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Affum v. United States

May 26, 2009

PHILOMENA AFFUM, DOING BUSINESS AS ASAFO MARKET, APPELLANT
v.
UNITED STATES OF AMERICA AND THOMAS J. VILSACK, SECRETARY OF AGRICULTURE, APPELLEES



Appeal from the United States District Court for the District of Columbia. (No. 1:08-cv-00300).

The opinion of the court was delivered by: Edwards, Senior Circuit Judge

Argued February 20, 2009

Before: SENTELLE, Chief Judge, KAVANAUGH, Circuit Judge, and EDWARDS, Senior Circuit Judge.

The Food Stamp Act ("Act") prohibits retail stores from "trafficking" in food stamp benefits, or exchanging these benefits for cash. See 7 U.S.C. § 2021(b)(3)(B). The penalty for a first-time trafficking offense is permanent disqualification from the food stamp program. However, under the Act, the Secretary of Agriculture ("Secretary") has the discretion to impose a civil money penalty in lieu of disqualification when an offending store produces "substantial evidence" that it had an "effective policy and program" to prevent the trafficking violations. Id. Regulations promulgated by the Secretary set forth criteria for eligibility for a civil money penalty in lieu of permanent disqualification for trafficking. See 7 C.F.R. § 278.6(i).

In early 2007, a part-time employee working alone at appellant Philomena Affum's store exchanged a total of $30 in cash for $30 in electronic food stamp benefits offered by an undercover agent. The Department of Agriculture's Food and Nutrition Service ("FNS") then charged Affum with illegal trafficking. Affum requested that she be assessed a civil money penalty in lieu of permanent disqualification from the program. In November 2007, the FNS determined that Affum did not meet the regulatory criteria for the civil money penalty and permanently disqualified her store from the program. Affum then filed suit in the District Court, challenging the validity of the applicable regulations and seeking a "trial de novo" of the Secretary's penalty determination. See 7 U.S.C. § 2023(a)(15) ("The suit in the United States district court . . . shall be a trial de novo by the court in which the court shall determine the validity of the questioned administrative action in issue."). Affum submitted an affidavit affirming that her "store employee had been trained and that the employee knew that it was prohibited to . . . exchange cash for food stamp benefits," Affum v. United States, 550 F. Supp. 2d 63, 67 (D.D.C. 2008), and sought a preliminary injunction to bar the permanent disqualification. In May 2008, the District Court denied Affum's request for injunctive relief on the ground that her "affidavit alone cannot be sufficient under the statute" to require the Secretary to impose a civil money penalty in lieu of disqualification. Id. The District Court further held that Affum lacked Article III standing to challenge the regulations. Id. at 68. At the parties' request, the District Court converted its denial of the injunction to a final judgment in the Secretary's favor. Affum then appealed.

We hold that the District Court was mistaken in its ruling that Affum lacked standing. The Secretary explicitly relied on the regulations to disqualify Affum from the food stamp program and to deny her request for the lesser civil money penalty. Therefore, Affum plainly has standing to challenge the regulations and their application to her case. Accordingly, we vacate the District Court's judgment and remand the case for further proceedings. The District Court must conduct a trial de novo on Affum's claim that the Secretary abused his discretion in denying her request for a civil money penalty in lieu of disqualification.

I. BACKGROUND

A. Statutory and Regulatory Framework

Congress created the food stamp program in 1964 to "permit those households with low incomes to receive a greater share of the Nation's food abundance." The Food Stamp Act of 1964, Pub. L. No. 88-525, § 2, 78 Stat. 703, 703. Retail stores authorized to participate in the program may accept food stamp benefits instead of cash for designated food items. 7 U.S.C. § 2013(a). The stores then redeem these benefits with the government for face value. Id. Today, the government delivers food stamp benefits via electronic benefit transfer cards. Id.

§ 2016(h). In 2008, Congress amended the Food Stamp Act, renaming it the Food and Nutrition Act and renaming the "food stamp program" the "supplemental nutrition assistance program," but it did not substantively change the statutory provisions at issue in this case. Food, Conservation, and Energy Act of 2008, Pub. L. No. 110-246, § 4001, 122 Stat. 1651, 1853. We use the terms that the parties used in briefing this case.

