Plaid Pantry Stores, Inc. v. U.S.

• Decision Date: 05 September 1986
• Docket Number: No. 85-4089,P,No. 65,65,85-4089
• Citation: 799 F.2d 560
• Parties: PLAID PANTRY STORES, INC., dba Plaid Pantry Storelaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 560

799 F.2d 560

PLAID PANTRY STORES, INC., dba Plaid Pantry Store No. 65, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.

No. 85-4089.

United States Court of Appeals, Ninth Circuit.

Submitted Sept. 5, 1986. ^*

Decided Sept. 11, 1986.

Margaret H. Leek Leiberman, Portland, Or., for plaintiff-appellee.

Charles H. Turner, U.S. Atty., Portland, Or., Raymond W. Fullerton, Aaron B. Kahn, U.S. Dept. of Agriculture, Washington, D.C., for defendant-appellant.

Appeal from the United States District Court for the District of Oregon. Owen M. Panner, Judge.

Before WRIGHT, GOODWIN and NELSON, Circuit Judges.

PER CURIAM:

We affirm the judgment of the district court, reported at 612 F.Supp. 680 (D.Or.1985), for the reasons given by the district judge. His analysis and opinion of June 18, 1985 demonstrate the care with which he considered the excessive sanctions imposed on this plaintiff-appellee by the United States Food and Nutrition Service. We agree with his conclusions and adopt his published opinion as that of this court. It is set out in the appendix below.

We note that the district judge relied on a district court opinion in Bertrand v. United States, (D.Or. Feb. 12, 1985, unpublished). That decision was recently affirmed by this court. Nguyen v. United States, 792 F.2d 1500 (9th Cir.1986).

AFFIRMED.

APPENDIX

CIVIL NO. 84-1409-PA

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

June 18, 1985

Wayne D. Palmer

Ted E. Runstein

Kell, Alterman & Runstein

1330 The Bank of California Tower

707 S.W. Washington Street

Portland, Oregon 97205

Attorneys for Plaintiff

Charles H. Turner

United States Attorney

Arno Reifenberg

Special Assistant U.S. Attorney

1734 Federal Building

1220 S.W. Third Avenue

Portland, Oregon 97204

Attorneys for United States of America

OPINION

This is an action to obtain judicial review of a three year disqualification of Plaid Pantry Store No. 65 from the food stamp program operated by the United States Food and Nutrition Service ^S. Review is pursuant to 7 U.S.C. Sec. 2023. Section 2023 provides for a de novo court trial in which the validity of the administrative action is determined. If the action is determined to be invalid, the court may enter a judgment or order which it determines is in accordance with the law and the evidence. Id. Review of FNS sanction is under the arbitrary and capricious standard. Bertrand v. United States, 726 F.2d 518 (9th Cir.1984). In the present case the parties agreed to a trial on stipulated facts.

FACTS

Plaid Pantry operates 118 convenience, retail grocery stores in Oregon and Washington, including Plaid Pantry Store No. 65 (hereinafter "plaintiff"). In January, 1983, defendant received a complaint that plaintiff was accepting food stamps for the purchase of beer and cigarettes (ineligible food stamp items). On January 10, 1983 Marvin Kolstad of the FNS met with Bruce Amick, plaintiff's acting manager to discuss the complaint. Mr. Amick told Mr. Kolstad that he tried to carefully train all employees to insure that they strictly complied with the food stamp rules and regulations. He further informed Mr. Kolstad that he had a new employee with whom he would discuss the allegations and that he would make every effort to insure that there were not food stamp violations. Mr. Amick then discussed the allegation with plaintiff's employees and reiterated plaintiff's policy to insist upon strict compliance of the food stamp rules and regulations.

The store's food stamp redemptions were not statistically excessive. Because the redemption rate had increased each month for the previous quarter, Mr. Kolstad decided to monitor plaintiff for February, March, and April, 1983. On January 24, 1983, Barbara Russell, officer in charge of the Portland FNS office, wrote Mr. Amick confirming his conversation with Mr. Kolstad, advising him of the possibility of violations and the possible consequences. She also notified Mr. Roger Penn, plaintiff's district supervisor and John Piacentini, plaintiff's president.

