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Tony's Pantry Mart Inc. v. United States, Department of Agriculture Food and Nutrition Service

United States District Court, N.D. Illinois, Eastern Division

February 8, 2017

TONY'S PANTRY MART INC. #1, Plaintiff,
v.
UNITED STATES OF AMERICA, DEPARTMENT OF AGRICULTURE FOOD and NUTRITION SERVICE, Defendant.

          MEMORANDUM OPINION AND ORDER

          AMY J. ST. EVE United States District Court Judge.

         On April 3, 2015, Plaintiff Tony's Pantry Mart Inc. #1 (“Tony's Pantry” or “Plaintiff”) filed a Complaint and Petition for Review of the Food and Nutrition Service's (“FNS”) Final Agency Decision permanently disqualifying Tony's Pantry from participating in the Supplemental Nutrition Assistance Program (“SNAP”).[1] See 7 U.S.C. §§ 2021(b)(3)(B), 2023(a)(13). On March 30, 2016, the Court denied Plaintiff's motion to stay the FNS's Final Agency Decision pending the outcome of this matter brought pursuant to 7 U.S.C. § 2023(a)(17). The Court presumes familiarity with its March 30, 2016 ruling.

         Before the Court is the FNS's motion for summary judgment brought pursuant to Federal Rule of Civil Procedure 56(a) and Northern District of Illinois Local 56.1. For the following reasons, the Court grants the FNS's motion for summary judgment and dismisses this lawsuit in its entirety.

         STATUTORY AND REGULATORY BACKGROUND

         “In 1964, Congress permanently established what was then called the Food Stamp Program” that “aims both to feed low-income individuals and to strengthen the nation's agricultural economy.” Fells v. United States, 627 F.3d 1250, 1252 (7th Cir. 2010) (internal citation and citations omitted); see also 7 U.S.C. § 2011. “In 1996, Congress set a deadline for states to replace the [original paper] coupons with electronic benefit transfer (‘EBT') systems, which use debit-type cards to deduct benefits from a central location.” Fells, 627 F.3d at 1252 (citing 7 U.S.C. § 2016(h)); see also Brothers Food & Liquor, Inc. v. United States, 626 F.Supp.2d 875, 877 (N.D. Ill. 2009) (“Food stamp benefits are delivered to recipients on encoded Electronic Benefits Transaction (EBT) cards which recipients swipe through a reader in order to pay for eligible items, such as bread, dairy products, meat, and vegetables.”). “Upon the completion of this change in 2008, Congress renamed the program the Supplemental Nutrition Assistance Program” or SNAP. Fells, 627 F.3d at 1252; see also Mehrab No. 1 Corp. v. United States, 837 F.Supp.2d 943, 944 (N.D. Ill. 2011) (SNAP was “formerly known as the Food Stamp Program”).

         Individuals may only redeem SNAP benefits for food items at retail stores that are approved for program participation. See 7 U.S.C. § 2013(a). “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.” Fells, 627 F.3d at 1252 (citing 7 U.S.C. § 2018). The FNS may disqualify participating stores for improper use of benefits, including “trafficking, ” which is defined as “the buying, selling, stealing, or otherwise effecting an exchange of SNAP benefits ... for cash or consideration other than eligible food.” Dinner Bell Mkts., Inc. v. United States, 116 F.Supp.3d 905, 907 (S.D. Ind. 2015) (quoting 7 C.F.R. § 271.2).

         The FNS monitors stores through the Anti-Fraud Locator Using Electronic Benefit Retailer Transactions (“ALERT”) computer program to detect trafficking or other fraudulent activity involving SNAP benefits. See, e.g., Duchimaza v. United States, ___ F.Supp.3d ___, 2016 WL 5799295, at *3 (D. Conn. Sept. 30, 2016); Tony's Pantry Mart Inc. v. United States Dep't of Agric., 175 F.Supp.3d 987, 991 (N.D. Ill. 2016). “When a store triggers an ALERT report through a pattern of suspicious transactions, the FNS may conduct an investigation, including a store visit, and the USDA may open a case and proceed with an administrative action against the store.” Saudabad Convenience, Inc. v. United States Dep't of Agric., No. 13 C 298, 2014 WL 611194, at *1 (D.R.I. Feb. 18, 2014). Also, “[w]hen determining whether a store owner has trafficked in food stamps, the agency may rely on ‘facts established through on-site investigations, inconsistent redemption data, or evidence obtained through a transaction report under an electronic benefit transfer system.'” Fells, 627 F.3d at 1252-53 (citation omitted).

