Milgram Food Stores, Inc. v. United States, 81-0288-CV-W-6.

• Decision Date: 04 March 1983
• Docket Number: No. 81-0288-CV-W-6.,81-0288-CV-W-6.
• Citation: 558 F. Supp. 629
• Parties: MILGRAM FOOD STORES, INC., Plaintiff, v. UNITED STATES of America, United States Department of Agriculture, Food and Nutrition Service, Defendants.
• Court: U.S. District Court — Western District of Missouri

558 F. Supp. 629

MILGRAM FOOD STORES, INC., Plaintiff, v. UNITED STATES of America, United States Department of Agriculture, Food and Nutrition Service, Defendants.

No. 81-0288-CV-W-6.

United States District Court, W.D. Missouri, W.D.

March 4, 1983.

David A. Vorbeck, Margolin & Kirwan, Kansas City, Mo., for plaintiff.

Mark Zimmermann, Asst. U.S. Atty., Kansas City, Mo., for defendants.

MEMORANDUM AND ORDER ENJOINING FOOD STAMP DISQUALIFICATION, REMANDING CASE FOR PENALTY ASSESSMENT, AND CHARGING COSTS OF CERTAIN PROOF TO PLAINTIFF

SACHS, District Judge.

Plaintiff, the owner of several grocery stores, invokes its statutory right to a trial de novo of a Department of Agriculture decision to disqualify one store from the food stamp program for a period of sixty days. Although the Court agrees with the Department that violations of the program have been established, it concludes that the Department has acted in an arbitrary and capricious manner in imposing disqualification as a penalty. The Department disregarded a Congressional directive to use monetary penalties rather than program disqualification in most instances, and failed to conduct a meaningful study or analysis of the hardship caused by disqualification of the store, particularly for walkin shoppers in the immediate vicinity of the store. The store is in the heart of an economically depressed residential area in Kansas City, Kansas, with one comparable store located approximately one mile away.

I. Procedural History

This will be the second remand to the Department. In an earlier case, the Court remanded for an explanation of factors considered on the hardship issue. Congress enacted legislation in 1977 authorizing civil penalties of up to $5,000 in lieu of disqualifications (7 U.S.C. § 2021), and the legislative history shows a Congressional preference for monetary penalties in most instances. See Jedatt v. U.S. Dept. of Agriculture, 488 F.Supp. 261, 263 at n. 10, 266 (E.D.Mich.1980).

Defendants' response to the remand indicates that no consideration whatsoever had been given to monetary sanctions. After remand, a new determination letter was issued on March 31, 1981, by Kenneth L. Jones, Food Stamp Review Officer, Food and Nutrition Service (FNS), Lakewood, Colorado. Mr. Jones stated, "I have been informed by the Food and Nutrition Service Regional Office that there are other authorized stores in the area which do sell a large variety of staple food items at comparable prices." He also noted that other area stores had previously been disqualified and that persons at the Field Office "have received no complaints of hardship." Four stores were listed as being "in the area", although the radius of the pertinent area was left undefined.

A new appeal to this Court followed. After consideration of materials supplied by the parties, the Court stated that it had "doubt that sufficient investigation and findings took place on the part of the agency to allow informed discretion" but decided not to remand at that time.¹ The Court noted that proceeding to "trial de novo," in accordance with the statutory method of review, (7 U.S.C. § 2023), would avoid reconsideration of the issue of sanctions if plaintiff were found not to be a violator of the program, and would permit a further demonstration of meaningful consideration of the issue of hardship.

II.

APPROPRIATE SANCTIONS

Standard of Review

Before surveying the evidence presented at the trial de novo, the Court examines the legal principles governing review. Where a district court trial confirms that food stamps have been exchanged for ineligible non-food items, in violation of 7 U.S.C. § 2021, the trial court appraisal of the sanction is governed by the "arbitrary or capricious" test. Maxia v. United States, 687 F.2d 276, 277 (8th Cir.1982); Studt v. United States, 607 F.2d 1216, 1218 (8th Cir. 1979). The sanction chosen by FNS is deemed to be arbitrary or capricious if it is "unwarranted in law or without justification in fact." Cross v. United States, 512 F.2d 1212, 1218-19 (4th Cir.1975). The "arbitrary and capricious" standard, however, does not relieve the agency from meaningful judicial oversight. On the contrary, the Court's review may even result in a judicial determination of the appropriate sanctions, if the result can be fairly forecast from regulatory guidelines properly adopted by the Secretary. Id.

