BETESFA, INC., et al., Plaintiffs, v. UNITED STATES OF AMERICA, Defendant.
Civil Action No. 18-0394 (RDM)
September 17, 2017
MEMORANDUM OPINION AND ORDER
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
After the FNS issued a final agency decision permanently disqualifying ABG
I. BACKGROUND
A. Statutory Background
SNAP is a government program operated by the FNS pursuant to
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
SNAP retailers are subject to a range of regulatory requirements. See
The statute and regulations also provide for administrative and judicial review of an FNS decision to disqualify a SNAP retailer.
B. Factual and Procedural Background
The present dispute began when the FNS’s electronic alert system identified
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
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.
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, 168. And, based on the receipts provided by Gesesse, the brief asserted that items were sometimes “rounded down as a courtesy to the customer.” AR 174.
With respect to customer shopping patterns, Gesesse and ABG Mart asserted that SNAP households redeem most of their benefits within two weeks of the month, as documented by FNS in a 2011 USDA publication. AR 165, 172. They noted that, in line with that pattern, most of the allegedly suspicious repetitive transactions occurred within the first ten days of the month. AR 173; see AR 104–07. They asserted that household members frequently “co-shopped,” which meant that they either shopped separately using the same SNAP account or shopped at the same time but separated their purchases into multiple transactions at the store. AR 172. Gesesse and ABG Mart also claimed that customers would sometimes return to the store for a second purchase after forgetting an item and that unemployed individuals bought meals at the store and ate them outside, explaining their frequent purchases throughout the day. AR 166–67. They cited, but did not provide, an industry study showing that shoppers at small grocery and convenience stores are loyal to their store and sometimes shop at the same store on a daily and weekly basis. AR 165–66. They also cited, but did not provide, another industry study finding that more shoppers were using convenience stores as their primary grocer. AR 167.
Finally, Gesesse and ABG Mart took issue with the FNS’s use of an electronic alert system and its process for disqualifying retailers. To that end, they argued that it was internally inconsistent for the agency to flag both small, repetitive and large transactions as suspicious. AR 174–75. They also asserted that these patterns were statistically meaningless and not confirmed by undercover investigations. AR 176. And, more generally, Gesesse and ABG Mart attacked the FNS’s electronic alert system as overused, unduly trusted, and “not always accurate as the numbers fail to account for special business practices, differences in demographics and foodstuffs, and geographic areas.” AR 170. Finally, they asserted that the FNS lacked
An Administrative Review Officer (“ARO”) of the FNS reviewed the arguments and materials Gesesse and ABG Mart submitted and issued a Final Agency Decision on January 18, 2018. AR 194–207. The ARO found, among other things, that the store’s physical characteristics and inventory did not lend itself to the many large, suspicious transactions at issue. AR 200. He also noted that Gesesse and ABG Mart’s theories about customer shopping patterns could not explain the nature of the transactions at issue, many of which clustered around $100 and other five-dollar increments—a fact that was in itself suspicious. AR 108–11, 203. Therefore, the ARO upheld both the decision that trafficking had occurred and the decision to disqualify the store permanently from the SNAP program. AR 207.
Plaintiffs now seek judicial review of that final determination pursuant to
II. LEGAL STANDARD
A. Motion to Dismiss, or, in the Alternative, for Summary Judgment
A motion to dismiss under Rule 12(b)(6) “tests the legal sufficiency of a complaint,” Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002), and in evaluating such a motion, the Court “must first ‘tak[e] note of the elements a plaintiff must plead to state [the] claim’ to relief, and then determine whether the plaintiff has pleaded those elements with adequate factual support to ‘state a claim to relief that is plausible on its face,’” Blue v. District of Columbia, 811 F.3d 14, 20 (D.C. Cir. 2015) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 675, 678 (2009)) (alterations in original) (internal citation omitted). Although “detailed factual allegations” are not necessary to withstand a Rule 12(b)(6) motion, Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), “a complaint must contain sufficient factual matter, [that if] accepted as true, [would] ‘state a claim to relief that is plausible on its face,’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). A plaintiff may survive a Rule 12(b)(6) motion even if “recovery is very remote and unlikely,” but the facts alleged in the complaint “must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555–56 (first quote quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). In considering a motion to dismiss for failure to state a claim, the Court “may consider only the facts alleged in the complaint, any documents either attached to or incorporated in the complaint and matters of which [the Court] may take judicial notice.” Trudeau v. FTC, 456 F.3d 178, 183 (D.C. Cir. 2006) (quoting EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624–25 (D.C. Cir. 1997)).
