AJ Mini Mkt. v. United States

Docket Number22-1348
Decision Date05 July 2023
PartiesAJ MINI MARKET, INC., Plaintiff, Appellant, v. UNITED STATES, Defendant, Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND [Hon. John J. McConnell, Jr., U.S. District Judge]

George J. West on brief for appellant.

Zachary A. Cunha, United States Attorney, and Leslie J. Kane Assistant United States Attorney, on brief for appellee.

Before Kayatta, Selya, and Montecalvo, Circuit Judges.

SELYA CIRCUIT JUDGE.

The supplemental nutrition assistance program (SNAP) - commonly known as the food-stamp program - is an important feature of the social net that assists underserved populations. Like many social programs, SNAP's integrity (and, thus, its utility) depends on the commitment of the affected parties - the government, the benefit recipients, and the participating grocers - to play by the rules.

A failure to abide by the rules has consequences. The Food and Nutrition Service (FNS) of the United States Department of Agriculture is tasked with overseeing grocers' participation in SNAP. When FNS determines that a grocer has colored outside the lines and flouted programmatic guidelines, it is empowered to impose penalties (up to and including permanent program disqualification).

This is such a case. After an investigation that in its judgment revealed evidence of unlawful trafficking in SNAP benefits FNS disqualified plaintiff-appellant AJ Mini Market, Inc. (the Market) from further participation in SNAP. The Market did not take this exile lightly: it brought suit in the United States District Court for the District of Rhode Island, asking that the court overturn FNS's liability finding and vacate the program-disqualification order as arbitrary and capricious. In a thoughtful rescript, the district court rejected the Market's importunings and entered summary judgment for the United States. See AJ Mini Mkt., LLC v. United States, 597 F.Supp.3d 537, 541 (D.R.I. 2022). The Market appeals. After careful consideration, we affirm.

I

We briefly rehearse the relevant facts and travel of the case. Because this appeal follows the district court's entry of summary judgment, we array those facts in the light most favorable to the nonmoving party (here, the Market). See Minturn v. Monrad, 64 F.4th 9, 14 (1st Cir. 2023).

The Market is a convenience store located in Woonsocket, Rhode Island. It sells some groceries, mainly inexpensive items, including canned and packaged foods, meats, snacks, and beverages (all of which are SNAP-eligible). It also sells a variety of other items, such as delicatessen foods (some of which are SNAP-eligible) and baby formula (which is SNAP-eligible). And, finally, the Market sells a salmagundi of items that are not SNAP-eligible, such as prepared foods, tobacco products, and lottery tickets.

The Market has been authorized to accept SNAP benefits since 1989. It has limited checkout counter space and ten shopping baskets but no shopping carts. And the Market has one cash register for food purchases, one point-of-sale device to process SNAP payments, and one optical scanner.

Prior to December of 2018, FNS's database flagged statistically unusual spending patterns at the Market - patterns that could indicate SNAP trafficking. FNS proceeded to launch an investigation that included a store visit and a comparison between the shopping habits of the Market's customers and shoppers at other SNAP-eligible stores in the area. In the process, FNS reviewed transaction data from December of 2018 through May of 2019.

The investigation confirmed FNS's suspicions and - on July 11, 2019 - FNS sent a charge letter to the Market describing 384 SNAP violations based on the data, the store visit, and the shopping comparison. The charge letter grouped the violations into three categories, from which it drew an inference of SNAP trafficking: multiple transactions within a short period by the same household; depletion of a household's SNAP benefits within an abbreviated time frame; and a high volume of larger-than-expected transaction totals (based on store characteristics and food stock). The letter notified the Market that the sanction would be permanent disqualification from participation in SNAP. Last but not least, the letter informed the Market that it had an opportunity - in advance of a final determination - to produce evidence to refute both the liability finding and the proposed sanction. See 7 C.F.R. § 278.6(b)-(c).

The Market responded by providing 174 pages of receipts, claiming that these receipts clarified the nature of the allegedly offending transactions. Additionally, the Market suggested that its customers typically shop in bulk once or twice a month after receiving their SNAP benefits, thus accounting for the spending patterns that FNS had deemed suspicious. The Market also requested that if FNS found a violation, it impose a monetary penalty in lieu of permanent disqualification. In its response, though, the Market did not identify any particular customers, nor did it furnish any materials describing SNAP compliance policies or training programs.

