J. Mart, Inc. v. United States Department of Agriculture, No. 1:2013cv00424 - Document 11 (D.R.I. 2013)
Court Description: OPINION AND ORDER granting 7 Motion for Summary Judgment; finding as moot 2 Motion to Stay. So Ordered by Judge William E. Smith on 10/23/13. (Jackson, Ryan)
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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND ______________________________ ) J. MART, INC., d/b/a CASS ) AVE. FOOD MART, ) ) Plaintiff, ) ) v. ) C.A. No. 13-424 S ) UNITED STATES DEPARTMENT ) OF AGRICULTURE, ) ) Defendant. ) ______________________________) OPINION AND ORDER WILLIAM E. SMITH, United States District Judge. Plaintiff, J. Mart, Inc., d/b/a Cass Ave. Food Mart ( J. Mart ), has brought suit against the United States Department of Agriculture ( USDA ) seeking relief following the USDA s permanent disqualification of J. Mart from participation in the Supplemental Nutrition Assistance Program ( SNAP ). Now pending before this Court is a motion for summary judgment filed by the USDA (ECF No. 7). For the reasons set forth below, the USDA s motion is GRANTED. I. Facts 1 J. Mart is a small convenience store located in Woonsocket, Rhode Island. 1 Its roughly 800 square feet of retail space are Except where noted, the facts derive from the Administrative Record, appended as Exhibit 1 to the USDA s memorandum of law in support of its motion for summary judgment (ECF No. 7-2 et seq.). occupied by standard convenience store fare including canned goods, snack products, milk, eggs, and lottery tickets. Until recently, J. Mart was eligible to accept payment for qualifying food purchases from customers through SNAP. SNAP, administered by the Food and Nutrition Service ( FNS ) of the USDA, is intended to raise the levels of nutrition among lowincome households by providing food stamp allotments. U.S.C. § 2011. See 7 SNAP participants receive electronic benefit ( EBT ) cards, which can be used at eligible food retailers to purchase swipes food the EBT identification deducted products. card, the number, from the In SNAP and SNAP making a purchase, participant the amount participant s the enters of the a retailer personal purchase monthly is allotment. Simultaneously, FNS credits the bank account of the retailer for the amount of the purchase. As part of its effort to identify and eliminate fraud, FNS closely monitors identified a EBT series transactions. of transactions indicative of fraudulent activity. In February 2013, FNS at J. that were Mart Based on these transactions, the USDA theorized that J. Mart was in the practice of accepting EBT funds in exchange for cash, rather than food products, a practice known as trafficking. On February 23, FNS personnel conducted a store visit to assess the facility, and to review J. Mart s EBT transactions for the preceding several months. 2 On March ( Cherian ), 19, J. 2013, Mart s FNS sent owner, a letter informing to him Jerry that Cherian FNS was considering permanently disqualifying J. Mart from SNAP based on suspected trafficking. The letter informed Cherian that he could submit a reply addressing the charges, and that FNS would consider any such reply in making a final determination. The letter also set forth the basis on which FNS was considering revoking J. Mart s eligibility to accept EBT funds. The FNS investigation November 2012 to into January indicative of fraud. J. Mart s 2013 EBT had transactions revealed traits First, a disproportionate number of J. Mart s EBT transactions ended in $.00 or $.50. statistical five from standpoint, approximately While, from a one percent of transactions should end in $.00 and one percent should end in $.50, FNS determined that 9.4% of J. Mart s EBT transactions ended in $.00 and 4.9% ended in $.50. FNS suggests that this indicates figures the fraudulent manual cash for entry EBT of certain funds transactions, to facilitate rather than randomized totals that would result from food purchases. Second, FNS identified a large number of consecutive EBT transactions that occurred within a short period of time, ranging from 42 seconds to just under eight minutes, often for high dollar amounts. For example, transactions on November 1, 2012. 3 FNS identified two In the first transaction, at 9:18:17 A.M., an EBT card was swiped for $208.03. seconds later, $321.07. at 9:19:12 A.M., an EBT card was Just 55 swiped for FNS suggests that, given the small size of the store, the basic and inexpensive nature of the food items for sale, the fact that there are no shopping carts and only a few hand baskets, and the fact that the checkout counter is prohibitively small, it would be practically impossible to process transactions of this nature within such a short period of time. Third, FNS identified many transactions in which individual SNAP participants executed multiple transactions within a short period of time, ranging from one minute to 24 hours, often for amounts representing a significant