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Betesfa, Inc. v. United States

United States District Court, District of Columbia

September 17, 2017

BETESFA, INC., et al., Plaintiffs,
v.
UNITED STATES OF AMERICA, Defendant.

          MEMORANDUM OPINION AND ORDER

          Randolph D. Moss United States District Judge

         This is an action seeking to set aside a decision by U.S. Department of Agriculture's (“USDA”) Food and Nutrition Service (“FNS”) permanently disqualifying ABG Mart, a convenience store located in Washington, D.C., from participating as an authorized retailer in the Supplemental Nutrition Assistance Program “(SNAP”). Under 7 U.S.C. § 2021, the FNS is required permanently to disqualify a retail food store from participating in the SNAP if the store has engaged in “trafficking in [SNAP] coupons or authorization cards” and if the store does not qualify for the discretionary imposition of a civil monetary penalty “in lieu of disqualification.” 7 U.S.C. § 2021(b)(3)(B). An aggrieved store may seek judicial review of a final determination of disqualification, and review is by “a trial de novo” to “determine the validity of the questioned administrative action in issue.” 7 U.S.C. § 2023(a)(15).

         After the FNS issued a final agency decision permanently disqualifying ABG Mart from participating in the SNAP, the store and its owner (collectively “Plaintiffs”) brought this action, alleging that they did not traffic in SNAP benefits and seeking to set aside the agency's action. Dkt. 1. In response, the government moves to dismiss for failure to state a claim, Fed.R.Civ.P. 12(b)(6), or, in the alternative, moves for summary judgment. Dkt. 10 at 1. For the reasons set forth below, the Court will deny the government's motion.

         I. BACKGROUND

         A.Statutory Background

         SNAP is a government program operated by the FNS pursuant to 7 U.S.C. §§ 2011-2036. See 7 C.F.R. § 271.3. The program's mission is “in order 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 this mission, SNAP supplements low-income families' food-purchasing funds in the form of an electronic benefit transfer (“EBT”) card, which operates like a debit card and can be used only for the purchase of food at approved SNAP retailers. Id. §§ 2013(a), 2016(j).

         Approved SNAP retailers have one or more EBT terminals, which the retailer uses to swipe the SNAP beneficiary's EBT card when that beneficiary is making a SNAP-eligible purchase. The beneficiary enters a personal identification code on the terminal's keypad, and the amount spent on the corresponding purchase is deducted from the beneficiary's EBT card balance. The EBT terminal generates a receipt for each transaction, and the purchase amount is credited to the retailer's bank account within two business days. The FNS can monitor SNAP retailers' EBT transactions electronically. See 7 C.F.R. § 278.6.

         SNAP retailers are subject to a range of regulatory requirements. See Id. Of particular relevance here, the FNS may permanently disqualify a SNAP retailer that it finds is “trafficking” in SNAP benefits. Id. “Trafficking” is defined in relevant 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.” Id. § 271.2. A finding of trafficking must be based on evidence, which “may include facts established through on-site investigations, inconsistent redemption data, evidence obtained through a transaction report under an [EBT] system, or the disqualification of a firm from the Special Supplemental Nutrition Program for Women, Infants and Children.” Id. § 278.6(a). If a retailer is found to have trafficked in SNAP benefits, that retailer is permanently disqualified from future participation. Id. The FNS may, in its discretion, impose “a civil money penalty in lieu of a permanent disqualification, ” but only if the retailer requests consideration of this alternative penalty within ten days, id. § 278.6(b)(2)(iii), and if the retailer meets various criteria, see Id. § 278.6(i).

         The statute and regulations also provide for administrative and judicial review of an FNS decision to disqualify a SNAP retailer. 7 U.S.C. § 2023(a). First, the FNS must send the retailer written notice of its initial decision, upon the receipt of which the retailer may ask the FNS to review that initial decision. Id.; 7 C.F.R. § 279. Upon completion of the review, FNS renders a “final determination” and notifies the retailer, at which point the retailer may seek judicial review in state or federal court. See 7 U.S.C. § 2023(a)(13); 7 C.F.R. § 279.

