not protected under copyright law and resale is permitted under the first sale doctrine. As for trademark infringement, that would only be an issue if consumers believe that JC Penney was the source of the modified jackets -- a situation that can be avoided by placing a prominent disclaimer or statement near the clothing, "JC Penney Sag Harbor jackets modified by artist [Name]."
Can a gallery be liable? Yes, galleries, museums, flea markets, swap meets or any other venue where infringing goods are sold can be liable for what is known as either vicarious, contributory or indirect infringement. Although each of these has different standards, the major principle in cases like this and this is that if the venue had knowledge of the infringement and benefited, the owner of venue can be brought to trial.