied.
BACKGROUND
MD alleges the following facts. In 1999, the Bronx District Attorney ("DA") began a criminal investigation into possible sales of counterfeit branded clothing. (Compl. ¶ 25.) The investigation was funded by the designer defendants, and the DA relied on the representatives of the designers to determine that the clothing at issue was in fact counterfeit. (Id. ¶¶ 25, 32.) It was the designers' practice to institute federal trademark actions against alleged counterfeiters discovered in the course of the investigations. (Id. ¶ 45.)
Between January and April 2000, MD sold four orders of clothing to an undercover agent, who turned the merchandise over to the designer defendants for examination. (Id. ¶ 32.) The merchandise had been represented to be "cut-label" clothing — irregular items of brand-name clothing, sold with the manufacturer's label cut in half, so that they are not mistaken for first-quality goods. (Compl. ¶ 17.) Sales of such clothing are entirely legal. (Id. ¶ 20.) The designers. however, concluded that the merchandise was actually counterfeit (id. ¶ 32). Based on this determination, the Bronx District Attorney instituted a criminal prosecution against Dalia Wallach, MD's sole officer, for trademark counterfeiting. (Id. ¶ 34.)
In June 2000, the police also seized $2,555,089 worth of additional, allegedly counterfeit, apparel from MD's premises. (Id. ¶¶ 36, 39.) Although New York state law required the DA and the police to provide MD with vouchers for the seized property. New York City Rules tit. 38 § 12-32 (2002), MD did not receive any vouchers until January 2001, six months after the raid. (Compl. ¶¶ 37-38.) Subsequently, the DA instituted a civil action against MD to forfeit the seized apparel, alleging that it represented the proceeds of a crime. (Id. ¶ 42.) The designer defendants also added MD and Wallach as defendants in their federal trademark action against assorted retailers and distributors,Tommy Hilfiger Licensing, Inc. v. Bradlees, Inc., No. 99 Civ. 4677 (WK), based on the merchandise sold to the undercover officer. Compl. ¶ 43.) In July 2000, shortly after the seizure, Assistant District Attorney David Hoovler informed MD and Wallach that both the criminal prosecution and the civil forfeiture action had been based on the designer defendants' determination that the merchandise was counterfeit and that the DA would not seek an independent evaluation of the seized apparel. (Id. ¶ 54.)
In November 2000, after MD submitted expert evidence that its merchandise was genuine and the designer defendants' assertions of counterfeiting were unreliable, the DA dropped both the criminal prosecution and the civil forfeiture action. (Id. ¶¶ 50-52.) Neither Wallach nor MD made any admission of guilt or paid any fine as part of the settlement of the actions. (Id. ¶ 52 Ex. H.)
During and after the pendency of the two Bronx actions, MD repeatedly requested that the seized apparel not be destroyed. (Id. ¶ 55.) The DA indicated that, since the designer defendants maintained that the apparel was counterfeit, it would be destroyed, notwithstanding the favorable termination of both actions against MD and Wallach. (Id. ¶ 55(E)-(H).) MD subsequently appealed to the designer defendants to intervene, arguing that the seized apparel constituted material evidence in the ongoing federal civil action. (Id. ¶ 55(J).) In January 2001, the designer defendants refused to contact the DA's office in MD's behalf. (Id. ¶ 55(K).) MD learned in February 2001 that the Police Department had destroyed the seized apparel in December 2000, without prior notice to MD. (Id. ¶ 57.)
Meanwhile, the designer defendants' civil trademark action was moving forward before Judge Knapp, and in October 2001, MD and Wallach sought leave to file an amended answer to assert counterclaims against the designers based on the destruction of the seized apparel, and to join the City defendants as parties. Because the pending federal action involved the merchandise that MD sold to the undercover officer, rather than the merchandise later seized in the raid, Judge Knapp found that the counterclaims were not compulsory, and denied leave to amend the answer.Tommy Hilfiger Licensing, Inc. v. Bradlees, Inc., No. 99 Civ. 4677 (WK), 2001 WL 1702151, at *7 (S.D.N.Y. Jan. 11, 2001). MD then filed the instant complaint.
Judge Knapp did not address the merits of the claims, ruling only that they raise issues not implicated in the underlying action. None of the parties argues that his decision creates any collateral estoppel issues.
