J&K Deli v. United States

• Decision Date: 21 March 2021
• Docket Number: Civil Case No.: 1:19-cv-03282-JMC
• Parties: J&K DELI, INC. Plaintiff, v. UNITED STATES OF AMERICA, Defendant.
• Court: U.S. District Court — District of Maryland

J&K DELI, INC. Plaintiff, v. UNITED STATES OF AMERICA, Defendant.

Civil Case No.: 1:19-cv-03282-JMC

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

March 21, 2021

MEMORANDUM OPINION

Plaintiff J&K Deli, Inc. d/b/a Harry's Deli, Inc. ("Harry's Deli") brings this action against the Defendant United States Department of Agriculture ("USDA") under the Food Nutrition Act of 2008 (the "Food Nutrition Act" or the "Act"). See 7 U.S.C. § 2011 et seq. In April 2019, the Food and Nutrition Service ("FNS") of the USDA temporarily withdrew Harry's Deli's authorization to participate in the Supplemental Nutrition Assistance Program ("SNAP"). Plaintiff filed a complaint for judicial review to appeal the USDA's final agency decision. (ECF No. 1). Presently before the Court is Defendant's Motion to Dismiss or in the Alternative for Summary Judgment. (ECF No. 20). The issues have been fully briefed (ECF Nos. 20, 27, 28) and no hearing is necessary. See Local Rule 105.6. (D. Md. 2018). For the reasons more fully explained below, Defendant's Motion to Dismiss or in the Alternative for Summary Judgment, treated as a motion for summary judgment, is GRANTED.

BACKGROUND

I. The Supplemental Nutrition Assistance Program

SNAP, formerly known as the food stamp program, "provides eligible households with [SNAP benefits] that may be used to purchase qualifying food items at authorized retail stores." AJS Petroleum, Inc. v. United States, Civ. No L-11-1085, 2012 WL 683538, at *1 (D. Md. Mar. 1, 2011) (citing 7 U.S.C. § 2011 et seq.). SNAP is intended to "permit low-income households to obtain a more nutritious diet through normal channels of trade by increasing food purchasing power" for eligible households. 7 U.S.C. § 2011. Therefore, SNAP benefits "shall be used only to purchase food from retail food stores which have been approved for participation." Id. at § 2013(a). "SNAP beneficiaries are awarded benefits in the form of an Electronic Benefits Transfer ("EBT") card, which is akin to a debit card and can be used only for the purchase of food and certain other eligible items sold by approved SNAP retailers." Green Apple Grocery and Deli v. United States Dep't. Agric., Civ. No. RDB-19-1408, 2021 WL 533730, at *1 (D. Md. Feb. 2, 2021) ("Green Apple") (citing 7 U.S.C. §§ 2013(a); 2016(j); 7 C.F.R. § 271.2).

Food stores must file an application to FNS to become an authorized SNAP retailer. 7 C.F.R. § 278.1(a). The applicant must provide adequate "data and information on the nature and scope of the firm's business for FNS to determine whether the applicant's participation will further the purposes of the program." Id. at § 278.1(b). In determining a food store's eligibility to participate in SNAP, FNS analyzes, inter alia, whether the store qualifies as a "retail food store." A retail food store is

an establishment, house-to-house trade route, or online entity that sells food for home preparation and consumption and—

(A) offers for sale, on a continuous basis, a variety of at least 7 foods in each of the 4 categories of staple foods specified in subsection (q)(1), including perishable foods in at least 3 of the categories; or

(B) has over 50 percent of the total sales of the establishment or route in staple foods[.]¹

7 U.S.C. § 2012(o)(1)(A)-(B). To make the determination, FNS relies on information obtained by "visual inspection, sales records, purchase records, counting of stockkeeping units, or other inventory or accounting recordkeeping methods that are customary or reasonable in the retail food industry." Id. at § 2012(o)(1)(B); 7 C.F.R. § 278.1(b)(1)(i)(B).

Once approved, SNAP retailers are responsible for maintaining eligibility in the program. FNS periodically reviews authorized stores and may disqualify an approved retail food store that violates the Act or its implementing regulations. 7 U.S.C. § 2021(a); 7 C.F.R. § 278.6. "In determining whether disqualification is warranted, FNS investigators may rely on evidence that includes 'facts established through on-site investigations, inconsistent redemption data, [or] evidence obtained through a transaction report under an electronic benefit transfer system.'" AJS Petroleum, 2012 WL 683538, at *1 (D. Md. Mar. 1, 2012) (quoting 7 U.S.C. § 2021(a)(2); 7 C.F.R. § 278.6(a)).

When a retail food store is disqualified from participating in SNAP, a notice is issued to the store. 7 U.S.C. § 2023(a)(1). The store may file a request within ten days for administrative review. Id. at § 2023(a)(3). If the store requests review, the matter is reviewed by the USDA FNS Administrative Review Branch, which renders a Final Agency Decision ("FAD"). The FAD takes effect thirty days after the date of delivery of the decision to the retailer. Id. at § 2023(a)(5); 7 C.F.R. § 279.5. If a store is aggrieved by the FAD, the store may seek de novo judicial review in state or federal court. 7 U.S.C. §2023(a)(13)-(15); 7 C.F.R. § 279.5.

