Castillo v. U.S., 3:97CV00480(JBA).

• Citation: 989 F.Supp. 413
• Decision Date: 30 May 1997
• Docket Number: No. 3:97CV00480(JBA).,3:97CV00480(JBA).
• Court: U.S. District Court — District of Connecticut
• Parties: Fernando A. CASTILLO d/b/a El Coqui Grocery Store, Plaintiff, v. UNITED STATES of America, Defendant.

Page 413

989 F.Supp. 413

Fernando A. CASTILLO d/b/a El Coqui Grocery Store, Plaintiff, v. UNITED STATES of America, Defendant.

No. 3:97CV00480(JBA).

United States District Court, D. Connecticut.

May 30, 1997.

Sydney T. Schulman, Inmates Legal Assistance Program, Hartford, CT, for Plaintiff.

David J. Sheldon, U.S. Attorney's Office, New Haven, CT, for Defendant.

RULING ON PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

ARTERTON, District Judge.

Plaintiff Fernando Castillo brings this action for judicial review of the final determination issued by the Food and Consumer Service¹ ("FCS") permanently disqualifying plaintiff's retail food store, El Coqui Grocery Store, from participation in the Food Stamp Program. Pursuant to 7 U.S.C. § 2023(a), plaintiff seeks a preliminary injunction enjoining the federal government from enforcing plaintiff's disqualification while this review is pending.

FACTUAL BACKGROUND

Food stamp coupons can only be used at retail food stores that FCS has approved for participation in the Food Stamp Program (the "Program"). 7 U.S.C. § 2013. Plaintiff is the owner of a retail food store that has been authorized to participate in the Program since May 10, 1994. In order to participate in the Program, plaintiff signed an application which detailed the rules of the Program and certified that his employees would comply with these rules.

The FCS can permanently disqualify a retail food store from participating in the Program if the store has engaged in the trafficking of food stamps. 7 U.S.C. § 2021(b)(3)(B). Trafficking is defined as the "buying or selling" of food stamp coupons "for cash or consideration other than eligible food." 7 C.F.R. 271.2 (1996).

On July 17, 1996, the FCS mailed a "charge letter" to plaintiff, informing him that it had uncovered two incidents of trafficking at his store. The letter gave a brief description of the facts surrounding the incidents and informed plaintiff that the sanction for these trafficking violations is permanent disqualification from the Food Stamp Program. The letter explained that plaintiff might be eligible for a civil money penalty in lieu of permanent disqualification if there was "substantial evidence that [plaintiff's] firm had an effective policy and program in effect to prevent violations". The agency stated that "[s]pecific criteria for establishing that such a program exists are detailed in Section 278.6(i) of the enclosed regulations. You must meet each of the four criteria listed and are required to provide the documentation as specified." However, plaintiff alleges that no such regulations were enclosed.

The plaintiff responded in a letter dated July 26, 1996, in which he stated that he was not aware of the violation, that he strived to operate the "business in as legal a manner as possible" and that he recently fired several employees. Additionally, plaintiff requested "more proof from [FCS] as to the details of this allegation." Further, plaintiff stated that "[i]f your office can prove this allegation then we will apply for the civil money penalty." On August 5, 1996, plaintiff and a man identified as Jose Gonzalez, "Attorney-in-fact for owner" sent a second letter requesting the FCS to consider imposing civil money penalty in lieu of permanent disqualification. However, no documentation was sent supporting this request.

On August 23, 1996, Thomas Andresen, the regional manager of Retailer Operations for FCS, notified plaintiff that FCS found that the violations "did, in fact, occur at [plaintiff's] store." Further, Andresen found that plaintiff was not eligible for a civil money penalty because "he did not submit the required documentation as specified in the charge letter." Andresen advised that plaintiff would be permanently disqualified from the Food Stamp Program effective September 3, 1996 and that he had the right to appeal this determination to an Administrative Review Officer ("ARO").

On August 30, 1996, plaintiff's attorney, Sydney Schulman, requested a review of Andresen's determination, claiming that plaintiff had no knowledge of the trafficking; safeguards were in place to prevent such conduct; and that permanent disqualification would cause significant hardship to plaintiff. Further, plaintiff complained that the FCS's failure to enclose regulations made it difficult for plaintiff to effectively request consideration for a civil money penalty.

