Hernandez v. U.S. Dept. of Agr.

• Decision Date: 16 April 1997
• Docket Number: No. 96-CV-6490L.,96-CV-6490L.
• Citation: 961 F.Supp. 483
• Parties: Myrtha HERNANDEZ, d/b/a Tito's Corner Store, Plaintiff, v. UNITED STATES DEPARTMENT OF AGRICULTURE FOOD AND CONSUMER SERVICE, Defendant.
• Court: U.S. District Court — Western District of New York

961 F.Supp. 483

Myrtha HERNANDEZ, d/b/a Tito's Corner Store, Plaintiff, v. UNITED STATES DEPARTMENT OF AGRICULTURE FOOD AND CONSUMER SERVICE, Defendant.

No. 96-CV-6490L.

United States District Court, W.D. New York.

April 16, 1997.

Myrtha Hernandez, Rochester, NY, pro se.

Brian M. McCarthy, Asst. U.S. Atty., Rochester, NY, for Defendant.

DECISION AND ORDER

LARIMER, Chief Judge.

Plaintiff Myrtha Hernandez brings this action pursuant to 7 U.S.C. § 2023. She asks this Court to set aside a determination made by the United States Department of Agriculture, Food and Consumer Services (FCS), withdrawing her store's authorization to participate in the federal Food Stamp Program. For the reasons set forth below, plaintiff's request is denied. The determination of the FCS is upheld and plaintiff's authorization to participate in the federal Food Stamp Program is hereby terminated.

BACKGROUND

This matter involves a store's loss of authorization to deal in the United States Department of Agriculture Food Stamp Program. Plaintiff owns a small market called "Tito's Comer Store," which has been a participant in the Food Stamp Program and allegedly relies heavily on customers who deal in food stamps. Plaintiff's husband, Hiram "Tito" Hernandez, worked in the store and identified himself as being a store manager.

By letter dated May 31, 1996, sent by certified mail, return receipt requested, the FCS notified plaintiff that "[her] authorization to participate in the Food Stamp Program ... [was] being withdrawn." The basis for the withdrawal was an investigation by the Rochester Police Department and the arrest of her husband, on charges of food stamp fraud, welfare fraud, and criminal usury. The letter stated that "[y]our fraudulent behavior demonstrates your firm's lack of the necessary business integrity and reputation to further the aims of the Food Stamp Program."

As was her right, plaintiff requested administrative review of this decision. By letter dated June 27, 1996, plaintiff appealed and asserted that the welfare and food stamp fraud charges against her husband had been dismissed, that neither she nor the "store" had ever been charged with any fraudulent behavior, and that her business integrity was impeccable.

By letter dated September 25, 1996 the initial administrative decision was sustained. The Reviewing Officer's letter stated in relevant part as follows:

Based on my review of the investigative file of the District Attorney's Office I believe that Hiram Hernandez ... did participate in a scheme to advance money to welfare recipients and to use their welfare cards to pay himself interest on the loans. Even if Mr. Hernandez is not the owner of Tito's Comer Store, he conducted an illegal business as a store employee, which calls into question the business integrity of your firm. It is my understanding that Mr. Hernandez has now been sentenced to three to nine years in jail.

The regulations governing the Food Stamp Program give the Department the authority to withdraw the authorization of retailers to participate in the program if there has been a criminal conviction or evidence of fraudulent behavior of officers, managers or employees of the firm. Therefor, it is my determination that the initial decision of the Regional Office to withdraw the authorization of Tito's Comer Store to participate in the Food Stamp Program as a retailer is sustained.

The letter informed plaintiff that she was entitled to seek judicial review within thirty days.

Plaintiff, acting pro se, timely commenced this action in October 1996. The FCS voluntarily stayed enforcement of its determination for several weeks during which time plaintiff attempted to sell the store. After such attempts failed, the FCS notified plaintiff that its withdrawal of authorization would go into effect March 8, 1997. By Order of this Court, following oral argument on plaintiff's application for a stay, enforcement has been stayed pending my final ruling on this matter.

THE LEGAL STANDARD

This Court has jurisdiction over this matter pursuant to 7 U.S.C. § 2023. That statute provides that a plaintiff is entitled to a de novo review of the FCS's actions, "in which the court shall determine the validity of the questioned administrative action." Thus, I must reexamine the agency's decision on a fresh record and make a determination based upon the preponderance of the evidence. Ibrahim v. United States, 834 F.2d 52, 53 (2d Cir.1987). It is plaintiffs burden to prove by a preponderance of the evidence that she is entitled to relief from the FCS's determination. However, in reviewing the sanction imposed, the standard of review is different: in that situation it is whether the FCS's determination was arbitrary and capricious. See De La Nueces v. United States, 1992 WL 58851, *2 (S.D.N.Y.1992); Ibrahim v. United States, 650 F.Supp. 163, 165 (N.D.N.Y.), aff'd, 834 F.2d 52 (2d Cir. 1987).

