Mehrab #1 Corp. v. United States of America

Filing 37

MEMORANDUM Opinion and Order Written by the Honorable Gary Feinerman on 11/23/2011.Mailed notice.(jlj)

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
MEHRAB #1 CORP.,
Plaintiff,
vs.
UNITED STATES OF AMERICA,
Defendant.

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10 C 6828
Judge Feinerman

MEMORANDUM OPINION AND ORDER
Plaintiff Mehrab #1 Corp. seeks judicial review under 7 U.S.C. § 2023(a)(13) of a United
States Department of Agriculture (“USDA”) decision disqualifying it for six months from
participation in the Supplemental Nutrition Assistance Program (“SNAP”), formerly known as
the Food Stamp Program. By agreement of the parties, the court stayed the suspension pending
final judgment. The United States has moved for summary judgment. The motion is denied.
The following facts are undisputed. Mehrab, a Chicago grocery store owned and
operated by Ajaz Ali Khan, has been authorized to accept food stamps since 2001. In May and
June of 2008, the USDA’s Food and Nutrition Service (“FNS”) investigated whether Mehrab
was violating SNAP regulations by accepting food stamp benefits for ineligible items. On four
separate occasions during that time frame, an FNS investigator shopping at Mehrab used food
stamps to purchase ineligible items. In July 2008, FNS issued a letter (Doc. 24-2 at 4-23)
charging Mehrab with violating 7 C.F.R. § 278.2(a), which provides that food stamps “may be
accepted by an authorized retail food store ... only in exchange for eligible food.” Mehrab was
invited to reply to the charges either orally or in writing. Doc. 24-2 at 4.

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A month later, Mehrab (represented by Khan’s lawyer and Khan’s son) met with the FNS
at its Chicago Field Office to provide information and documents. In a letter dated September
18, 2008, the Chicago Field Office concluded that Mehrab violated 7 C.F.R. § 278.2(a) and
imposed a six-month disqualification from SNAP. Doc. 24-2 at 43-44. To justify the six-month
disqualification, the letter cited a SNAP regulation providing that “[t]he FNS regional office
shall ... [d]isqualify [a store] for 6 months if it is to be the first sanction for the firm and the
evidence shows that personnel of the firm have committed violations such as but not limited to
the sale of common nonfood items due to carelessness or poor supervision by the firm’s
ownership or management.” 7 C.F.R. § 278.6(e)(5). The letter acknowledged Mehrab’s request
for a civil monetary penalty (“CMP”) in lieu of disqualification pursuant to 7 C.F.R.
§ 278.6(f)(1), which provides that a CMP may be imposed “when the firm subject to a
disqualification is selling a substantial variety of staple food items, and the firm’s
disqualification would cause hardship to food stamp households because there is no other
authorized retail food store in the area selling as large a variety of staple food items at
comparable prices.” But the FNS determined that Mehrab was “not eligible for the CMP
because there are other authorized retail stores in the area selling as large a variety of staple
foods at comparable prices.” Doc. 24-2 at 43.
On September 29, 2008, Mehrab timely filed an administrative appeal with the USDA’s
Administrative Review Branch. Mehrab did not deny that it had violated 7 C.F.R. § 278.2(a) by
accepting food stamp benefits for ineligible items. Instead, Mehrab maintained that because the
six-month disqualification would cause significant hardship for its customers, the USDA should
impose a CMP rather than a disqualification. Id. at 49. In support, Mehrab asserted that it “is
the oldest and most trusted Indian and Pakistani Grocery Store providing Authentic Zabiha-2-

