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NATIVE AMERICAN ARTS, INC. v. J.C. PENNEY CO.

May 27, 1998

NATIVE AMERICAN ARTS, INC., Plaintiff,
v.
J.C. PENNEY COMPANY, INC., Defendant.



The opinion of the court was delivered by: CASTILLO

MEMORANDUM OPINION AND ORDER

 Plaintiff NAA is an Indian arts and crafts organization that sells authentic Indian-made products. Last year, it brought suit against retailer J.C. Penney ("Penney's"), alleging that Penney's sale of similar, but non-authentic, Indian products violated the Indian Arts and Crafts Act of 1990 ("IACA" or "the Act"). *fn1" The Act prohibits "offering or displaying for sale or selling a good . . in a manner that falsely suggests it is Indian produced, an Indian product, or the product of a particular Indian or Indian tribe or Indian arts and crafts organization . . . ." 25 U.S.C. § 305e(a) (1994). Since 1990, NAA claims, several Penney's stores in Illinois have sold imitation Indian arts and crafts that the stores misrepresent as genuine Indian-made products, including Indian-style baskets, feather earrings, necklaces, pendants, and statues. One Penney's store allegedly sells these products in the very same mall where NAA sells its authentic goods.

 This conduct provides the basis for NAA's three-count complaint. Count I contains the IACA claim, and Counts II and III are state-law claims under the Illinois Consumer Fraud and Deceptive Business Practices Act and the Illinois Uniform Deceptive Trade Practices Act.

 Penney's filed a motion to dismiss the entire complaint under Fed. R. Civ. P. 12(b)(1) and 12(b)(6). It argued that NAA lacks standing to sue under the IACA, that the IACA is, in any event, unconstitutional, and that the two state-law counts suffer from various pleading deficiencies. We determined that, before evaluating any of NAA's claims, we first had to address NAA's standing to sue under the IACA -- since a negative answer would dispose of the only count supporting our jurisdiction. Therefore, we denied Penney's motion to dismiss Counts II and III without prejudice, denied without prejudice Penney's constitutional challenge to the IACA, and ordered the parties to brief the issue of NAA's standing to sue under the Act.

 Thus, the sole issue before this Court whether NAA has standing to sue under the IACA. After careful consideration, we find that it does not. We therefore dismiss Count I with prejudice. We decline to exercise supplemental jurisdiction over the state law claims in Counts II and III, and dismiss them without prejudice to NAA's ability to refile them in state court.

 LEGAL STANDARDS

 A motion to dismiss tests the sufficiency of the complaint, not the merits of the suit. Triad Assocs., Inc. v. Chicago Housing Auth., 892 F.2d 583, 586 (7th Cir. 1989). The court must view all facts alleged in the complaint, as well as any reasonable inferences drawn from those facts, in the light most favorable to the plaintiff. Doherty v. City of Chicago, 75 F.3d 318, 322 (7th Cir. 1996); Dawson v. General Motors Corp., 977 F.2d 369, 372 (7th Cir. 1992). A complaint will not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts warranting relief. Triad Assocs., 892 F.2d at 586. With these standards in mind, we consider the legal sufficiency of NAA's allegations in support of its standing to sue.

 ANALYSIS

 I The Parties' Arguments

 Penney's asserts both constitutional and statutory impediments to NAA's standing. First, it contends that NAA has no standing to sue under Article III of the Constitution because it has not sufficiently alleged an "injury in fact." Second, it argues that the IACA's statutory language makes clear that an Indian arts and crafts organization such as NAA *fn2" cannot sue in its own right, but rather must be the beneficiary of a representative action. As such, Penney's contends, Count I must be dismissed for both lack of subject matter jurisdiction and failure to state a claim.

 NAA responds that it has adequately alleged "injury in fact" in the form of lost revenue and business opportunities when consumers purchased Penney's imitation products instead of NAA's genuine arts and crafts. Second, it asserts that the IACA's statutory language gives it a right to sue on its own behalf, and that the legislative history evinces the same intent. In the alternative, NAA argues that it has an implied right of action to sue under the IACA. NAA thus contends that Count I should remain in the complaint with NAA as plaintiff. *fn3" We consider these arguments in turn.

 II Injury in Fact

 Because Penney's constitutional challenge to NAA's standing directly attacks our subject matter jurisdiction over this suit, it is a threshold issue that we must consider before any of the other arguments. Standing to sue is "an essential and unchanging part of the case-or-controversy requirement of Article III." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 119 L. Ed. 2d 351, 112 S. Ct. 2130 (1992) (citation omitted). To establish Article III standing, NAA must show: (1) that it has suffered an "injury in fact" -- a harm that is (a) "concrete and particularized," *fn4" and (b) "actual or imminent, not conjectural or hypothetical"; (2) that this injury is "fairly traceable" to Penney's alleged conduct; and (3) that a favorable judicial decision would likely redress the injury. Bennett v. Spear, 520 U.S. 154, 117 S. Ct. 1154, 1163, 137 L. Ed. 2d 281 (1997) (citing Lujan, 504 U.S. at 560-61). These are the "core components" of standing, on which the plaintiff bears the burden of proof. Steel Co. v. Citizens for a Better Environment, 118 S. Ct. 1003, 1017, 140 L. Ed. 2d 210 (1998) (citation omitted).

