The wheels of justice frequently turn with glacial speed in federal court litigation, especially in cases brought against the United States government. A recent Middle District of Florida lawsuit brought by OFW Law on behalf of a central Florida convenience store in a SNAP vendor case is a notable exception. This federal action addressed the store’s appeal of a Food and Nutrition Service (FNS) administrative decision affirming the withdrawal of the store’s authorization to accept food stamp (SNAP) benefits. The case quickly proceeded from filing to settlement, and resulted in the store’s ability to resume accepting SNAP benefits less than a week after the case was instituted.
The convenience store is a Florida corporation that for more than twelve years accepted food stamps without any program violations. During 2013, the store’s sole shareholder, as a result of his advanced age, added a family friend as a corporate officer. This officer played no role in the operation of the store, had no involvement with the food stamp program and, most importantly, had never let its owner know that he had been permanently disqualified from participating in SNAP over a decade earlier for violating program rules.
After the store listed its new corporate officer on its reauthorization application, FNS withdrew its SNAP authorization because it concluded that the store had submitted false information. FNS’s vast computer database revealed that the store’s new corporate officer had previously been permanently disqualified from participation in SNAP. As a result, FNS determined that the store’s “business integrity” was now in question. FNS regulations generally require it to deny or withdraw a store’s authorization when its owners, managers or officers have been found to have previously committed food stamp program violations. See 7 C.F.R. §§278.1(b)(3), 287.1(k). FNS did not call the store’s owner or conduct a thorough investigation; instead, it summarily withdrew its food stamp vendor authorization. FNS’s decision forced the store to immediately stop accepting SNAP benefits as the penalties associated with accepting food stamps without authorization are steep -- $1,000 per violation (i.e. per transaction) plus three times the value of the goods sold. 7 C.F.R. §278.6(m).
After receiving FNS’s letter, the store’s owner spoke to its new corporate officer and, after learning for the first time that he had been permanently disqualified, asked him to resign. The officer promptly did and the store filed amended articles of incorporation with Florida’s corporations department demonstrating that the individual was no longer an officer. The store also sent copies of its filings to FNS. The Administrative Review Branch (ARB) treated the store’s submission as its appeal, but affirmed the FNS regional office’s withdrawal of its SNAP authorization. Despite no evidence that it added its new officer prior to 2013, ARB concluded that the store’s original authorization application (2003) and all subsequently filed reauthorization applications (including its 2008 and 2012 submissions) contained false information.
During January 2014, OFW Law appealed the adverse ARB decision to the United States District Court for the Middle District of Florida. The complaint filed on the convenience store’s behalf alleged that the ARB decision should be reversed because it contained plainly incorrect factual conclusions about the store’s corporate status and that it misapplied the Food and Nutrition Act of 2008 (Act) and FNS’s regulations. The complaint contended that the ARB decision ignored language in the Act and regulations that provide for withdrawal of SNAP authorization only if the submission of false information is made with knowledge. The complaint was also supported by the declaration of the store’s sole shareholder that clearly indicated he had no knowledge of the prior SNAP disqualification of the corporate officer when he submitted the reauthorization form to FNS. After the lawsuit was filed, the U.S. Attorney for the Middle District of Florida appeared to recognize that FNS’s administrative determination was fatally flawed. Rather than attempt to defend the ARB decision (and a motion seeking a preliminary injunction), the federal government quickly agreed to a voluntary settlement which resulted in the restoration of the store’s ability to accept SNAP benefits only four days after the lawsuit was filed. FNS also agreed to never use the store’s short-term listing of its former officer as a basis for any food stamp program authorization decision against it or its owner.
While relatively few food stamp vendor cases are appealed to federal court, several key lessons can be gleaned from this case. First, it is critical for food stamp vendors to act promptly. The time limits for appealing adverse FNS decisions in SNAP cases are very short – 30 days for certain violations and only ten (10) days when parties accused of trafficking or selling ineligible items seek to have a civil monetary penalty imposed in lieu of disqualification. Failing to act quickly enough can have drastic long-term results – had the store not timely appealed the ARB decision, the determination that its authorization was permanently withdrawn would have been final. FNS officials recently confirmed that there is no procedure – absent a Presidential pardon or a private bill – for permanently disqualified stores or individuals to remedy a permanent disqualification from participation in SNAP.
Second, correctly framing the issue on appeal cannot be overstated. While the store’s owner acted prudently by asking for the resignation of the officer and promptly recording that corporate action with the state corporations office, it only submitted limited factual information to FNS. In most cases, arguments discussing the Act and FNS’s regulations are typically required for ARB to consider reversing a decision of a FNS regional office.
Finally, FNS shows no sign of easing up on its recent vigorous enforcement of the food stamp program regulations, especially against small vendors it believes are committing trafficking violations. FNS’s renewed enforcement focus and the SNAP vendor-related requirements contained in the Nutrition Title of the recently passed 2014 Farm Bill are strong indications that rigorous adherence to SNAP regulations is a must for convenience stores and other mom-and-pop retail stores.