Euclid Market Inc. v. United States of America, through its Agency, the United States Department of Agriculture
No. 22-1301
United States Court of Appeals For the Eighth Circuit
February 16, 2023
Before SHEPHERD, KELLY, and GRASZ, Circuit Judges.
The United States Department of Agriculture (“USDA“) permanently disqualified Euclid Market Inc. (“Euclid Market“), from the Supplemental Nutrition Assistance Program (“SNAP“) after it determined Euclid Market had unlawfully trafficked SNAP benefits. After the USDA issued its final decision, Euclid Market filed this action in federal court under
I. Background
A. SNAP Overview
SNAP began with the enactment of the Food Stamp Act of 1964. See Pub. L. 88-525, Aug. 31, 1964, 78 Stat. 703. In 2008, Congress renamed it the Food and Nutrition Act of 2008 and began referring to distributions as SNAP, rather than food stamps. See Pub. L. 110-234, Title IV, § 4001, May 22, 2008, 122 Stat. 923. The program focuses on assisting low-income households to meet their basic food and nutrition needs. See
Recipients access the funds via Electronic Benefit Transfer Cards that operate similarly to debit cards. See
SNAP benefits may only be used to purchase certain kinds of food. See
Exchanging SNAP benefits for anything not SNAP-eligible is considered one form of “trafficking.” See id. The government estimates that, on average, approximately $1.27 billion in SNAP distributions were trafficked each year between 2015 and 2017.2 The government has dedicated resources to prevent trafficking. In 2014, Congress passed the Agricultural Act of 2014, Pub. L. 113-79, Title IV, § 4029, 128 Stat. 649, 813 (codified at
One way the USDA combats trafficking is by analyzing store data of SNAP transactions through the Anti-Fraud Locator Utilizing Retailer Electronic Transactions (“ALERT“) program. ALERT scans all Electronic Benefit Transfer
The USDA may arrange for an independent contractor to visit the store and conduct an onsite investigation. The program specialist makes a recommendation to the section chief based on the onsite investigation and other relevant data and information. If the program specialist recommends further action against the store, the section chief reviews the recommendation and results for accuracy and then may issue a charging letter detailing the allegations to the store. The charging letter gives the store an opportunity to respond with information, explanation, or evidence. See
B. The USDA Disqualifies Euclid Market
The USDA analyzed ALERT data of Euclid Market‘s SNAP transactions from April 2018 through September 2018. It identified three suspicious patterns of activity: (1) a large number of transactions that ended in the same cents value—eighteen transactions ending in .98; (2) transactions made from individual benefit accounts in a set period—fifty-six flagged transactions comprising twenty-seven “transaction sets“; and (3) transactions that were large based on the store‘s alleged characteristics—eighty transactions ranging from $70.28 to $335.70. The case was handled by Section Chief Fredrick Conn and Program Specialist Paul Arce. Rick Steen performed the onsite inspection of Euclid Market.
C. District Court Proceedings
Euclid Market filed a complaint against the United States to challenge the validity of the USDA decision. The United States moved for summary judgment. The district court denied the motion and later set the case for trial. Following the trial, the district court issued its Memorandum Opinion in favor of the USDA and against Euclid Market. See Euclid Mkt. Inc. v. United States, No. 4:19-cv-02136-MTS, 2021 WL 5905962 (E.D. Mo. Dec. 14, 2021). The district court held Euclid Market did not prove that its conduct was lawful or that the USDA‘s permanent disqualification of Euclid Market from the program was invalid.
The district court began its analysis by recognizing its review of the case under
The district court concluded the store “failed to meet its difficult burden of demonstrating that every transaction that the USDA showed was likely trafficking actually was a legitimate transaction.” Id. Regarding the transactions for which Euclid Market did not have receipts, the district court found “the Market had no
As for the transactions for which Euclid Market produced receipts, the district court found “the receipts offer[ed] little” because they were not itemized. Id. at *6. In the district court‘s view, the lack of itemization combined with the fact Euclid Market did not have a price list to which the receipts could be compared, meant the receipts were ineffective at rebutting USDA‘s trafficking claim for the related transactions. See id.