In general, summary judgment is appropriate only “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
B. Judicial Review of an FNS Decision to Disqualify a SNAP Retailer
Under
“A trial de novo is a trial which is not limited to the administrative record—the plaintiff ‘may offer any relevant evidence available to support his case, whether or not it has been previously submitted to the agency.’” Affum v. United States, 566 F.3d 1150, 1160 (D.C. Cir. 2009) (quoting Kim v. United States, 121 F.3d 1269, 1272 (9th Cir. 1997)). “The trial de novo provision of the Act ‘is clearly broader than the review standard provided for under the Administrative Procedure Act [(“APA”)];” unlike in a standard APA case, “[i]t requires the district court to examine the entire range of issues raised, and not merely to determine whether the administrative findings are supported by substantial evidence.’” Id. (quoting Modica v. United States, 518 F.2d 374, 376 (5th Cir. 1975)). The trial de novo requirement “is compatible with a summary judgment disposition,” however, “if there are no material facts in dispute.” Id. (quoting Freedman v. USDA, 926 F.2d 252, 261 (3d Cir. 1991)). Those circuits that have considered the issue have held that the burden of proof is “placed upon the store owner to prove by a preponderance of the evidence that the violations did not occur.” Kim, 121 F.3d at 1272; Plaid Pantry Stores, Inc. v. United States, 799 F.2d 560, 563 (9th Cir. 1986); Warren v. United States, 932 F.2d 582, 586 (6th Cir. 1991); Goodman v. United States, 518 F.2d 505, 507 (5th Cir. 1975).
Although the validity of the underlying violation is reviewed by trial de novo, “judicial review of the agency’s choice of penalty is focused on whether the [FNS] abused [its] discretion.” Affum, 566 F.3d at 1162. Under that deferential standard of review, the court must consider whether the FNS’s “choice of a penalty . . . [was] either ‘unwarranted in law’ or ‘without justification in fact,’ or [was otherwise] ‘arbitrary’ or ‘capricious.’” Id. at 1161 (internal citations omitted).
III. ANALYSIS
A. Motion to Dismiss
The government first argues that the complaint should be dismissed for failure to state a claim upon which relief can be granted. Dkt. 10 at 28–29. That contention fails because “it focuses primarily on the evidence that has been submitted rather than on the extent to which Plaintiff[s] ha[ve] stated a claim.” Morgan v. United States, 72 F. Supp. 3d 65, 73 (D.D.C. 2014). Plaintiffs allege in their complaint that the transactions at issue “were bona fide purchases of food items, in exchange for SNAP benefits as the system was intended” and that “the [s]tore was not at any point in time, engaged in trafficking SNAP benefits.” Dkt. 1 at 9 (Compl. ¶ 44). These factual allegations are “enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true,” and they are sufficient to “give the defendant fair notice of what the . . . claim is and the grounds
Accordingly, the Court will deny Defendant’s motion to dismiss.
B. Motion for Summary Judgment: The Finding that Trafficking Occurred
Defendants’ motion for summary judgment presents a closer question. To demonstrate that the store trafficked in SNAP benefits, the government points to 246 allegedly suspicious transactions that the EBT database documented over a five-month period in 2017, AR 104–11, as well as reports of inadequate store infrastructure and inventory to support those large and successive transactions. The transaction data shows that the following occurred during the relevant timeframe:
The data reflects 26 sets of transactions that involved one benefit account making two or more convenience store purchases totaling over $100 in under 24 hours. AR 104–07. Of those, 13 sets were completed in under 10 minutes, 9 of which were completed in 2 minutes or less.
