Ahmed v. U.S., 98-CV-6601L.

Citation47 F.Supp.2d 389
Decision Date30 April 1999
Docket NumberNo. 98-CV-6601L.,98-CV-6601L.
PartiesSaleh AHMED, d/b/a Martinez Grocery, Plaintiff, v. UNITED STATES of America, United States Department of Agriculture, Food and Consumer Service, Defendants.
CourtUnited States District Courts. 2nd Circuit. United States District Court of Western District of New York

Paul M. Fioravanti, Rochester, NY, for plaintiff.

Brian M. McCarthy, Asst.U.S.Atty., Rochester, NY, for defendants.

DECISION AND ORDER

LARIMER, Chief Judge.

Plaintiff Saleh Ahmed brings this action pursuant to 7 U.S.C. § 2023(a). Pending before this Court is plaintiff's motion for a preliminary injunction, seeking to enjoin the enforcement of a final determination issued by the United States Department of Agriculture, Food and Nutrition Service1 ("FNS" or "the Agency") permanently disqualifying his retail food store, Martinez Grocery, from participating in the Food Stamp Program. Plaintiff's motion for a preliminary injunction is granted.2

BACKGROUND

Martinez Grocery ("the store"), a small grocery store in Rochester, New York, was authorized by the FNS to accept food stamps. Plaintiff has asserted that 50% of the store's revenue involved food stamp transactions. The store was operated by plaintiff and managed by Saeed Saleh. Plaintiff also employed one or two additional employees.

On April 8, 1998, an FNS investigator entered the store and exchanged $100 worth of food stamp coupons for $50.00 in cash.3 The clerk who participated in the transaction was later identified by the FNS as Saleh Saleh,4 plaintiff's cousin. Plaintiff was sent a letter dated June 17, 1998 ("charge letter"), indicating that he was being charged with food stamp trafficking. In at least six years of participation in the Food Stamp Program, this was the first time plaintiff's store was cited for any violation. The charge letter warned that the sanction for this violation would be permanent disqualification or, if appropriate, a civil money penalty ("CMP"). The charge letter referenced the criteria for CMP eligibility, purported to enclose a copy of the applicable regulations, and stated that plaintiff's request for a CMP in lieu of permanent disqualification must be submitted to the FNS within ten days of the receipt of the letter.

Saeed Saleh received the charge letter while plaintiff was out of the country. Saleh, acting on plaintiff's behalf, timely filed an affidavit responding to the charge letter. Saleh denied the allegations in the charge letter, and stated that neither he nor plaintiff committed or benefitted from any acts in violation of the Food Stamp Program. Saleh averred that as manager, he had developed an effective compliance policy to prevent food stamp violations and that this compliance policy was in effect prior to the occurrence of the alleged violation. Specifically, Saleh stated that both he and plaintiff personally trained employees and that he often advised employees of the food stamp regulations in both English and Arabic.

Plaintiff was notified in a letter dated September 14, 1998, that the FNS had found the occurrence of the "violations" articulated in the charge letter, and that he was ineligible for a CMP under 7 C.F.R. § 278.6(i). Accordingly, plaintiff was notified that Martinez Grocery, under his ownership, was permanently disqualified from participation in the Food Stamp Program. This determination also contained a "Bill for Collection" seeking compensation for the $100.00 "loss to the Government." Plaintiff requested administrative review of this disqualification, attaching a copy of Saleh's previously submitted affidavit. An Administrative Review Officer ("ARO") sustained the permanent disqualification and the $100.00 fiscal claim.

DISCUSSION
A. The Food Stamp Statute

The Food Stamp Program was borne of the Food Stamp Act of 1964. 7 U.S.C. §§ 2011 et seq. Congress has on several occasions addressed the issue of the exchange of food stamp coupons for cash, or "trafficking."5 Currently, section 2021(b)(3)(B) of the Food Stamp Statute mandates permanent disqualification or the imposition of a CMP where a retailer traffics in food stamp coupons:

Disqualification ... 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 money penalty of up to $20,000 for each violation (... civil money penalties imposed for violations occurring during a single investigation may not exceed $40,000) 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....