The Market's response did not move the needle. On August 15, 2019, FNS wrote to the Market, stating that the submitted receipts were not sufficient either to change the picture or to illustrate the legitimate use of SNAP benefits. Rejecting the Market's other arguments, FNS permanently disqualified it from further participation in SNAP.

The Market requested administrative review of both the liability finding and the sanction. It was given an opportunity to submit additional evidence to FNS's review officer, see id. § 279.3(b), but it made no further submissions. On June 12, 2020, the review officer upheld FNS's determination that the Market had violated SNAP regulations by engaging in trafficking. Relatedly, the review officer upheld the order for permanent disqualification.

Dissatisfied with the review officer's rulings, the Market commenced an action against the United States in the district court. Its complaint challenged both the liability finding and the sanction. See 7 U.S.C. § 2023(a)(13), (15). After the close of discovery, the United States moved for summary judgment. See Fed.R.Civ.P. 56(a). Although the Market opposed the motion, the district court granted it. See AJ Mini Mkt., 597 F.Supp.3d at 541. The court concluded that the Market had not shown the existence of any disputed issue of material fact sufficient to undercut the finding that it had trafficked in SNAP benefits. See id. at 540. Moreover, the court concluded that permanent disqualification was neither arbitrary nor capricious but, rather, was a fitting sanction under the applicable regulations. See id. at 541 (citing 7 C.F.R. § 278.6(e)(1)).

This timely appeal followed.

II

In this venue, the Market advances two claims of error. First, it argues that it should not be held liable for trafficking in SNAP benefits because the transactions upon which FNS relied were legitimate. Second, it argues that - even if the liability finding withstands scrutiny - FNS should have reduced the penalty imposed to a monetary sanction. We address these arguments sequentially.

A

Our starting point is the Market's claim that it did not traffic in SNAP benefits. We review the district court's entry of summary judgment de novo. See Minturn, 64 F.4th at 13. Our appraisal, like that of the district court, gives no weight to the agency's finding that trafficking occurred. See Irobe v. U.S. Dep't of Agric., 890 F.3d 371 376, 379 (1st Cir. 2018); see also 7 U.S.C. § 2023(a)(15). Instead, we must consider afresh the entirety of the expanded record compiled before the district court. See Irobe, 890 F.3d at 377.

Summary judgment is appropriate when the movant can demonstrate both that there is no genuine dispute as to any material fact and that it is entitled to judgment as a matter of law. See Minturn, 64 F.4th at 13-14; see also Fed.R.Civ.P. 56(a). In reviewing the summary judgment record, we must construe the facts in the light most favorable to the nonmovant and draw all reasonable inferences to its behoof. See Minturn, 64 F.4th at 14.

Shifting from the general to the specific, it is clear that a store that engages in SNAP trafficking violates the law. See 7 C.F.R. §§ 278.2(a), 271.2. Typically, such trafficking occurs when a store accepts SNAP benefits in exchange for cash or prohibited items. See id. § 278.2(a). For example, "a store trafficks when it 'accept[s] food stamps for sales that never took place,' allowing its customers to receive 'cash rather than merchandise.'" Irobe, 890 F.3d at 375 (quoting Idias v. United States, 359 F.3d 695, 698-99 (4th Cir. 2004)).

In this instance, FNS proffered no direct evidence of unlawful transactions. But direct evidence of unlawful transactions is not necessary to prove trafficking: circumstantial evidence may suffice. See 7 U.S.C. § 2021(a)(2); 7 C.F.R. § 278.6(a); see also Irobe, 890 F.3d at 379. To this end, FNS often identifies potential trafficking through a system that tracks data from SNAP-authorized stores and flags spending patterns indicative of trafficking. See Irobe, 890 F.3d at 375. Such telltale patterns include the presence of transactions that are large when compared to the items offered for sale by the store, see Euclid Mkt. Inc. v. United States, 60 F.4th 423, 427 (8th Cir. 2023), the presence of transactions that are substantially greater in dollar amount than transactions at similar stores in the area, see Fells v. United States, 627 F.3d 1250, 1254 (7th Cir. 2010), and the presence of high-dollar-amount SNAP transactions recorded in rapid succession, see Idias, 359 F.3d at 698. When such patterns are present, they give...

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