MD asserts two claims under 42 U.S.C. § 1983 against all of the defendants, alleging that they deprived MD of its property without due process by using unconstitutional municipal seizure procedures, and by failing to observe those procedural safeguards that were provided by the municipal rules. MD also makes claims for conversion and replevin. The designer defendants have moved to dismiss the complaint as to them under Rule 12(b)(6), arguing that the § 1983 claims fail as to them for lack of state action, and that the conversion and replevin claims fail because the designer defendants never possessed any of the merchandise in question.
DISCUSSION
In assessing a motion to dismiss under Rule 12(b)(6) the Court must accept the allegations of the complaint as true. Jackson Nat'l Life Ins. v. Merrill Lynch, 32 F.3d 697, 699-700 (2d Cir. 1994). Thus, the question here is not whether the allegations are in fact true, or whether the defendants are liable for any misconduct, but simply whether the allegations, if true, state a claim for relief, that is, whether "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Thomas v. City of New York, 143 F.3d 31, 36 (2d Cir. 1998) (internal citations omitted.
I. Section 1983: State Action
Section 1983 reaches only deprivations of federal rights are attributable to state action, and parties that "may fairly be said" to be state actors. Lugar v. Edmonson Oil Co., 457 U.S. 922 (1982). The designer defendants' principal argument is that, since they are private parties, MD must allege that they acted pursuant to a conspiracy with the City defendants in order to establish that the designers acted "under color of state law." 42 U.S.C. § 1983 (2000). The argument is unpersuasive.
In Lugar, the Supreme Court stated a "two-part approach" to the question whether "the conduct allegedly causing the deprivation of a federal right [is] fairly attributable to the State." 457 U.S. at 937. First, the plaintiff must establish that the deprivation was caused by "the exercise of some right or privilege created by the State or by a rule of conduct imposed by the state or by a person for whom the State is responsible." Id. Second, the defendant charged with the deprivation must be someone who can "fairly be said to be a state actor . . . because he is a state official, because he has acted together with or has obtained significant aid from state officials, or because his conduct is otherwise chargeable to the State." Id. This test is designed to assist courts in determining when the private party has engaged in "joint participation" with the state actors such that the "party may be characterized as having acted under color of state law within the meaning of § 1983. Id. at 941; see also Albert v. Carovano, 824 F.2d 1333, 1340 (2d Cir. 1987).
Plaintiff has clearly satisfied the first prong of the analysis. MD's property was seized by state officials pursuant to a state statute that permits the police to seize goods containing counterfeit trademarks. N.Y. Penal Law § 165.74 (McKinney 2002). (City Defs. Mem. at 2.) Those officials retained possession of and eventually destroyed the seized apparel in accordance with ordinances of the City of New York. New York City Rules tit. 38, § 12-32 (2002). These laws, and the actions of the state officials pursuant to them, are sufficient to provide the necessary state action to satisfy the first prong of the Lugar test.Lugar, 457 U.S. at 941 (stating that "the procedural scheme created by the statute obviously is the product of state action"); Dahlberg v. Becker, 748 F.2d 85, 91 (2d Cir. 1984).
In Lugar, the plaintiff's claim of state action was premised on the private defendant's use of the state's prejudgment attachment procedures, without more. Lugar, 457 U.S. at 924. Thus, the Court indicated that in order to adequately allege state action and satisfy the first prong of the test, the plaintiff would have to challenge the constitutionality of the state procedural scheme, rather than asserting that the defendant had misused state law. Id. at 940-41. While mere invocation of an allegedly unconstitutional state prejudgment attachment procedure is sufficient to establish state action, id. at 942, a private defendant who misuses an otherwise constitutional state law cannot be said to exercise state power, and so such private misuse does not constitute state action.Lugar, 457 U.S. at 940.
This part of the Lugar analysis does not apply here, however, because MD alleges that the designer defendants did more than simply invoke state procedures and in motion a series of ministerial actions by state officials. Since MD claims that the designer defendants controlled the conduct and outcome of the DA's investigation, its state action argument is not based on the use of state authority involved in invoking a state procedure, but on the private defendants' wielding of state power through their control over the discretionary decisions of state officials. A state officer wields the power of the state even when she misuses, or acts against, state law, Monroe v. Pape, 365 U.S. 167 (1961), Lugar, 457 U.S. at 940. Thus, MD need not allege that the city's procedures for seizure and disposition of the apparel are unconstitutional, see Dahlberg, 748 F.2d at 91 (stating that "state responsibility, the first prong of the [Lugar] test, does not inevitably turn on the presence or absence of an unconstitutional state law"), and MD's theories that the city's procedures are unconstitutional (Compl. ¶ 79), and that the City defendants acted unconstitutionally even if the procedures themselves are constitutional (id. ¶ 83) both satisfy the first prong of the Lugar test.
