Three Friends, Inc. v. United States

• Docket Number: Civil Action ELH-20-2649
• Decision Date: 09 December 2021
• Parties: THREE FRIENDS, INC. d/b/a WOW TOBACCO & GROCERY, Plaintiff, v. UNITED STATES OF AMERICA, Defendant.
• Court: U.S. District Court — District of Maryland

1

THREE FRIENDS, INC. d/b/a WOW TOBACCO & GROCERY, Plaintiff, v. UNITED STATES OF AMERICA, Defendant.

Civil Action No. ELH-20-2649

United States District Court, D. Maryland

December 9, 2021

MEMORANDUM OPINION

Ellen Lipton Hollander United States District Judge

This case arises under the Supplemental Nutrition Assistance Program (“SNAP” or the “Program”) and concerns the penalty of permanent disqualification imposed on plaintiff Three Friends, Inc., d/b/a Wow Tobacco &amp Grocery (“Wow” or the “Store”), a SNAP retailer. The disqualification was premised on a “trafficking” violation.

SNAP was established pursuant to the Food Stamp Act of 1964, as amended, 7 U.S.C. § 2011 et seq. (the “Act”). It is administered by the Food and Nutrition Service (“FNS” or the “Agency”), which is part of the U.S. Department of Agriculture (“USDA”). See 7 C.F.R § 271.3.^[1] FNS determined that plaintiff engaged in the trafficking of SNAP benefits when, on one occasion, an employee exchanged benefits for cash. Although plaintiff sought a warning letter or, alternatively, a civil money penalty (“CMP”), FNS determined to permanently disqualify plaintiff from participation in the Program. See 7 U.S.C. § 2021(a); 7 C.F.R. § 278.6. A Final Agency Decision, issued on August 13, 2020, upheld that decision. See ECF 16-2 at 143-51 (“Final Agency Decision” or “FAD”).

Thereafter plaintiff filed suit against the United States (ECF 1, the “Complaint”), seeking judicial review of the FAD. The Complaint contains two counts. In Count I (id. ¶¶ 33-41), pursuant to 7 U.S.C. § 2023 and 7 C.F.R. § 279.7, plaintiff seeks “Judicial Review of Defendant's permanent disqualification of Plaintiff from the SNAP program.” ECF 1, ¶ 41. The Complaint asks the Court, inter alia, to reverse the FAD vacate FNS's initial determination as to the violation and penalty, direct defendant to send a warning letter in lieu of permanent disqualification, and to reinstate plaintiff as an approved participant in SNAP. Id. Count II (id. ¶¶ 42-49) likewise seeks “Judicial Review of Defendant's permanent disqualification of Plaintiff from the SNAP program.” Id. ¶ 49. And, plaintiff asks the Court to impose a CMP, in lieu of permanent disqualification. Id. The Complaint is accompanied by the FAD. ECF 1-1.

The United States (the “government”) has moved to dismiss, pursuant to Fed.R.Civ.P. 12(b)(6) or, in the alternative, for summary judgment. ECF 16. The motion is supported by a memorandum. ECF 16-1 (collectively with ECF 16, the “Motion”). In addition, defendant has submitted the Administrative Appeal Record (“Administrative Record”). ECF 16-2 at 3-152.^[2]

Plaintiff has responded in opposition. ECF 23 (the “Opposition”). Notably, in the Opposition, plaintiff “adopts and incorporates by reference” the statement of facts in the Motion, and the Administrative Record. ECF 23 at 3. The government has replied. ECF 26 (the “Reply”).

No hearing is necessary to resolve the Motion. See Local Rule 105.6. For the reasons that follow, I shall construe the Motion as one for summary judgment and grant it.

I. Factual Background

A. SNAP

SNAP was enacted “to promote the general welfare, to safeguard the health and well-being of the Nation's population by raising the levels of nutrition among low-income households.” 7 U.S.C. § 2011. To achieve that mission, SNAP provides qualifying individuals and families with supplemental funds to purchase eligible items from approved retailers. Id. §§ 2013, 2018; 7 C.F.R. § 278.1.

Beneficiaries of SNAP are provided with benefits by way of an Electronic Benefits Transfer (“EBT”) card. See 7 U.S.C. § 2016(j)(1)(A). The EBT card operates like a debit card. But, it may only be used to buy designated food items from authorized SNAP retailers. Id. § 2013(a); see also 7 C.F.R. § 271.2 (defining “eligible foods” as, in pertinent part, “[a]ny food or food product intended for human consumption except alcoholic beverages, tobacco, and hot foods and hot food products prepared for immediate consumption”); 7 U.S.C. § 2018 (“Approval of Retail Food Stores and Wholesale Food Concerns”); 7 C.F.R. § 278.1 (same).