In a footnote, the district court noted “substantial evidence support[ed] the Agency‘s trafficking finding.” Id. at n.4. The district court observed, “[Euclid] Market‘s EBT date [sic], high ALERT rankings, and Scan Flag Comparison to similar stores alone raise serious suspicion, especially when considered with the Agency‘s analysis of SNAP beneficiary households’ shopping patterns.” Id. The district court also noted certain USDA evidence casting doubt as to whether Euclid Market had purchased sufficient SNAP-eligible inventory to support the quantity of SNAP transactions Euclid Market conducted. See id.
II. Analysis
On appeal, Euclid Market argues the district court‘s decision suffered from two legal errors: (1) the district court should have placed the burden of proof on the USDA; and (2) even if the district court correctly placed the burden of proof on Euclid Market, the district court distorted the burden by requiring Euclid Market to produce transaction-specific evidence for each transaction raised by the USDA. We address these arguments in turn.
Euclid Market first argues the district court should have placed the burden of proof on the USDA. “Proper allocation of the burden of proof is . . . a legal issue subject to de novo review.” D. L. by Landon v. St. Louis City Sch. Dist., 950 F.3d 1057, 1062 (8th Cir. 2020).
The Supreme Court has stated that when courts “are determining the burden of proof under a statutory cause of action, the touchstone of [the] inquiry is, of course, the statute.” Schaffer ex rel. Schaffer v. Weast, 546 U.S. 49, 56 (2005). However, the plain text of
Five of our sister circuits have held that the party challenging the USDA‘s decision bears the burden of proof. See Irobe, 890 F.3d at 378; Fells v. United States, 627 F.3d 1250, 1253 (7th Cir. 2010); Warren v. United States, 932 F.2d 582, 586 (6th Cir. 1991); Plaid Pantry Stores, Inc. v. United States, 799 F.2d 560, 563 (9th Cir. 1986); Redmond v. United States, 507 F.2d 1007, 1011 (5th Cir. 1975). In addition, in an unpublished, and therefore non-binding, decision, we found the reasoning of Redmond persuasive and affirmed a district court‘s decision to place the burden of proof on the plaintiff in this context. See Haynes v. U.S. Dep‘t of Agric., Food & Nutrition Serv., 106 F.3d 405 (Table), 1997 WL 31600, at *1 (8th Cir. 1997) (unpublished per curiam).
The only reason Euclid Market provides on appeal for rejecting the default rule is that the USDA should bear the burden of proof because the district court‘s proceeding under
Euclid Market has not offered a compelling reason to depart from the default rule that “plaintiffs bear the risk of failing to prove their claims.” Weast, 546 U.S. at 56. Thus, in this instance, Euclid Market should bear the burden of proof.3
Euclid Market‘s next argument is that the district court erred by requiring it to produce transaction-specific evidence for every transaction raised by the USDA to meet its burden of proof. The government takes the position that a store‘s explanations of “customer shopping habits or its business practices” are never enough to show the agency‘s action was invalid; in other words, the store must provide transaction-specific evidence, like receipts or eye-witness testimony, to meet its burden of proof. Whether transaction-specific evidence is required presents a legal issue, and “[a]fter a bench trial, this court reviews a district court‘s . . . legal conclusions de novo.” First Dakota Nat‘l Bank v. Eco Energy, LLC, 881 F.3d 615, 619 (8th Cir. 2018) (alteration in original) (quoting IPSCO Tubulars, Inc. v. Ajax TOCCO Magnathermic Corp., 779 F.3d 744, 747 (8th Cir. 2015)).
We agree with Euclid Market that such a standard is erroneous and that the district court applied such a standard in this case. A store‘s failure to provide transaction-specific evidence for every transaction does not inherently doom its case. Concluding otherwise would create an unnecessary tension with the fundamental principles of evidence. Credible evidence that is relevant and admissible under the Federal Rules of Evidence can and should be considered by the fact finder—here the district court—to determine if a store has met its burden to prove the agency‘s action was invalid. See
The government argues the district “court must retain the discretion to weigh the evidence during the de novo review . . . .” We wholeheartedly agree. In a trial de novo such as this, the determination of the “validity of the questioned
The government also takes the position that if stores may meet the burden of proof with non-transaction-specific evidence, this will “provide a loophole that allows stores that traffick to participate in SNAP so long as they can explain the categories of suspicious transactions without legitimizing the transactions within the categories.” We do not accept the government‘s doom and gloom prediction. Trial courts are skilled at weighing the probative value of the evidence, making credibility determinations, and assessing whether or not a party has met its burden of proof. Today‘s decision does not change that.
