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K & O Food Mart v. United States Department of Agriculture

United States District Court, D. Massachusetts

July 3, 2019




         I. Introduction

         This matter is before the court on the unopposed motion for summary judgment of the United States Department of Agriculture ("the government" or "USDA") (Dkt. No. 36). The Plaintiffs, K & O Food Mart ("K & O"), Orlando Ovalles, and Digna N. Almonte (collectively "Plaintiffs"), commenced this action, pursuant to 7 U.S.C. § 2023(a)(13), seeking judicial review of the USDA's Food and Nutrition Service's ("FNS") decision to permanently disqualify them from participating in the Supplemental Nutrition Program ("SNAP") because they likely trafficked in SNAP benefits. The parties have consented to this court's jurisdiction (Dkt. No. 18). See 28 U.S.C. § 636(c); Fed.R.Civ.P. 73. For the reasons that follow, the court grants the USDA's motion for summary judgment.

         II. Background

         A. The Store

         Mr. Ovalles and Ms. Almonte owned K & O, a 1, 250 square foot convenience store in the Indian Orchard neighborhood of Springfield, Massachusetts (Administrative Record "A.R." at 52, 162). Plaintiffs sold general staple items, tobacco products, alcohol, lottery tickets, "some" fresh meat, deli meats, cheese, and "limited" fresh produce (A.R. at 55, 164, 165, 204). The store had three shopping baskets available for customers' use, but did not have shopping carts (A.R. at 52). A large slide-top floor freezer stood in front of the one small (about 12'' x 15"), cluttered checkout counter (A.R. at 37, 53, 69, 164, 204, 206).

         The FNS authorized Plaintiffs' participation in SNAP on September 19, 2012 (A.R. at 241). The store had one SNAP point-of-sale device (A.R. at 53).

         B. SNAP

         "Congress established SNAP 'to safeguard the health and well-being of the Nation's population by raising levels of nutrition among low-income households.'" Irobe v. U.S. Dep't of Agric., 890 F.3d 371, 375 (1st Cir. 2018) (quoting 7 U.S.C. § 2011). See 7 C.F.R. § 271.1. Approved retail food stores may accept SNAP benefits as payment for eligible food items. See 7 U.S.C. §§ 2012(k), 2013(a).

         Households meeting the requirements to obtain SNAP benefits use electronic benefit transfer ("EBT") cards, which are similar to debit cards, to purchase eligible food items at authorized stores. See 7 U.S.C. §§ 2012(i), 2014, 2016. "In a typical SNAP transaction, a cashier rings up the total food purchases, a household member pays using her EBT card through a point-of-sale device, and the funds in the household's SNAP account are electronically transferred to the store's bank account." Irobe, 890 F.3d at 375.

         "[A]ny food or food product for home consumption except alcoholic beverages, tobacco, and hot foods or hot food products ready for immediate consumption" are eligible to be purchased with SNAP benefits. 7 U.S.C. § 2012(k); 7 C.F.R. § 271.2. Qualified households are not permitted to use their EBT cards to obtain cash. See id.

         A store that exchanges SNAP benefits for noneligible items, including cash, engages in unlawful trafficking. See J & L Liquor, Inc. v. United States, No. 16-10717, 2017 WL 4310109, at *1 n.1 (E.D. Mich. Sept. 28, 2017) ("Trafficking is the term for a number of fraudulent schemes including 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.") (citing 7 C.F.R. § 271.2). "For instance, a store trafficks when it 'accept[s] food stamps for sales that never took place,' allowing its customers to receive 'cash rather than merchandise.'" Irobe, 890 F.3d at 375 (alteration in original) (quoting Idias v. United States, 359 F.3d 695, 698-99 (4th Cir. 2004)).

         The FNS administers and polices SNAP. See Hamdi Halal Mkt., LLC v. United States, 947 F.Supp.2d 159, 161-62 (D. Mass. 2013).

The [FNS] tracks each SNAP household's use of its SNAP benefits through the EBT point of sale system found in each SNAP retailer's location. Each time a SNAP participant uses his EBT card as payment, the EBT point of sale system collects and sends data to the [FNS]. The [FNS] aggregates the data and analyzes it though the Anti-Fraud Locator Using Electronic Benefit Transfer Retailer Transactions ("ALERT") system. The ALERT system is designed to detect suspicious SNAP benefit usage indicative of fraud or SNAP benefit trafficking.

Famous Int'l Mkt. v. United States, CIVIL ACTION NO. 17-4897, 2018 WL 3015249, at *1 (E.D. Pa. June 15, 2018).

If the FNS detects a statistically unusual pattern of SNAP transactions at a SNAP-authorized store, it typically refers the matter to a program specialist who arranges for a contractor to visit the store and conduct an on-site investigation. After completing her review of the relevant EBT data and whatever reports emerge from the on-site investigation, the program specialist makes a recommendation to the FNS section chief. If this recommendation is for further action, the section chief sends a charge letter detailing the allegations to the store and affords the store an opportunity to respond. Thereafter, the FNS issues its determination.

Irobe, 890 F.3d at 375-76 (citing 7 C.F.R. § 278.6(b), (c)). "If . . . the FNS determines that a store has engaged in trafficking, the store is permitted to pursue an appeal to an administrative review officer ('ARO')." Madi v. United States, Civil Action No. 3:16-cv-30064-KAR, 2018 WL 3130641, at *2 (D. Mass. June 26, 2018) (citing 7 U.S.C. § 2023(a)(3); 7 C.F.R. §§ 279.1(a)(2), 279.5)).

         The FNS is required to permanently disqualify a firm from participating in SNAP if it finds that personnel of the firm have trafficked. See 7 U.S.C. §§ 2021(b)(3)(B); 7 C.F.R. § 278.6(e)(1)(i). "In certain circumstances, [however, ] the agency may impose civil monetary penalties instead of a ban." Madi, 2018 WL 3130641, at *2. See 7 U.S.C. § 2021(b)(3)(B); 7 C.F.R. § 278.6(i). The store has the right to appeal the agency's final decision to a federal district court. See 7 U.S.C. § 2023(a)(13); 7 C.F.R. § 279.7.

         C. The FNS Investigation and Disqualification of Plaintiffs

         In the instant case, after "K & O appeared on the EBT ALERT System as having met patterns consistent with possible EBT trafficking violations," the FNS analyzed K & O's transaction data for six months, from December 2016 to May 2017, compared that data with the EBT data from similar convenience stores, and conducted an on-site visit in June 2017 (A.R. at 162-75). The FNS's analysis revealed two patterns that it deemed to be consistent with trafficking (A.R. at 166-75). Consequently, on July 27, 2017, the Section Chief of the FNS Retailer Operations Division sent Plaintiffs a letter notifying them that they were being charged with trafficking in SNAP benefits (the "charge letter") and inviting their response (A.R. at 176-93). Plaintiffs' attorney's response to the charge letter included eleven register receipts (A.R. at 195-202). After receiving the store's answer to the charge, on September 13, 2017, the FNS determined that Plaintiffs had engaged in trafficking (A.R. at 211-14).

         Plaintiffs filed a timely written request for an administrative review of the FNS's decision to permanently disqualify them from participating in SNAP (A.R. at 215-28). On March 27, 2018, the ARO affirmed the FNS's determination that the store had engaged in trafficking and its decision to impose a permanent disqualification (A.R. at 240-52).

         Plaintiffs filed a complaint in this court challenging the FNS's determination that Plaintiffs had engaged in trafficking (Dkt. No. 1). See 7 U.S.C. ยง 2023(a)(13). The administrative record was submitted to the court (Dkt. No. 38). The USDA has moved ...

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