The second prong of the Lugar test can be satisfied where a private actor "has acted together with or has obtained significant aid from state officials." 457 U.S. at 937. Determining just how much connection between private parties and state officials or actions is necessary to establish joint participation is a highly fact-specific inquiry. Id. at 941. Contrary to the designer defendants' arguments (Designer Defs. Mem. at 9), the Second Circuit does not require plaintiffs to allege the elements of a conspiracy with state actors in order to reach private defendants under § 1983. Ciambriello v. County of Nassau, 292 F.3d 307 (2d Cir. 2002). In Ciambriello, the plaintiff sought to assert his constitutional claims against the union that had filed a complaint against him on the theory that the union had conspired with the county to deprive him of a promotion. Id. at 311-12. In determining whether the plaintiff had sufficiently alleged state action, the court examined the complaint's allegations that the union was a "willful participant" in state activity, and that it acted "in concert" with the county, but not whether the plaintiff had alleged the elements of a conspiracy. Id. at 324 (quoting Adickes v. S.H Kress Co., 398 U.S. 144, 152 (1970)). Only when it examined the merits of the conspiracy claim, in contrast, did the Court require that the elements of conspiracy be alleged. Id. at 324-35. Thus, in addressing the threshold issue of state action (as distinct from the merits of the conspiracy cause of action), the Court did not hold that plaintiff needed to allege the elements of a conspiracy in order to establish joint action for the purposes of § 1983.
Of course, conclusory allegations of joint participation are not sufficient to withstand a motion to dismiss. Spear v. Town of West Hartford, 954 F.2d 63, 68 (2d Cir. 1992). A plaintiff must allege specific facts that, if proven, are sufficient to demonstrate that the defendants acted in concert with state actors. Id. It is well established that merely complaining to state actors about alleged misconduct, or cooperating with requests made by the police, are not sufficient to establish a private party's joint action with state actors. See, e.g.,D'Agostino v. New York State Liquor Auth., 913 F. Supp. 757, 770 (W.D.N.Y. 1996); Studifin v. New York City Police Dept., 728 F. Supp. 990, 993 (S.D.N.Y. 1990).
Here, however, MD has clearly alleged that the designer defendants were not mere complainants, but were active and indeed controlling participants in the investigation. The Complaint describes in detail the City defendants' reliance on the designer defendants, and the designers' consequent influence on the investigation. The DA's investigation was allegedly funded by the designer defendants. (Compl. ¶ 25 Ex. B.) See Burton v. Wilmington Parking Auth., 365 U.S. 715, 724-25 (1961) (recognizing that intermingling state authority with private funding can create a relationship of "interdependence" between state and private parties, so that the two are "joint participant[s] in the challenged activity"). In addition, the Complaint alleges that representatives of the designer defendants accompanied the police on the raid of MD's premises (Compl. ¶¶ 35, 45), examined the samples of merchandise during the raid and repeatedly throughout the ongoing investigation (id. ¶¶ 25-27, 31-32), and continued to insist that the seized apparel was counterfeit even after the criminal and civil forfeiture actions were dropped ( id. ¶¶ 55, 60). The Complaint also asserts that the DA relied extensively on the designer defendants, never obtained a second evaluation of the seized apparel to corroborate the designer defendants' determination that it was counterfeit (id. ¶¶ 31-32), and admitted to MD that the decisions not to return the apparel and to allow its destruction were based on the designer defendants' representations. (Id. ¶ 60.) Indeed, if credited. the allegations in the Complaint could lead a reasonable factfinder to conclude that the designer defendants effectively controlled the investigation, the decision to prosecute, and the failure to retrieve the seized apparel before it was destroyed. See Heaning v. NYNEX-New York, 945 F. Supp. 640, 651 (S.D.N.Y. 1996) (stating that if plaintiff had alleged that private defendant had acted "in a close cooperation with a state actor," or that the state's decision to prosecute was made "in combination with" the private defendant, plaintiff would survive motion to dismiss). These detailed allegations, if established, would be more than sufficient to establish joint participation on the parts of the designer defendants and the City defendants in the sequence of events that led to the destruction of the seized apparel.
