HENRY PITMAN, Magistrate Judge.
Juan E. Burgos Arias and Townsend Deli Grocery Corporation ("Townsend Deli") commenced this action, pursuant to 7 U.S.C. § 2023(a)(13)-(15) and 7 C.F.R. § 279.7, challenging Townsend Deli's permanent disqualification from the Supplemental Nutrition Assistance Program ("SNAP") by the Food and Nutrition Service (the "FNS"), a component of the United States Department of Agriculture (the "USDA"). FNS disqualified Townsend Deli after it concluded that Townsend Deli had engaged in the trafficking of SNAP benefits as defined by 7 C.F.R. § 271.2. Among other things, trafficking includes the exchange of SNAP benefits for cash. Plaintiffs claim (1) that they did not know of nor engage in trafficking of SNAP benefits and (2) that FNS's refusal to impose a civil monetary penalty in lieu of permanent disqualification was an abuse of agency discretion.
All parties have consented to my exercising plenary jurisdiction in this matter pursuant to 18 U.S.C. § 636(c).
By notice of motion, dated April 17, 2014 (Docket Item 13), defendants move for summary judgment dismissing the complaint. For the reasons set forth below, defendants' motion is granted in all respects.
Juan E. Burgos Arias is the president and sole officer of the plaintiff corporation, Townsend Deli (Complaint, dated Nov. 29, 2013, (Docket Item 1) ("Compl.") at ¶ 7). Townsend Deli operates a small grocery store in the Bronx, which opened on January 26, 2010 and obtained SNAP authorization from FNS on March 3, 2010 (Administrative Appeal Record, dated Apr. 17, 2014, ("A.R.") at 1, 4, annexed as Appendices 1-9 to Notice of Certified Administrative Record (Docket Item 16); Cmpl. at ¶ 8).
Governed by the Food Stamp Act ("FSA"), "SNAP, previously known as the Food Stamp Program, is a federal benefits program that enables qualified households or `beneficiaries' to purchase food items at participating stores (known as `firms'[)]."
FNS maintains a record of the EBT transactions, and a computerized system reviews each transaction to identify patterns that suggest potential SNAP benefits trafficking (Thomas Decl. at ¶¶ 3, 6). Once identified, the suspect transactions are referred to a Program Specialist in the Investigative Analysis Branch ("IAB") of the FNS Retailer Operations Division (Thomas Decl. at ¶¶ 7-8). The Program Specialist analyzes the firm's suspect transactions by comparing them to the transactions of at least one comparable store within the vicinity of the firm and makes a recommendation to the FNS Section Chief as to whether the firm has engaged in trafficking (Thomas Decl. at ¶¶ 8-9, 11). If the Section Chief agrees with a Program Specialist's determination that trafficking has or is occurring, FNS issues a letter to the firm charging it with trafficking (the "charge letter") (Thomas Decl. at ¶ 16).
The firm may respond to the charges and request consideration of a civil monetary penalty ("CMP") in lieu of disqualification.
After FNS's computer system identified a significant number of Townsend Deli's transactions that occurred between December 2012 and February 2013 as suspicious, it referred the matter to Program Specialist Minetya A. Juarbe for investigation (A.R. at 45, 229-30). On February 21, 2013, Townsend Deli was visited by an independent contractor retained by FNS who investigated the store and submitted a report to FNS (A.R. at 11-44, 46-47). FNS compared Townsend Deli's EBT transactions from the review period to those of two other small grocery stores located within a half-mile of Townsend Deli (A.R. at 48, 53-54; Thomas Decl. at ¶¶ 14-15). Based on the foregoing, Juarbe recommended to FNS Section Chief Denise Thomas that FNS charge Townsend Deli with trafficking (A.R. at 59).
