Brothers Food & Liquor, Inc. v. U.S.

• Decision Date: 03 June 2009
• Docket Number: No. 07 C 3588.,07 C 3588.
• Court: U.S. District Court — Northern District of Illinois
• Parties: BROTHERS FOOD & LIQUOR, INC., Plaintiff v. UNITED STATES of America, Defendant.

626 F.Supp.2d 875

BROTHERS FOOD & LIQUOR, INC., Plaintiff v. UNITED STATES of America, Defendant.

No. 07 C 3588.

United States District Court, N.D. Illinois, Eastern Division.

June 3, 2009.

Victor F. Ciardelli, Ciardelli & Cummings, Chicago, IL, for Plaintiff.

Harpreet Kaur Chahal, United States Attorney's Office, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

WILLIAM J. HIBBLER, District Judge.

On March 29, 2007, the Food and Nutrition Service (FNS) of the United States Department of Agriculture (USDA) notified Plaintiff Brothers Food & Liquor Inc., a store located in Chicago, that it was permanently disqualified from participating in the FNS Food Stamp Program because it allegedly engaged in food stamp trafficking. Plaintiff appealed that decision to the agency's Administrative Review Division and an Administrative Review Officer affirmed the disqualification on May 29, 2007. Plaintiff brought this lawsuit seeking judicial review of the FNS decision. Defendant now moves for summary judgment. For the reasons set forth below, the Court grants that motion in part and denies it in part.

BACKGROUND

In June 2003, Khaled Abu Dayeh bought the Brothers Food and Liquor store and in August of that year he applied for authorization to accept federal food stamp benefits. Food stamp benefits are delivered to recipients on encoded Electronic Benefits Transaction (EBT) cards which recipients swipe through a reader in order to pay for eligible items, such as bread, dairy products, meat, and vegetables. 7 C.F.R. § 271.2 (providing definitions for eligible items); see also 7 U.S.C. § 2018(a)(2)(B) (authorizing issuance of regulations concerning eligible items). As part of his application, Abu Dayeh acknowledged that exchanging cash for food stamp benefits was illegal and could result in permanent disqualification. He also agreed that Brothers Food could only accept EBT payment for food stamp eligible items, and that trading EBT benefits for cash or non-eligible items was a violation of the Food Stamp Program regulations. Food Stamp Program regulations prohibit such transactions as trafficking in food stamp benefits. 7 C.F.R. § 271.2. A store which violates those regulations is subject to permanent disqualification barring a discretionary decision by the Secretary of Agriculture following a determination that there is substantial evidence that the store had an effective policy and program in effect to prevent such violations. 7 U.S.C § 2021(b)(3)(B).

As part of the application process, the USDA conducted a survey of the store. Brothers Food and Liquor is a small liquor and grocery store. The USDA found it to be moderately stocked with staple goods, including bread, milk, some fresh produce, and some fresh meat product that consisted of "cold cuts only" according to Plaintiffs original application. There was one register located behind a plexi-glass partition, with limited counter space and no optical scanners or adding machines. The agency approved the store for the Food Stamp Program on September 4, 2003.

The FNS Chicago field office subsequently reviewed its records of the EBT food stamp redemptions at the store during the period between October 2006 and December 2006 and found a number of transactions that caused the agency some concern. First, it found forty instances of rapid, consecutive withdrawals made from multiple accounts in four minutes or less. Most of these withdrawals exceeded one hundred dollars per instance. Second, it found fifty-nine instances where multiple withdrawals totaling more than ninety-five dollars were made from a single account within forty-eight hours or less. In two of these instances, more than four hundred dollars worth of benefits were withdrawn from one account over the course of seven or ten transactions. Many of the transactions took place late at night.

In order to understand how such rapid and high-dollar transactions were possible, FNS conducted another store survey on February 6, 2007. This survey revealed no major changes in the store's inventory or equipment. The FNS did note, however, that the store did not have a point of service (POS) device, which is essential for processing EBT card transactions. Given the size and limited inventory of the store and the limits on the store's ability to process transactions, the FNS issued a charge letter on February 15, 2007. In the letter, FNS charged Plaintiff with food stamp trafficking violations, provided notice of the basis of these charges, and provided Plaintiff with ten days to submit substantial evidence showing that the store had an effective policy and program in place to prevent food stamp trafficking violations if Plaintiff wished to pay a penalty in lieu of permanent disqualification.