participant s monthly SNAP allotment. percentage of that For example, on November 1, 2012, one participant made a purchase for $232.10, then just 79 seconds later, made a second purchase for $76.57. FNS points to instances, further data which indicates that, in many individuals who had made successive purchases at J. Mart, also made smaller purchases at better-stocked and more competitivelypriced grocery stores in the vicinity on the same day. Fourth, FNS identified 95 EBT accounts that had exhausted the majority of the account s monthly SNAP benefits in one or a few transactions at J. Mart. This was a red flag, FNS concluded, based on the fact that unlike neighboring grocery stores, J. Mart does not sell 4 fresh meat or vegetables. Furthermore, FNS suggests, significantly from the these typical transactions shopping pattern depart of SNAP participants in which the participant makes a series of small purchases throughout the month, each totaling on average revealed dozens approximately $30. Finally, the FNS investigation of transactions at J. Mart in which customers using EBT cards made very large purchases. For example, between November 2012 and January 2013, there were some 20 purchases that exceeded $300, including one on January 2, 2013 for $445.70. FNS suggests that this is indicative of fraud based again on factors including J. Mart s small size and limited product selection. J. Mart, through an accountant, USDA s letter on March 26, 2013. sent a response to the Therein, J. Mart attempted to provide explanations for the statistical evidence that the USDA had presented. With respect to the disproportionate number of transactions ending in cumulative $.00 and purchases $.50, (milk, J. Mart eggs, explained and cereal, produce totals ending in round numbers. that for common example) Addressing the data showing rapid, successive transactions, J. Mart reasoned that customers often travel to the store together to make purchases and J. Mart simultaneously aggregates handling those smaller 5 large purchases, transactions for while other customers. In response to the data showing repeated transactions by the same EBT account, J. Mart explained that customers would often complete one transaction, place items in their car or transaction. return home, then return to complete a second As for the data showing the significant depletion of monthly SNAP funds in individual or successive transactions, J. Mart reasoned that many foods in large quantities. large purchases, J. Mart of its customers purchase frozen Finally, addressing the issue of stated that many of its products, including baby food, are quite expensive. Two days later, on March 28, the USDA responded, informing J. Mart that it had considered the proffered explanations, but that those explanations had been insufficient to demonstrate an absence of fraud. be permanently As a result, the USDA wrote, J. Mart was to in SNAP. 2 disqualified from participation J. Mart s EBT processing machine was disabled on March 29, 2013. Thereafter, appeal. in an undated letter, Cherian requested an Cherian largely restated the contents of the previous letter in which J. Mart had attempted to offer explanations for the data that FNS had identified. The USDA responded in a letter dated April 8, 2013, requesting additional information to support J. Mart s appeal. 2 The Code of Federal Regulations specifies that a retailer that is caught trafficking will be permanently disqualified from participating in SNAP. 7 C.F.R. § 278.6(e)(1)(i). 6 The USDA did not receive a response. On May 7, the USDA issued its final decision, a comprehensive assessment of the data which concluded that there was sufficient evidence Mart s permanent disqualification from SNAP. to support J. In June 2013, J. Mart filed suit seeking a reversal of the disqualification, and the instant motion for summary judgment followed. II. Discussion Summary judgment is appropriate when, viewing the record in the light most favorable to the non-moving party, there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Taylor v. Am. Chemistry Council, 576 F.3d 16, 24 (1st Cir. 2009). A genuine issue of fact exists where the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Taylor, 576 F.3d at 24 (internal citation and quotation marks omitted). A store disqualification administrative seeking by judicial the review, USDA, bears the review after burden of an of permanent unsuccessful proving, by a preponderance of the evidence, that the agency s determination is invalid. See Fells v. United States, 627 F.3d 1250, 1253 (7th Cir. 2010); Hajifarah v. United States, 779 F. Supp. 2d 191, 204 (D. Me. 2011). Where the store fails to meet this burden and fails to demonstrate a material dispute of fact as to 7 the existence of a violation, the entry of summary judgment is appropriate. Kahin v. United States, 101 F. Supp. 2d 1299, 1302 (S.D. Cal. 2000). While this Court reviews de novo the USDA s determination as to