         FACTUAL BACKGROUND

         Tony's Pantry is an Illinois corporation owned by Mohammad Yahya and located at 745 South Kedzie Avenue in Chicago. (R. 49, Def.'s Rule 56.1 Stmt. Facts ¶ 3.) Tony's Pantry is a convenience store that has been an authorized SNAP retailer since April 2012 and is open from 8:00 a.m. through 9:00 p.m. - seven days a week (Id. ¶¶ 5, 6.) In 2013, the ALERT program detected unusual SNAP transaction activity at Tony's Pantry, after which a FNS contractor conducted a store visit in November 2013. (Id. ¶ 7.) The store visit revealed that Tony's Pantry carried some staple foods and had a small deli, but that the majority of the store's inventory consisted of snack foods. (Id. ¶ 8.) Also, the FNS contractor observed that Tony's Pantry did not carry any fresh fish or poultry and that it had one cash register behind a glass partition. (Id.) The FNS contractor's report also noted that the store had a minimal selection of fresh fruits and vegetables and that he observed only one shopping cart and one basket during his visit, both of which were in the storeroom. (Id., R. 49-1, Admin. Record (A.R.), at 50.)

         Despite the FNS contractor's observations, Mr. Yahya and Abdalrahim Asfor, who works at Tony's Pantry, both testified that the store sells many food items, including fresh meat, deli meat by the pound, ground beef, and whole turkeys. (R. 52, Pl.'s Rule 56.1 Stmt. Facts ¶ 1.) Both men also explained that Tony's Pantry has various specials on single items and bundles of items and that the store has signs advertising its specials. (Id. ¶ 2.) They also testified that the store has one shopping cart and seven shopping baskets and that they keep some of the shopping baskets in the store's office. (Id. ¶ 3.)

         After the November 2013 store visit, the FNS further monitored and analyzed Tony's Pantry's SNAP transactions from October 2013 through March 2014. (Def.'s Stmt. Facts ¶ 10.) Based on its analysis of the store's SNAP transactions, the FNS determined that Tony Pantry's redemptions contained three patterns of transactions indicative of trafficking during this time period. (Id. ¶ 11.) First, there were 969 transactions in an amount of $9.00 or more that ended in a same cents value (either .00 cents or .50 cents). (Id. ¶ 12.) Second, the FNS observed 33 instances where multiple withdrawals were made from the account of a single SNAP household within a 24-hour period and identified five separate SNAP households that had multiple medium-to-large transactions at Tony's Pantry that were made shortly before or shortly after each household had shopped at a supermarket. (Id. ¶¶ 13, 14.) Third, the store had 873 transactions that exceeded $27, which was more than 300% higher than the average purchase amount for a convenience store. (Id. ¶ 15.) In addition, the FNS compared Tony's Pantry to other SNAP authorized stores in the area noting that the high number of comparable stores were within a 2-mile radius of Tony's Pantry. (Id. ¶¶ 16, 17.) The FNS also compared Tony's Pantry's SNAP sales to four other convenience stores and noted that Tony's Pantry had the highest dollar volume of SNAP sales of all the comparable stores. (Id. ¶ 18.)

         Following the ALERT notification, the store visit, the EBT analysis, and the store comparison, the FNS issued a charge letter to Tony's Pantry on September 2, 2014. (Id. ¶ 19.) The charge letter identified the three patterns indicative of trafficking - discussed above - and attached the lists of the transactions that FNS relied upon in making its determination. (Id. ¶ 20.) The letter further advised Tony's Pantry that the sanction for trafficking was permanent disqualification and gave the store ten days to respond to the charge letter before the FNS issued a determination. (Id. ¶ 21.) The September 2014 letter also notified Tony's Pantry that it could request the imposition of a civil money penalty in lieu of the sanction of permanent disqualification, but to do so, Tony's Pantry had to satisfy the four criteria set forth in 7 C.F.R. § 278.6(i). (Id.)

         On September 11, 2014, the FNS received a written response from the store's attorney asserting that the store had not engaged in any trafficking. (Id. ¶¶ 22, 23.) The response did not include supporting documentation that would have indicated that the transactions identified by the FNS were legitimate SNAP purchases, such as invoices, receipts, photographs, advertisements, flyers, or affidavits. (Id. ¶ 23.) Rather, the response sought to explain the transactions by stating - without any documentary evidence - that the store offered specials on sandwiches, cereals, and milk at whole dollar amounts, and similarly priced baby formula, eggs, and cheese at whole dollar amounts. (Id. ¶ 24.) In regard to the multiple transactions made from the accounts of a single SNAP household within a 24-hour period, the store's response stated that EBT cards remain in the possession of each household and the store had no authority to limit the number of purchases made by a household. (Id. ¶ 25.)

         The FNS then analyzed the response in a Case Sanction Recommendation dated October 1, 2014, and concluded that the sanction of permanent disqualification was appropriate in light of the EBT transaction data and Tony's Pantry's failure to provide any documentation explaining the transactions identified in the charge letter. (Id. ¶ 27.) Shortly thereafter, the FNS issued a final determination letter to Tony's Pantry on October 2, 2014 permanently disqualifying the store from SNAP. (Id. ΒΆ 28.) The October 2014 letter notified the store that the disqualification ...


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