Barakat v. Wisconsin Dept. of Health and Social Services

Decision Date28 February 1995
Docket NumberNo. 93-2973,93-2973
Citation530 N.W.2d 392,191 Wis.2d 769
CourtWisconsin Court of Appeals
PartiesKifah BARAKAT, Rasem Barakat and Kassee's Food Market, Inc., Petitioners-Respondents, v. WISCONSIN DEPARTMENT OF HEALTH AND SOCIAL SERVICES, Respondent-Appellant.

For the respondent-appellant the cause was submitted on the briefs of James E. Doyle, Atty. Gen., and Donald P. Johns, Asst. Atty. Gen.

For the petitioners-respondents the cause was submitted on the briefs of Charles L. Rustin, of Milwaukee.

Before WEDEMEYER, P.J., and SULLIVAN and SCHUDSON, JJ.

SULLIVAN, Judge.

The Wisconsin Department of Health and Social Services (DHSS) appeals from the trial court's judgment reversing an administrative hearing examiner's order that disqualified Kifah Barakat, his brother Rasem Barakat, and their corporate retail grocery store, Kassee's Food Market, Inc. (collectively "the Respondents") from participation in the Women, Infants and Children (WIC) program for three years. The parties raise several issues: (1) whether the agency's authority to conduct an administrative hearing and to disqualify the Respondents from WIC program participation was preempted by a federal criminal prosecution; (2) whether a disqualification imposed by the agency would be an excessive and unreasonable penalty in light of the federal criminal sanctions already imposed; and (3) whether the agency's procedures for determining whether to disqualify vendors and the length of such disqualifications are unreasonable and arbitrary. We conclude: (1) that the agency was not preempted by the federal criminal prosecution from disqualifying the Respondents' participation from the WIC program; (2) that disqualification is not an excessive and unreasonable penalty in light of the already-imposed criminal sanctions; and (3) that the agency acted within its discretion in imposing the three-year disqualification. Accordingly, we must reverse the judgment of the trial court that reversed and dismissed the agency action. Further, we remand the matter to the trial court with instructions to reinstate the order of the hearing examiner.

I. BACKGROUND

In 1990, Kassee's Food Market was one of several vendors investigated by federal authorities and the state WIC program for possible fraud. As a result of the federal investigation, the United States Attorney for the Eastern District of Wisconsin brought federal criminal charges against Kifah and Rasem Barakat and Kassee's Food Market, Inc. On August 7, 1991, the Respondents pled guilty to misdemeanor submission of false claims. See 42 U.S.C. § 1760(g). As part of the sentence, the federal district court fined the Respondents $15,000 and placed them on eighteen months probation, an original condition of which was that the Respondents would "not have any involvement in the WIC program for a period of three (3) years." On April 7, 1992, the district court modified the terms of the Respondents' probation by removing the three-year nonparticipation in the WIC program condition.

Meanwhile, on February 27, 1992, the state WIC office mailed the Respondents a letter notifying them of their three-year disqualification from the WIC program. The Respondents appealed and a DHSS examiner held an administrative hearing. After the hearing, the examiner made the following findings of fact and conclusions of law:

FINDINGS OF FACT

1. Kassee's Food Market is owned by Kassee's Food Market, Inc Kifah Barakat is the manager of Kassee's Food Market, and President of Kassee's Food Market, Inc. Rasem Barakat is the Secretary of Kassee's Food Market, Inc. is located at 2131 West Wells Street in Milwaukee, Wisconsin.

2. Kassee's Food Market, Inc., has owned Kassee's Food Market since April 1, 1990. It applied for and was approved to be an authorized vendor under the Women, Infants, and Children (WIC) Program for the years 1989-90 and 1991-92.

3. Petitioners were charged with violating Title 18 of the United States Code, sections 287 and 2, in criminal indictments in the United States District Court, for the Eastern District of Wisconsin.

4. Each petitioner entered guilty pleas to the following:

"[T]he defendant herein, did willfully obtain by fraud funds with a value of less than $99.00 that are the subject of a grant under Chapter 13 of the School Lunch Program Act, in that the defendant submitted claims to the Women, Infants & Children ("WIC") Program upon and against the U.S. Department of Agriculture for payment pursuant to WIC drafts which the defendant well knew overstated the actual dollar amount of the foods exchanged for those drafts."

