Brother Convenience Store, Inc. v. United States Dep't of Agric.

• Decision Date: 01 September 2021
• Docket Number: Civil Action GLR-20-1346
• Parties: BROTHER CONVENIENCE STORE, INC., et al., Plaintiffs, v. UNITED STATES DEPARTMENT OF AGRICULTURE, Defendant.
• Court: U.S. District Court — District of Maryland

BROTHER CONVENIENCE STORE, INC., et al., Plaintiffs, v. UNITED STATES DEPARTMENT OF AGRICULTURE, Defendant.

Civil Action No. GLR-20-1346

United States District Court, D. Maryland

September 1, 2021

MEMORANDUM OPINION

George L. Russell, III, United States District Judge

THIS MATTER is before the Court on Defendant United States Department of Agriculture's (“USDA” or the “Agency”) Motion to Dismiss or, in the Alternative, for Summary Judgment (ECF No. 12). The Motion is ripe for disposition, and no hearing is necessary. See Local Rule 105.6 (D.Md. 2021). For the reasons set forth below, the Court will grant the Motion, which it construes as a motion for summary judgment.

I. BACKGROUND

Plaintiff Brother Convenience Store, Inc. (“Brother Convenience” or the “Store”) is a small convenience store in Baltimore, Maryland. (Compl. ¶ 9 ECF No. 1). Brother Convenience is owned by Plaintiffs Hesham A. Ghaleb (“Hesham”) and Maged A. Ghaleb (“Maged”) (the “Ghalebs”) (together with the Store, “Plaintiffs”). (Id. ¶ 2). The Store was formerly authorized to accept payments from beneficiaries of the Supplemental Nutrition Assistance Program (“SNAP”), commonly known as the food stamp program, pursuant to the Food and Nutrition Act of 2008, 7 U.S.C. § 2011 et seq. (the “Food and Nutrition Act”). (Id. ¶ 10). Before outlining the facts of the present case, the Court will briefly describe the regulatory framework of SNAP.

A. Regulatory Framework

The mission of the SNAP program is “to promote the general welfare, to safeguard the health and well-being of the Nation's population by raising levels of nutrition among low-income households.” 7 U.S.C. § 2011. To advance this mission, SNAP aims to increase the food purchasing power of eligible households by supplementing the funds families have available to spend on food with food stamp allotments, which may be used for purchasing food items at authorized retail food stores. See id. § 2013. SNAP benefits can be redeemed only for purchases of food; non-food purchases are not eligible for SNAP benefits. See id.; see also 7 C.F.R. § 271.2.

The SNAP program is administered by USDA's Food and Nutrition Service (“FNS”). See 7 C.F.R. § 271.3. Through FNS, a household's SNAP benefits are delivered through electronic benefit transfer (“EBT”) cards. See 7 U.S.C. § 2016(j). EBT cards operate similarly to a debit card issued by a bank. At the beginning of each month, a SNAP beneficiary's EBT card is credited with a dollar amount of SNAP benefits for that month. The beneficiary may then use the EBT card at authorized retail food stores to purchase eligible food items. Id. § 2013(a). Retail food stores have one or more EBT terminals in their stores. As a purchase is made, the retailer swipes the EBT card through the EBT terminal, the recipient enters a personal identification number code on a keypad, and the amount of the purchase is deducted from the beneficiary's EBT card balance. The EBT terminal generates a receipt for each transaction and the balance remaining in the recipient's account for the month is displayed on the receipt. The amount of the recipient's purchase is then electronically credited within two banking days to the retail food store owner's bank account. See id. (providing that only retailers approved by USDA may engage in SNAP benefit transactions); 7 C.F.R. § 278.1 (describing process by which retailer becomes an approved SNAP participant).

FNS is authorized to monitor retail food stores' EBT transactions to combat fraud in the administration of the SNAP program. See 7 C.F.R. § 278.6. Specifically, FNS is authorized to electronically monitor and conduct periodic reviews of stores' EBT transactions and investigate a store when it believes an investigation is warranted by suspicious data. Id. FNS may disqualify any authorized retail food store from future participation in SNAP for violating any provision of the Food and Nutrition Act or a regulation promulgated thereunder. 7 U.S.C. § 2021(a); 7 C.F.R. § 278.6. SNAP regulations permit FNS to disqualify a store if it concludes a violation has occurred “on the basis of evidence that may include facts established through on-site investigations, inconsistent redemption data, evidence obtained through a transaction report under an electronic benefit transfer system, or the disqualification of a firm from the Special Supplemental Nutrition Program for Women, Infants and Children (WIC).” 7 C.F.R. § 278.6(a). The period of disqualification may range from as little as six months to permanent, depending on the nature of the violation. In certain circumstances, FNS also has the discretion to assess a civil monetary penalty (“CMP”) in lieu of disqualification. 7 C.F.R. § 278.6(a)(1), (e)(1), (f), (i).