On April 30, 2013, Thomas sent a charge letter to Townsend Deli alleging that plaintiffs engaged in trafficking in violation of 7 C.F.R. § 271.2,
FNS identified four categories of SNAP EBT patterns or irregularities as evidence of trafficking: (1) "multiple purchase transactions [that] were made too rapidly to be credible," (2) "multiple transactions [that] were made from individual benefit accounts in unusually short time frames," (3) "a series of . . . transactions [that exhausted] the majority or all of individual recipient benefits . . . in unusually short periods of time" and (4) "excessively large purchase transactions [that] were made from recipient accounts" (USDA April 30, 2013 Letter). She informed plaintiffs that "FNS may impose a [CMP] of up to $59,000.00," as calculated under 7 C.F.R. § 278.6(j), "in lieu of permanent disqualification of [Townsend Deli] for trafficking" (USDA April 30, 2013 Letter). However, she also explained that in order to qualify for the limited sanction of a CMP, plaintiff had to establish four criteria by adequate documentation within ten days of plaintiffs' receipt of the letter (USDA April 30, 2013 Letter). Finally, Thomas also attached lists of the suspicious transactions, broken down into the four categories set forth above, with some transactions appearing on multiple lists (A.R. at 63-141; Thomas Decl. at ¶ 17). The lists contained over 600 transactions totaling more than $90,000 in SNAP benefits (A.R. at 141). There is no dispute between the parties that these transactions actually occurred.
In the four-month period immediately preceding Thomas's letter, the plaintiffs averaged $37,741.96 per month in SNAP redemptions (A.R. at 279). Following receipt of the charge letter on May 3, 2013, the plaintiffs' total redemptions in May 2013 were $10,737.76, a seventy-two percent decline in SNAP redemptions (A.R. at 279).
By a letter and supporting documents to FNS dated May 13, 2013, plaintiffs denied all allegations and requested a CMP be considered in lieu of disqualification (A.R. at 145; Cmpl. at ¶ 10). Plaintiffs also enclosed (1) a letter introducing the newly hired Townsend Deli manager, Glenny Burgos, (2) a record of employees' signatures of receipt and acceptance of the Employee Handbook, (3) a copy of the handbook and (4) employees' signatures acknowledging "Annual Compliance Training" for 2011, 2012 and 2013 (A.R. at 146-73). The employee handbook did not, however, mention SNAP benefits or the limited products for which SNAP benefits could be exchanged (A.R. at 154-73).
On May 24, 2013, upon reviewing the materials submitted by plaintiffs, Juarbe recommended that Townsend Deli be permanently disqualified (A.R. at 175-78). She determined that plaintiffs failed to train employees properly regarding SNAP benefits even though FNS provided plaintiffs with training materials upon plaintiffs' receipt of their license (A.R. at 176). Moreover, although Juarbe recognized that Townsend Deli's hiring of Glenny Burgos as store manager evidenced an intent to correct the situation, it did not mitigate the violations that had already occurred (A.R. at 176). Further, she noted that in 2012, Townsend Deli had previously been fined for violations of the Supplemental Food Program for Women, Infants and Children (WIC) for overcharging and engaging in unauthorized transactions (A.R. at 47). Finally, she determined that FNS could not consider a CMP because the plaintiffs failed to provide sufficient evidence of an effective compliance program to prevent future violations of SNAP. For all these reasons, the plaintiffs did not satisfy the four CMP criteria set forth in 7 C.F.R. § 278.6(i) (A.R. at 176-77).
By a June 4, 2013 letter, Thomas informed plaintiffs of FNS's decision to permanently disqualify Townsend Deli from the SNAP program, notwithstanding plaintiffs' May 13, 2013 submission
On June 7, 2013, the plaintiffs appealed, seeking an administrative review, to the Chief of the FNS Administrative Review Branch (Cmpl. at ¶ 12; Letter of Mark Hidalgo to Chief of the FNS Administrative Review Branch, dated June 7, 2013, annexed as Exhibit D to Cmpl.). Although they had the opportunity to do so, it does not appear that plaintiffs provided any additional information to support their position (Letter of Daniel S. Lay to Mark Hidalgo, dated June 11, 2013, annexed as Exhibit E to Cmpl.).
