SS Grocery, Inc. and Abu Numan, Plaintiffsv.U.S. Department of Agriculture, Food and Nutrition Service, Defendant
MEMORANDUM & ORDER Plaintiffs SS Grocery, Inc. and Abu Numan bring this action against Defendant U.S. Department of Agriculture, Food and Nutrition Service (“FNS”) seeking judicial review — under 7 §U.S.C. 2023(a)(13) and §7 CFR 279.7 — of FNS’ decision to disqualify Plaintiffs from participating in the Supplemental Nutrition Assistance Program (“SNAP”). Specifically, Plaintiffs contend that FNS’ determination that Plaintiffs had engaged in trafficking was invalid. Plaintiffs move, pursuant to Federal Rule of Civil Procedure 56, for summary judgment to vacate FNS’ decision. Defendant cross-moves, pursuant to Rule 56, for summary judgment to dismiss the action in its entirety.BACKGROUNDI. Statutory and Regulatory RegimeUpon a finding, inter alia, that “the limited food purchasing power of low-income households contributes to hunger and malnutrition among members of such households,” Congress created SNAP, which “permit[s] low-income households to obtain a more nutritious diet through normal channels of trade by increasing food purchasing power for all eligible households who apply for participation.” 7 U.S.C.A. §2011. Pursuant to the Food Stamp Act, FNS, as an agency operating under the United States Department of Agriculture (the “USDA”), administers SNAP. (Defendant’s Reply 56.1 Statement (“Def.’s Reply 56.1″)3, ECF No. 26.) Through SNAP, eligible low-income households receive electronic benefit transfer (“EBT”) cards that facilitate the purchase of food. 7 U.S.C.A. §2016(a) — (b). The EBT cards are credited with an allotment based on “the total value of benefits a household is authorized to receive during each month.” 7 U.S.C.A. §2012. Eligible households may then use the allotment at authorized retail stores in exchange for eligible food and for cash under conditions not relevant in the instant action. 7 C.F.R. §278.2(a). SNAP regulations prohibit trafficking, which is the “buying, selling, stealing, or otherwise effecting an exchange of SNAP benefits…for cash or consideration other than eligible food.” 7 C.F.R. §271.2.The default penalty for a retail store found to have engaged in trafficking is permanent disqualification from the SNAP program. 7 C.F.R. §278.6(e)(1)(i). Alternatively, “FNS may impose a civil money penalty in lieu of a permanent disqualification for trafficking…if the firm timely submits to FNS substantial evidence which demonstrates that the firm had established and implemented an effective compliance policy and program to prevent violations of the Program.” 7 C.F.R. §278.6(i). That is, a retail store must, “at a minimum,” submit substantial evidence, which demonstrates that the store meets the following criteria:Criterion 1. The firm shall have developed an effective compliance policy…; andCriterion 2. The firm shall establish that both its compliance policy and program were in operation at the location where the violation(s) occurred prior to the occurrence of violations cited in the charge letter sent to the firm; andCriterion 3. The firm had developed and instituted an effective personnel training program…; andCriterion 4. Firm ownership was not aware of, did not approve, did not benefit from, or was not in any way involved in the conduct or approval of trafficking violations; or it is only the first occasion in which a member of firm management was aware of, approved, benefited from, or was involved in the conduct of any trafficking violations by the firm.7 C.F.R. §278.6(i).Prior to assessing any penalty, a retail store suspected of trafficking is sent a charge letter, specifying “the violations or actions which FNS believes constitute a basis for disqualification or imposition of a civil money penalty.” 7 C.F.R. §278.6(b)(1). In response, a retail store “shall set forth a statement of evidence, information, or explanation concerning the specified violations or acts,” id., and notify FNS whether it “desires FNS to consider the sanction of a civil money penalty in lieu of permanent disqualification,” 7 C.F.R. §278.6(b)(2)(i). A retail store that receives an unfavorable determination from the FNS regional office is permitted to file an appeal to the Administrative Review Division. 7 C.F.R. §279.1. The Administrative Review Division’s determination shall be the final determination of FNS, subject to review only by a district court. 7 C.F.R. §279.1(b).II. Instant Actiona. Investigation of PlaintiffsPlaintiff Numan serves as the President and Owner of Plaintiff SS Grocery, Inc., a grocery store located at 3703 73rd Street in Jackson Heights, New York. (A.R. 3, 276, 3511; Def.’s Reply 56.11.) In December 2010, the USDA approved SS Grocery’s application to participate in SNAP. (Def.’s Reply 56.12.) SS Grocery’s participation was suspended beginning in 2012, when FNS disqualified SS Grocery for a six-month period for selling ineligible food items. (A.R. 179; Def.’s Reply 56.116.) In March 2013, after seeking judicial review, SS Grocery entered into a settlement with FNS pursuant to which it paid a monetary penalty of $19,140 in lieu of the six-month disqualification. (A.R. 164; Def.’s Reply 56.116.) SS Grocery was reinstated as an authorized SNAP retailer that same year. (A.R. 179.) By 2015, FNS had observed SS Grocery engaging in additional suspicious activity. (A.R. 161-78.)In January 2016, the FNS Investigative Analysis Branch (“IAB”) issued a report on SS Grocery’s suspicious activity, finding “clear and repetitive patterns of unusual, irregular, and inexplicable SNAP activity” and recommending that a trafficking charge letter be issued to Numan and SS Grocery. (Id.) The IAB cited three categories of evidence supporting is findings. First, an analysis of EBT transaction data for the review period, July 2015 to December 2015, revealed irregularities in four different respects. (A.R. 166-71.) Second, observations made and photographs taken during an August 2015 site visit conducted by an FNS reviewer. (A.R. 85-86, 164, 90-129, 364.) The site visit notes were used to ascertain whether there was a justification for the irregularities identified during the review period. (A.R. 166-71.) For example, the reviewer observed that the store lacked shopping carts for customer use and optical scanners to facilitate purchase transactions, which suggested that the numerous high-dollar transactions were illegitimate and indicative of trafficking. (A.R. 85, 164, 168; see also Def.’s Reply 56.130.) Third, comparison data from other grocery stores within.15 miles of SS Grocery. (A.R. 173-76.) During the review period, the comparable stores had SNAP redemptions much lower than SS Grocery’s redemptions. (Id.; see also Def.’s Reply 56.153.)b. FNS Charge Letter to PlaintiffsOn January 29, 2016, FNS sent Plaintiffs a letter charging the store with trafficking “as defined in Section 217.2 of the SNAP regulations.” (Def.’s Reply 56.117; A.R. 230.) Although the letter did not specify which of the six subsections of 7 C.F.R. §271.2 Plaintiffs allegedly violated, (Plaintiffs’ Reply 56.1 Statement (“Pls.’ Reply 56.1″)3, ECF No. 27.), it concluded that an analysis of SS Grocery’s EBT transactions from July 2015 to December 2015 “establish[ed] clear and repetitive patterns of unusual, irregular, and inexplicable activity” for a retail store like SS Grocery, (A.R. 230.). Attached to the letter was a list of 1,444 irregular transactions identified by FNS for the July 2015 to December 2015 period. (A.R. 233-71; see also Def.’s Reply 56.121.) The transactions were divided into four categories evincing trafficking: (1) “an unusual number of transactions [that] end[ed] in a same cents value”; (2) “multiple transactions [that] were made from individual benefit accounts in unusually short time frames”; (3) “the majority or all of individual recipient benefits [that] were exhausted in unusually short periods of time”; and (4) “excessively large purchase transactions [that] were made from recipient accounts.” (A.R. 230; see also Pls.’ Reply 56.1