In this instance, both parties have submitted documentary evidence and legal memoranda in support of their positions. The essential facts are undisputed: only the law is contested.¹ Accordingly, I will resolve the matter on the papers submitted, on summary judgment. See Freedman v. United States, 926 F.2d 252, 261 (3d Cir.1991)("de novo review is compatible with a summary judgment disposition if there are no material facts in dispute"); Haskell v. United States, 743 F.Supp. 765, 767 (D.Kan.1990), aff'd, 930 F.2d 816 (10th Cir.1991), cited in, De La Nueces, supra.

PLAINTIFF'S ARGUMENTS

A) Innocent Owner

Plaintiff asserts that she should not be penalized for the acts of her husband. While I am sympathetic to plaintiff, the law and regulations compel me to reject this "innocent owner" defense.

Pursuant to the Food Stamp Act, 7 U.S.C. § 2011, et seq., stores may apply to the FCS for authorization to accept and redeem food stamp coupons. See 7 U.S.C. § 2018. One criterion for approval is "the business integrity and reputation of the applicant." 7 U.S.C. § 2018(a)(1)(C). In evaluating the business integrity and reputation of the applicant, the FCS officer may consider:

(i) Criminal conviction records reflecting on the honesty or integrity of officers or managers of the applicant firm;

* * * * * *

(v) Evidence of prior fraudulent behavior of officers, managers or employees of the applicant firm; and

(vi) Any other evidence reflecting on the business integrity and reputation of the applicant. 7 CFR § 278.1(b)(3).

An applicant store must submit information which will permit a determination to be made as to whether the store qualifies or "continues to qualify" for approval. See 7 U.S.C. § 2018(c). Moreover, once approved, the FCS subsequently may "withdraw the authorization of any firm authorized to participate in the program [where] ... [t]he firm fails to meet [any of the relevant] specifications ..." 7 C.F.R. § 278.1(k)(1)(ii). Upon making a determination to withdraw authorization, the "FCS officer in charge shall issue a notice to the firm by certified mail or personal service to inform the firm of the determination and of the review procedure." 7 C.F.R. § 278.1(k)(2).

Thus, the law and regulations expressly contemplate that a store's authorization can be denied or withdrawn based upon criminal conviction records of officers or managers of the firm, or evidence of fraudulent behavior of officers, managers, or employees of the firm. It is not necessary that the criminal or fraudulent actions be those of the owner. It would be too easy to subvert the purpose of the regulations if they only applied to those denominated as "owners."

In this case, it is not disputed that Hiram "Tito" Hernandez was an employee of the store and one of its managers. Documents submitted by the United States show that in 1992, Mr. Hernandez identified himself as "manager" of the store with respect to the store's contract with Monetary Management Corporation, the entity through which FCS had arranged to provide the food stamp coupons. The store's name is "Tito's Comer Store." Plaintiff does not dispute that her husband was an employee or a manager. Thus, on these facts, withdrawal clearly is appropriate even though the "bad acts" were not performed by plaintiff herself.

Indeed, the innocent owner defense is applicable only in cases involving "disqualification" as opposed to a "withdrawal of authority." Disqualifications are slightly different from withdrawals of authority. Disqualifications are governed by a separate regulation — 7 C.F.R. § 278.6 — which provides for different periods of disqualification, including permanent disqualification, for a variety of infractions such as food stamp trafficking and selling unauthorized nonfood items. As amended in 1988, the disqualification regulation also provides for an alternative penalty — a civil money penalty — in lieu of permanent disqualification for trafficking violations where, inter alia, "[n]either 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); see also 7 U.S.C. § 2021(b)(3)(B). Thus, the disqualification regulation contemplates that, for trafficking violations, innocent owners may be entitled to a monetary penalty instead of being permanently disqualified in certain circumstances. See Bakal Bros., Inc. v. United States, 105 F.3d 1085 (6th Cir.1997); TRM, Inc. v. United States, 52 F.3d 941 (11th Cir.1995); Holmes v. United States, 868 F.Supp. 1348 (M.D.Ala.1994), aff'd, 67 F.3d 314 (11th Cir.1995), cert. denied, ___ U.S. ___, 116 S.Ct. 1674, 134 L.Ed.2d 777 (1996).

By contrast, the regulation governing withdrawals of authority — 7 C.F.R. § 278.1 — is silent as to any alternative civil money penalty. Indeed, it contains no provision whatsoever concerning innocent owners. In the case before me plaintiff is not being disqualified — permanently or otherwise. Rather, her authorization to deal in food stamps is being...