Collazo v. U.S., 81-1186

• Decision Date: 21 December 1981
• Docket Number: No. 81-1186,81-1186
• Citation: 668 F.2d 60
• Parties: Francisco COLLAZO, d/b/a Cash & Carry, Inc., Plaintiff, Appellant, v. UNITED STATES of America, et al., Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 60

668 F.2d 60

Francisco COLLAZO, d/b/a Cash & Carry, Inc., Plaintiff, Appellant, v. UNITED STATES of America, et al., Appellees.

No. 81-1186.

United States Court of Appeals First Circuit.

Argued Sept. 16, 1981.

Decided Dec. 21, 1981.

Blas C. Herrero, Jr., Hato Rey, P. R., for plaintiff, appellant.

Vivian Reyes Lopez, Asst. U. S. Atty., with whom Raymond L. Acosta, U. S. Atty., San Juan, P. R., was on brief, for appellees.

Before CAMPBELL, Circuit Judge, VAN DUSEN, Senior Circuit Judge, ^* BREYER, Circuit Judge.

VAN DUSEN, Senior Circuit Judge.

This is an appeal from a judgment of the district court affirming a six-month disqualification of the appellant from participation in the Department of Agriculture's food stamp program. We affirm the judgment of the district court.

The appellant, Francisco Collazo, operates a retail and wholesale grocery store known as "Collazo Cash and Carry, Inc.," in Canovanas, Puerto Rico. Collazo's grocery was authorized by the United States Department of Agriculture (the Department) in July 1975 to redeem food stamps under the Food Stamp Program, 7 U.S.C. §§ 2011-2027 (Supp. IV 1980). In November 1978, the Food and Nutrition Service of the Department of Agriculture ( FNS ) became suspicious of Collazo's high rate of food stamp redemption relative to total sales, as this indicated possible violations of the food stamp program. In the course of subsequent monitoring, employees of the FNS used food stamps to purchase ineligible items from Collazo's store on five separate occasions in December 1979 and January 1980.

Collazo was advised of these violations by a letter dated February 25, 1980. In his response of March 7, 1980, Collazo did not deny the violations but instead promised that no violations would occur in the future. On April 18, 1980, Collazo was disqualified from redeeming food stamps for a period of six months. After administrative review within the Department, Collazo brought this suit in the United States District Court for the District of Puerto Rico under 7 U.S.C. § 2023 (Supp. IV 1980), seeking judicial review of his disqualification.

Collazo did not deny before the district court that the violations occurred, but instead urged the court to set aside the six-month disqualification. In particular, he sought the alternative sanction of a civil fine, a penalty available under 7 U.S.C. § 2021 (Supp. IV 1980) "if the Secretary (of Agriculture) determines that ... disqualification would cause hardship to food stamp households." ¹ The district court found that the action of the Department in selecting disqualification as the appropriate sanction was not arbitrary and capricious, and the court affirmed the six-month disqualification.

On appeal, Collazo claims that disqualification of his store will cause great hardship to food stamp households, thus qualifying him for a civil money penalty under § 2021. He argues that he was not given an adequate opportunity to present evidence regarding this factual issue to the Department before it chose to impose a six-month disqualification in lieu of the fine. Therefore, his argument concludes, due process requires that he be given a fresh determination of the sanction in the district court, and the court erred in using the arbitrary and capricious standard of review.

I. Opportunity to be Heard at the Administrative Level

Both here and before the district court, Collazo contends that he was never given the opportunity to submit information to the Department regarding the possibility of a civil money penalty because he was not aware of this alternative sanction. This claim raises an important preliminary question of whether the FNS ever notified Collazo that two distinct sanctions were possible and that the choice between these sanctions depended on a factual finding by the Secretary. ²

The Supreme Court of the United States, in Morgan v. United States, 304 U.S. 1, 18-19, 58 S.Ct. 773, 776, 82 L.Ed. 1129 (1938), stated that "(t)hose who are brought into contest with the Government in a quasi-judicial proceeding aimed at the control of their activities are entitled to be fairly advised of what the Government proposes and be heard upon its proposals before it issues its final command." Accord, United States v. Florida East Coast R. Co., 410 U.S. 224, 242-43, 93 S.Ct. 810, 819-20, 35 L.Ed.2d 223 (1973). Collazo does not deny that he was fully apprised of the charges against his store and that he was given an opportunity to contest these allegations. The record also indicates that, contrary to Collazo's assertion, the Department did give him sufficient notice of "what the Government propose(d)" and adequate opportunity to "be heard upon its proposals before it issue(d) its final command." Morgan v. United States, 304 U.S. 1, 18-19, 58 S.Ct. 773, 776, 82 L.Ed. 1129 (1938).