 Penney's argues that NAA fails the "injury in fact" prong. It points out that while the complaint alleges Penney's violated the IACA by misrepresenting imitation Indian products as authentic, and that the NAA sells authentic products, the complaint never explains how Penney's conduct harmed the NAA in an individual and personal way. It is true that NAA's complaint is somewhat vague. NAA asserts that it is an "Indian arts and crafts organization" (as defined by the IACA) that distributes authentic Indian arts and crafts; then it cites numerous instances in which Penney's stores allegedly violated the statute by selling imitation products misrepresented as genuine. We are left to infer exactly how NAA was injured by Penney's actions -- for example, did Penney's imitate NAA's goods or usurp NAA's profits by selling similar products?

 Nevertheless, the standard under which we evaluate the sufficiency of standing allegations at this stage is lenient. "At the pleading stage, general factual allegations of injury resulting from the defendant's conduct may suffice, for on a motion to dismiss we presume that general allegations of injury embrace those specific facts that are necessary to support the claim." Bennett, 117 S. Ct. at 1164 (quoting Lujan, 504 U.S. at 561) (internal quotations omitted). In addition, the court may consider facts contained in NAA's memorandum in opposition to the motion to dismiss as long as they are consistent with the allegations in the complaint. See, e.g., Dausch v. Rykse, 52 F.3d 1425, 1428 n.3 (7th Cir. 1994); Hrubec v. National R.R. Passenger Corp., 981 F.2d 962, 963-64 (7th Cir. 1992). Under these liberal pleading standards, NAA satisfies the injury-in-fact requirement.

 NAA's brief explains that NAA was injured in two ways that are consistent with the complaint's more general allegations. Although the first alleged injury is questionable, the second clearly establishes an injury in fact. First, NAA claims that as part of a "comprehensive investigation conducted for over more than a year," it went to 18 different Penney's stores and purchased 35 offending products. Pl.'s Response at 15-16. It is hard to see how this injured NAA, which must have believed that Penney's products were not authentic if it was investigating possible violations of the IACA. Consequently, any claim that Penney's misrepresentations tricked or defrauded NAA into buying imitation products (which would have been a concrete, actual injury) rings hollow.

 We need not pass on the authenticity of this injury, however, because NAA alleges a more substantial injury that it has already suffered in a particularized and concrete way: lost revenue and business opportunities as Penneys' direct retail competitor. NAA claims that "the effect of this flood of imitation Indian products by defendant is to undercut the authentic Indian product market and [NAA's] sale and profits and business opportunities in several injurious ways." Id. at 16. NAA pledges to prove that "it is a direct retail competitor of Defendant, selling similar authentic products .. . . Indeed, it sold authentic Indian products down the hall in the same retail shopping mall wherein Defendant sold its imitation counterfeit products." Id. at 18. These general allegations are sufficient to encompass more specific claims about exactly how and to what extent Penney's sales undermined NAA's profits. Thus, the injuries NAA outlines in its brief are sufficiently concrete, particularized, and actual to meet the injury-in-fact prong. *fn5"

 In addition, NAA has met the remaining requirements of causation and redressability. NAA alleges that it was Penneys' conduct in selling imitation Indian-style goods that caused NAA to lose sales and business opportunities. As such, NAA's injury is fairly traceable to Penney's offending conduct, "not the result of the independent action of some third party not before the court." Bennett, 117 S. Ct. at 1163. As for redressability, the complaint plainly sets forth the relief requested -- compensatory and punitive damages and injunctive relief -- all of which the statute authorizes as relief to be paid to an aggrieved Indian arts and crafts organization such as NAA. See 25 U.S.C. § 305e(a)-(b) (providing for injunctive or equitable relief and assessment of damages and punitive damages against defendants who violate the Act); id. § 305e(c)(1)(B)(2) ("Any amount recovered pursuant to this section shall be paid to the individual Indian, Indian tribe, or Indian arts and crafts organization . . . ."). Because NAA has sufficiently plead all three constitutional standing requirements, *fn6" we have subject matter jurisdiction to address Penneys' argument that the IACA's statutory language prevents NAA from suing in its own right.

 III Statutory Language

 Even when a plaintiff has established Article III standing, Congress may nonetheless exclude it from the class of persons who may sue under a particular statute. To determine whether Congress intended to permit Indian arts and crafts organizations to sue directly under the IACA, we start with its language. See Reves v. Ernst & Young, 507 U.S. 170, 177, 122 L. Ed. 2d 525, 113 S. Ct. 1163 (1993) ("In determining the scope of a statute, we look first to its language."); United States v. Ranum, 96 F.3d 1020, 1029 (7th Cir. 1996) (same), cert. denied, 136 L. Ed. 2d 718, 117 S. Ct. 773 (1997); Trustees of Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund v. Leaseway Transp. Corp., 76 F.3d 824, 828 (7th Cir. 1996) (same) (citing United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 103 L. Ed. 2d 290, 109 S. Ct. 1026 (1989)). "If the statutory language is unambiguous, in the absence of a clearly expressed legislative intent to the contrary, that language must ordinarily be regarded as conclusive." Reves, 507 U.S. at 177 (citations and internal quotations omitted). A court should look to the legislative history only as a final option if the statutory language is "undeniably ambiguous." Newsom v. Friedman, 76 F.3d 813, 816 (7th Cir. 1996).

 The availability of direct versus representative actions under the IACA presents a question of first impression. Indeed, since the Act was passed in 1990 it has garnered no interpretive judicial decisions. As such, we conduct an independent review of the statute and determine ...


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