II. Harry's Deli

Ho Seong Hwang owns and operates Harry's Deli, located in Baltimore, Maryland. (ECF No. 1 at 3; Administrative Record ("A.R.") at 2). Harry's Deli submitted its online SNAP reauthorization application ("Reauthorization Application")—form FNS-252-R—to FNS onNovember 19, 2018. (ECF No. 1 at 4; A.R. 482). The Reauthorization Application required Harry's Deli to enter its sales figures for a one-year period. (ECF No. 20-3 at 2). In 2017, Harry's Deli's total sales amounted to $337,600. Id. Of the total sales, Harry's Deli indicated that: 5%, or $16,880, were attributable to hot foods (e.g., hot coffee, hot soup, hot pizza, etc.); 20%, or $67,520, were attributable to cold prepared foods (e.g., sandwiches, salads, etc.); 10%, or $33,760, were attributable to accessory foods (e.g., ice cream, potato chips, soda pop, doughnuts, etc.); and 65%, or $219,440, were attributable to staple foods (e.g., rice, milk, beef, apples, etc.). Id.

An FNS "Reviewer" conducted a store visit at Harry's Deli on February 27, 2019 and completed a corresponding FNS Survey. A.R. 68-75. In the FNS Survey, the Reviewer indicated that Harry's Deli has a food preparation area, there is a "deli or prepared food section," with prices posted for meats/cheeses, prepared salads, and prepared/made-to-order sandwiches, and that the store stock is being used in the deli/prepared food section. Id. 70. The Reviewer further noted that four lunch meat packages were the most expensive SNAP eligible food items. Id. at 69; 70. Finally, the Reviewer inventoried the staple foods that Harry's Deli had available for purchase. Id. at 71.

By letter dated April 3, 2019, FNS advised Harry's Deli that additional information was needed to determine if Harry's Deli met the eligibility requirements for SNAP authorization. A.R. 93. To verify that Harry's Deli's reported sales were accurate, FNS requested various documents, including "[e]nd-of-day sales summary reports that are electronically generated by [Harry's Deli's] cash register system"; "[a]n overview document . . . that [Harry's Deli] create[s] which totals the 3 months of end-of-day sales summary reports, . . . [broken into] "(1) heated or prepared foods, (2) non-foods, (3) accessory foods, (4) staple foods, and (5) charges for food heating services"; and"[v]erification of total gross retail sales for the last 1 year period." Id. Harry's Deli complied and submitted the requested documents to FNS on April 10, 2019. Id. at 95-142.

Harry's Deli provided FNS with an end-of-day report encompassing all sales from January 1, 2019 to March 31, 2019. A.R. 104-10. During the three-month period, Harry's Deli's sales totaled $128,907.31. Id. at 106-07; 110. The end-of-day report further divides Harry's Deli's total sales into specific food categories with the corresponding amount of sales in each. The following breakdown, generated by Harry's Deli, accounts for the total $128,907.31 in revenue: Sandwich Special ($64,770.36); Sandwiches ($38,466.51); Luncheon Meat (PAY EBT) ($8,768.22); Grocery ($6,302.05); Coffee ($4,935.13); GROCERY ($3,292.55); Salad ($870.71); Cheese ($840.55); Soup ($487.25); and Cheese Cake ($181.00).² Id. at 106-07. The report further breaks down Harry's Deli's sales in each category by individual item. Id. at 107-10. Without recounting each individual item here, it generally appears that the report accurately categorizes the items sold.³

Harry's Deli also provided an excel spreadsheet that it created, as requested by FNS, entitled "Harry's Deli - Overview Summary January, 2019 to March, 2019" ("Overview Summary"). A.R. 120-27. The Overview Summary organizes Harry's Deli's sales by month, and provides similar categories as the end-of-day report. Id. However, the Overview Summary also organizes each month's sales with labels that mirror C.F.R. designations: Accessory Foods, Heated/Prepared Foods, and Staple Foods. Id. Additionally, the columns include "Category,""Item Name," "Item Name 2," "Barcode," "Price," "Q[uanti]ty," and "Total." Id.⁴ Without delving into the specifics of each line item, the data in Harry's Deli's Overview Summary aligns with the information contained in the end-of-day report.⁵ Harry's Deli generated $48,463.89 in January 2019, $34,983.83 in February 2019, and $45,466.61 in March 2019, for a total of $128.914.33.⁶ Id.

After completing its review of the information gathered at the store visit and submitted by Harry's Deli, the FNS Retailer Operations Division notified Harry's Deli of its reauthorization determination by letter dated April 30, 2019. A.R. 143-44. FNS concluded that Harry's Deli "is ineligible to participate in SNAP as an authorized retailer," and withdrew Harry's Deli's authorization for a period of six months.⁷ Id. In the letter notice, FNS reasoned that Harry's Deli "did not meet the definition and requirements of a retail food store," and "is primarily a restaurant[] because more than 50 percent of [its] total gross retail sales are from 'heated foods' and/or 'prepared foods.'" Id. On May 3, 2019, Harry's Deli...