Plaintiffs, on the other hand, argue that the evidence is far from clear cut and that there are genuine disputes of material fact that must be resolved at trial. They have also filed a declaration pursuant to
First, Plaintiffs dispute that the 246 allegedly suspicious transactions demonstrate that the store was trafficking in SNAP benefits. Dkt. 21 at 31–32 (Pl. Resp. to Def. Mot. at 24–25). With respect to the 26 sets of EBT transactions that occurred in rapid succession from the same account, they argue that their customers engage in co-shopping, which occurs when two or more adults in one household make separate purchases—using the same account—for logistics or budgeting purposes. AR 172. With respect to the 186 EBT transactions exceeding $31, they argue that their customers often buy items in bulk, Dkt. 21 at 28 (Pl. Mem. in Supp. of Opp. at 21), and they include declarations from nine customers attesting that they make “large purchases” at the store and identifying items that they purchase, see Dkt. 23-2. Without data matching particular customers to the allegedly suspicious transactions, Plaintiffs contend that they cannot reasonably rebut each set of transactions upon which Defendants rely. Dkt. 21 at 18–19, 31 (Pl. Mem. in Supp. of Opp. at 11–12, 24); see Sue Tha Lei Paw v. United States, No. 17-cv-0528, 2018 WL 1536736, at *4 (S.D. Cal. March 29, 2018) (“Without access to data matching [Plaintiff’s] customers to the underlying suspicious transactions, Plaintiffs cannot
Second, Plaintiffs dispute that the store’s comparatively higher volume of EBT transactions constitutes meaningful evidence of trafficking. Dkt. 21 at 37 (Pl. Mem. in Supp. of Opp. at 30). They argue that the store provides the items that its customers wish to purchase and that their good customer service “generat[es] word-of-mouth business.”
Third, Plaintiffs dispute that ABG Mart’s infrastructure and inventory is insufficient to support the large and rapid transactions the FNS investigation revealed. They argue that, even though the store does not have shopping carts or baskets, their customers transfer items using their own bags or with the assistance of friends or other household members. They also point to a series of receipts from the relevant period, tax records, and some inventory invoices to argue that their customers’ purchases are consistent with their inventory and total receipts.
Finally, Plaintiffs rely upon the declaration of Betelhem Gesesse, the owner and manager of the ABG Mart, attesting that the store did not traffic in SNAP benefits and that every transaction at issue was, in fact, legitimate. Dkt. 22-2 at 5 (Gesesse Decl. ¶ 22) (“At no time did I, or any other person associated with my store commit trafficking. The transactions that are listed by the Defendant in its charging letter are legitimate purchases of eligible items, nearly all of which can be reproduced when looking through my store’s inventory.”). As the owner and manager of the store, Gesesse has “been present for nearly all EBT transactions at the store,” has “an intimate knowledge of the business’[s] operations and transactions,” and sets the store’s “policy that no violations of the SNAP regulations will be permitted.”
Defendant, in response, argues that the store has failed to establish the legitimacy of even a single transaction that the agency identified by date and time (and partial household number) as a violation, despite the requirement that, “[t]o survive summary judgment, a plaintiff in a Food Stamp Program disqualification case must raise material issues of fact as to each alleged violation.” McClain’s Mkt. v. United States, 214 F. App’x. 502, 505 (6th Cir. 2006) (emphasis in original); see also Tony’s Pantry Mart Inc. v. United States, No. 15 C 2967, 2017 WL 514184, at *5 (N.D. Ill. Feb. 8, 2017) (“Such specificity is required because ‘permanent disqualification is warranted on “the first occasion” of coupon trafficking, [thus] it is Plaintiff’s burden to raise material issues of fact as to each of the transactions set forth as suspicious by the FNS.’” (quoting Kahin v. United States, 101 F. Supp. 2d 1299, 1303 (S.D. Cal. 2000))); McClain’s Mkt. v. United States, 411 F. Supp. 2d 772, 777 (N.D. Ohio 2005) (store owner’s “affidavit presents no explanation of any of the 149 transactions asserted against plaintiff, but merely presents general justifications for large expenditures. Any one of the 149 transactions is sufficient to establish a violation.”).
