Alhalemi, Inc. v. Roberts

• Decision Date: 01 December 2016
• Docket Number: CASE NO: 16–11684
• Citation: 224 F.Supp.3d 587
• Parties: ALHALEMI, INC., Plaintiff, v. ROBERTS UNITED STATES OF AMERICA, et al., Defendants.
• Court: U.S. District Court — Eastern District of Michigan

224 F.Supp.3d 587

ALHALEMI, INC., Plaintiff,

v.ROBERTS UNITED STATES OF AMERICA, et al., Defendants.

CASE NO: 16–11684

United States District Court, E.D. Michigan, Southern Division.

Signed December 1, 2016

Nabih H. Ayad, Ayad Law, P.L.L.C., Detroit, MI, for Plaintiff.

James J. Carty, U.S. Attorney's Office, Detroit, MI, for Defendants.

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS

Victoria A. Roberts, United States District Judge

I. STATEMENT OF FACTS

This action arises out of a final decision of the United States Department of Agriculture, Food and Nutrition Service's ("Agency") to permanently disqualify Alhalemi, Inc. ("Alhalemi") as an authorized retailer of the Supplemental Nutrition Assistance Program ("SNAP"). Alhalemi says the decision was arbitrary and capricious and in violation of laws, regulations, and the U.S. Constitution.

Alhalemi brings this suit against the United States and Secretary of the United States Department of Agriculture, Tom Vilsack. The complaint contains three counts: (I) judicial review and reversal of the Agency's determination of trafficking pursuant to the Food Stamp Act, 7 U.S.C. § 2023 (II) ; violation of the Administrative Procedure Act, 5 U.S.C. § 701 et seq. ("APA"); and (III) violation of the Fifth Amendment's procedural and substantive due process clauses.

The United States filed a motion to dismiss Count II and Count III, and to dismiss Secretary Vilsack as a Defendant. The motions are fully briefed. Oral argument was heard on November 18, 2016.

Alhalemi is a privately held corporation that operates a gas station, retail convenience store, and food market in Highland Park, MI. Alhalemi was authorized to participate in SNAP on November 12, 2003. SNAP provides benefits through an Electronic Benefit Transfer ("EBT") system as a part of the Food and Nutrition Act of 2008, 7 U.S.C §§ 2011 –2036 ("the Act"). Recipients of SNAP benefits pay for eligible food purchases at retailers like Alhalemi, using EBT cards as debit cards. Customers swipe EBT cards, enter personal identification numbers, and the point of sale device transmits the sale information to the Agency which processes and stores the information.

On January 11, 2016, the Agency notified Alhalemi it was charged with trafficking in SNAP benefits as defined in 7 C.F.R. § 271.2. The letter to Alhalemi cited EBT transactions that showed: "multiple transactions made from individual benefit accounts in unusually short time frames," and "a series of excessively large purchase transactions made from recipient accounts." The Agency charged that Alhalemi was "trafficking," defined by regulations to mean the "buying or selling of coupons...or other beneficial instruments for cash or consideration other than eligible food." The letter advised Alhalemi the sanction for trafficking is permanent disqualification. The Agency notified Alhalemi it could be eligible to receive a $59,000 civil money penalty ("CMP") in lieu of permanent disqualification if Alhalemi replied within ten days of receiving the charge letter, and provided documentation showing it meets criteria for the CMP exception set forth in 7 C.F.R. § 278.6 (i).

Alhalemi responded to the Agency's letter on January 20, 2016, requesting a CMP in lieu of disqualification. The Agency concluded disqualification was the more appropriate sanction and issued Alhalemi a notice of permanent disqualification. The February 15, 2016 notice of disqualification informed Alhalemi of its right to request an administrative hearing to review its determination within ten days. Alhalemi requested administrative review on February 24, 2016.

The Agency reviewed the evidence submitted by Alhalemi and issued a Final Agency Decision on April 11, 2016, upholding the determination of trafficking and sanction of permanent disqualification. The review officer concluded Alhalemi did not provide sufficient evidence to rebut the prima facie case of trafficking and that Alhalemi "failed to provide Retailer Operations with the required documentation to be considered for a trafficking CMP in lieu of disqualification." The review officer concluded that the determination of ineligibility for a trafficking CMP in lieu of permanent disqualification was correct. Ex. D at A.R.227.

Alhalemi filed suit on May 11, 2016.

In its motion to dismiss Count II under Fed.R.Civ.P. 12(b)(6), the United States alleges review under the APA is foreclosed because the Act provides an adequate mechanism for de novo judicial review. The United States also moves to dismiss Count III, contending that Alhalemi cannot state a claim for a procedural or substantive due process violation. Finally, the United States moved to dismiss Secretary Vilsack as a defendant for lack of subject matter jurisdiction because SNAP only provides for suits against the United States and, therefore, Secretary Vilsack retained sovereign immunity.

