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Arias v. United States

United States District Court, S.D. New York

September 29, 2014

JUAN E. BURGOS ARIAS and TOWNSEND DELI GROCERY CORP., Plaintiffs,
v.
THE UNITED STATES OF AMERICA and TOM VILSACK, Secretary of Agriculture, Defendants.

OPINION AND ORDER

HENRY PITMAN, Magistrate Judge.

I. Introduction

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.

II. Facts

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).

A. FNS and SNAP Benefits - Trafficking Investigations

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'[)]." Makey Deli Grocery Inc. v. United States , 873 F.Supp.2d 516, 517 (S.D.N.Y. 2012) (Cott, D.J.). See 7 U.S.C. §§ 2011, 2013(a); 7 C.F.R. § 278.1. FNS, as part of the USDA, administers SNAP through which qualifying households receive benefits via electronic benefit transfer ("EBT") cards, similar to debit cards (Declaration of Denise Thomas in Support of the Motion for Summary Judgment, dated Apr. 17, 2014, (Docket Item 17) ("Thomas Decl.") at ¶ 3). See 7 U.S.C. §§ 2013(a), 2016. Each month the card is credited with food stamp benefits that can then be used at authorized firms (Thomas Decl. at ¶ 3). The firm swipes the card and the SNAP beneficiary enters a personal identification number ("PIN") (Thomas Decl. at ¶ 3). The amount of each purchase is deducted from the SNAP account and is electronically credited to the firm's bank account (Thomas Decl. at ¶ 3).

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). See 7 C.F.R. § 278.6(b).

The firm may respond to the charges and request consideration of a civil monetary penalty ("CMP") in lieu of disqualification. See 7 C.F.R. § 278.6(b), (i) (process and criteria for imposition of a monetary penalty). FNS can permanently disqualify a store for a single trafficking violation. 7 U.S.C. § 2021; 7 C.F.R. § 278.6(e)(1). The FNS IAB reviews the documents and issues the determination. 7 C.F.R. § 278.6(c). That determination is final unless the firm requests review. 7 C.F.R. § 278.6(n). An administrative review is conducted pursuant to 7 C.F.R. § 279.1, and the firm may provide further information to support its position pursuant to 7 C.F.R. § 279.4(b). The firm may then seek judicial review of the final agency decision pursuant to 7 C.F.R. § 279.7.

B. Investigation of Plaintiffs

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).

C. FNS Charge Letter to Plaintiffs (April 30, 2013)

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, [1] exchanging SNAP benefits "for cash or consideration other than eligible food" (Cmpl. at ¶ 9; Letter of Denise Thomas to Luis M. Acosta & Juan E. Burgos Arias, dated Apr. 30, 2013 ("USDA April 30, 2013 Letter"), annexed as Exhibit A to Cmpl.). She wrote that "[a]nalysis of [Townsend Deli's] records reveal [EBT] transactions that establish clear and repetitive patterns of unusual, irregular, and inexplicable activity for" a firm of Townsend Deli's size (USDA April 30, 2013 Letter). She informed plaintiffs that, under 7 C.F.R. § 278.6(e)(1), the sanction for trafficking is permanent disqualification (USDA April 30, 2013 Letter).

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).

D. Plaintiffs' Response to the Charge Letter (May 13, 2013)

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).

E. Disqualification Determination (June 4, 2013)

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[2] (Cmpl. at ¶ 11; Letter of Denise Thomas to Luis M. Acosta & Juan E. Burgos Arias, dated June 4, 2013, ("USDA June 4, 2013 Letter"), annexed as Exhibit C to Cmpl.). She concluded that Townsend Deli "failed to submit sufficient evidence to demonstrate that [it] had established and implemented an effective compliance policy and program to prevent violations of" SNAP (USDA June 4, 2013 Letter).

F. Administrative Review and Final Agency Decision (October 28, 2013)

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).

III. Analysis

A. Plaintiffs' Claims & Defendants' Motion

Plaintiffs have exhausted their administrative remedies and now seek de novo judicial review of the disqualification decision (Cmpl. at ¶ 15). Plaintiffs contend "[t]hat the firm ownership was not aware of, did not approve, nor did it benefit' from, or was not in any way involved with in the conduct or approval of trafficking violations" (A.R. at 145). Plaintiffs deny all allegations of trafficking, arguing that the suspect transactions were repayments for Townsend Deli's extensions of credit to SNAP beneficiaries. Moreover, plaintiffs claim that FNS abused its discretion in refusing to impose a CMP in lieu of permanent disqualification.

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 ...


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