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Stephen C. Fells, Doing Business As Stephen Snack Foods Candy & Variety v. United States of America

December 23, 2010


Appeal from the United States District Court for the Eastern District of Wisconsin. No. 2:08-cv-00782-AEG-Aaron E. Goodstein, Magistrate Judge.

The opinion of the court was delivered by: Ripple, Circuit Judge.


Before RIPPLE, MANION and SYKES, Circuit Judges.

Stephen Fells, owner and operator of a small convenience store in Milwaukee, Wisconsin, seeks review of a district court order upholding the final decision of the Food and Nutrition Service of the United States Department of Agriculture ("USDA"). The USDA decision permanently disqualified Mr. Fells's store, Stephen Snack Foods Candy & Variety, from participating in the Food Stamp Program, now referred to as the Supplemental Nutrition Assistance Program ("SNAP" or "Program"), for engaging in the trafficking of food stamps. See 7 C.F.R. § 271.2. Finding that *fn1 Mr. Fells failed to satisfy his burden of proving by a preponderance of the evidence that the disqualification from SNAP was invalid, the district court upheld the agency's final determination of disqualification. On appeal, Mr. Fells continues to deny that he engaged in the trafficking of food stamps. For the reasons set forth in this opinion, we affirm the judgment of the district court.


In 2008, the USDA conducted an investigation of Mr. Fells's store for activity suspected to be in violation of the federal food stamp laws and regulations. The store's questionable transactions had been brought to the agency's attention through its automated monitoring program. An investigation by an USDA field officer revealed an unusually high number of "large" food stamp transactions between August 2007 and January 2008. During this time, the agency tracked seventy- one transactions, each exceeding thirty dollars-a volume it considered suspiciously high given the store's small size and inventory. In addition, the field officer also uncovered an unusually high number of transactions made in even dollar amounts. Relying upon the field officer's recommendation, the USDA ultimately determined that Mr. Fells had exchanged benefits for some-thing other than eligible food in violation of agency regulations. See 7 C.F.R. §§ 271.2, 278.6(e)(1)(i).

On March 27, 2008, the agency sent Mr. Fells a letter, informing him that it had decided to disqualify his store permanently from participating in the Program under 7 U.S.C. § 2021(b)(3)(B). Mr. Fells appealed this decision within the agency, and, on August 7, 2008, the USDA affirmed its original determination of disqualification. In the district court, Mr. Fells, proceeding pro se, sought judicial review of the USDA disqualification under 7 U.S.C. § 2023(a)(13). The court appointed an attorney to represent Mr. Fells at trial. In its pre-trial order, the district court ruled that Mr. Fells bore the burden of proof to establish the invalidity of the agency's action.

At trial, Mr. Fells provided several explanations for the irregular SNAP transactions. He stated that, rather than making change, he offered his customers additional merchandise or candy bars to round out uneven dollar transactions. He further explained that some benefit redemptions exceeded thirty dollars because they covered higher-priced items, such as baby formula or deliveries of wholesale surplus meats.

Although the court acknowledged that the evidence against Mr. Fells was circumstantial, it ultimately found that his explanations were neither persuasive nor sup-ported by the evidentiary record. The court agreed with the Government that it would be unusual for clients to regularly make large purchases of baby formula using food stamps, rather than the more specific benefits for women, infants and children under the WIC Program. Additionally, the court noted that Mr. Fells had failed to produce inventory receipts to support his explanation regarding the high-priced meat sales. Although the court expressed concern over the fact that it was requiring Mr. Fells to prove his innocence, it explained that such a burden is placed upon any retailer that has been disqualified from the Program. Because the district court determined that Mr. Fells had failed to prove the invalidity of the agency's actions, it upheld the agency's final determination of disqualification.*fn2


Proceeding pro se on appeal, Mr. Fells challenges the district court's determination that he did not meet his burden of proving by a preponderance of the evidence that he did not traffic in food stamps. He maintains that the agency provided no evidence or witnesses to substantiate any wrongdoing on his part and seems to suggest that, in a trial de novo, the agency has the burden of justifying its disqualification determination.


In 1964, Congress permanently established what was then called the Food Stamp Program. The Food Stamp Act of 1964, Pub. L. No. 88-525, 78 Stat. 703 (1964). It aims both to feed low-income individuals and to strengthen the nation's agricultural economy, see 7 U.S.C. § 2011, and authorizes the Secretary of Agriculture to promulgate regulations to implement the program, id. §§ 2013(c), 2021(a)(2). Food stamps originally took the form of paper coupons. In 1996, Congress set a deadline for states to replace the coupons with electronic benefit transfer ("EBT") systems, which use debit-type cards to deduct benefits from a central location. See id. § 2016(h). Upon the completion of this change in 2008, Congress renamed the program the Supplemental Nutrition Assistance Program. See Food, Conservation, and Energy Act of 2008, Pub. L. No. 110-234, § 4001(b), 122 Stat. 923, 1092 (2008). Funding for the program is currently authorized through 2012. 7 U.S.C. § 2027(a)(1). Just as individuals must satisfy certain eligibility requirements in order to participate in SNAP, retail food store owners also must comply with applicable provisions and regulations. See id. § 2018. Fraud or improper use of benefits can*fn3

may disqualify, "for a specified period of time," a retail store from further participating in the Program for certain offenses, such as the "trafficking" in food stamps: buying or selling "benefit instruments for cash or consideration other than eligible food." 7 U.S.C. §§ 2021(a)(1), 2021(b)(3)(B); 7 C.F.R. § 271.2. Section 2021(b)(3)(B) provides that a store shall be disqualified permanently for its first trafficking offense. Although the Secretary has discretion to impose a civil monetary penalty in lieu of disqualification if he or she "determines that there is substantial evidence that such a store . . . had an effective policy and program in effect to prevent violations," in this case, the Secretary's discretion is limited because Mr. Fells, as the sole owner and employee, was directly involved in the ...

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