Although the FNS has identified substantial evidence in support of its decision, and, although Plaintiffs’ evidence is far from overwhelming, “[s]ummary judgment is appropriate only if the [record] show[s] that ‘there is no genuine dispute as to any material fact.’” Colbert v. Tapella, 649 F.3d 756, 758 (D.C. Cir. 2011) (quoting
To be sure, “in appropriate cases, [transaction information from EBT databases and on-site investigation reports] may be sources of circumstantial evidence of fraud, sufficient to prove that a store is trafficking in SNAP benefits.” Irobe v. U.S. Dep’t of Agric., 890 F.3d 371, 379 (1st Cir. 2018); see also Fells v. United States, 627 F.3d 1250, 1251, 1254 (7th Cir. 2010) (affirming a finding of trafficking based on data showing that store regularly processed purported SNAP transactions for large amounts that were suspicious given the store’s inventory and size and data “about customer purchasing patterns at surrounding stores”); Idias v. United States, 359 F.3d 695, 698 (4th Cir. 2004) (affirming a finding of trafficking when redemption data showed that small store regularly processed high-dollar SNAP transactions in rapid succession and SNAP debits occasionally “exceeded the store’s documented total sales”). Here, however, the FNS relies on inferences that can be drawn from purchasing patterns, while Plaintiffs offer a statement made—under the penalty of perjury—that no illegitimate transactions occurred. Dkt. 22-2 at 7 (Gesesse Decl). Although an unadorned denial, standing alone, might not be sufficient to withstand a motion for summary judgment, Plaintiffs also reasonably seek discovery regarding the comparators that FNS used and the methodology it employed in determining that Plaintiff committed trafficking. The Court has reviewed Defendant’s submission, including the report prepared by the FNS Investigative Analysis Branch, AR 71–99, and agrees that the bases for the comparisons that the FNS draws are not always obvious or explained in sufficient detail to permit a thorough response.
Under these circumstances, the Court concludes that Plaintiffs should be provided an opportunity to develop and to present their case on the merits. See Sue Tha Lei Paw, 2018 WL 1536736, at *4; see also ANS Food Mkt. v. United States, No. 14-2071, 2015 WL 1880155, at *3–4 (D. Md. Apr. 22, 2015) (denying defendant’s motion for summary judgment and permitting further discovery because the evidence was not “undeniable” and plaintiff submitted a Rule 56(d) affidavit); see also Rodriguez Grocery & Deli v. United States, No. 10-1794, 2011 WL 1838290, at *5–6 (D. Md. May 12, 2011) (denying defendant’s motion for summary judgment and granting discovery despite strong evidence of trafficking because certain data used by the agency in making its determination remained within its exclusive control). The Court does not doubt that the FNS has presented substantial evidence in support of its determination. But, Plaintiffs are entitled to de novo review before this court, and, under that standard, they have submitted sufficient evidence and have raised sufficient arguments justifying discovery to fend off the government’s motion for summary judgment. The Court will, accordingly, set a schedule for targeted and reasonable discovery, and, if necessary, for a bench trial on the merits.
CONCLUSION
For the foregoing reasons, Defendant’s motion to dismiss, or, in the alternative,
SO ORDERED.
/s/ Randolph D. Moss
RANDOLPH D. MOSS
United States District Judge
Date: September 17, 2017