On October 28, 2013, the Administrative Review Branch issued a final decision affirming the permanent disqualification of Townsend Deli (A.R. at 280).
Plaintiffs have exhausted their administrative remedies and now seek
Defendants move for summary judgment, arguing that, in light of the evidence presented, a reasonable fact-finder could only conclude that plaintiffs trafficked SNAP benefits and that plaintiffs have not met their burden of proving FNS's determination erroneous (Memorandum of Law in Support of the Motion by Defendants the United States and Tom Vilsack for Summary Judgment, dated Apr. 17, 2014, (Docket Item 14) ("Defs.' Mem.") at 1-2). Further, defendants contend that permanent disqualification was warranted under the regulations, because plaintiffs failed to satisfy the four necessary criteria that would justify the limited sanction of a CMP and that FNS did not, therefore, abuse its discretion in imposing the penalty of disqualification (Defs.' Mem. at 2). Finally, defendants argue that plaintiffs' claim against Secretary Vilsack should be dismissed because it is barred by sovereign immunity (Defs.' Mem. at 7 n.3).
On June 19, 2014, I issued an Order directing plaintiffs to serve and file opposition to the defendants' pending motion for summary judgment no later than July 31, 2014 (Order, dated June 19, 2014, (Docket Item 19) at 1). To date, plaintiffs have not submitted anything in opposition to defendants' motion.
The standards applicable to a motion for summary judgment are well-settled and require only brief review.
"Material facts are those which `might affect the outcome of the suit under the governing law,' and a dispute is `genuine' if `the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'"
Local Rule 56.1(a) requires that a party moving for summary judgment submit a "separate, short and concise statement, in numbered paragraphs, of the material facts as to which the moving party contends there is no genuine issue to be tried." A non-moving party's "failure to comply with Local Rule 56.1 is [a sufficient ground] for deeming admitted the facts contained in [the movant's] Rule 56.1 statement" and granting the motion.
The Court of Appeals for the Second Circuit has further explained that
Given the strong preference in this Circuit for resolving cases on the merits,
I have reviewed
To determine whether a trafficking violation has occurred, FNS may consider "facts established through on-site investigations, inconsistent redemption data, evidence obtained through a transcript report under an [EBT] system, or the disqualification of a firm from" WIC, along with other relevant evidence. 7 C.F.R. § 278.6(a). Defendants' motion rests largely on the conclusions of Juarbe and Thomas, their comparison of plaintiffs' EBT transactions to similar retailers and their experience as trafficking investigators. However, their conclusion is also supported by photographs, store observations, reports and sufficient data to demonstrate the implausibility of the plaintiffs' claims and to support FNS's determination that Townsend Deli trafficked SNAP benefits.
First, FNS identified eighty-seven EBT transactions totaling $15,215.33 that occurred so rapidly that FNS concluded they could not be bona fide food purchases (A.R. at 63-72). All of those transactions occurred between December 2012 and February 2013; an average of twenty-nine such transactions occurred per month.
For example, on December 9, 2012, Townsend Deli redeemed $67.00 in SNAP benefits thirty-five seconds after a transaction for $3.25 (A.R. at 64). Similarly, on January 5, 2013, it redeemed $70.59 in SNAP benefits fifty-eight seconds after a recorded purchase of $10.83 and then, three minutes and forty seconds later, it recorded a third transaction for $221.40 (A.R. at 67-68). Other examples include forty-two seconds between redemptions of $15.00 and $199.67 and fifty-two seconds between redemptions of $1.25 and $199.81 (A.R. at 68, 72).
At the time, Townsend Deli had one cash register or check-out station and one point-of-sale device for EBT transactions (A.R. at 11). Townsend Deli did not have optical scanners for pricing items nor did it provide customers with shopping baskets or carts (A.R. at 11).
