7-Eleven #22360 v. United States

• Citation: 560 F.Supp.3d 892
• Decision Date: 01 July 2021
• Docket Number: Civil Action No. ELH-21-0057
• Parties: 7-ELEVEN #22360, et al., Plaintiffs v. UNITED STATES of America, Defendant.
• Court: United States District Courts. 4th Circuit. United States District Court (Maryland)

560 F.Supp.3d 892

7-ELEVEN #22360, et al., Plaintiffs

v.UNITED STATES of America, Defendant.

Civil Action No. ELH-21-0057

United States District Court, D. Maryland.

Signed July 1, 2021

Filed September 17, 2021

Andrew Z. Tapp, Metropolitan Law Group PPC, Brandon, FL, Darren Margolis, Darren Margolis, P.A., Baltimore, MD, for Plaintiff 7-Eleven # 22360.

Andrew Z. Tapp, Pro Hac Vice, Metropolitan Law Group PPC, Brandon, FL, Darren Margolis, Darren Margolis, P.A., Baltimore, MD, for Plaintiff Mahbub Ur Rashid, MD.

Molissa Heather Farber, US Attorney's Office District of MD, Baltimore, MD, for Defendant.

MEMORANDUM OPINION

Ellen L. Hollander, United States District Judge This case arises under the Supplemental Nutrition Assistance Program ("SNAP" or the "Program") and concerns the penalty of permanent disqualification imposed on a SNAP retailer because of two "trafficking" violations committed by a rogue employee. The retailer is a 7-Eleven convenience store in Baltimore. In effect, as a sanction for the violation, the government seeks to put the store out of business.

SNAP was established pursuant to the Food Stamp Act of 1964, as amended, 7 U.S.C. § 2011 et seq. (the "Act"). It is administered by the Food and Nutrition Service ("FNS"), which is part of the U.S. Department of Agriculture ("USDA" or "Department"). See 7 C.F.R. § 271.3.¹ I shall sometimes refer to FNS and the Department collectively as the "Agency." FNS determined that the store engaged in the trafficking of SNAP benefits when, on two occasions, an employee (who has since been terminated) exchanged benefits for cash. Although the retailer sought a civil money penalty ("CMP"), FNS determined to permanently disqualify the store from participating in SNAP. See 7 U.S.C. § 2021(a) ; 7 C.F.R. § 278.6. A Final Agency Decision, issued on December 23, 2020, affirmed that decision. See ECF 6 ("Final Agency Decision" or "FAD").

Thereafter, 7-Eleven #22360 (the "Store"), and the franchise owner, MD Mahbub Ur Rashid, plaintiffs, filed suit against the United States (ECF 1), seeking judicial review of the FAD. The Complaint contains two counts. In Count I, pursuant to 7 U.S.C. § 2023 and 7 C.F.R. § 279.7, plaintiffs seek judicial review of the finding by FNS that the Store trafficked in SNAP benefits. ECF 1, ¶¶ 27-32. And, in Count II, plaintiffs seek judicial review of the decision by FNS to impose the penalty of permanent disqualification, in lieu of a CMP. Id. ¶¶ 33-37.

On May 13, 2021, months after the suit was filed, plaintiffs moved for a preliminary injunction (ECF 10), seeking to enjoin the government from enforcing the permanent disqualification penalty during the pendency of the litigation. The motion for preliminary injunction is supported by a memorandum (ECF 10-1) (collectively, the "Motion") and 17 exhibits. ECF 10-2 to ECF 10-18. The government opposes the Motion (ECF 12) and has provided two exhibits (ECF 12-1; ECF 12-2). Plaintiffs have replied (ECF 15) and submitted two additional exhibits. ECF 15-1; ECF 15-2.²

On June 17, 2021, the Court held an evidentiary Motion hearing. ECF 16. Plaintiff called three witnesses and introduced several exhibits. Argument was also presented.³ For the reasons that follow, I shall grant the Motion.

I. SNAP

SNAP is intended "to promote the general welfare, to safeguard the health and well-being of the Nation's population by raising the levels of nutrition among low-income households." 7 U.S.C. § 2011. To achieve that mission, SNAP provides qualifying individuals and families with supplemental funds to purchase eligible items from approved retailers. Id. §§ 2013, 2018; 7 C.F.R. § 278.1.

Beneficiaries of SNAP are provided with benefits by way of an Electronic Benefits Transfer ("EBT") card. See 7 U.S.C. § 2016(j)(1)(A). The EBT operates like a debit card. But, it may only be used to buy designated food items from authorized SNAP retailers. Id. § 2013(a); see also 7 C.F.R. § 271.2 (defining "eligible foods" as, in pertinent part, "[a]ny food or food product intended for human consumption except alcoholic beverages, tobacco, and hot foods and hot food products prepared for immediate consumption"); 7 U.S.C. § 2018 ("Approval of Retail Food Stores and Wholesale Food Concerns"); 7 C.F.R. § 278.1 (same).