Congress prohibits participating retail stores from "trafficking" in food stamp benefits, or trading these benefits for cash. Prior to 1988, the Act mandated permanent disqualification even for first-time trafficking offenders. See 7 U.S.C. § 2021(b)(3) (1982). Because of the severity of the sanction, the courts divided over whether "innocent" store owners could be held liable when their employees committed trafficking violations without their knowledge. See Ghattas v. United States, 40 F.3d 281, 283 (8th Cir. 1994) (describing circuit split). In 1988, Congress amended the Act to give the Secretary "the discretion to impose a civil money penalty" in lieu of permanent disqualification if the Secretary determined that there was "substantial evidence" that the store had "an effective policy and program in effect to prevent violations of the Act and the regulations." Hunger Prevention Act of 1988, Pub. L. No. 100-435, § 344, 102 Stat. 1645, 1664 (codified as amended at 7 U.S.C. § 2021(b)(3)(B)); see also H.R. REP. NO. 100-828, pt. 1, at 28 (1988) (noting that "[u]nder current law, no discretion is provided to the Secretary of Agriculture to evaluate a store's actions to prevent [trafficking] violations" and the amended Act "provides this discretion"). In 1990, Congress amended the Act again to permit the Secretary to consider evidence that the store's ownership was not in any way involved in the trafficking. Food, Agriculture, Conservation, and Trade Act of 1990, Pub. L. No. 101-624, § 1743, 104 Stat. 3359, 3795 (codified as amended at 7 U.S.C. § 2021(b)(3)(B)).

With these and other amendments, § 2021(b)(3)(B) of the Act now provides for permanent disqualification upon the first instance of trafficking, "except that the Secretary shall have the discretion to impose a civil penalty" in lieu of disqualification in appropriate circumstances. 7 U.S.C. § 2021(b)(3)(B)(the statutory provision is reprinted in a Statutory Appendix at the end of this opinion). The Act further mandates that a store owner who sells a store that was previously disqualified by the Secretary will remain personally disqualified from the program. Id. § 2021(e)(1). Finally, the Act permits a store owner who is aggrieved by the Secretary's decision in a food stamp trafficking case to file suit in district court. Id. § 2023(a)(13). The statute provides that such a suit "shall be a trial de novo by the court in which the court shall determine the validity of the questioned administrative action in issue." Id. § 2023(a)(15); see also id. § 2021(c)(2) ("The action of disqualification or the imposition of a civil penalty shall be subject to review as provided in section 2023 of this title.").

The Act gives the Secretary the authority to "issue such regulations . . . as . . . deem[ed] necessary or appropriate for the effective and efficient administration" of the food stamp program. 7 U.S.C. § 2013(c); see also id. § 2021(a)(2). Pursuant to this directive, the Secretary has promulgated regulations that amplify the Act's requirements and penalties relating to trafficking violations. See 7 C.F.R. § 278.6. The current regulations contain four criteria that the FNS considers in determining whether to impose a civil money penalty in lieu of permanent disqualification. See id. § 278.6(i). First, the store "shall have developed an effective compliance policy." Id. Second, the store "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." Id. Third, the store must show that it "had developed and instituted an effective personnel training program." Id. Fourth, the store's ownership must show that it was "not aware of, did not approve, did not benefit from, or was not in any way involved in the conduct or approval of" the trafficking violations. Id. The regulations state that, to qualify for the alternative civil money penalty, a store "shall, at a minimum, establish by substantial evidence its fulfillment of" each criterion. Id.

The regulations also specify that, "in determining whether a firm has established an effective policy to prevent violations, FNS shall consider written and dated statements of firm policy which reflect a commitment to ensure that the firm is operated in a manner consistent" with the regulations. Id. § 278.6(i)(1). The regulations further direct that a store "shall document its training activity by submitting to FNS its dated training curricula and records of dates training sessions were conducted." Id. § 278.6(i)(2). "In addition, in evaluating the effectiveness of the firm's policy and program to ensure FSP [Food Stamp Program] compliance and to prevent FSP [Food Stamp Program] violations, FNS may consider . . . [a]ny other information the firm may present to FNS for consideration." Id. § 278.6(i)(1)(vi).

B. Facts and Proceedings Below

From 2006 to 2008, Affum owned and operated the Asafo Market, a small grocery store located in Northeast Washington, D.C. She ran the store with the help of one part-time employee. In August 2006, the FNS authorized the Asafo Market to accept food stamp benefits. See Store Contact Record, reprinted in Joint Appendix ("J.A.") 126-27. At the time of the authorization, the FNS advised Affum that trafficking was prohibited and provided her with a training brochure for participating retailers as well as 70 pages from the Code of Federal Regulations that described the rules of the food stamp program. See id.; see also Affum Aff. ¶¶ 6-7 (Mar. 20, 2008), J.A. 70-71.

On October 10, 2007, the FNS sent Affum a letter charging her with trafficking in food stamp benefits. Letter from Sarah Duncan, Officer-in-Charge, Towson Field Office, to Philomena Affum 1 (Oct. 10, 2007) [hereinafter Charge Letter], J.A. 72. The Charge Letter and the enclosed investigative report stated that on two occasions between February and April 2007, an FNS investigator entered the Asafo Market and exchanged a total of $30 in electronic food stamp benefits for $30 in cash. Id.; see also Report of Positive Investigation (Apr. 30, 2007), J.A. 76. The Charge Letter also warned Affum that the penalty for this conduct was permanent disqualification from the food stamp program or, if appropriate, a civil money penalty. Charge Letter at 1-2, J.A. 72-73. Referencing § 278.6(i) of the regulations, the Charge Letter further informed Affum that she had 10 days in which to request the lesser sanction and that she "must meet each of the four (04) criteria listed [in § 278.6(i)] and . . . provide the documentation as specified" in order to be eligible for the civil money penalty. Id. at 2, J.A. 73.