Plaintiff did not submit any evidence before the expiration of that ten-day period because Abu Dayeh was out of the country from February 7th through March 1st of that year. Upon his return, Abu Dayeh called FNS and scheduled a meeting for March 6th to respond to the charges. During that meeting, Abu Dayeh explained that the store had two cash registers and, during busy hours, two separate baggers. He confirmed that he had no optical scanners, but claimed that, contrary to the observations of the FNS, he did have a POS device, one shopping cart, and three shopping baskets. He also said that he offered his customers the opportunity to make orders for fresh meat packages ranging in price from $29.95-$59.95 that were delivered to the store by an outside vendor. FNS gave Abu Dayeh some additional time to prepare a written response and provide supporting documentation. Later that month, he provided copies of invoices and receipts from the store, along with a letter from his attorney.

FNS was able to verify that the store did in fact have a second cash register, but that it was located behind plexi-glass with only a small slot in it through which a customer could slide payment. FNS also found a shopping cart, but when FNS surveyed the store it was full of cardboard boxes and seemed to be too wide to be rolled down the aisles. Abu Dayeh was not able to provide any additional information about his meat vendor besides handwritten receipts that lacked any identifying information. His claims about how much meat was delivered seemed undermined by the fact that FNS observed little storage space for meat, no packages fitting Abu Dayeh's description, and no advertisements for such packages. Moreover, FNS conducted an analysis of the store's receipts using mark-up rates provided by Plaintiff¹ and found that the store's monthly food stamp redemptions either exceeded or came "uncharacteristically close" to the total amount of inventory purchased for the month. Based on these findings, FNS concluded that Plaintiff had engaged in food stamp trafficking and, on March 29, 2007, permanently disqualified the store from the program. An Administrative Review Officer upheld the disqualification in a decision dated May 29, 2007.

In preparation for this case, Defendant deposed Abu Dayeh and another store employee, Calvin Barbee. In his deposition, Abu Dayeh gave explanations similar to those provided to FNS in March 2007. However, he was still unable to identify his vendor or any of his customers who purchased meat packages with any specificity. Barbee was similarly unable to identify the meat vendor, despite the fact that Barbee was supposedly the meat packager for the store. On the basis of these facts, in addition to those mentioned above, and some inconsistencies noted in the depositions, Defendant moves for summary judgment as to the issue of food stamp trafficking.

DISCUSSION

I. Standard of review

Summary judgment is appropriate when the "pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the initial burden of demonstrating there is no genuine issue of material fact, and judgment as a matter of law should be granted in their favor. Id. Once the moving party has met the initial burden, the non-moving party must offer more than a mere scintilla of evidence to survive summary judgment. Roger Whitmore's Auto. Servs. v. Lake County, III, 424 F.3d 659, 667 (7th Cir.2005). The non-moving party must produce specific facts showing there is a genuine issue of material fact, and that the moving party is not entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Finally, all evidence and inferences must be viewed in the light most favorable to the non-moving party. Id. at 255, 106 S.Ct. 2505.

In this case, Plaintiff challenges a final agency decision by FNS pursuant to 7 U.S.C. § 2023(a)(13). The parties agree judicial review of the administrative finding of a trafficking violation shall entail a trial de novo by the Court. Id. at (a)(15). This right is afforded to the Plaintiff because the relevant statute does not provide for an evidentiary hearing at the administrative level. McGlory v. U.S., 763 F.2d 309, 310-11 (7th Cir.1985) (internal citation omitted). Thus, when a Plaintiff challenges the finding of a violation of the Food Stamp Program regulations, the district court "must determine the validity of the agency's factual determinations anew, on a fresh record." Id. at 311. Plaintiff has the burden of proving by a preponderance of the evidence on this fresh record that the administrative decision was invalid because violations did not occur. Brooks v. U.S. Dept. of Agriculture, 841 F.Supp. 833, 839 (N.D.Ill.1994) (citing Abdel v. U.S., 670 F.2d 73, 76 n. 8 (7th Cir.1982) and Redmond v. U.S., 507 F.2d 1007, 1011-12 (5th Cir.1975)); see also Kim v. U.S., 121 F.3d 1269, 1272 (9th Cir.1997) and Warren v. U.S., 932 F.2d 582, 586 (6th Cir.1991). However, if the Court finds a...