Notably, “trafficking” in SNAP benefits is prohibited. See 7 U.S.C. § 2021(b)(3)(B); 7 C.F.R. § 278.6(e)(1)(i). “Trafficking” is defined, in pertinent part, as “buying, selling, stealing or otherwise effecting an exchange of SNAP benefits issued and accessed” via EBT cards “for cash or consideration other than eligible food, either directly, indirectly, in complicity or collusion with others, or acting alone.” 7 C.F.R. § 271.2.

Periodically, FNS reviews authorized retailers and may disqualify an approved retail store that violates the Act or its implementing regulations. In particular, 7 U.S.C. § 2021(a) provides (bold in original):

(a) Disqualification

(1) In general

An approved retail food store or wholesale food concern that violates a provision of this chapter or a regulation under this chapter may be -

(A) disqualified for a specified period of time from further participation in the supplemental nutrition assistance program;

(B) assessed a civil penalty of up to $100, 000 for each violation; or

(C) both.

(2) Regulations

Regulations promulgated under this chapter shall provide criteria for the finding of a violation of, the suspension or disqualification of and the assessment of a civil penalty against a retail food store or wholesale food concern on the basis of evidence that may include facts established through on-site investigations, inconsistent redemption data, or evidence obtained through a transaction report under an electronic benefit transfer system.

SNAP regulations require FNS to consider three factors in making a disqualification or penalty determination: “(1) The nature and scope of the violations committed by personnel of the firm, (2) Any prior action taken by FNS to warn the firm about the possibility that violations are occurring, and (3) Any other evidence that shows the firm's intent to violate the regulations.” 7 C.F.R. § 278.6(d). However, the Agency's discretion, and its consideration of these factors, is sharply circumscribed when it comes to trafficking.

Originally, the Food Stamp Act of 1964 left the issue of disqualification for trafficking violations to the discretion of the Secretary of USDA (the “Secretary”). See Corder v. United States, 107 F.3d 595 (8th Cir. 1997) (discussing statutory history of Food Stamp Program); Ghattas v. United States, 40 F.3d 281, 283-84 (8th Cir. 1994) (same); Ahmed v. United States, 47 F.Supp.2d 389, 393 (W.D.N.Y. 1999) (same). From 1982 to 1988, the Act precluded the exercise of any discretion and mandated permanent disqualification for trafficking violations. See Castillo v. United States, 989 F.Supp. 413, 417 (D. Conn. 1997). But, in 1988, Congress amended the statute, conferring discretion on the Secretary to impose a monetary penalty in lieu of permanent disqualification, but only under certain circumstances. See Hunger Prevention Act of 1988, S. 2560, 100th Cong. § 344, 102 Stat. 1645, 1664 (1988); Ahmed, 47 F.Supp.2d at 391.^[3]

Section 2021(b)(3)(B) of 7 U.S.C. provides:

[D]isqualification ... shall be ... (3) permanent upon ... (B) the first occasion or any subsequent occasion of a disqualification based on the purchase of coupons or trafficking in coupons…except that the Secretary shall have the discretion to impose a civil penalty of up to $20, 000 for each violation…in lieu of disqualification under this subparagraph, … 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 of the chapter and the regulations, including evidence that-

(i) the ownership of the store or food concern was not aware of, did not approve of, did not benefit from, and was not involved in the conduct of the violation; and

(ii)(I) the management of the store or food concern was not aware of, did not approve of, did not benefit from, and was not involved in the conduct of the violation; or

(II) the management was aware of, approved of, benefited from, or was involved in the conduct of no more than 1 previous violation by the store or food concern…

The legislative history pertinent to § 2021(b) addressed the reasons for the inclusion of the civil money penalty as a possible sanction. A CMP in lieu of permanent disqualification is sometimes referred to as a “trafficking CMP.” H.R. Rep. No. 100-828, pt. 1, at 27-28 (1988) states (emphasis added):

The permanent disqualification of retail food stores upon the first trafficking offense-without any evaluation of preventive measures taken or complicity in the trafficking-seems excessively harsh. The Committee substitute gives the Secretary of Agriculture the discretion to impose a fine of up to $20, 000 on a retail or wholesale food store instead of disqualification. The Secretary may exercise that discretion-if it is determined that there is substantial evidence that the store had an effective policy and program to prevent these violations of the Food Stamp Act.

Examples of an effective policy and program to prevent violations of the Act or regulations by a store or concern might include the following: (i) effective written policies and procedures to be followed by store personnel that are consistently applied by management; (ii) initial training of store managers and employees in the proper handling of food stamps; (iii) periodic oversight and continuing education of store personnel in the proper handling of food stamps; and (iv) other reasonable and good faith efforts that demonstrate the existence of an effective policy and program by the store or concern to prevent violations of the act or regulations.

A retail food store or wholesale

...