On November 5, 2007, Affum met with Sarah Duncan, the Officer-in-Charge in the FNS's Towson Field Office, to discuss the charges. Affum explained that her employee had conducted the prohibited transactions without her knowledge and "knew this was against the rules." Memorandum from Sally Duncan, Officer-in-Charge, Towson Field Office, to File (Nov. 5, 2007), J.A. 175.

On November 14, 2007, the FNS informed Affum by letter of its finding that the trafficking violations had occurred. Letter from Sarah Duncan, Officer-in-Charge, Towson Field Office, to Philomena Affum 1 (Nov. 14, 2007) [hereinafter Decision Letter], J.A. 112. The Decision Letter further stated that Affum was ineligible for the alternative civil money penalty under § 278.6(i) of the regulations, because she "failed to submit sufficient evidence to demonstrate that [her] firm had established and implemented an effective compliance policy and program to prevent violations of the Food Stamp Program." Id. Pursuant to this finding, the FNS permanently disqualified the Asafo Market from the program. Id. (citing 7 C.F.R. § 278.6(c), (e)(1)).

Affum sought review of the disqualification decision and advised the agency's Administrative Review Branch that the employee "who was responsible for this great error was informed from the very beginning that [electronic food stamp benefits were] strictly for use with food items only and nothing else." Letter from Philomena Affum to Jerry A. Masefield, FNS, Administrative Review Branch 1 (Dec. 26, 2007), J.A. 116. On January 22, 2008, an Administrative Review Officer within the FNS concluded that the "violations at issue did, in fact, occur as charged" and "sustained" the permanent disqualification. Asafo Market v. Towson, Md. Field Office, Case No. C0113519 at 4 (Jan. 22, 2008) [hereinafter Final Agency Decision], J.A. 122. The Final Agency Decision did not specifically address Affum's request for a civil money penalty in lieu of disqualification, so the Decision Letter is the agency's last word on this issue.

On February 21, 2008, Affum filed suit in the District Court against the Secretary and the United States. She did not dispute that the trafficking violations occurred, but she requested a "trial de novo" of the Secretary's penalty determination pursuant to § 2023(a)(15) of the Act. Compl. ¶¶ 33, 40. In addition, she argued that the permanent disqualification should be overturned because the Secretary failed to give her and other small store owners fair notice of his interpretation of the eligibility criteria for the civil money penalty contained in § 278.6(i) of the regulations and because these regulations are contrary to the language of the Act, arbitrary and capricious, and violative of her Fifth Amendment substantive due process rights. Id. ¶¶ 43-45.

On March 20, 2008, Affum filed a motion for a preliminary injunction to bar the permanent disqualification. She attached an affidavit to her motion affirming that she had told the FNS Officer-in-Charge that the employee who committed the trafficking "had been trained and that the employee knew that it was prohibited to . . . exchange cash for food stamp benefits." Affum Aff. ¶ 4 (Mar. 20, 2008), J.A. 70.

On May 7, 2008, the District Court denied Affum's request for injunctive relief. Affum, 550 F. Supp. 2d at 64. The District Court found that Affum could not succeed on the merits of her suit because she had not submitted "substantial evidence" of an effective anti-trafficking program as required by § 2021(b)(3)(B) of the Act. Id. at 67-68. On this point, the District Court concluded that Affum's "affidavit alone cannot be sufficient under the statute because [s]tore owners cannot simply attest to having effective antifraud programs; rather they must prove it." Id. at 67 (alteration in original) (internal quotation marks and citation omitted).

The District Court then went on to hold that Affum had no standing to challenge the regulations, because the statute was the cause of her injury. Id. at 68. The District Court explained that,

[a]ssuming arguendo that the regulations did suffer from one or more of th[e] deficiencies [alleged by Affum], plaintiff would have no standing to challenge them because they inflict no redressable injury upon her. Regardless of whether the regulations are enforceable, the statute itself, which plaintiff does not challenge, inflicts the injury upon plaintiff of which she complains. Hence, plaintiff has no standing to assert her challenge to the Secretary's regulations and she has virtually no likelihood of success on the merits of such a claim.

Id. (internal citations and footnote omitted).

Following the District Court's denial of Affum's motion for a preliminary injunction, the parties jointly moved to have the District Court convert its May 7 opinion into a final judgment. On June 12, 2008, the District Court granted the parties' joint motion. Affum v. United States, No. 1:08-cv-00300 (D.D.C. June 12, 2008) (Order), J.A. 41.

Affum appealed the District Court's judgment on June 19, 2008. Shortly thereafter, she closed the Asafo Market due to loss of revenue from the food stamp program. Affum Aff. ΒΆ 3 (Nov. 22, 2008). The case is not moot, however, because the Government maintains that Affum remains ...


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