One type of SNAP fraud is trafficking, which generally involves the exchanging of SNAP benefits for cash or a form of consideration other than eligible food items. See 7 C.F.R. § 271.2. Under the relevant SNAP regulations, retail food store owners may not accept EBT benefits as payment for ineligible items-generally non-food items, alcoholic beverages, and some prepared hot food items. Id. (defining “[e]ligible foods” under the SNAP program). Food store owners are also prohibited from exchanging EBT benefits for cash, even if the store discounts the benefits-for example, charging a customer $25 on his or her EBT card in exchange for $20 cash. Id. Even for a first violation, the penalty for trafficking is permanent disqualification. 7 U.S.C. § 2021(b)(3)(B); 7 C.F.R. § 278.6(e)(1)(i).

Alternatively, FNS may impose a CMP in lieu of permanent disqualification if the store submits substantial evidence that it had established and implemented an effective compliance policy and program to prevent SNAP violations. See 7 U.S.C. § 2021(b)(3)(B); 7 C.F.R. § 278.6(i). FNS has discretion to impose a CMP in lieu of permanent disqualification if the store provides “substantial evidence” of the following 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 to the occurrence of the 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. Firm ownership was not aware of, did not approve, did not benefit from, or was not in any way involved in the conduct or approval of trafficking violations; or it was only the first occasion in which a member of firm management was aware of, approved, benefited from, or was involved in the conduct of any trafficking violations by the firm. Upon the second occasion of trafficking involvement by any member of firm management uncovered during a subsequent investigation, a firm shall not be eligible for a civil money penalty in lieu of permanent disqualification. Notwithstanding the above provision, if trafficking violations consisted of the sale of firearms, ammunition, explosives or controlled substances, as defined in 21 U.S.C. § 802, and such trafficking was conducted by the ownership or management of the firm, the firm shall not be eligible for civil money penalty in lieu of permanent disqualification. For purposes of this section, a person is considered to be part of firm management if that individual has substantial supervisory responsibilities with regard to directing the activities and work assignments of store employees. Such supervisory responsibilities shall include the authority to hire employees for the store or to terminate the employment of individuals working for the store.

7 C.F.R. § 278.6(i).

When an investigation results in agency action to disqualify a store or assess a CMP on the owner, federal regulations provide for a system of administrative and judicial review. After receiving written notice of the action, an aggrieved retailer may request review of the administrative action by FNS. 7 U.S.C. § 2023(a); 7 C.F.R. § 279.1; see also 7 C.F.R. § 279.5(c) (defining scope of review for disqualification actions). If a store requests review, the administrative action is held in abeyance pending disposition of the request for review, unless the penalty is a permanent disqualification for trafficking. 7 C.F.R. §§ 279.1, 279.4(a). In cases of a permanent disqualification for trafficking, the disqualification action is effective from the date the firm receives notice of the disqualification. 7 U.S.C. § 2023(a)(18). Upon completion of the review, FNS renders a “Final Agency Decision” and notifies the retailer. 7 C.F.R. § 279.5(e). This Final Agency Decision becomes effective thirty days from the date of delivery. Id. § 279.5(f).

B. Factual Background

1. Investigation

The FNS Retailer Operations Division (“ROD”) began an investigation into the Store after ROD's EBT ALERT^[1] system showed that the Store's EBT data contained patterns consistent with trafficking from April through September 2019. (Administrative Appeal Record [“A.R.”] at 272, ECF No. 11).^[2] On September 3 2019, an FNS contractor conducted a store visit (the “Store Visit”), to which Hesham consented. (Id. at 188-92). Hesham assisted in preparing the report memorializing the Store Visit (the “Store Visit Report”). (Id. at 189, 194). The Store Visit Report detailed that the Store had no optical scanners at the checkout, no shopping carts, no evidence of a wholesale business, and used the typical pricing structure of prices ending in $.x9. (Id. at 188). The Store had one shopping basket and the checkout area operated behind a night window/plastic barrier. (Id.). The Store had one checkout area with...