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Makey Deli Grocery, Inc. v. United States

June 4, 2012


The opinion of the court was delivered by: James L. Cott, United States Magistrate Judge.


Plaintiff Makey Deli Grocery Inc. ("Makey") seeks judicial review of a final decision of the United States Department of Agriculture ("USDA"), Field and Nutrition Services ("FNS" or the "Government"), disqualifying Makey from particiapting in the Supplemental Nutrition Assistance Program ("SNAP") for a period of one year. The parties have consented to have the undersigned handle this case for all purposes and have now cross moved for summary judgment. For the reasons stated below, the Government's motion is GRANTED and Makey's cross-motion is DENIED.

I. Background

Makey owns and operates a grocery store located at 1229 Franklin Avenue in the Bronx, New York. (Complaint, dated Mar. 25,, 2011 ("Compl.") ¶¶ 1-2) (Dkt. No. 1)). FNS is an administrative agency of the United States that administers SNAP under the Food and Nutrition Act of 2008 (the "Act"). 7 U.S.C. § 2011 et seq.; see also 7 C.F.R. § 271.3. In January 2005, FNS approved Makey to participate in SNAP. (See Plaintiff's Memorandum of Law in Opposition to Defendant's Motion for Summary Judgment, dated Feb. 8, 2012 ("Pl. Mem.") at 2 (Dkt. No. 22); Administrative Appeal Record, dated Oct. 14, 2011 ("A.R.") at 1-16, 136 (Dkt. No. 14)). 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" under the regulations). See 7 U.S.C. §§ 2011, 2013(a); 7 C.F.R. § 278.1. SNAP beneficiaries receive a government-issued Electronic Benefits Transfer ("EBT") card and can purchase designated food items at participating firms by swiping their EBT card through an electronic reader. 7 U.S.C. § 2016(f)(3)(B); 7 C.F.R. §§ 274.2, 274.3. The Government later redeems the benefits and pays the full face value of the purchase to the participating firm.

7 U.S.C. §§ 2013(a), 2019. FNS monitors SNAP participants and their transactions to ensure compliance with SNAP regulations. 7 C.F.R. § 271.3.

When Makey was approved to participate in SNAP, its owner, William Troncoso ("Troncoso"), received a training video and program materials that included a compilation of SNAP rules and regulations and a list of penalties that may be imposed for violations. (A.R. 27). One such regulation prohibits participating firms from accepting food stamp benefits as "payment for items sold to a household on credit." 7 C.F.R. § 278.2(f) (the "credit account rule" or the "rule"). The penalty for violating the credit account rule is disqualification from SNAP for a period of one year. Id.; see also 7 C.F.R. § 278.6(e)(4)(ii). However, if FNS determines that such disqualification would pose a "hardship" to SNAP beneficiaries, it may, in its discretion, impose a civil monetary penalty instead. 7 C.F.R. § 278.6(a).

In February, March, and April 2010, FNS's electronic alert system detected several red flags in Makey's SNAP activity. These red flags included an unusually high number of SNAP transactions within implausibly short time frames (A.R. 140-41); frequent instances in which multiple transactions were conducted with a single SNAP beneficiary on the same day (A.R. 140); high-dollar SNAP transactions relative to the type and price of items stocked by Makey (A.R. 141, 143); and a disproportionate number of round-dollar sales figures. (A.R. 139). In addition, a comparison of Makey's SNAP sales against comparably sized firms indicated that beneficiaries were frequently bypassing firms of better quality and selection to shop at Makey. (A.R. 146). Because this abnormal profile was potentially indicative of illegal benefits trafficking, FNS staff visited Makey on April 14, 2010 to conduct a site inspection. (A.R. 137-38). FNS confirmed during this visit that food items on Makey's shelves were priced in variations of an $XX.X9 cent value (rather than an $XX.00 cent variation) and that Makey did not round off transactions to an $XX.00 value or promote specials or circulars that could explain the high number of round-dollar figure sales charged to FNS. (A.R. 139). FNS also observed that Makey did not carry expensive food items, sell food in bulk, or have any other discernible explanation for the large number of high-dollar figure sales reported. (A.R. 139, 141). Based on its investigation, FNS concluded that there was no innocent explanation for the abnormal transaction patterns observed at Makey. (A.R. 147).