The designer defendants rely on several district court cases to support their argument that the Complaint does not sufficiently allege joint participation. Determining whether a plaintiff has sufficiently alleged joint action is a "necessarily fact-bound inquiry," however.Lugar, 457 U.S. at 939 (quoting Burton, 365 U.S. at 722). Thus, while the factual scenarios alleged in other cases are instructive, MD's Complaint must be judged on its own terms against the Lugar standard.
Whether these allegations can be proved remains to be seen. It is noteworthy, however, that the City defendants essentially admit the truth of MD's allegations of joint action with the designer defendants. According to the City defendants, the DA's office instituted the criminal prosecution, and issued the release that allowed the Police Department to destroy the seized apparel, in full reliance on the designer defendants' continued insistence that the seized apparel was counterfeit. (City Defs. Mem. at 3-4, 6.) In light of this corroboration by the City defendants, it is impossible to view plaintiffs' allegations of joint action as conclusory or unsubstantiated. Spear, 954 F.2d at 68.
II. Pendent State Claims: Conversion and Replevin
MD has also adequately alleged conversion. The designer defendants argue that since they never had actual possession of the seized apparel, and thus never had the power to surrender the apparel to MD, MD's claim for conversion lies only against the City defendants. It is not necessary to allege possession to state a claim for conversion, however, since the essence of conversion is the defendant's unauthorized act in assuming unauthorized dominion and control over property. Glass v. Weiner, 480 N.Y.S.2d 760, 761 (2d Dep't 1984). MD alleges that the designer defendants had control over the disposition of the seized apparel because the City defendants had "abdicat[ed] . . . decision making responsibility" by relying solely on the designer defendants in determining the disposition of the apparel. (Compl. ¶¶ 36, 55(E), 55(M), 66.) If, as can fairly be inferred from plaintiffs allegations, the designer defendants were intertwined with the City defendants and effectively controlled their actions, the designer defendants exercised effective dominion over MD's property and controlled its disposition.
Finally, the designer defendants argue that their lack of possession of the merchandise defeats MD's replevin claim. In New York, the common law action for replevin has been replaced by a statutory action to recover possession of property under C.P.L.R. Article 71, but the statute does not displace the substantive common law principles of replevin. N.Y. C.P.L.R. § 7101 (McKinney 2000); Berk v. State of New York, 372 N.Y.S.2d 394, 396 (Ct.Cl. 1975); 23 N.Y. Jur.2d § 93 (2002). The designer defendants' lack of possession does not defeat the replevin action, since they allegedly participated in the wrongful deprivation of property, and therefore may be jointly liable with the actual possessors, the City defendants. Sinnott v. Feiock, 165 N.Y. 444, 450 (1901).
The purpose of an action to recover possession. as of its common law predecessor, is to determine rights in chattel, and to award possession to the rightful owner. Recovery of damages for the unlawful detention of the chattel is incidental to the return of the chattel to its owner; therefore, plaintiff may not seek damages alone. Id. When the property at issue has been destroyed subsequent to the defendant's taking of it, therefore, an action to recover possession (as opposed to an action for conversion) cannot be maintained. Id. at 447, 451 (citations omitted). The Complaint does not specifically allege that any of the property has survived, though it does demand that the designer defendants return "any and all" of the seized apparel in their possession. (Compl. ¶ 94(D).)
The allegations of the Complaint thus do not establish a claim for replevin. While plaintiffs have not requested leave to amend the Complaint, the Court may in its discretion grant such leave to amend "when justice so requires." Fed.R.Civ.P. 15(a). Since MD claims in its brief that the designer defendants have admitted that they continue to possess samples of the seized apparel (Pl. Mem. at 10), and the City defendants also state that some samples were preserved (City Defs. Mem. at 4), it appears that MD has a reasonable basis to allege that the defendants still possess at least some of its property. Accordingly, MD may amend its complaint to include such an allegation and assert a claim for recovery of possession any remaining samples.
CONCLUSION
For the reasons set forth above, the motion of the designer defendants to dismiss the complaint as to them is denied, except to the extent that the claim for replevin is dismissed. Plaintiff is granted leave to amend its complaint to allege that samples of the seized apparel have been preserved and are in the possession of either the City defendants or the designer defendants, and to assert a statutory claim to recover possession of such property.