Ghattas v. U.S.

Citation40 F.3d 281
Decision Date15 December 1994
Docket NumberNo. 93-3867,93-3867
PartiesAiman GHATTAS, doing business as A & M Food Shop, Plaintiff-Appellant, v. UNITED STATES of America; Michael Espy, Secretary of Agriculture, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

Edward J. Deghroony, St. Louis, MO, argued, for appellant.

Madeleine B. Cole, St. Louis, MO, argued, for appellees.

Before LOKEN, Circuit Judge, BRIGHT, Senior Circuit Judge, and HANSEN, Circuit Judge.

LOKEN, Circuit Judge.

Aiman Ghattas ("Ghattas") owns the A & M Food Shop ("A & M"), a small grocery store in St. Louis, Missouri. Thirty percent of A & M's revenues comes from food stamp purchases. During the period in question, Ghattas's father opened the store in the morning and worked until 3:00 p.m. Clerk Ghandi Owais worked alone in the store from 3:00 p.m. until it closed at 8:00 p.m. During a "sting" investigation, Owais illegally purchased discounted food stamps from an undercover agent, twice when Owais was alone in the store and twice at other locations. After the first three illegal purchases, Owais put the purchased food stamps in A & M's register and removed an equivalent amount of cash. These food stamps were eventually deposited with other A & M receipts. Owais was arrested after the fourth purchase. Ghattas immediately fired Owais, who subsequently pleaded guilty to three felony stealing charges.

Neither Ghattas nor his father participated in or benefited from Owais's illegal activity. Nevertheless, in 1991 the Department of Agriculture's Food and Nutrition Service ("FNS"), which administers the food stamp program, charged A & M with unlawfully trafficking in food stamps 1 and permanently disqualified A & M from participating in the program. In 1988, concerned with the harshness of this sanction, Congress had amended 7 U.S.C. Sec. 2021(b)(3)(B) to give the Secretary discretion to impose a monetary penalty. However, after an informal hearing, the Secretary's appeals officer upheld the permanent disqualification, refusing to consider an alternative monetary penalty because Ghattas did not timely request that lesser sanction. The district court affirmed. Concluding that the agency's procedural rules have frustrated congressional intent, and that the district court has a statutory duty to review this issue de novo, we reverse.

I. The Statute.

Prior to 1982, the statute provided that an approved retail store "may be disqualified ... from further participation in the food stamp program" if it violates "any of the provisions of this chapter." The statute authorized a $5,000 monetary penalty in lieu of disqualification if disqualification would cause hardship to food stamp recipients. It left the period of disqualification to the Secretary's discretion under "regulations issued pursuant to this chapter." 7 U.S.C. Sec. 2021 (Supp. IV 1980). The regulations provided for disqualification "for a reasonable period of time, not to exceed 3 years." 7 C.F.R. Sec. 278.6 (1982).

Congress amended the statute in 1982 to prescribe disqualification periods for various violations. See Omnibus Budget Reconciliation Act of 1982, Pub.L. No. 97-253, Sec. 175, 1982 U.S.C.C.A.N. (96 Stat.) 763, 781, codified at 7 U.S.C. Sec. 2021 (1988). Concerned by increased trafficking violations, Congress "adopted a stringent requirement that a store would be permanently disqualified upon a disqualification based on trafficking." S.Rep. No. 504, 97th Cong., 2d Sess., reprinted in 1982 U.S.C.C.A.N. 1641, 1701. The Secretary then promulgated implementing regulations making permanent disqualification mandatory for trafficking violations. See 7 C.F.R. Sec. 278.6(e)(1)(i) (1984). In response to public comments that this sanction was too harsh, FNS explained: "The Department is unable to alter the penalties since the law requires specific periods for certain violations." 49 Fed.Reg. 22055, 22056 (May 25, 1984).

Permanent disqualification of a store when the owner and management are innocent of an employee's trafficking is indeed a harsh sanction, 2 so harsh that the circuit courts split over whether disqualification could be imposed against a store whose owner was entirely innocent of the trafficking violation. Compare R Ranch Market Corp. v. United States, 861 F.2d 236 (9th Cir.1988), with Willy's Grocery v. United States, 656 F.2d 24 (2d Cir.1981), cert. denied, 454 U.S. 1148, 102 S.Ct. 1011, 71 L.Ed.2d 301 (1982), and Kulkin v. Bergland, 626 F.2d 181 (1st Cir.1980). 3

In 1988, Congress concluded that permanent disqualification is too harsh a sanction for all trafficking violations. It again amended the trafficking sanction statute by adding:

except that the Secretary shall have the discretion to impose a civil money penalty of up to $20,000 in lieu of disqualification ... for ... trafficking in coupons ... if the Secretary determines that there is substantial evidence that such store or food concern had an effective policy and program in effect to prevent violations....