The guilty pleas were entered pursuant to written plea agreements, signed by the petitioners on May 22, 1991. Included in all three plea agreements was the following provision:

"... that this agreement does not limit the right of administrators of the WIC Program or other government programs to assess whatever sanctions as they deem advisable."

5. On September 27, and October 1, 1991, the District Court issued an order which modified the terms of petitioner's probations; the order removed the disqualification from participation in the WIC program. It is unclear why that probation term was included prior to the September 27 and October 1, Orders; there was no such provision in any of either the plea agreements or the Judgments.

6. By letters dated February 28, 1992, the WIC Program informed petitioners that they were being terminated as WIC vendors for a three-year period. WIC vendor status has been continued pending this decision.

....

Petitioners further argue that the imposition of a three-year sanction is arbitrary and capricious. They correctly cite the standard for reviewing the length of the disqualification. (I note that the WIC Program argues that this office does not have jurisdiction to review the length of the sanction; I will not address that issue because of the following discussion.)

The WIC Program has determined that where a Class A violation results in the diversion of funds away from WIC participants, and away from the purpose of the program, a full three-year disqualification should be imposed. As explained by the WIC director, the program has limited funds, and it has a continuous waiting list. Every dollar which a vendor improperly diverts from the program's purpose is a dollar less available for women, infants, and children who need the benefits. Consequently, the WIC Program sees the diversion of funds away from participants as being serious enough to hold vendors to very nearly a strict liability standard.

Under those circumstances, it cannot be said that the WIC Program's determination was arbitrary or capricious. The WIC Program does not impose a three-year sanction for all Class A violations, just violations which involve a diversion of funds. The Program's main concern in setting the length of the sanction is not the effect on the vendor's business, but the effect of the vendor's violation on the program and its participants. Therefore there is no basis for reversing the action taken by the Program.

I note that even if there [were] a basis for reversing the decision concerning the length of the sanction, petitioners have provided no reason for doing so. Like any store which loses its authorization, there is a negative effect on the business. Petitioners have provided no other reason which would lead an examiner to conclude that their situation is any different than any other businesses which have lost their WIC authorizations; that petitioners were convicted of a federal felony in connection with his actions would make it difficult to give them a lesser sanction period than others who were not even charged with a crime.

CONCLUSIONS OF LAW

1. Petitioners committed the Class A WIC offense of submitting a WIC draft in a dollar amount in excess of the retail value of the foods for which it was exchanged.

2. Petitioners' conviction in a federal criminal court does not preempt the WIC program from imposing sanctions allowed under WIC rules.

3. The three-year disqualification of petitioners by the WIC program was justified, within the Program's discretion.

The examiner then denied the Respondents' petition to review the disqualification.

Subsequently, pursuant to Chapter 227, STATS., the Respondents petitioned to the trial court for a review of the examiner's ruling. Following briefing, the trial court heard arguments at a hearing on July 26, 1993. The court concluded that the Respondents had incurred sufficient penalty under the federal criminal sanctions and, further, that the WIC program failed to exercise any discretion in imposing the three-year disqualification. Judgment was entered reversing the examiner's order. 1 The State appeals from this judgment.

II. STANDARD OF REVIEW

In reviewing a trial court's ruling on an administrative decision, our standard of review is the same as that applied by the trial court. General Castings Corp. v. Winstead, 156 Wis.2d 752, 756, 457 N.W.2d 557, 560 (Ct.App.1990). We, however, review the agency's decision, not the trial court's. Liberty Trucking Co. v. DILHR, 57 Wis.2d 331, 342, 204 N.W.2d 457, 463-64 (1973). Further, the subsections of § 227.57, STATS., delineate the specific scope of both the trial court's and our review of each issue presented by the parties.

III. PREEMPTION BY FEDERAL CRIMINAL PROSECUTION

The Respondents contend that the federal criminal prosecution for WIC program fraud preempted the State from disqualifying them from the program as a state administrative sanction. We disagree.

The agency concluded as a matter of law that it was not preempted from disqualifying the Respondents. Our review of whether an agency has correctly interpreted the law is controlled by § 227.57(5), STATS.:

(5) The court shall set aside or modify the agency action if it finds that the agency has erroneously interpreted a...

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