Play It Again SAM: Federal Judge Orders FNS to Remove Owner of Disqualified SNAP Retailer from SAM List

Owners of supermarkets and convenience stores are generally not aware that one of the perils of participating in the SNAP program may be placement on the General Services Administration’s System for Award Management list of excluded and disqualified parties (“SAM List”).  That’s true because few retailers have heard of the SAM List and because USDA’s Food and Nutrition Service (FNS) never informs SNAP retailers – at any time – that they might be listed if they violate FNS’s SNAP regulations.  FNS also never lets retailers know that the names of their owners will be listed on the SAM List, even after a store is permanently disqualified for trafficking in SNAP benefits. 

What’s the SAM List?

The SAM List is the comprehensive database of persons excluded from doing business with the entire executive branch of the federal government.  The SAM List applies to procurement and non-procurement programs.  Parties who have been debarred, suspended, or disqualified by a federal agency may be placed on the SAM List.  

Debarment is the most serious offense; that’s most frequently triggered by criminal convictions for committing fraud, embezzlement, forgery, bribery, and/or violation of federal criminal laws.  Debarment is intended to prohibit the person from conducting business with any federal agency, whether as a prime contractor or as a subcontractor.  Suspension is a temporary measure typically lasting not more than one year and is usually used by agencies during investigations or legal proceedings.

Disqualification, on the other hand, is generally limited to a prohibition on participating in a specific federal program by a single agency.  It is not intended to apply to other agencies or programs and is not supposed to prevent persons from entering into contracts with federal agencies other than with the one that imposed the disqualification.

FNS Places Owners of Disqualified SNAP Retailers on the SAM List Without Notice

During 2017, FNS started listing owners of retail food stores permanently disqualified from SNAP on the SAM List.  To date, FNS has listed more than 10,000 people on the SAM List.  FNS did so without providing notice that this might occur.  Review of FNS’s SNAP retailer application does not mention the SAM List.  Neither does FNS’s retailer training guide or video. 

When FNS charges SNAP retailers with trafficking in SNAP benefits, it does so in writing.  But the Charge Letter fails to mention that placement on the SAM List is a possible sanction.  When FNS permanently disqualifies a store, it always sends a letter to the owner that notifies them that their store is no longer authorized to participate in the food stamp program.  But FNS’s disqualification letter fails to mention that the owner’s name will soon be placed on the SAM List unless the judicial review of its administrative decision is sought.  Finally, FNS does not let retailers know that their names have been placed on the SAM List when or after they do so.

FNS, the SAM List, and the Law of Unintended Consequences

We can hope that FNS’s policy of listing of owners of disqualified SNAP retailers on the SAM List was not done with an intent to harm.  But there is no doubt that widespread harm has resulted from FNS’s misguided policy.  An excellent example of how FNS’s action has caused unintended consequences was a lawsuit recently filed by OFW Law in Federal Court in South Carolina.  Patel v. United States concerned an action brought by a pharmacist who worked in a chain drug store in South Carolina.  Mr. Patel’s employment terminated because he was placed on the SAM List by FNS.  Patel ended up on the SAM List following the permanent disqualification of a convenience store he never worked at or managed, and which was located more than 800 miles away in Kalamazoo, Michigan.  Mr. Patel’s employment was terminated due to his placement by FNS on the SAM List, because drug stores and pharmacies may be subjected to fines, penalties, and private lawsuits for employing pharmacists on the SAM List if payment is sought from Medicare, Medicaid, or other federal healthcare programs.  FNS, of course, failed to notify Patel that it had placed him on the SAM List and did not provide him with notice or an opportunity to be heard as required by the Fifth Amendment to the United States Constitution.

Patel’s informal efforts to convince FNS to remove him from the SAM List were unsuccessful.  FNS also denied a petition filed with FNS Administrator Brandon Lipps seeking the same relief.  On January 8, 2019, OFW Law Principal Stewart Fried filed an action in the U.S. District Court for the District of South Carolina against the federal government and FNS.  The complaint, which requested preliminary and permanent relief, alleged violations of the Due Process Clause and that FNS did not have authority to list Patel on the SAM List under its enabling statute and USDA regulations. 

After OFW filed a motion for preliminary injunction on Mr. Patel’s behalf, U.S. District Court Judge Bryan Harwell scheduled a hearing for January 22, 2019.  Two business days before the hearing, the federal government filed a motion seeking a stay of proceedings due to the partial federal shutdown affecting the Department of Justice and FNS.  On January 18, 2019, Judge Harwell denied the government’s motion to stay proceedings and re-affirmed his prior order scheduling the preliminary injunction hearing.  Later that day, the federal government and FNS agreed to entry of the preliminary injunction requested by Mr. Patel.  That Order enjoined FNS from listing Mr. Patel on the SAM List during the pendency of the litigation and ordered the agency to remove his name therefrom as soon as possible.

Whether Mr. Patel gets his job back remains to be seen.  It is also unclear whether FNS will litigate or settle the case after the shutdown ends.  But the real question is whether FNS will start notifying SNAP retailers, including those charged with trafficking and other program violations, that the agency will place their name on the SAM List if it determines that regulatory violations have taken place. 

The reason why FNS places owners of disqualified SNAP retailers on the SAM List in the first place is a mystery.  Clearly, no need to do so exists since disqualification.  Unlike debarment or suspension, disqualification under USDA’s suspension and debarment regulations is intended, by its express terms, to cause adverse impacts only with respect to the person’s ability to contract with FNS, not any other federal agency.  Perhaps the agency is trying to send a message to Congress and others that will play hardball with SNAP retailers who are administratively determined to have engaged in trafficking of SNAP electronic benefits transfer (EBT) funds.  Or it may not have foreseen the adverse impacts of its actions.  Given the current administration’s anti-SNAP leanings, the former is likely. 

This is hardly the first time that FNS has faced legal complaints and administrative petitions relating to its placement of the names of innocent and uninvolved persons on the SAM List.  A prior OFW blog discussed this precise issue and the adverse impacts of being placed on the SAM List.  Hopefully, FNS will see the handwriting on the wall and either cease placing owners of disqualified retailers on the SAM List without providing them with notice and an opportunity for a meaningful hearing. 

FNS should also issue regulations – none currently exist – providing for evidentiary hearings before a neutral administrative law judge and permit retailers improperly listed on the SAM List to recover damages and attorneys’ fees and costs if it is later determined that the listing was without a proper basis.  Unfortunately for Mr. Patel, recovery of his lost wages does not appear to be an option since he cannot sue the federal government – a sovereign entity generally immune from suit.  This issue, along with FNS’s SNAP retailer regulations, are issues that the U.S. House of Representatives Agriculture Committee should address during the 116th Congress.

OFW Principal Stewart Fried represents the interests of retailers, large and small, and retailer associations on SNAP and WIC-related issues before the Food and Nutrition Service, federal courts, and Congress.

Categories: Litigation, USDA

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