Kim v. US

• Decision Date: 01 August 1997
• Docket Number: No. 96-55605.,96-55605.
• Citation: 121 F.3d 1269
• Parties: Charles KIM, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

121 F.3d 1269

Charles KIM, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 96-55605.

United States Court of Appeals, Ninth Circuit.

Submitted July 9, 1997.^*

Decided August 1, 1997.

James L. Kellner, Torrance, CA, for plaintiff-appellant.

Catherine M. Hikida, Office of United States Attorney, Los Angeles, CA, for defendant-appellee.

Before: CANBY and THOMAS, Circuit Judges, and KING,^** District Judge.

THOMAS, Circuit Judge:

This appeal requires us to decide, among other things, whether a grocery store owner may be permanently disqualified from participating in the Food Stamp Program because one of his employees illegally trafficked in food stamps without the owner's knowledge. We hold that he may and affirm the district court's grant of summary judgment upholding the disqualification.

I.

On April 24, 1992, Kim applied as the owner of Jones Market to participate in the Food Stamp Program, a welfare program administered by the Food and Consumer Service ("FCS"), an agency in the Department of Agriculture, pursuant to the Food Stamp Act (the "Act"). The program allows authorized stores to accept food coupons issued by the Department of Agriculture as payment for food items. However, an authorized grocery store may be fined a civil money penalty or disqualified from participating in the Food Stamp Program for a specified period of time or permanently for violating any of the provisions of the Food Stamp Act or its implementing regulations. See 7 U.S.C. § 2021(a), (b); 7 C.F.R. § 278.6(a). Expressly forbidden is "trafficking" in food stamps, that is, the buying or selling of coupons for cash or consideration other than eligible food items. See 7 C.F.R. § 271.2 (defining "trafficking" as "the buying or selling of coupons ... for cash").

The FCS conducted a routine investigation of Jones Market between January 20, 1994 and April 19, 1994 to ensure the store was complying with program requirements. FCS investigators visited the store on seven occasions. On two of those occasions, Jones Market employee Sam Price, whom Kim had hired as a bagger and security guard in the wake of the Los Angeles riots, exchanged cash for food stamps. On four of the visits, Jones Market employees accepted food stamps in exchange for a total of eleven ineligible (non-food) items. An identification visit on September 1, 1994 established the identity of these employees as Ki Kim (Kim's wife), a store clerk, and Kim himself.

On May 16, 1995, the FCS sent Kim a charge letter informing him of the results of the investigation and enclosing a copy of the investigation report. Kim appeared in person at the Los Angeles field office on May 24, 1995 to respond to the charges. He stated he had no idea trafficking was occurring in his store. He said that Price was just a bagger and security guard and was not permitted to work behind the cash register. Kim also stated that the male clerk who sold ineligible items must have been his younger brother, who looks very much like him, because he himself had never sold ineligible items.

The FCS concluded that the trafficking violations had in fact occurred and notified Kim in a July 10, 1995 letter that Jones Market was permanently disqualified from participating in the Food Stamp Program. The letter informed Kim that his request for a civil money penalty in lieu of permanent disqualification had been denied because he failed one of the conditions necessary to receive such relief-he had not had in place an effective policy and program to prevent violations before the trafficking occurred.

On July 19, 1995, Kim submitted a timely request for review of the determination to refuse to impose a civil money penalty in lieu of permanent disqualification. Among other points, he argued that he had never before been the object of any FCS disciplinary action; that his store had a firm policy against the sale of ineligible items and the exchange of coupons for cash, a policy of which all his employees, including Price, were expressly made aware; that Price engaged in the trafficking without Kim's knowledge and entirely for his own benefit, using his own money and pocketing the coupons, presumably to feed his ten children; that Price no longer worked at Jones Market, so there was no danger of any future trafficking; and that permanently disqualifying Jones Market would impose a hardship on its customers who participate in the Food Stamp Program because the nearest comparable market, one which offers fresh meat and produce, is over a half-mile away.

The FCS granted Kim's request for review, but upheld its initial determination. It indicated that Kim had not requested a civil money penalty in lieu of permanent disqualification within the ten-day time limit for doing so, and never submitted any documentation in support of that possibility, so that option was not considered. The FCS also noted that a civil money penalty in lieu of permanent disqualification cannot be imposed solely on the basis of hardship to households who are customers of the subject store.

II.

