Nguyen v. U.S.

• Decision Date: 06 August 1987
• Docket Number: No. 85-3783,85-3783
• Citation: 824 F.2d 697
• Parties: Hung Hy NGUYEN dba Mekong Market, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 697

824 F.2d 697

Hung Hy NGUYEN dba Mekong Market, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.

No. 85-3783.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 2, 1987.

Decided Aug. 6, 1987.

John Lisensky Volpert, Jonathan M. Hoffman, Stephanie L. Striffler, Portland, Or., for plaintiff-appellee.

Edward Cohen and Al Daniel, Washington, D.C., for defendant-appellant.

Appeal from the United States District Court for the District of Oregon.

Before SNEED and HALL, Circuit Judges, and LEGGE, ^* District Judge.

SNEED, Circuit Judge:

The Department of Agriculture's Food and Nutrition Service ^S disqualified appellee Hung Hy Nguyen from participation in the Food Stamp Program for one year. The district court, on remand from an earlier appeal, held the FNS decision to be invalid because the FNS had relied on an unpublished instruction in reaching it. The government appeals from the district court's grant of summary judgment for Nguyen, and we reverse.

I. FACTS AND PROCEEDINGS BELOW

Appellee Nguyen is a retail grocer in Portland, Oregon, who was authorized to participate in the Food Stamp Program (the Program) in 1977. Retailers may not accept food stamps in exchange for non-food items. If they do so, the FNS can in certain circumstances penalize them with disqualification from the Program or with civil penalties. See 7 U.S.C. Sec. 2021.

In 1979 and again in 1980, the FNS wrote Nguyen warning him about possible violations being committed in his store. In 1981, the FNS sent undercover agents to Nguyen's store, where on six occasions they were permitted to buy conspicuous and sometimes expensive non-food items with food stamps. The salespeople specifically involved were Nguyen's sister-in-law, a store clerk, and a stock man.

Under the regulations then in effect, see 7 C.F.R. Sec. 278.6(e)(2) (1982), a previously warned retailer who maintained a "policy" of accepting food stamps for such improper items could be disqualified from the program for one year. ¹ Less severe penalties applied to violations resulting from mere carelessness or poor supervision. Id. The FNS notified Nguyen of the violations found during the investigation and gave him an opportunity to respond. After full administrative review, the FNS imposed the stricter penalty. The FNS review officer relied in his decision in part on FNS Instruction 744-9 (the Instruction), which is not published in Federal Register. Section III(B)(1) of the Instruction provides that as "a general rule," violations are attributable to a store's policy when at least four improper sales have been made by the owner, his close relatives, persons who run the store, or two or more clerks. ²

Nguyen sought review of the agency decision in district court. His original challenge did not include the claim now at issue, that reliance on the unpublished Instruction was improper under the Freedom of Information Act (FOIA), 5 U.S.C. Sec. 552(a)(1). Instead Nguyen contended that the Instruction was unreasonable in substance. The district court held for Nguyen, but on appeal, this court reversed and remanded in light of Bertrand v. United States, 726 F.2d 518 (9th Cir.1984), in which we upheld the Instruction as a reasonable interpretation of the regulations.

On remand Nguyen was permitted to amend his complaint to raise the FOIA claim. The district court then granted summary judgment for Nguyen, again striking down his one-year disqualification. The government appeals both the amendment of Nguyen's pleadings ³ and the lower court's holding on the merits. After setting forth the standards governing our review, we will address, first, the amendment of the complaint and, second, the FOIA claim.

II. STANDARD OF REVIEW

Permission to amend pleadings is reversible only for abuse of discretion. Cunha v. Ward Foods, Inc., 804 F.2d 1418, 1433 (9th Cir.1986). However, the district court's construction of FNS Instruction 744-9 and consequent grant of summary judgment are subject to de novo review. Bertrand, 726 F.2d at 520.

III. LEAVE TO AMEND PLEADINGS

We have held that the district courts in general should "freely" permit amendment of pleadings. Hurn v. Retirement Fund Trust, 648 F.2d 1252, 1254 (9th Cir.1981). The government has not claimed undue delay on Nguyen's part, nor shown any of the other factors compelling denial of a motion to amend: bad faith, prejudice to the opponent, or futility of amendment. See Gabrielson v. Montgomery Ward & Co., 785 F.2d 762, 766 (9th Cir.1986). It is also unlikely that adjudication of the new claim impaired judicial economy. Although a "general policy of permitting amendment after losing an appeal" would promote "inefficient use of scarce judicial resources," In re Beverly Hills Bancorp, 752 F.2d 1334, 1338 (9th Cir.1984), here, this court's earlier remand specifically authorized consideration of Nguyen's other claims. Nguyen v. United States, 792 F.2d 1500, 1503 (9th Cir.1986). We conclude that the district court did not abuse its discretion.