Mr. Kolstad submitted the case for investigation in July, 1983 but plaintiff was not notified of this investigation. Due to illness, the investigation did not occur until 1984. Plaintiff's store was investigated from February 23, 1984 to March 19, 1984. Reid Peterson, FNS investigator, was successful in purchasing ineligible items with food stamps on five occasions with three different clerks. One clerk was responsible for three of the transactions. His assistant, Susan Bush, was unsuccessful in her attempt to purchase ineligible items with food stamps. Her attempt was the only one occurring during the day. Mr. Reid's purchases all occurred between 7:40 p.m. and 12:30 a.m. Plaintiff's management is generally present during the day and not the evening hours. Plaintiff's management was not involved in any of the transactions and was not present during any of them.

On May 2, 1984, defendant charged plaintiff with violations of the food stamp regulations. See 7 C.F.R. Sec. 2021. Plaintiff was invited to submit information relating to the charge but did not.

On May 24, 1984, Ms. Russell, on behalf of the FNS, presented a case summary of these alleged violations to the regional director for the FNS Western Region, for an administrative determination. On July 11, 1984, the director determined that plaintiff had violated the food stamp regulations and disqualified plaintiff from participation in the program for five years. He determined that it was plaintiff's practice to accept food stamp coupons in exchange for major and minor nonfood ineligible items.

On July 16, 1984, plaintiff requested administrative review of the determination of the regional director. On October 25, 1984, James A. Ramsey, an administrative review officer for the FNS, upheld the regional director's order with the modification that plaintiff's disqualification be for three years instead of five years because he determined the evidence was insufficient to establish that sales of major nonfood items (such as beer and cigarettes) was plaintiff's normal practice. Mr. Ramsay found that the participation of three clerks in five violative transactions established that sales of common nonfood items was plaintiff's normal practice. He also found that the warning given plaintiff was appropriate and that a civil money penalty was inappropriate.

Plaintiff exhausted its administrative remedies and timely filed for this judicial review. I previously stayed plaintiff's disqualification pending my review.

Plaid Pantry employs a large number of part-time employees and experiences a high rate of employee turnover. At the time of the investigation, plaintiff employed eight employees at Store No. 65. Between January, 1983 and March, 1984, plaintiff employed twenty-nine different employees at Store No. 65.

Shortly before defendant's investigation began, a memorandum indicating that disregard of food stamp regulations would result in immediate termination was provided to the three employees allegedly involved in the noneligible transactions. These employees were required to sign the memorandum to insure compliance. The employees involved indicate they received extensive training concerning the food stamp program and that it was not their practice to violate the program's regulations.

STATUTORY AND REGULATORY SCHEME

Food stamp coupons are only to be used to purchase food from retail food stores which have been approved for participation in the food stamp program. 7 U.S.C. Sec. 2013. The Food Stamp Act was amended on September 8, 1982 to provide for definite periods of disqualification for retail stores violating section 2013. Title 7 of U.S.C. Sec. 2021(b) provides that, upon the first occasion of disqualification, the disqualification shall be for a reasonable period of time, no less than six months, no more than five years. Title 7 of C.F.R. Sec. 278.6(e) provides the penalties for retail stores which violate the food stamp regulations. Subsection 3 provides that the FNS can disqualify the firm for three years if it is to be the firm's first sanction and the evidence shows:

(i) It is the firm's practice to commit violations such as the sale of common nonfood items in amounts normally found in a shopping basket and the firm was previously advised of the possibility that violations were occurring and of the possible consequences of violating the regulations....

Subsection 4 of 7 C.F.R. Sec. 278.6(e) provides that the FNS can disqualify the firm for one year if:

It is to be the first sanction for the firm and the ownership or management personnel of the firm have committed violations such as the sale of common nonfood items in amounts normally found in a shopping basket, and FNS had not previously advised the firm of the possibility that violations were occurring and of the possible consequences of violating regulations.

Subsection 5 of 7 C.F.R. Sec. 278.6(e) provides that the FNS can disqualify the firm for six months if:

It is to be the first sanction for the firm and the evidence shows that personnel of the firm have committed violations such as but not limited to the sale of common nonfood items due to carelessness or poor supervision by the firm's ownership or management.

Subsection 7 of 7 C.F.R. Sec. 278.6(e) provides that the FNS may send the firm a warning letter if violations are too limited to warrant disqualification.

The FNS may impose a civil money penalty as a sanction in lieu of disqualification only when the firm subject to a disqualification is selling a substantial variety of staple food items, and the firm's disqualification would cause hardship to food stamp households because there is no other authorized retail food store in the area selling as large a variety of staple food items at comparable prices. 7 C.F.R. Sec. 278.6(f).

Title 7 C.F.R. Sec. 278.6(d) provides The FNS regional office making a disqualification ... determination shall consider: (1) the...