In a highly unusual decision, a Federal District Court judge in Maryland granted summary judgment in a food stamp licensing appeal brought by a Baltimore convenience store without permitting the retailer to conduct any discovery whatsoever. In Negash v. United States, U.S. District Court Judge Richard Bennett dismissed the retailer’s appeal of a Final Agency Decision of the Food and Nutrition Service (“FNS”) permanently disqualifying Sunoco Food Mart from participation in the Supplemental Nutrition Assistance Program (“SNAP”). Under the Food and Nutrition Act of 2008, retail food stores determined by FNS to have engaged in trafficking of SNAP benefits have the right to seek judicial review of the agency’s final administrative decision. 7 U.S.C. §2023(a)(15).
This statute mandates that judicial review of a FNS decision to disqualify a retailer from SNAP shall be conducted de novo. Id. De novo review requires district courts to examine the entire range of issues raised, not merely to determine whether the agency’s decision is supported by the administrative record. Modica v. United States, 518 F.2d 374, 376 (5th Cir. 1975). District courts are required to make their own factual and legal conclusions, and are not limited to matters considered in the administrative proceedings. Id.; see also Bush v. United States, 473 F. Supp. 715, 717 (E.D. Pa. 1979). In layman’s terms, de novo review means that the judge is not bound by prior agency decision or the administrative record and must conduct its own analysis after permitting the retailer to engage in discovery and present evidence.
Most federal courts decline to grant motions to dismiss filed by the Department of Justice during SNAP judicial review proceedings as long as the complaints are filed in a timely manner and allege that administrative remedies have been exhausted. In Negash, Judge Bennett surprisingly treated the federal government’s motion to dismiss as one for summary judgment. While federal district court judges have discretion to convert dismissal motions to summary judgment ones, this appears to be the first time that a federal court has done so in a SNAP judicial review proceeding shortly after the case was filed. Summary judgment motions are typically not filed until after the parties have exchanged written discovery and taken depositions. Here, the parties engaged in no discovery whatsoever before the court ruled on the federal government’s motion.
In granting summary judgment to the federal government, Judge Bennett concluded that the store owner “failed to offer any credible argument” that the store did not engage in trafficking. The court noted that FNS’s transaction report indicated the store had engaged in three kinds of “suspicious transactions,” conducted an “on-site investigation,” and compared the store’s transactions with those of other similar-sized SNAP authorized stores in the area, which revealed “inconsistent redemption data.”
The District Court’s decision is troubling for multiple reasons. First, Judge Bennett misconstrued what Congress intended de novo review to mean in SNAP trafficking cases. Without question, de novo review is intended to provide retailers with a full and fair opportunity to disprove FNS’s determinations. That clearly did not happen in this case.
Second, the court appears to have placed undue emphasis upon FNS’s administrative determinations. Judge Bennett did so without providing Sunoco Food Mart with the opportunity to conduct any discovery or obtain the complete administrative record. Perhaps the District Court’s decision was based on the belief that FNS administrative proceedings provide retailers with a level playing field consistent with constitutional due process principles. Without question, they do not. For example, FNS refuses to provide retailers with a copy of the complete administrative record, no discovery is permitted, and there is no evidentiary hearing during administrative trafficking proceedings. Retailers also cannot cross-examine the FNS officials who issued the charge letter or question the FNS contractor who conducted the brief store visit.
Third, FNS also requires stores charged with trafficking and other program violations to submit FOIA requests to obtain any records in the government’s possession. Typically, FNS produces few records in response to FOIA requests and asserts various exemptions. While submission of FOIA Appeals frequently succeed and result in the agency producing additional records, doing so usually takes a year or more in light of an immense backlog – more than 500 and growing – at FNS.
Fourth, FNS’s administrative system in SNAP trafficking cases lacks a proper foundation. The vast majority of trafficking cases brought by FNS are not based on an undercover investigation that results in a clerk exchanging cash for a larger amount of EBT. Rather, more than 80% of FNS’s SNAP trafficking cases are based on transactions flagged by FNS’s ALERT system, which looks for patterns of suspicious transactions. However, no one at FNS knows where these patterns originated; a senior FNS official with responsibility for the ALERT system, who has been involved with the program for nearly two decades, recently testified that he neither knew nor did he know of anyone at FNS who might. As a result, FNS has been disqualifying SNAP retailers for more than 20 years based on patterns of “suspicious transactions” without knowing why those patterns exist or why they are suspicious.
Fifth, FNS’s “on-site investigation” is typically a one-time store visit by an FNS contractor lasting under 30 minutes. Reliance upon a summary report by a governmental contractor, which often contains errors and omissions and without affording the retailer the opportunity to depose that person, is clear error.
Sixth, no FNS Section Chief, Program Specialist, Administrative Review Officer, or any other FNS employee or official ever visits a store, speaks to its owners, clerks, or customers. In a recent case involving a New Orleans retailer represented by OFW Law, FNS’s administrative review officer refused to visit the store and interview its owners and customers – even after the store’s owner offered to pay for the government’s travel costs.
Not surprisingly, FNS disqualifies virtually all of the retailers it charges with trafficking. In certain parts of the country, the statistics are even worse: between 2005 and 2017, one FNS Section Chief with responsibility for EBT trafficking cases in the six New England states, New Jersey, Maryland, and the District of Columbia testified under oath during November 2017 that she and her team permanently disqualified all but one of the more than 3000 stores she charged with trafficking during that 12 year period, based on patterns of suspicious food stamp transactions. And the one retailer she didn’t permanently disqualify received a $59,000 civil monetary penalty in lieu of permanent disqualification for trafficking (“CMP”); to be eligible for a CMP, FNS needs to first conclude the store engaged in trafficking. As a result, each and every retailer in the northeast (outside of New York and Pennsylvania) charged with trafficking based on FNS’s ALERT system were permanently disqualified for more than a decade. This makes having a fair judicial review process even more important, as that is the only neutral forum that retailers have to prove that FNS’s ALERT system flagged their transactions inappropriately.
Without question, FNS’s administrative system in SNAP trafficking cases is not consistent with constitutional due process requirements. While FNS’s administrative review system exists in its regulations, any system that disqualifies nearly every store it charges with trafficking, especially when the government is relying almost entirely upon circumstantial evidence, is unconstitutional. While no court appears to have addressed that narrow issue based upon those facts, another Maryland Federal Judge will soon have the opportunity to do so in the context of another SNAP trafficking case involving a Baltimore county retailer represented by OFW Law.
Not surprisingly, Sunoco Food Mart has sought reconsideration of Judge Bennett’s decision. If that motion is denied, it will need to be appealed to the U.S. Court of Appeals for the 4th Circuit. An adverse decision on appeal will not bode well for SNAP retailers who have been permanently disqualified by FNS for trafficking. In that event, the federal courts – the only forum in which they can obtain the administrative record and other records from FNS, and depose government officials about their decisions and actions – will become a far less hospitable forum. That would be inconsistent with Congressional intent when it delegated authority to USDA to administer the food stamp program.
Congress should step in and amend the Food and Nutrition Act to make the system fairer to SNAP retailers. The statute should be amended in multiple ways, including requiring FNS to conduct a more thorough store investigation, create clear standards governing their decision-making process, and permit retailers to present witnesses and evidence before an independent administrative law judge. Whether Congress will do so in the context of the 2018 Farm Bill or appropriations legislation remains to be seen.