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PERALES v. UNITED STATES

May 14, 1984

CESAR A. PERALES, Commissioner of Social Services of the State of New York, Plaintiffs, against UNITED STATES OF AMERICA and JOHN R. BLOCK, Secretary, United States Department of Agriculture, Defendants.


The opinion of the court was delivered by: BRIEANT

MEMORANDUM AND ORDER

Brieant, J.

 The Food Stamp Act of 1977, as amended, 7 U.S.C. § 2011, et seq., provides assistance to eligible low income households to enable them "to obtain a more nutritious diet through normal channels of trade by increasing [their] food purchasing power. . . ." 7 U.S.C. § 2011. The Act's purposes are to combat hunger and malnutrition among those of limited means, as well as to strengthen the nation's agricultural economy through the enhancement of food marketing and distribution.Id.

 The assistance provided under the Food Stamp Act is in the form of food stamp coupons that recipients use to purchase food from approved retail stores. These coupons are redeemable at face value by the Secretary of Agriculture through the facilities of the United States Treasury. 7 U.S.C. § 2013(a).

 The Food Stamp Program is administered nationally by the Food and Nutrition Service of the Department of Agriculture ("FNS"). 7 C.F.R. § 271.3. It is administered locally by state agencies pursuant to plans of operation approved by the Secretary of Agriculture, which incorporate uniform standards of eligibility for assistance and specify the manner in which assistance will be processed. 7 U.S.C. § 2020. The state agencies are eligible to receive up to 50% or more of the costs of administering the program from the federal government. 7 U.S.C. § 2025.

 Among the responsibilities of these state agencies are the certification of eligible households; the procurement, acceptance, storage, protection, control, accounting for and issuance of coupons; and the conduct of fair hearings for the determination of eligibility and entitlement of assistance. See generally 7 C.F.R. § 273. The Department of Social Services ("DSS") is the stage agency responsible for the administration of the program in New York, and the program is implemented by social services districts throughout the State.

 Under New York's plan of operation, as administered by DSS, an eligible individual is issued an Authorization to Participate ("ATP") card which can be redeemed for food coupons at authorized coupon redemption centers. The ATP bears an expiration date beyond which it cannot be used. Generally, an ATP is valid for the entire month of issuance. However, if it is issued after the 25th day of the month, it will be valid for at least twenty days thereafter, or until the end of the following month. See 7 C.F.R. § 274.2(e)(3).

 In New York City, where the program is administered by the Human Resources Administration, special procedures have been implemented under the FNS's Rapid Access System, in an effort to reduce fraud. Pursuant to these procedures, an ATP card must be transacted initially within eight days of issuance. If a household reports that an ATP card has been lost or stolen, those eligible must wait until the expiration of the eight-day period before obtaining a duplicate. If during this time the original ATP has been redeemed fraudulently by a thief or finder, or if it has not been redeemed at all, the household will receive a duplicate. However, the household will be denied this duplicate if it is determined that its member actually redeemed the original card during the first eight days of issuance.

 If an eligible household fails to redeem its ATP within the eight-day period, it can obtain an immediate replacement within the month of issuance of the original. The replacement ATP is valid until the end of the month or for twenty days thereafter if issued after the 25th day of the month. It entitles the household to the same monthly coupon allotment that could have been obtained with the original card, but it will not be issued unless the household's entitlement is confirmed and the original is surrendered.

 The City and the State provide FNS with periodic reconciliation reports on forms provided by FNS that account for all redeemed ATP cards. The reports list the value of coupons issued upon acceptance of lost, stolen and expired ATP's and this information provides the basis by FNS to compute the losses of the program.

 Federal regulations make state agencies strictly liable for any shortages or losses of coupons or cash that are caused by, inter alia, theft, embezzlement, cashier errors and natural disasters. 7 C.F.R. §§ 276.1(a), 276.2(a), (b). State agencies are also made liable for financial losses caused by the acceptance of expired ATP cards. 7 C.F.R. § 276.2(b)(3)(i). FNS is authorized to bill state agencies for the exact amount of such losses. 7 C.F.R. § 276.2(d). In the absence of payment, FNS may recover these losses through offsets against the federal share of administrative funds to which the state agency is otherwise entitled. 7 C.F.R. §§ 276.2(d), 277.16(c)(iii).

 A state agency may seek administrative review of FNS claims by filing an appeal with the State Food Stamp Appeals Board. It may also seek judicial review of an Appeals Board determination, within thirty days of the receipt thereof, by a trial de novo in a District Court. 7 U.S.C. § 2023(a); 7 C.F.R. § 276.7(j). The filing of a timely appeal for administrative review automatically stays the action of FNS to collect any claim until a final determination has been issued by the Appeals Board. 7 C.F.R. § 276.7(e). The automatic stay applies to all claims except those based on a state agency's failure to comply with an order to reduce, suspend or cancel benefits. Id.

 By letter of August 23, 1982, FNS notified DSS of the implementation of a policy of charging interest "on all debts over 30 days old which are owed to FNS by any party outside the Federal Government," including state agencies which administer the Food Stamp Program. Interest is to accrue on all claims, including those under administrative review, from the 31st day following the day of the initial billing of the claims. The rate of interest to be assessed is established quarterly in accordance with the prevailing value of funds to the Treasury, and remains constant over the life of a particular debt.

 According to FNS, this policy was adopted under the authority of the Federal Claims Collection Standards, the Treasury Fiscal Requirements Manual, and a Treasury Department directive issued pursuant to these authorities. FNS billed DSS on three occasions based on determinations that food stamps had been issued in New York to persons holding expired eight-day ATP cards. These billings were as follows: Claim No. Date Period Covered Amount 1-83 1/18/83 10/80 -- 3/81 $ 15,559.00 6-83 2/11/83 4/81 -- 9/81 46,843.80 9/83 3/08/83 10/81 -- 3/82 108,210.00 TOTAL $170,612.82

 (The latter two amounts were subsequently revised, decreasing them to $43,428.80 and $102,844.00, respectively.)

 DSS filed administrative appeals to the State Food Stamp Appeals Board pursuant to 7 C.F.R. § 276.7 with respect to each billing. The ...


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