         B. Factual and Procedural Background

         The present dispute began when the FNS's electronic alert system identified “patterns” of EBT transactions at ABG Mart that were “consistent with possible EBT trafficking violations.” AR 72. Based on this finding, the FNS Retailer Operations Division began an investigation. Id. An FNS contractor visited the store on April 15 and June 17, 2017. AR 30-70. The contractor found one EBT terminal at the store, AR 31, 50, minimal counter space at the check-out area, AR 44, 46, 60, 63, no carts or baskets available to carry items around while shopping, AR 30, 49, and no high-priced food items for sale, AR 31, 33, 50, 52.[1] The FNS also compared the store's transactions to those of other stores in the area, including five other convenience stores within a 1.64-mile radius of the store, and found that ABG Mart had “the highest total transactions and highest dollar volume [and] highest amount of scan flag hits” among the five local convenience stores. AR 86-89. The FNS then analyzed all the information gathered during its investigation and determined that the transaction data “established clear and repetitive patterns of unusual, irregular, and inexplicable SNAP activity, which would warrant issuance of a trafficking charge letter.” AR 99.

         ABG Mart's suspicious transactions fell into two categories: (1) “[r]apid [a]nd [r]epetitive [t]ransactions [i]n [a] [s]hort [p]eriod [o]f [t]ime” from the “[s]ame [h]ousehold/[a]ccount, ” and (2) “[h]igh [d]ollar [t]ransactions. AR 84-85, 104-11. The FNS considered these transactions to be inconsistent with the transactions at other similarly situated SNAP retailers, which had similar average dollar transaction sizes but fewer high dollar transactions and, at most, around half the total SNAP transaction volume. AR 89-91. In reviewing the shopping patterns of four households that were involved in suspicious transactions at the store, the FNS found that their average transaction sizes at the store were over $50.00- well above the $7.76 average transaction size for convenience stores in the District of Columbia. AR 93-99. Furthermore, the FNS found that those same households were also shopping at larger stores, often within a day or two of shopping at ABG Mart, demonstrating that the store's customers had access to stores with larger inventories.[2] Id.

         On July 17, 2017, the FNS sent a letter to ABG Mart indicating that the store was being charged with trafficking in EBT benefits. AR 101-03. The letter explained that ABG Mart had a right to explain the suspicious charges and a right-within ten days-to request a civil money penalty in lieu of permanent disqualification. Id. at 101. Betelhem Gesesse, the owner of ABG Mart, requested and received additional time to respond, although he was cautioned that the extension did not apply to the time to request a civil money penalty in lieu of disqualification. AR 114. On August 10, 2017, Gesesse responded to the charge letter, offering 24 pages of cashier receipts but asserting only that the charges were often multiples of the same item and that, going forward, he would scan each item individually. AR 117-42. The FNS analyzed the receipts that Gesesse provided and concluded that they did not explain the suspicious transactions. AR 143-49. On September 6, 2017, the FNS issued a determination letter informing Gesesse and ABG Mart that it found that the store had engaged in trafficking and that the store was therefore permanently disqualified from participation in the SNAP. AR 150.

         Gesesse and ABG Mart sought administrative review of the agency's decision, and, through counsel, submitted a brief on January 2, 2018. AR 162-78. The only additional evidence that Gesesse and ABG Mart submitted was several pages of 2016 D.C. and federal tax returns, AR 179-91, which they included to show their significant inventory and sales numbers.[3]

         The brief argued that the store's inventory and customer shopping patterns explained the repetitive and high-dollar transactions. AR 163-64. In doing so, it made a number of assertions: The brief asserted that the store was open 24 hours a day, A.R. 163; that it sold frozen meat and soda in bulk for whole dollar amounts, AR 164; and that the highest-priced items it sold were a box of frozen burgers for $25 and a bag of chicken tenders for $30, AR 164, 168. The brief also asserted that the store sold cold, pre-made sandwiches, at least four of which appear to be viewable in a store visit photo. AR 41, ...


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