I agree that the lack of optical scanners and the need to ring up all purchases renders the eighty-seven rapid EBT transactions implausible. With only one cash register and one point-of-sale device, it is not credible, for example, that an employee could process a $15.00 purchase, then, forty-two seconds later, manually calculate a purchase totaling $199.67, enter the EBT transaction into the point-of-sale device and have the customer swipe his or her card and enter a PIN. The speed and size of the identified transactions strongly suggests that Townsend Deli was exchanging SNAP benefits for cash.
Second, FNS identified one hundred sixteen EBT transactions totaling $11,963.54 where multiple transactions by the same beneficiary occurred in less than twenty-four hours (A.R. at 73-79).
For example, one beneficiary allegedly made three redemptions of $79.99, $240.59 and $40.23, for a total of $360.81, in just under seven hours (A.R. at 76). Another beneficiary redeemed $149.50 and $109.58 ($259.08 total) in three hours and thirty-seven minutes, while another beneficiary redeemed $289.69 and $142.50 (totaling $432.19) in five hours and one minute (A.R. at 74, 75).
Townsend Deli's limited selection of eligible food items makes it virtually impossible to believe that customers would return to the store within twenty-four hours to make repeated large transactions. Townsend Deli offers typical grocery items, including fruits, vegetables, snack foods, breads, eggs, dairy products and meats, as well as ineligible items, such as tobacco products, alcohol, cleaning supplies and pet food (A.R. at 11-13). Both photographs and inventory lists of eligible food from Townsend Deli clearly demonstrate that there was nothing special or unique about Townsend Deli which would cause customers to repeatedly visit the store within such short periods of time. It is highly unlikely, for example, that a customer would need to make repeated purchases of $40.00 to $290.00 in less than seven hours at the store. Rather, it seems most likely that Townsend Deli offered cash, rather than eligible food items, in exchange for SNAP benefits, and that the redemptions were structured into multiple transactions in a clumsy effort to avoid detection.
Third, FNS identified one hundred sixty EBT transactions totaling $25,056.14 which exhausted an individual's account benefits in an unusually short time period (A.R. at 80-94). Multiple beneficiaries withdrew the precise balance of each of their accounts, including, for example, one-time redemptions of $279.99, $270.59, $254.34 and $250.50 (A.R. at 80). On other occasions, individual beneficiaries would engage in multiple same-day transactions to deplete the account balance. For example, one beneficiary withdrew $100.99 and $99.10 (totaling $200.09) in less than four hours, exhausting the benefit account (A.R. at 82). Another beneficiary made purchase transactions of $150.45 and $16.53 (totaling $166.98) within two hours and forty-two minutes, emptying the account (A.R. at 90).
Data collected and analyzed by the USDA regarding the rate at which SNAP benefits are redeemed shows that, on average, all SNAP beneficiary households tend to spend 21.2% of benefits by the end of the first day of the month, 60.3% of benefits by the end of the first week and 80.5% of benefits by the end of the second week of the month (Thomas Decl. Ex. A, at A-31). Even after three weeks have expired, households tend to retain at least nine percent of their benefits (Thomas Decl. Ex. A, at A-31).
At Townsend Deli, however, many beneficiaries redeemed most, if not all, of their benefits within the first week of the month or in a single day. Again, there is nothing in the record explaining why so many Townsend Deli customers would break from typical spending patterns of SNAP beneficiaries unless they were being offered something that other SNAP beneficiaries were not, such as cash. With Townsend Deli's limited inventory of eligible food items, it is highly unlikely that a beneficiary would choose to spend most or all of his or her allotted monthly benefits in a store with limited inventory where, presumably, not all items that were needed or wanted were available.
The highly atypical manner in which Townsend Deli's customers purportedly redeemed their benefits is further evidence of trafficking.