Any grocery store fined or disqualified under the Food Stamp Act may bring an action for judicial review challenging the penalty by filing a complaint against the United States in federal district court. 7 U.S.C. § 2023(13). The court will determine the validity of the penalty in a "trial de novo." Id. § 2023(15); Wong v. United States, 859 F.2d 129, 132 (9th Cir.1988). A trial de novo is a trial which is not limited to the administrative record-the plaintiff "may offer any relevant evidence available to support his case, whether or not it has been previously submitted to the agency." Redmond v. United States, 507 F.2d 1007, 1011-12 (5th Cir.1975). See also Sims v. United States Dep't of Agriculture Food & Nutrition Serv., 860 F.2d 858, 862 (8th Cir.1988) ("district court `must reach its own factual and legal conclusions ... and should not limit its consideration to matters previously appraised in the administrative proceedings'") (internal quotation marks omitted) (quoting Ibrahim v. United States, 834 F.2d 52, 53-54 (2d Cir.1987)). The burden is placed upon the store owner to prove by a preponderance of the evidence that the violations did not occur. Plaid Pantry Stores, Inc. v. United States, 799 F.2d 560, 563 (9th Cir.1986). See also Warren v. United States, 932 F.2d 582, 586 (6th Cir.1991) (citing Goodman v. United States, 518 F.2d 505, 507 (5th Cir.1975)).

Kim sought judicial review of the FCS's decision pursuant to 7 U.S.C. § 2023(a). The district court granted the FCS's motion for summary judgment, and Kim timely appealed.

III.

The first issue presented by this appeal is whether a store owner may be permanently disqualified from the Food Stamp Program when, unknown to him, one of his employees trafficked in food stamps. This is not the first time we have encountered this question. In R Ranch Market Corp. v. United States, 861 F.2d 236 (9th Cir.1988), we held that under then-existing law, the FCS was required to demonstrate the owner's actual or constructive knowledge of the employee's trafficking before permanently disqualifying the owner from participating in the Food Stamp Program. In R Ranch, we struck down a regulation that permitted disqualification without requiring proof that the employees acted on behalf of the ownership or management, writing that "the sanction of permanent disqualification is a draconian penalty, and we are reluctant to infer that Congress intended to impose such a sanction on an unknowing employer absent a clear indication that such was Congress' intent." Id. at 239.

That clear indication came in 1988, when Congress amended the Food Stamp Act to permit the FCS to impose a civil money penalty in lieu of permanent disqualification for trafficking violations. Prior to the amendment, the FCS had no discretion regarding what penalty to impose upon finding a trafficking violation-7 U.S.C. § 2021(b) mandated permanent disqualification, even for a first offense. See generally Ghattas v. United States, 40 F.3d 281, 283-84 (8th Cir. 1994). Even were it disposed to do so, the FCS lacked the authority to impose any lesser punishment, such as a civil money penalty. See, e.g., Grocery Town Market, Inc. v. United States, 848 F.2d 392, 395 (3d Cir.1988). This harsh sanction was Congress's reaction to the increased incidence of trafficking violations under the more lenient penalty provisions in effect prior to 1982. S.Rep. No. 97-504, at 63 (1982), reprinted in 1982 U.S.C.C.A.N. 1641, 1701.

By 1988, however, Congress receded somewhat from this hard-line stance, recognizing that

the permanent disqualification of retail food stores upon the first trafficking offense-without any evaluation of preventive measures taken or complicity in the trafficking-seems excessively harsh....

....

A retail food store or wholesale food concern which has an effective policy and program to prevent trafficking should not be presumptively disqualified from participation in the Food Stamp Program due to the unauthorized or expressly prohibited acts of store personnel....

....

Innocent persons should not be subject to the harsh penalty of disqualification where a store or concern has undertaken and implemented an effective program and policy to prevent violations....

With FCS discretion, we can be assured that the punishment will more closely fit the crime.

H.R.Rep. No. 100-828, at 27-28 (1988). Congress therefore amended the Act in 1988 to permit the FCS to impose a lesser sanction on certain store owners whose personnel engaged in trafficking violations. Amended several times more since then in ways unimportant to our analysis, the Act now requires permanent disqualification upon the first instance of trafficking, except that

the FCS shall have the discretion to impose a civil money penalty of up to $20,000 for each violation ... in lieu of permanent disqualification ..., for a trafficking violation if the FCS determines

...