whether a violation occurred, if the Court accepts the USDA s determination, review of the sanction imposed is limited to whether such sanction was arbitrary or capricious. See Objio v. United States, 113 F. Supp. 2d 204, 208 (D. Mass. 2000) (citing Broad St. Food Mkt., Inc. v. United States, 720 F.2d 217, 220 (1st Cir. 1983)). Importantly, J. Mart has not submitted evidence rebutting the data that the USDA suggests is indicative of fraud. J. Mart attempted first to explain the data Rather, patterns in correspondence with the USDA, and now asserts in opposition to the motion for summary judgment that the USDA s determination was based on speculation and conjecture. (Pl. s Mem. of Law in Opp n to Def. s Mot. for Summ. J. ( Pl. s Mem. ) 2, ECF No. 9.) J. Mart has not met its burden to prove, by a preponderance of the evidence, that the USDA s determination that it engaged in trafficking was invalid. Nor has disputes J. Mart that are See Hajifarah, 779 F. Supp. 2d at 204. proven the existence not of material easily refuted by the statistical evidence that the USDA presents. Supp. 2d at 1302. 8 factual overwhelming See Kahin, 101 F. Indeed, courts have routinely granted summary judgment for the government patterns. in See, similar e.g., cases McClain s involving Mkt. v. analogous United data States, 214 F. App x 502, 504 (6th Cir. 2006) (multiple large transactions within a short time period despite small store size and limited inventory, consecutive large transactions by single households, excessive large transactions); Idias v. United States, 359 F.3d 695, 696 (4th Cir. 2004) (excessive large transactions, consecutive transactions by the same cardholder); Kahin, 101 F. Supp. 2d periods, at 1300 excessive (rapid, round repetitive dollar debits transactions, in short high time number of balance depletion transactions, excessive large transactions); Young Choi Inc. v. United States, 639 F. Supp. 2d 1169, 1174 (D. Haw. 2009) (large consecutive transactions, multiple transactions by single households, depletion of accounts through large purchases, high dollar transactions not commensurate with size and inventory). In correspondence with the USDA, J. Mart put forth a series of explanations in an attempt to justify the data patterns that the USDA suggests are indicative of fraud. Although J. Mart does not include these explanations in filings with this Court, they are nevertheless contained in the record as the USDA correspondence was appended to the USDA s memorandum of law in support of its motion for summary judgment. 9 The explanations are farfetched. For example, when confronted with data indicating that the store had processed large transactions consecutively, sometimes just seconds apart, J. Mart suggested that many of its customers travel to the store together. This impossibility of explanation multiple overlooks shoppers the accumulating practical hundreds of dollars worth of items in a small convenience store (without the aid of shopping carts), then both customers checking out and paying at a single cash register within seconds or minutes of each other. Similarly, when confronted with data showing a slew of hugely expensive purchases, many in excess of $300, J. Mart explained that it sells expensive items, including baby formula, rice, juice, and frozen foods. the USDA s suggestion This Court cannot disagree with that the sheer number of such transactions, given J. Mart s size and limited inventory, defies common sense. that while See, e.g., Kahin, 101 F. Supp. 2d at 1303 (noting a storeowner s explanations of unusual EBT transactions might tend to negate certain negative inferences and raise appropriate some material where those issues of fact, explanations do summary not judgment account for is all suspicious activity). In opposition to the USDA s motion for summary judgment, J. Mart asserts, in a two page memorandum of law, that the USDA s data lacks any scientific analysis 10 and that the USDA has failed to show any evidence of illegal activity. 1-2.) (Pl. s Mem. These conclusory, unsubstantiated, and plainly incorrect assertions are insufficient to create genuine issues of material fact that the USDA s findings, supported by ample statistical data and an in-person store visit, were invalid. J. Mart does not challenge the severity of the sanction imposed. to Were it to do so, this Court s review would be limited determining whether such sanction was arbitrary capricious. Broad St. Food Mkt., 720 F.2d at 220. deferential standard, and the statutory or Given this prescription for permanent disqualification for trafficking violations, 7 C.F.R. § 278.6(e)(1)(i), it cannot be said that the USDA s chosen sanction was arbitrary or capricious. III. Conclusion For the foregoing reasons, the USDA s motion for summary judgment is GRANTED. IT IS SO ORDERED. /s/ William E. Smith William E. Smith United States District Judge Date: October 23, 2013 11
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