Hunger Prevention Act of 1988, Pub.L. No. 100-435, Sec. 344, 1988 U.S.C.C.A.N. (102 Stat.) 1645, 1664, codified at 7 U.S.C. Sec. 2021(b)(3)(B) (1988). The legislative history explained:

[I]nnocent 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.

H.R.Rep. No. 828, 100th Cong., 2d Sess., pt. 1, at 28 (1988), quoted more extensively in Freedman, 926 F.2d at 258.

In 1990, Congress again amended 7 U.S.C. Sec. 2021(b)(3)(B). See Food, Agriculture, Conservation, and Trade Act of 1990, Pub.L. No. 101-624, Sec. 1743, 1990 U.S.C.C.A.N. (104 Stat.) 3359, 3795. One purpose of these amendments was to "expand[ ] the types of evidence that can be used to show that a fine is more appropriate than permanent disqualification." H.R.Conf.Rep. No. 916, 101st Cong., 2d Sess., reprinted in 1990 U.S.C.C.A.N. 4656, 5286, 5623. With these various amendments, Sec. 2021(b)(3)(B) presently provides:

(b) Period of disqualification

Disqualification under subsection (a) of this section shall be--

* * * * * *

(3) permanent upon--

* * * * * *

(B) the first occasion or any subsequent occasion of a disqualification based on ... trafficking in coupons ... by a retail food store ... 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 ... for ... trafficking in coupons ... that constitutes a violation of the provisions of this chapter or the regulations issued pursuant to this chapter, 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 ... had an effective policy and program in effect to prevent violations of the chapter and the regulations.

II. The Secretary's Post-1988 Regulations.

Following adoption of the 1988 amendment conferring discretion to impose a monetary penalty in lieu of permanent disqualification, the Secretary again promulgated implementing regulations. See 54 Fed.Reg. 18641 (May 2, 1989). Although FNS noted Congress's concern with small and innocent offenders, id. at 18642-43, the regulations in many respects reflect a reluctant or hostile attitude toward the alternative monetary sanction: 4

First, the regulations provide that "[a] civil money penalty for hardship to food stamp households may not be imposed in lieu of a permanent disqualification," 7 C.F.R. Sec. 278.6(f)(1), and the final agency action against A & M noted that a hardship-to-households defense is not available. But the statute provides generally that any disqualification penalty may be replaced by a money penalty "if the Secretary determines that [a store's] disqualification would cause hardship to food stamp households." 7 U.S.C. Sec. 2021(a). After the 1988 amendment to Sec. 2021(b)(3), the plain language of Sec. 2021(a) confers discretion to impose a monetary penalty in lieu of permanent disqualification based upon "hardship to food stamp households." The agency's contrary regulation deprives food stamp beneficiaries of a statutory exception enacted for their benefit. Even if the agency's policy decision is more wise, which we doubt, Congress's unambiguous mandate must prevail. See Smithville R-II School Dist. v. Riley, 28 F.3d 55, 57-58 (8th Cir.1994).

Second, the post-1988 regulations initially limited the monetary penalty alternative to stores whose owners and managers did not participate in or benefit from the trafficking violation, and then defined manager to include an employee with "financial functions that include ... closing out daily cash receipts." 55 Fed.Reg. 31809, 31812 (Aug. 6, 1990), amending 7 C.F.R. Sec. 278.6(i). In 1990, Congress expressed its dismay at this restrictive definition:

[T]he Managers expect the Secretary to narrow the current definition of manager to more fairly describe persons who supervise the work of other employees and who direct the activities and work assignments of store employees ... The definition should not include employees who do not have substantial supervisory responsibilities.

H.R.Conf.Rep. No. 916, supra, 1990 U.S.C.C.A.N. at 5623. The Secretary then amended Sec. 278.6(i) to comply with this informal directive. See 57 Fed.Reg. 3909, 3912 (Feb. 3, 1992).

The final agency action in this case issued on March 2, 1992, after Sec. 278.6(i) was amended. Yet the Secretary argues on appeal that Owais was an A & M manager because he handled cash receipts. In other...

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