The case is Carabello v. City of New York, a summary order decided on May 14. If drugs are in plain sight, the police may presume that those living in the apartment are complicit in the offense. The officers were in the apartment because of a confirmed presence of marijuana plants at the apartment on a prior occasion, and once inside the place, they found heroin in the bedroom. So it was reasonable for the officers to think that the pills were MDMA. After all, there were drugs all over the place to start with.
The Court of Appeals (Sack, Wesley and Carney) agrees that the officers acted reasonable under the circumstances in detaining the plaintiffs. It is possible that the plaintiffs were in the wrong place at the wrong time. Maybe they were just hanging around when the police showed up and saw pills on the table. My guess is that the charges against the plaintiffs were dropped, which is what allowed them to bring this lawsuit (the guilty cannot sue for false arrest). But false arrest case law does not entitle you to damages when the police make a mistake. Under Section 1983, the police are allowed to make a mistake in good faith. The Court sums it up like this:
The undisputed facts establish that plaintiffs were sleeping in a small apartment in which police found drugs on more than one occasion, including at the time of the arrest, and that defendants found suspected MDMA in a common area of that apartment. These circumstances were arguably sufficient to warrant a prudent person to believe that the plaintiffs were “had knowledge of, and exercised dominion and control over,” the suspected contraband.