On September 12, 1996, the FCS Administrative Review Branch granted plaintiff's request for review and held plaintiff's disqualification in abeyance pending the ARO's final determination. The FCS gave plaintiff three weeks to submit additional information to be considered in its review. On October 11, 1996, attorney Schulman responded with a letter reiterating plaintiff's request for a civil money penalty and providing additional information regarding plaintiff's compliance with food stamp regulations.

On February 20, 1997, the ARO issued his determination that the administrative charges were valid and that plaintiff did not qualify for a civil money penalty in lieu of disqualification because (a) internal USDA policy guidelines provide that trafficking warrants permanent disqualification, regardless of whether the store owner knew of or benefitted from the violation; (b) the hardship to household exception, which allows a civil money penalty to be assessed in lieu of disqualification, was not available because the FCS regulations provide that a civil money penalty may not be imposed in lieu of permanent disqualification; and (c) plaintiff did not provide adequate documentation to support his request for a civil money penalty.

STATUTORY BACKGROUND

Prior to 1988, the Food Stamp Act mandated permanent disqualification for the first trafficking violation, regardless of whether the food store owner knew of or benefitted from the trafficking. J.C.B. Super Markets, Inc. v. U.S., 530 F.2d 1119 (2d Cir.1976). In 1988, Congress amended the statute to give the Secretary of Agriculture authority to impose a money penalty in lieu of permanent disqualification under certain circumstances. The statute currently provides:

Disqualification shall be permanent upon the first occasion or any subsequent occasion of ... trafficking in coupons ... except that the Secretary shall have the discretion to impose a civil money penalty of up to $20,000 for each violation (except that the amount of civil money penalties imposed for violations occurring during a single investigation may not exceed $40,000) in lieu of disqualification under this subparagraph, for such ... trafficking ... if the Secretary determines that there is substantial evidence (including evidence that neither the ownership nor management of the store or food concern was aware of, approved, benefited from, or was involved in the conduct or approval of the violation) that such store or food concern had an effective policy and program in effect to prevent violations of the chapter and regulations...

7 U.S.C. § 2021(b)(3)(B) (1988 & Supp.)². The legislative history shows that this amendment was designed to permit FCS to impose a money sanction, rather than disqualify innocent store owners.

The Committee expects [FCS] to continue to vigorously pursue and punish those perpetrators involved in food stamp fraud, including store personnel and owners that are culpable or negligent with respect to trafficking offenses.... However, innocent persons should not be subject to the harsh penalty of disqualification where a store or concern has undertaken and implemented an effective program and policy to prevent violations....

With Secretarial discretion, we can be assured that the punishment will more closely fit the crime.

Corder v. United States, 107 F.3d 595 (8th Cir.1997) citing H .R. Rep. No. 100-828, pt.1 at 27-28 (1988).

The Secretary promulgated regulations to govern the exercise of this discretion. These regulations require plaintiff to "request a civil money penalty and submit evidence establishing the store's eligibility for the civil money penalty within ten days after the store has received a charge letter." 7 C.F.R. 278.6(b)(2)(ii). The evidence submitted must demonstrate "that the firm had established and implemented an effective compliance policy and program to prevent violations of the Program." 7 C.F.R. § 278.6(i). The "minimum standards for eligibility" for the civil money penalty requires the store to "establish by substantial evidence its fulfillment of each of the following 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. Neither firm ownership nor management were aware of, approved, benefitted from, or were in any way involved in the conduct or approval of trafficking violations....

7 C.F.R. § 278.6(i)

Additionally, the regulations specify the types of documentation required to satisfy the criteria.

(1) Compliance policy standards. As specified in Criterion 1 above, in determining whether a firm has established an effective policy to prevent violations, FCS shall consider written and dated statements of firm policy which reflect a commitment to ensure that the firm is operated in a manner consistent with... current [Food Stamp Program] policy on the proper acceptance and handling of food coupons. As required by Criterion 2, such policy statements shall be considered only if documentation is supplied which establishes that the policy statements were provided to the violating employee(s) prior to the commission of the violation. In addition... FCS may consider the...