Collazo was authorized to redeem food stamps as both a wholesaler and a retailer two weeks after the food stamp program began in 1975. He testified at the district court trial that he was visited at least six times by employees of the FNS between 1975 and 1978. The purpose of these educational visits was to discuss the program and to warn Collazo that his store's high redemption rate indicated possible violations of the program's regulations. Collazo testified that "very often" at these visits he was given a copy of the regulations. Although he admitted that he had read the regulations in the past, Collazo testified that he never read the criteria for a civil money penalty.

It is true that the last of these educational visits was in November 1978, and the regulations providing for the alternative sanction of a civil money penalty were not effective until January 1979. ³ Therefore, it is unclear from the record whether the regulation discussing the criteria for the civil money penalty, 7 C.F.R. § 278.6(g), was given to him at any of these visits. Furthermore, Collazo testified that the representative from the FNS never spoke to him about the alternate sanctions.

Nevertheless, the record demonstrates that Collazo was given adequate notice of the possible sanctions that may be imposed for violations of the food stamp program. First, we note that at the trial the Assistant United States Attorney stated to the district judge that the new regulations regarding the civil money penalty, 7 C.F.R. § 278.6(g), were mailed to Collazo in 1979. The failure of Collazo or his counsel ⁴ to challenge this statement or the facts in the following four pargraphs is relevant rebuttal evidence to Collazo's contention that neither he nor his counsel were made aware of the alternative sanctions in the regulations.

Collazo was also given notice of the possible sanctions in the letters sent to him alleging the specific violations of the food stamp program. In a letter of February 25, 1980, the FNS notified Collazo of the alleged violations and informed him of his opportunity to respond. While this FNS letter did not specifically refer to the range of possible sanctions and the factual bases for each, the letter did state:

"In accordance with the provisions of 278.6(b) of the regulations, you have 10 days from the receipt date of this letter to respond either orally or in writing. You may submit any information, explanation, or evidence pertaining to the cited violations.... A copy of the regulations is enclosed for your information.

"Your reply and the information furnished by you therein will be considered by the Food and Nutrition Service, U. S. Department of Agriculture, before a final determination is made in this matter. In the absence of any answer by the above date, we shall proceed to make a final determination on the basis of information otherwise available to the Food and Nutrition Service."

Letter from Malachy P. Cox to Francisco Collazo (February 25, 1980) (emphasis added).

The regulations discussed in the letter specifically refer to the alternate sanctions that may be imposed for violations of the food stamp program. ⁵ Therefore, Collazo should have been aware of his opportunity to submit evidence of mitigating circumstances to minimize the period of disqualification or to request a civil fine. In fact, in his response letter of March 7, 1980, Collazo did not deny the violations, but instead presented factors that he hoped would cause the FNS not to impose any sanction at all. ⁶

Furthermore, when the regional office of the FNS imposed the six-month disqualification on Collazo's store by letter of April 18, 1980, the letter stated that "(t)his action is taken under the authority of Section 278.6(a) of the Regulations governing the Food Stamp Program," and the letter also indicated that a copy of the food stamp program regulations was enclosed. Section 278.6(a) provides in part:

"FNS may disqualify any authorized retail food store or authorized wholesale food concern from further participation in the program for a reasonable period of time, not to exceed 3 years, as FNS may determine, if the firm fails to comply with the Food Stamp Act or this part.... FNS may, in lieu of a disqualification, subject the firm to a civil money penalty of up to $5,000 for each violation if FNS determines that a disqualification would cause hardship to participating households."

7 C.F.R. § 278.6(a) (1981). This same letter of April 18 informed Collazo of his right to review within the Department. Letter from Peter Santos to Francisco Collazo (April 18, 1980). Collazo's request for review of April 24, 1980, written by his counsel, once again did not deny the violations but set forth mitigating circumstances, presumably to affect the final determination of the sanction.

Collazo's assertion that he was not granted a sufficient opportunity to present evidence to the administrative agency on the question of the sanction fails in the light of this record. The series of educational visits and warnings regarding his high redemption rate provided Collazo with an opportunity and...