How the facts relating to sanctions are to be determined is also in some controversy. It has been argued that, as in many administrative reviews, it is only necessary "to review the record that was before the administrative agency when the final administrative decision was made." Collazo v. United States, 668 F.2d 60, 66 n. 10 (1st Cir.1981). An alternative viewpoint urges a "full hearing in district court on the factual issues underlying the choice of sanction."² Id. Generally preferred as a matter of administrative law (but not necessarily following congressional intent in enacting a "trial de novo" rule) is the former, review on the record, after requiring the agency "`to state findings and reasons for the penalty, including findings on relevant issues of fact ...'" Ibid., quoting K. Davis, Administrative Law Treatise, § 29.01-8 at 682 (Supp.1976).

Evidence At Trial

The only Department witness at trial on the hardship issue was Harvey E. King, Officer-in-Charge, FNS Field Office, Independence, Missouri. Mr. King found no occasion to study or survey the hardship issue until April 30, 1981, after the FNS redetermination and the filing of the second lawsuit. He testified that he "knew the area."³ He later, in preparation for trial, visited the store for about one hour and saw no walk-in traffic or bus usage. The visit apparently included a quick survey of prices and products on hand, and a drive through the neighborhood, where he observed numerous automobiles. A report of the King inspection trip was prepared, but was not offered in evidence by either side.

Mr. King testified that he has participated in 20 or more hardship determinations, and that normally a distinction is made between rural and urban cases. The Court understands the testimony to mean that in a small town setting, where many miles may separate authorized grocery stores, hardship is not infrequently found; in contrast, hardship is rarely found in an urban area (the witness offered no examples of an urban hardship determination). The hardship determination apparently rests on an unverified assumption that all (or practically all) food stamp recipients have access to motor vehicle transportation, and that only the inconvenience of a long drive justifies a hardship finding.

No facts or argument have been presented to the Court in this case that would justify a hardship finding except as to walk-in grocery shoppers. Only two other grocery stores referred to in the evidence appear to carry a full line of groceries at comparable prices: the Safeway store about one mile distant and the United Super Market even farther away. Walk-in traffic is feasible, for a maximum of perhaps six blocks from a grocery store.⁴ Thus there is no comparable store in the area for the food stamp user dependent on walking to and from the store.⁵

Testimony from knowledgeable witnesses Briscoe, Pierce, Brown and Butler establishes that the store is in the heart of a low income, racial "ghetto." Fourteen percent of the store's sales are in exchange for food stamps. Bus service is poor, with no evening buses, and the cost of available taxi or bus service would necessarily be an additional factor indicating hardship. See Broad Street Food Market, Inc., supra. A program offering free rides for the elderly is limited to "every other week" and is overburdened with a waiting list of people seeking transportation.

All witnesses familiar with the area indicated that substantial pedestrian traffic would be anticipated. In addition, a survey conducted over a four-day period in June 1981 indicates that some 8.15% of the grocery shoppers walked to and from the store. Defendants objected to this testimony, because of plaintiff's alleged failure to supply pre-trial discovery. Neither the interrogatories nor the request for production fairly requires disclosure of the survey. However, the Court would be prepared to vacate this ruling and reopen the record, on defendants' motion, so that no unfair surprise can be asserted. The Court would permit further cross-examination of witness Larry Townsend, or would receive in evidence any comparable study conducted by defendants. Absent such a request, the Court considers the survey results to have been adequately proven. They are clearly superior to the report from the limited inspection trip by Mr. King, and they are consistent with the testimony of other witnesses, from which it seems evident that a material portion, though a small minority, of the shoppers would be pedestrians. The agency opinion to the contrary (to the extent it exists) was arrived at without any factual basis and has not been supported at trial with any significant factual showing.

Hardship Determination

The agency articulated no reasons for the choice of sanctions and no findings on relevant issues of fact. Rather, FNS assumed at all times before making its decision that no hardship is created by disqualifying a grocery store if another similar store is about one mile distant. The lack of hardship assumption is necessarily based on a further conclusion that (1) motor vehicle transportation is readily available to all food stamp recipients, or (2) the concept of hardship is to be applied en masse rather than individually, so that hardship imposed on 2%, 5% or 10% of the recipients may be disregarded. If the agency relied on the first assumption, no factual basis for the conclusion appears in any material supplied by the agency, and the proof at trial was convincingly to the contrary. If the second assumption has been followed, the Court...