Fourth, FNS identified six hundred sixty-three EBT transactions totaling $90,805.08 in which individual beneficiaries made "excessively large purchase[s]" (A.R. at 95-141). For example, one beneficiary made large purchases during the first week of each month, redeeming $281.25 in December, $205.14 in January and $142.12 in February (A.R. at 99). Another individual redeemed exactly $79.99 each month (A.R. at 99). A third beneficiary redeemed $201.53, $280.83, $282.89 and $102.50 (totaling $867.75) within the first five days of December (A.R. at 105).
Such large transactions are inconsistent with the food inventory of Townsend Deli. Townsend Deli does not sell items in bulk, nor does it sell specialty or higher-priced items; it offers only staples such as meats, fruits, vegetables and dairy products (A.R. at 11-13, 53). Townsend Deli did not maintain sufficient eligible food items in its inventory to justify the six hundred sixty-three EBT transactions of the magnitude described above.
These transactions are particularly suspect considering that Townsend Deli does not provide shopping carts or baskets for customers and, as is clear from the photographs of the premises in the record, it has limited counter space for customers to place items for purchase. To warrant redemptions of $100 or more, one would expect the store either to cater to customers purchasing a large volume of items in one visit or to maintain a stock of bulk, high-priced or specialty items. Townsend Deli does neither.
Furthermore, Townsend Deli's transactions, on average, were much larger than those of two comparator stores identified by FNS — Pauriany Deli Grocery #1 and AC1 Supermarket & Deli Corp. Townsend Deli's average redemption was $35.93 — more than three times that of the comparator stores' averages of $6.57 and $9.06, respectively, and more than double the $13.51 average redemption of all small New York grocery stores (A.R. at 54).
Beneficiaries also commonly made large purchases at Townsend Deli while making more typical-sized purchases at other supermarkets and super stores which appear to have had larger inventories and more competitive pricing (A.R. at 55, 58). For example, less than five hours after a beneficiary redeemed $282.57 at Townsend Deli, the same beneficiary redeemed $155.46 at BJ's Wholesale Club 176, a super store (A.R. at 58). Another beneficiary redeemed $200.25 at Townsend Deli, only to redeem $20.01 at a supermarket a little more than three hours later (A.R. at 56).
In addition to the transactions being unusually large, defendants note that many of the transactions are similar, using patterns of repeated digits and suggesting fabrication. Two patterns frequently appearing are transactions at or near $200.00 and $280.00 (A.R. at 51-52). For example, one household redeemed $199.77, $199.75 and $199.83 on the twelfth of December, January and February respectively, while on the same dates, another household redeemed $199.98, $199.79 and $199.81 (A.R. at 109, 129). One beneficiary redeemed $199.82, $199.89 and $199.82 each month, and still another redeemed $199.89 and $199.58 in December, $199.85 in January and $199.08 in February (A.R. at 113, 132). Many other beneficiaries appear to repeat this pattern as well (
All the foregoing facts are further evidence that Townsend Deli routinely fabricated transactions as part of an established routine of exchanging certain amounts of SNAP benefits for set amounts of cash.
Plaintiffs have offered two explanations for the charges against them, neither of which give rise to a genuine issue of material fact.
During the administrative proceedings, plaintiffs claimed that they were unaware of and did not benefit from any trafficking in SNAP benefits. After this action was commenced, plaintiffs first offered a different defense. At a pretrial conference before me on February 14, 2014, plaintiffs through their attorney, claimed that the transactions that gave rise to the charges were the product of Townsend Deli's practice of extending credit to its customers. According to plaintiffs' counsel, Townsend Deli's employees allowed SNAP recipients to purchase items on credit, and Townsend Deli's employees maintained a record of those transactions. According to plaintiffs' counsel, at the beginning of each month, those beneficiaries who received extensions of credit would redeem SNAP benefits to pay down their debt. Plaintiffs have never submitted anything beyond their attorney's proffer in support of this argument.
Plaintiffs' "innocent owner" explanation fails as a matter of law. It is well-settled that there is no "innocent owner" defense applicable to any violations of the FSA.