Alhalemi agreed to dismiss Secretary Vilsack as a defendant.

In opposition to the balance of the United States' motion, Alhalemi contends that Sixth Circuit case law suggests the Agency's Final Decision to assess a permanent disqualification rather than a CMP is not entitled to review under the Act's de novo review procedure. Alhalemi asserts the type of sanction assessed is reviewable under the APA because it was an arbitrary and capricious decision. Alhalemi relies on the Sixth Circuit decision in Bakal Bros. v. United States , 105 F.3d 1085, 1087 (6th Cir. 1997).

Alhalemi alleges Count III should not be dismissed because: (1) Alhalemi's substantive due process rights were violated when the Agency failed to consider evidence to determine whether Alhalemi qualified for the CMP exception without rational basis; and (2) Alhalemi's procedural due process rights were violated because: (a) the Agency's ten day limit to respond to both the initial charge and the notice of disqualification did not give Alhalemi a meaningful opportunity to contest the issue; (b) the discretionary power to provide a CMP in lieu of permanent disqualification requires further adjudication beyond the review provided by the Act; and (c) while the Agency informed Alhalemi that it did not provide sufficient information to qualify for the CMP exception, it gave Alhalemi an insufficient time to supplement the information with further documents.

II. ANALYSIS

A motion to dismiss under Fed.R.Civ.P. 12(b)(6) tests whether a cognizable claim has been pled in the complaint. When ruling on a 12(b)(6) motion, the court must construe the complaint in a light most favorable to the plaintiff and accept the plaintiff's factual allegations as true. Evans–Marshall v. Bd. of Educ. of Tipp City Exempted Vill. Sch. Dist. , 428 F.3d 223, 228 (6th Cir. 2005). In doing so, the court must "draw all reasonable inferences in favor of the plaintiff." DirecTV, Inc. v. Treesh , 487 F.3d 471, 476 (6th Cir. 2007).

A. Count II—Violation of the Administrative Procedure Act 5 U.S.C.A. § 701 et seq.

The APA provides for judicial review of "final agency action for which there is no other adequate remedy in a court." 5 U.S.C. § 704. Review under the APA is available except to the extent "[s]tatutes preclude judicial review" or "agency action is committed to agency discretion by law." 5 U.S.C. § 701. The APA "does not provide additional judicial remedies in situations where the Congress has provided special and adequate review procedures[.]" Bowen v. Massachusetts , 487 U.S. 879, 903, 108 S.Ct. 2722, 101 L.Ed.2d 749 (1988). (quotation marks omitted); see also Bangura v. Hansen , 434 F.3d 487, 500 (6th Cir. 2006) (to state a claim for relief under the APA, a plaintiff must allege that his or her injury stems from a final agency action for which there is no other adequate remedy in court.").

The Act provides for de novo judicial review of agency final determinations in United States district courts; the district court "shall enter such judgment or order as it determines is in accordance with the law and evidence." 7 U.S.C. §§ 2023(a)(13); (a)(16).

"Once the trial court has confirmed that the store has violated the statutes and regulations, the court's only task is to examine the sanction imposed in light of the administrative record in order to judge whether the agency properly applied the regulations, i.e. , whether the sanction is ‘unwarranted in law’ or ‘without justification in fact.’ If the agency properly applied the regulations, then the court's job is done and the sanction must be enforced. The trial de novo is limited to determining the validity of the administrative action; the severity of the sanction is not open to review." Goldstein v. United States , 9 F.3d 521, 523 (6th Cir. 1993) (internal citations and quotations omitted).

The United States says judicial review under the APA of Agency final decisions is precluded because the Food and Nutrition Act provides for "special and adequate review procedure through 7 U.S.C.§ 2023, and therefore, review under the APA is precluded." Motion to Dismiss. (Dk # 4) at 8. The APA provides for judicial review of "final agency action for which there is no other adequate remedy in court." 5 U.S.C. § 704. In support, the United States cites Bowen , which interpreted § 704 to preclude review of agency actions under the APA "where Congress has provided special and adequate review procedures." Id. at 903, 108 S.Ct. 2722.

Alhalemi concedes that a general de novo review of the Final Decision regarding whether a SNAP violation occurred would ban an APA claim. But, it says the permanent disqualification sanction is reviewable under an arbitrary and capricious standard. Alhalemi relies on Bakal Bros., Inc. for the assertion: "in this case the decision to impose (or not to impose) the CMP in lieu of the permanent disqualification may be reviewable under the APA's arbitrary and capricious standard." Response. (Dk. 6) at 4–5. It says judicial review will not be ‘adequate’ without this APA claim because while de novo review may or may not overturn the decision on the SNAP...