Originally, the Food Stamp Act of 1964 left the issue of disqualification for trafficking violations to the discretion of the Secretary of Agriculture. See Ghattas v. United States, 40 F.3d 281, 283-84 (8th Cir.1994) (thoroughly discussing statutory history of Food Stamp Program). In 1982, Congress amended the statute to mandate permanent disqualification for all trafficking violations. Omnibus Budget Reconciliation Act of 1982, Pub.L. No. 97-253, § 175, 96 Stat. 763, 781 (1982). Congress returned some level of discretion to the Secretary via the Hunger Prevention Act of 1988, amending the Food Stamp Act to include the possibility of a CMP of up to $20,000 for trafficking violations if "the Secretary determines that there is substantial evidence ... [of] an effective policy and program in effect to prevent violations." Pub.L. No. 100-435, § 344, 102 Stat. 1645, 1664 (1988).

In response to this congressional mandate, the FNS promulgated regulations that, among other requirements, established the criteria for the eligibility for a CMP in lieu of permanent disqualification for trafficking violations. See Civil Money Penalties in Lieu of Permanent Disqualification for Trafficking, 55 Fed.Reg. 31,809 (1990). In 1990, Congress again amended the statute to include language requiring the Secretary to consider evidence of knowledge of the violation by the store's ownership or management.6 Mickey Leland Memorial Domestic Hunger Relief Act, Pub.L. No. 101-624, § 1743, 104 Stat. 3359, 3795 (1990). The statute was amended to its present form in 1996. Federal Agriculture Improvement and Reform Act of 1996, Pub.L. No. 104-127, § 401, 110 Stat. 888, 1026 (1996).

B. Regulations Implementing the Food Stamp Program

The regulations implementing the Food Stamp Program provide that a food store (or "firm") that engages in trafficking is subject to permanent disqualification from participation in the Food Stamp Program. See 7 C.F.R. § 278.6(a). In lieu of permanent disqualification, the FNS "may impose a civil money penalty ... in accordance with the provisions of § 278.6(i) and § 278.6(j)." Id. According to section 278.6(i), to be eligible for a CMP a food store must "at a minimum" establish "by substantial evidence" four criteria:

Criterion 1. The firm shall have developed an effective compliance policy as specified in § 278.6(i)(1); and

Criterion 2. The firm shall establish that both its compliance policy and program were in operation at the location where the violation(s) occurred prior [emphasis in original] to the occurrence of violations cited in the charge letter sent to the firm; and

Criterion 3. The firm had developed and instituted an effective personnel training program as specified in § 278.6(i)(2); and

Criterion 4. Neither firm ownership nor management were aware of, approved, benefitted from, or were in any way involved in the conduct or approval of trafficking violations....7

Pursuant to section 278.6(a)(2)(ii), a food store requesting a CMP in lieu of permanent disqualification must submit the materials specified in section 278.6(i) ten days from the receipt of a "charge letter" from the FNS specifying the violations. 7 C.F.R. § 278.6(a)(2)(ii).

C. Standard of Review

A party seeking to enjoin "governmental action taken in the public interest pursuant to a statutory or regulatory scheme" must show irreparable harm and a likelihood of success on the merits. Sal Tinnerello & Sons, Inc. v. Town of Stonington, 141 F.3d 46, 52 (2d Cir.1998) (quoting Plaza Health Lab., Inc. v. Perales, 878 F.2d 577, 580 (2d Cir.1989)). This standard is codified in section 2023(a)(17) of the statute. 7 U.S.C. § 2023(a)(17) (A court may temporarily stay an administrative action after a hearing and consideration "of the applicant's likelihood of prevailing on the merits and of irreparable injury."); see Castillo v. United States, 989 F.Supp. 413, 417 (D.Conn.1997); Young Jin Choi v. United States, 944 F.Supp. 323, 324-25 (S.D.N.Y.1996).

D. Likelihood of Success on the Merits

Pursuant to 7 U.S.C. § 2023(a)(15), the "validity of the questioned administrative action in issue" shall be determined in a "trial de novo." In reviewing FNS action, the Second Circuit applies a bifurcated standard of review. While factual determinations are reviewed de novo, an FNS penalty determination is reviewed under the arbitrary or capricious standard, that is, whether the determination is "unwarranted in law or without justification in fact." Willy's Grocery v. United States, 656 F.2d 24, 26 (2d Cir.1981) (citations omitted); see Lawrence v. United States, 693 F.2d 274, 276 (2d Cir.1982). The Court is now faced with the task of determining whether plaintiff...

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