The Food and Nutrition Service (FNS) is an agency of the U.S. Department of Agriculture (USDA). Not surprisingly, that means that FNS is required to follow regulations and guidance issued by USDA. This fundamental concept appears to have been forgotten at FNS, at least in the context of the agency’s decision to list the names of thousands of owners of disqualified SNAP retailers on the General Services Administration’s System for Award Management’s Excluded Parties List (SAM List). Frequently referred to as the SAM List, this database is typically used to list individuals who have been debarred or suspended from doing business with the federal government often following felony convictions involving the Medicare and Medicaid programs. Those convicted felons are not surprised to be listed on the SAM List given that federal agencies, including USDA, provide them with written notice and an opportunity for a hearing before debarring individuals.
During 2012, FNS started listing owners of disqualified SNAP retailers on the SAM List. For unknown reasons, FNS decided not to debar or suspend disqualified SNAP retailers, even those who have been convicted of defrauding the federal government of millions of dollars. Instead, FNS began listing the names of disqualified owners of SNAP retailers on the SAM List without providing them with notice or an opportunity for a hearing. While many owners of disqualified retailers are not adversely affected by FNS’s actions, those who work in the health care area face the loss of their employment as a result of having their names listed on the SAM List.
During the past two years, OFW Law has represented numerous individuals placed on the SAM List by FNS without notice. None of these individuals worked in or managed a SNAP-authorized retail food store. None were ever notified by FNS – at any time – that they might be placed on the SAM List, including during the application process, when the store was charged with program violations, following the disqualification of the store, or when the agency issued a Final Agency Decision. And FNS’s regulations do not mention listing SNAP retailers on the SAM List.
The SAM List is important to employers who receive federal health care funds because other federal agencies, including HHS and CMS, may seek to recoup funds paid to entities that employ individuals on a federal exclusion list, including the SAM List. Not surprisingly, those employers will not employ persons whose names are on an exclusion list. As a result, FNS’s actions have adversely affected many individuals, including doctors, nurses, pharmacists, and even lawyers who work for entities that receive federal health care funds. FNS’s listing of owner’s names on the SAM List has also affected Uber drivers; for unclear reasons, the ride sharing company has started terminating drivers whose names have been placed thereon.
FNS appears to have recognized that it isn’t on solid legal footing, at least in part. During January 2018, FNS revised its retailer training guide to include language that provides that the names of owners of disqualified SNAP retailers might be listed on the SAM List. Unfortunately, FNS did not let retailers know it made this change, despite the ability to do so via e-mail and other means. More recently, FNS changed its retailer application to add language about the SAM List. But FNS’s changes to its training guide and SNAP application ignore that the agency does not have authority to list owners of disqualified SNAP retailers on the SAM List.
OFW Law has filed several petitions with FNS’s Administrator, Brandon Lipps, seeking the removal of the names of owners of SNAP retailers from the SAM List. While FNS granted some of those petitions, the agency has often refused to budge. As a result, OFW Law has had no choice but to file lawsuits in two federal courts to compel FNS to remove owners’ names from the SAM List. In both cases, the District Court ordered FNS to remove the owner’s name from the SAM List on an interim basis. While the federal government agreed to remove the store owner’s name in a case filed in federal court in South Carolina, it refused to do so in a California case. Fortunately for the store owner, on June 27, 2019, U.S. District Court Judge Kimberly J. Mueller of the U.S. District Court for the Eastern District of California granted OFW Law’s motion seeking a preliminary injunction and ordered FNS to remove the plaintiff’s name from the SAM List. FNS promptly complied with the Court’s Order and the plaintiff did not lose his job.
Judge Mueller concluded that FNS’s listing of the Plaintiff’s name on the SAM List exceeded its authority because USDA’s regulations and guidance prohibited FNS (and other USDA agencies) from listing the names of owners of disqualified SNAP retailers on the SAM List. Of note, the Court rejected FNS’s policy arguments, including that listing names on the SAM List acts as a fraud deterrent. And while preventing SNAP fraud is an admirable goal, FNS’s actions are yet another example of an overzealous agency that frequently tramples on the rights of small retailers. The Court’s common-sense opinion stands for the proposition that FNS and other federal agencies must follow regulations and guidance issued by superior federal departments.
It is unfortunate that FNS appears to be more concerned with keeping its administrative disqualification statistics high, rather than making a good faith effort to determine whether fraud is actually taking place. For example, rather than seeking to debar the worst offenders – which it never does, FNS instead uses an overbroad net when charging small SNAP retailers with trafficking and other program violations. As a result, FNS disqualifies innocent retailers on a routine basis. This is not subject to reasonable dispute given that one FNS section chief has testified under oath that for, more than a decade, FNS has permanently disqualified 99.9% of all retailers in New England and the mid-Atlantic charged with trafficking based on FNS’s ALERT system – a program that is based almost entirely on circumstantial evidence of what the agency believes to be “patterns of suspicious transactions.” What is highly suspicious is FNS’s near-universal disqualification rate in ALERT system cases.
Hopefully, Judge Mueller’s opinion will send a message to FNS that it needs to immediately stop listing owners of SNAP retailers on the SAM List. Whether FNS will do so or whether other federal lawsuits, including a class action, will need to be filed in order to compel the agency to start following USDA’s regulations and guidance remains to be seen. But there is no dispute that one federal court judge has clearly concluded that FNS exceeded its authority when it listed the name of the owner of a disqualified SNAP retailer on the SAM List.
OFW Principal Stewart Fried represents SNAP retailers and associations in matters relating to the SNAP and WIC programs, including before FNS and the federal courts.