In a June 16, 2010 letter, FNS advised Troncoso that Makey was charged with food stamp trafficking (i.e., exchanging cash for SNAP benefits) in violation of 7 C.F.R. § 271.2 and explained that a final agency determination of trafficking would result in Makey's permanent disqualification from SNAP and the possibility of civil and/or criminal action by the United States Attorney. (A.R. 33-34). Troncoso responded to the charges by letter dated June 22, 2010. (A.R. 54-55). He denied trafficking and offered several explanations for the atypical transactions observed by FNS, including that the store "offered its clients in-store credit." (A.R. 54). Troncoso explained that "many times the food stamp benefits awarded" to Makey's customers "are not enough for the whole month." (A.R. 54). Makey therefore allowed SNAP customers "to purchase food products after they run out of benefits. Once their . . . benefits have been replenished, they return to pay what is owed . . . . This can result in the multiple withdrawals and the unusually large transactions described in your report." (A.R. 54). As evidence of Makey's credit sales program, Troncoso provided FNS with a log book of SNAP sales made on credit and letters from SNAP beneficiaries who claimed to have received store credit. (A.R. 74-105, 56-73). Troncoso also explained that he was "now aware that accepting EBT benefits as payment for in store credit is against the rules and regulations of the Food Stamp Program and [Makey would] no longer continue to accept such payments." (A.R. 54).

FNS's New York City Field Office reviewed Troncoso's letter and responded by letter dated August 11, 2010. (A.R. 169-70). The Field Office found certain aspects of Troncoso's explanation "not credible" and inconsistent with the April 14 inspection. (A.R. 165). It also noted that Troncoso, in attempting to explain the atypical transactions, had admitted to practices that, while not trafficking, violated SNAP regulations. (A.R. 166). The Field Office emphasized that, when first authorized to participate in SNAP, Makey had received "training videos and program materials[] [and] instruct[ion] on the Rules and Regulations governing SNAP with special emphasis on trafficking and credit." (A.R. 164). Nevertheless, the Field Office "accept[ed] the credit ledger and written statements from the customers as explanation for the transactions" and declined to pursue the trafficking allegations. (A.R. 168). However, based on Troncoso's admission to accepting SNAP benefits in payment for items bought on credit, the Field Office found that Makey had violated the credit account rule. (A.R. 167-69). It also concluded that Makey was not eligible for a civil monetary penalty in lieu of the one-year disqualification presumptively imposed for such violations because there were "other authorized retail stores in the area selling as large a variety of staple foods at comparable prices" and thus Makey's disqualification would not result in hardship to SNAP beneficiaries. (A.R. 169) (citing 7 C.F.R. § 278.6(f)(1)).

By letter dated August 16, 2010, Troncoso timely appealed the Field Office's determination to the Administrative Review Branch of FNS ("the Review Office"). (A.R. 172-74). Troncoso's appeal letter largely reiterated the points he had made in his June 16 letter and again admitted that Makey had "provided store 'credit' to a few of [its low income customers] in order to help them" while explaining that the store's "intentions in doing this were always honest and we were simply ignorant as to the rules and regulations of the food stamp program that prevented us from doing this." (A.R. 173). Troncoso urged FNS to "take all of the facts I have brought to your attention into consideration when assessing this situation and to refrain from disqualifying my business from the Food Stamp Program." (A.R. 174).

On February 28, 2011, the Review Office rendered a Final Agency Decision sustaining the Field Office's imposition of the one-year disqualification. (A.R. 185-90). The Review Office noted that the Field Office had "considered and accepted the information provided by [Makey] in support of its contention that the acceptance of SNAP benefits as payment on credit accounts explains the transaction activity detailed in the Charge Letter." (A.R. 189). However, the Review Office found that "a record of program participation with no previously documented violations does not constitute valid grounds for dismissing the present serious charges or for mitigating the impact of the violations upon which they are based." (A.R. 190). Moreover, it observed that "[t]he record, as well as agency data, indicates that there are at least 50 authorized retail food stores within a .33 mile radius of [Makey], including various grocery stores and supermarkets. Given the operative regulations and policy . . . regarding the imposition of hardship civil money penalties, [Makey] clearly does not qualify for such a penalty." (A.R. 190).

The Review Office concluded that because "a one-year disqualification is in fact the appropriate sanction imposed upon a retailer found to have accepted SNAP benefits as payment on credit accounts, the decision of the Field Office was correct and appropriate." (A.R. 190).

On March 25, 2011, Makey filed a timely complaint in this Court, seeking judicial review of FNS's finding that Makey violated SNAP regulations and its determination that a one-year disqualification was the appropriate sanction for such violation. (Compl. ¶¶ 8, 23).*fn1 On September 6, 2011, the case was referred to the undersigned for all purposes under 28 U.S.C. ยง 636(c) pursuant to the parties' mutual consent. (Notice, Consent, and Reference of a Civil Action to a Magistrate Judge (Dkt. No. 6)). The parties have since filed cross-motions for summary judgment, with the Government seeking a determination that the agency's decision ...

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