Of relevance here, "trafficking" in SNAP benefits is prohibited. 7 U.S.C. § 2021(b)(3)(B) ; 7 C.F.R. § 278.6(e)(1)(i). "Trafficking" is defined in pertinent part as "buying, selling, stealing or otherwise effecting an exchange of SNAP benefits issued and accessed via Electronic Benefit Transfer (EBT) cards ... for cash or consideration other than eligible food, either directly, indirectly, in complicity or collusion with others, or acting alone." 7 C.F.R. § 271.2.

FNS periodically reviews authorized retailers and may disqualify an approved retail store that violates the Act or its implementing regulations. In particular, 7 U.S.C. § 2021(a) provides (bold in original):

(a) Disqualification

(1) In general

An approved retail food store or wholesale food concern that violates a provision of this chapter or a regulation under this chapter may be –

(A) disqualified for a specified period of time from further participation in the supplemental nutrition assistance program;

(B) assessed a civil penalty of up to $100,000 for each violation; or

(C) both.

(2) Regulations

Regulations promulgated under this chapter shall provide criteria for the finding of a violation of, the suspension or disqualification of and the assessment of a civil penalty against a retail food store or wholesale food concern on the basis of evidence that may include facts established through on-site investigations, inconsistent redemption data, or evidence obtained through a transaction report under an electronic benefit transfer system.

Originally, the Food Stamp Act of 1964 left the issue of disqualification for trafficking violations to the discretion of the Secretary of USDA (the "Secretary"). See Corder v. United States , 107 F.3d 595 (8th Cir. 1997) (discussing statutory history of Food Stamp Program); Ghattas v. United States , 40 F.3d 281, 283-84 (8th Cir. 1994) (same); Ahmed v. United States , 47 F. Supp. 2d 389, 393 (W.D.N.Y. 1999) (same). Then, from 1982 to 1988, the Act eliminated any discretion and mandated permanent disqualification for trafficking violations. See Castillo v. United States , 989 F. Supp. 413, 417 (D. Conn. 1997). But, in 1988, Congress amended the statute, conferring discretion on the Secretary to impose a monetary penalty in lieu of permanent disqualification under certain circumstances. Hunger Prevention Act of 1988, S. 2560, 100th Cong. § 349, 102 Stat. 1645, 1664 (1980); Ahmed , 47 F. Supp. 2d at 391.

Section 2021(b)(3)(B) of 7 U.S.C. provides:

[D]isqualification ... shall be ... (3) permanent upon ... (B) the first occasion or any subsequent occasion of a disqualification based on the purchase of coupons or trafficking in coupons ... except that the Secretary shall have the discretion to impose a civil penalty of up to $20,000 for each violation ... in lieu of disqualification under this subparagraph, ... if the Secretary determines that there is substantial evidence that such store or food concern had an effective policy and program in effect to prevent violations of the chapter and the regulations, including evidence that—

(i) the ownership of the store or food concern was not aware of, did not approve of, did not benefit from, and was not involved in the conduct of the violation; and

(ii)(I) the management of the store or food concern was not aware of, did not approve of, did not benefit from, and was not involved in the conduct of the violation; or

(II) the management was aware of, approved of, benefited from, or was involved in the conduct of no more than 1 previous violation by the store or food concern ...

The legislative history pertinent to § 2021(b) addressed the reasons for the inclusion of the civil money penalty as a possible sanction. H.R. Rep. No. 100-828, pt. 1, at 27–28 (1988) states (emphasis added):

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. The Committee substitute gives the Secretary of Agriculture the discretion to impose a fine of up to $20,000 on a retail or wholesale food store instead of disqualification. The Secretary may exercise that discretion—if it is determined that there is substantial evidence that the store had an effective policy and program to prevent these violations of the Food Stamp Act.

Examples of an effective policy and program to prevent violations of the Act or regulations by a store or concern might include the following: (i) effective written policies and procedures to be followed by store personnel that are consistently applied by management; (ii) initial training of store managers and employees in the proper handling of food stamps; (iii) periodic oversight and continuing education of store personnel in the proper handling of food stamps; and (iv) other reasonable and good faith efforts that demonstrate the existence of an effective policy and program by the store or concern to prevent violations of the act or regulations.

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 ....

However, 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. The Secretary of Agriculture is directed to promulgate regulations consistent with the described amendment....

This provision provides [the Secretary with discretion]. The Act will retain strict penalties—fines can be imposed as well as disqualification from

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