The district court‘s analysis shows it applied a rule always requiring a transaction-specific rebuttal of the transactions raised by the USDA. The district court emphasized the transaction-specific evidence: namely, the presence or absence of receipts for USDA-identified transactions and the lack of testimony regarding specific transactions. The district court found “Euclid Market [did not] have cash register receipts for 59 of the 154 transactions“; and “[n]o Euclid Market employee testified that he or she had any specific memory of the 59 transactions for which the Market d[id] not have receipts.” Euclid Market, 2021 WL 5905962, at *4. The district court also found “[t]he cash register receipts that Euclid Market did produce ha[d] very little credibility in supporting that customers purchased SNAP-eligible items” because they would have been easy to create fraudulently. Id.
This brings us to the government‘s alternative argument: even if the district court applied the incorrect legal standard, this court should affirm based on the district court‘s findings of fact or its statement in footnote four that the USDA would have satisfied a “substantial evidence” standard. We hesitate to rely on the district court‘s findings of fact for a simple reason: It is difficult to tell the extent to which the district court was reciting historical facts related to the administrative proceedings before the USDA or was making its own findings of fact. For example, at oral argument the government suggested the district court found Euclid Market was a “convenience store.” However, what the district court said was the “[USDA] classified Euclid Market as a convenience store . . . .” Euclid Market, 2021 WL 5905962, at *1. In a trial de novo, however, such a finding by the USDA receives no automatic deference.
Regarding footnote four, the government suggests we should interpret the district court‘s statement there was “substantial evidence” supporting the USDA‘s
III. Conclusion
For the reasons above, we vacate the judgment and remand the case to the district court for further proceedings consistent with this opinion.5
SHEPHERD, Circuit Judge, dissenting.
I would affirm the judgment of the district court. I agree with the Court that a store may satisfy its burden of proof with evidence that “serves to reduce the suspicion associated with a certain pattern of transactions the USDA identified.” Supra at 10. However, I dissent only because I believe that the district court in fact applied this standard.
The district court correctly noted that “[f]ailing to prove that even a single transaction of those at issue was not trafficking was enough to doom [Euclid] Market‘s case.” R. Doc. 98, at 10; see also
Further, I find that the district court did not base its judgment on the lack of specific evidence. Again, it focused on the 59 receipt-less transactions because Euclid Market provided no evidence to legitimize this specific group of transactions. However, it still found that the receipts Euclid Market provided offered little to legitimize the other transactions. It found that the receipts “ha[d] very little credibility in supporting that customers purchased SNAP-eligible items” because “[t]hey show only that a cashier entered that an item was SNAP-eligible—something the cashier would need to do, and easily could do, if he or she was trafficking through the EBT terminal.” R. Doc. 98, at 7. After it discussed the transactions with the receipts, the district court ultimately concluded that “[t]he evidence [Euclid] Market adduced did not prove, by a preponderance of the evidence, that the agency‘s determination was invalid.” R. Doc. 98, at 12. In my view, the district court‘s findings have little to do with the type of evidence provided (i.e., transaction-specific or general). Instead, its findings are focused upon the insufficiency of Euclid Market‘s evidence, whether general or transaction-specific, to satisfy its burden of proof for each transaction.
But even so, the majority discounts the district court‘s other findings that explain why it did not find Euclid Market‘s evidence persuasive: the absence of a written price list for all the items sold in the store during the review period; the absence of a written list of all the periodic specials that Euclid Market offered during the review period; the less-than-helpful receipts; and the fact that Euclid Market had the equipment to help justify the purchases but had not installed it. The district court also noted the abundance of evidence that rendered Euclid Market‘s transactions suspicious: Euclid Market‘s EBT data; the high ALERT rankings; the comparison to similarly situated stores; and the fact that even if Euclid Market marked up its SNAP-eligible foods by 40%, it did not have enough stock to account for its SNAP purchases. While the Court debates whether the district court‘s reference to this evidence as “substantial evidence” is meant as a plain-meaning term or an
For the foregoing reasons, I respectfully dissent from the Court‘s judgment. Believing that the district court applied the correct evidentiary standard, I would affirm the judgment of the district court.