Plaintiffs' second argument — that the suspicious transactions were the repayment of advances of credit — fails as a matter of law for two independent reasons. First, firms are prohibited by 7 C.F.R. § 278.2(f) from accepting SNAP benefits as "payment for items sold to a household on credit."
Pursuant to 7 U.S.C. § 2021(b)(3)(B), FNS has "the discretion to impose a civil penalty . . . in lieu of disqualification." I have reviewed the factual record
The "abuse of discretion" or "arbitrary and capricious" standard requires an agency's decision be given substantial deference.
As explained below, FNS's decision not to impose a CMP in lieu of permanent disqualification was not arbitrary and capricious because the agency's action was well within its regulations.
The applicable regulations require that, in the absence of documentary evidence of certain facts, which are discussed in more detail below, the FNS must permanently disqualify a firm that has trafficked SNAP benefits. 7 C.F.R. § 278.6(e)(1)(i) ("The FNS regional office
7 C.F.R. § 278.6(i);
The imposition of permanent disqualification here comported with the applicable regulations because plaintiffs did traffick in SNAP benefits and failed to establish, by "substantial evidence," the four criteria necessary to make them eligible for a CMP.
First, plaintiffs have failed to offer dated, documentary evidence of a compliance policy. Although plaintiffs did submit a copy of Townsend Deli's employee handbook, it does not mention SNAP benefits, compliance training or compliance policies. Plaintiffs also failed to submit any other dated training curricula or other firm policies that "reflect a commitment to ensure that [Townsend Deli] is operated in a manner consistent with" the FSA. 7 C.F.R. § 278.6(i)(1).
Plaintiffs did submit three documents, signed by three employees, entitled "Annual Employee Training of Adherence to Compliance of Permits and Licenses for the Business," dated January 7, 2011, January 6, 2012 and January 4, 2013 (A.R. at 148-50). Each document states "ALL STAFF trained and given copies of manuals [sic] State Liquor Authority (beer), NYC Consumer Affairs (cigarettes, health, and food), USDA SNAP Program (food stamps)" (A.R. at 148-50). These documents neither contain policy statements nor set forth the requirements of the SNAP program as set forth in the regulations. Furthermore, they do not include the statements required by 7 C.F.R. § 278.6(i)(2)(iii).
Plaintiffs argue that the May 6, 2013 hiring of Glenny Burgos as manager of Townsend Deli and his acknowledgment of having reviewed SNAP guidelines are further evidence of compliance. However, Burgos was only hired after the trafficking violations occurred; therefore, his hiring does not demonstrate the existence of a compliance policy prior to the occurrence of the violations.
Finally, plaintiffs assert that Burgos Arias's lack of knowledge of trafficking is a mitigating factor under the fourth criterion, but they fail to offer any documentation or other evidence to support this assertion.
Plaintiffs have not produced documentation to FNS or myself demonstrating that Townsend Deli had a written compliance policy that was provided to employees prior to the commission of trafficking violations, nor have they raised a genuine issue of material fact as to whether they developed and implemented a compliance training program. Because plaintiffs have not provided substantial evidence demonstrating compliance with any of the four applicable criteria, the FNS acted within the regulations when it permanently disqualified plaintiffs; FNS did not, therefore, abuse its discretion in asserting a penalty of permanent disqualification rather than a CMP.
The United States, as a sovereign entity, may only be sued to the extent that it has waived its sovereign immunity.
The United States has not waived the defense of sovereign immunity with respect to claims brought against the USDA, FNS or its officials under the FSA. The FSA provides for suits only "against the United States"; therefore, the only proper defendant in this case is the United States. 7 U.S.C. § 2023(a)(13); 7 C.F.R. § 279.7;
Accordingly, for all the foregoing reasons, defendants' motion for summary judgment is granted, and plaintiffs' claims are dismissed in their entirety.
SO ORDERED.