IV. FOIA CLAIM

1. Introduction

The FOIA contains two provisions pertinent here. First, it requires agencies to publish in the Federal Register all "statements of general policy and interpretations of general applicability." 5 U.S.C. Sec. 552(a)(1)(D). Second, it provides that no one may "be adversely affected" by "a matter required to be published ... and not so published." Id. Sec. 552(a)(1). The Instruction here, as we have said, was never published, and Nguyen contends that these provisions invalidate his one-year disqualification. We disagree.

This circuit's precedents firmly establish that a claimant in Nguyen's position cannot succeed under Sec. 552(a)(1) unless the unpublished material at issue affected his "substantive rights." See, e.g., Mada-Luna v. Fitzpatrick, 813 F.2d 1006, 1018 (9th Cir.1987)- ; Cubanski v. Heckler, 781 F.2d 1421, 1428-29 (9th Cir.1986), cert. granted sub. nom. Bowen v. Kizer, --- U.S. ----, 107 S.Ct. 1282, 94 L.Ed.2d 141 (U.S.1987); ⁴ Powderly v. Schweiker, 704 F.2d 1092, 1098 (9th Cir.1983); Anderson v. Butz, 550 F.2d 459, 463 (9th Cir.1977). Our earlier cases employed this substantive rights test in applying the first of the two Sec. 552(a)(1) provisions: i.e., to determine whether the agency directive had to be published. See Powderly, 704 F.2d at 1098; Anderson, 550 F.2d at 463. More recently, we have used the test in construing the second provision: i.e., to determine whether the directive, even if it should have been published, "adversely affected" the claimant. See Mada-Luna, 813 F.2d at 1018; Cubanski, 781 F.2d at 1428-29; see also Zaharakis v. Heckler, 744 F.2d 711, 714 (9th Cir.1984). Thus, we must first decide whether to apply the substantive rights test to the publication requirement or to the adverse effect requirement.

2. Substantive Rights and the Publication Requirement

We believe the later cases offer the best approach to this "most troublesome" problem. 1 K. Davis, Administrative Law Treatise Sec. 5:10 at 341 (2d ed. 1978).

Neither the language nor the legislative history of the publication requirement suggests any connection to individuals' substantive rights. Only the phrases "of general applicability" and "of general policy" qualify which interpretations and policy-statements must be published. 5 U.S.C. Sec. 552(a)(1)(D). Congress inserted these qualifiers where it previously had the phrase "not ... addressed to and served upon named persons." See S.Rep. No. 813, 89th Cong., 1st Sess. 6 (1965). The Senate characterized this change as a "technical" one, id., suggesting that it considered the phrases equivalent. In an earlier version of the FOIA, Congress distinguished rules of general applicability from those that were particularized in scope, offering rates as an example of the latter. S.Rep. No. 1219, 88th Cong., 2d Sess. 4 (1964). The legislative history thus indicates a rather obvious definition of "general": that which is neither directed at specified persons nor limited to particular situations. ⁵

Unquestionably, the Instruction here contained an interpretation of "general" applicability or at the very least a statement of "general" FNS policy. Therefore it ought to have been published under Sec. 552(a)(1)(D). But this does not end the matter: Sec. 552(a)(1) offers no relief to Nguyen unless the Instruction "adversely affected" him. On this point, the "substantive rights" test is directly apposite. The question before us, then, is whether the Instruction affected Nguyen's "substantive rights."

3. Meaning of the Substantive Rights Test

The meaning of the substantive rights test is not something that springs lightly from the page. The government urges a view of the test that is unduly positivistic. According to the government, Nguyen has no substantive right to participate in the Food Stamp Program because under the statute and the Instruction, which we upheld in Bertrand, 726 F.2d at 521, he is excluded from eligibility. On this view, the Instruction cannot adversely affect Nguyen's "substantive rights." He has no rights under the Food Stamp Program.

The argument is deft, but it conceals the true issue, viz., does Nguyen have substantive rights that the unpublished Instruction sought to extinguish? To support its position, the government quotes a sentence from our Powderly opinion, 704 F.2d at 1098: "Exclusion, where no right previously existed, does not constitute a change in substantive rights." But Powderly involved improperly obtained Social Security benefits, as to which the court held that the plaintiff had no colorable statutory claim. See 704 F.2d at 1096. We did not in Powderly hold that Sec. 552(a)(1) can never apply to an agency interpretation that describes the limits of eligibility for statutory benefits. We simply held that agency directives aimed at the recovery of wrongly acquired benefits do not affect the wrongful beneficiary's substantive rights. Indeed, in Anderson we...