Halal Meat” and “the ONLY store in the Greater Chicago Land Area who can prove to sell only
Zabiha Halal Meat,” and also that Mehrab’s prices are “on average ... 10-15% cheaper than the
competition.” Ibid. (Zabiha Halal meat is the only meat appropriate for consumption under
Islamic law; Halal refers to the type of meat, and Zabiha refers to the method of slaughter. See
Hudson v. Dennehy, 538 F. Supp. 2d 400, 403 n.1 (D. Mass. 2008).) Mehrab also submitted
letters from three of Mehrab’s suppliers attesting to the fact that it sells only Zabiha Halal meat.
Doc. 24-3 at 6-8. In addition, Mehrab submitted a petition with nearly 120 signatures from its
customers stating that Mehrab “is the only trustable authentic Zabiha meat store in the greater
Chicago area” and claiming that they “will be burdened greatly by not being able to purchase at
Mehrab.” Id. at 9-15.
On September 20, 2010, the Administrative Review Branch issued the Final Agency
Decision denying Mehrab’s appeal and affirming the six-month disqualification. Doc. 24-3 at
21-29. The Decision addressed Mehrab’s argument that the USDA should impose a CMP in lieu
of disqualification. The Decision “recognized that some degree of inconvenience to SNAP
households is inherent in the disqualification from SNAP of any participating food store as the
normal shopping pattern of such SNAP households may temporarily be altered during the period
of disqualification.” Id. at 27. The Decision noted, however, “that the SNAP regulations do not
define hardship as inconvenience, or even extreme inconvenience, but rather simply as the lack
of an ‘authorized retail food store in the area selling as large a variety of staple food items at
comparable prices.’” Ibid. (quoting 7 C.F.R. § 278.6(f)(1)). In this regard, the Decision
observed that the Chicago Field Office had determined “that there are a number of retail food
stores within walking distance that are comparable in stock and prices to Mehrab #1 Corp and
that can serve as alternative stores for area SNAP households.” Ibid. The Decision added:
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At least four of the six authorized [SNAP] stores that are comparable to the
subject store have posted advertisements that they sell Zabiha Halal meats.
Although [Khan] has provided documentation that his store sells authentic
Zabiha Halal meats, he has not shown, other than by his narrative assertion,
that any of the other stores in the area do not sell authentic Zabiha Halal
meats, notwithstanding that 120 customers signed a petition that they will
be burdened if the store is disqualified because it is the “only trustable
authentic Zabiha meat store in the greater Chicago area.” That customers of
his store signed the petition does not prove that Mehrab #1 Corp is the
“only trustable authentic Zabiha meat store in the greater Chicago area.”
Other stores in the area may also be trustable Zabiha meat stores to
customers who shop at those other stores. As for [Khan’s] contention that
his prices are 10-15 percent lower than his competitors’ prices, again except
for his narrative assertion, [Khan] has not refuted the finding of the Field
Office that the food prices at other stores are comparable to his.
Id. at 27-28. For these reasons, the Administrative Review Branch found that Mehrab was not
eligible for a CMP and sustained the six-month disqualification. Id. at 28.
The standard of review in a SNAP violation case depends on the nature of the challenge.
The governing statute provides that “[t]he suit in the United States district court … shall be a
trial de novo by the court in which the court shall determine the validity of the questioned
administrative action in issue.” 7 U.S.C. § 2023(a)(15). Consistent with the statutory text, the
Seventh Circuit has held that the district court reviews de novo, “on a fresh record,” the USDA’s
factual findings. Carlson v. United States, 879 F.2d 261, 263 (7th Cir. 1989) (internal quotation
marks omitted). At the same time, the Seventh Circuit held that “a penalty may be set aside only
if arbitrary and capricious.” Ibid. (internal quotation marks omitted); see also Estremera v.
United States, 442 F.3d 580, 585 (7th Cir. 2006) (“the penalty imposed by the FNS for violations
of the Food Stamp Program may be set aside only if it is arbitrary and capricious”) (internal
quotation marks omitted).
Mehrab’s lawsuit challenges only the penalty imposed by the USDA—in particular, the
USDA’s decision to impose a six-month disqualification rather than a CMP. This does not
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mean, however, that the arbitrary and capricious standard governs all aspects of this lawsuit.
The reason is that Mehrab’s challenge to the penalty rests on purely factual grounds: Mehrab
contends that the USDA erred in finding that there were other SNAP retailers in the area that sell
Zabiha Halal products at comparable prices, which was the predicate for its legal conclusion that
Mehrab was ineligible for a CMP. So, although Mehrab challenges only the penalty imposed by
the USDA, it is entitled to a trial de novo review on that factual issue.
This conclusion is supported, in fact compelled, by the Seventh Circuit’s decision in
Estremera v. United States, supra. The plaintiff, Estremera, owned a store that was found by
FNS to have exchanged food stamp benefits for cash and ineligible items. 442 F.3d at 582. The
agency imposed a penalty of permanent disqualification, and notified Estremera that if she sold
her store, she would be subject to a CMP pursuant to 7 C.F.R. § 278.6(f)(2), which provides:
In the event any retail food store or wholesale food concern which has been
disqualified is sold or the ownership thereof is otherwise transferred to a
purchaser or transferee, the person or other legal entity who sells or
otherwise transfers ownership of the retail food store or wholesale food
concern shall be subjected to and liable for a civil money penalty in an
amount to reflect that portion of the disqualification period that has not
expired … . If the retail food store or wholesale food concern has been
permanently disqualified, the civil money penalty shall be double the
penalty for a ten year disqualification period.
Months later, “FNS sent Estremera a letter notifying her that, due to her sale of the store, she was
required to pay $66,000 as a civil monetary penalty for her past violations of Food Stamp
Program regulations.” 442 F.3d at 582. Estremera appealed to the Administrative Review
Branch of the FNS, which affirmed. Id. at 583. Estremera then brought suit in federal district
court, which granted summary judgment to the government. Ibid. On appeal, Estremera argued,
among other things, that the district court should have reviewed de novo the question whether
she sold the store. Id. at 585. The Seventh Circuit agreed with Estremera that de novo review
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was required, but held that the district court had reviewed de novo the agency’s finding that she
had sold the store without giving that finding any deference:
[T]he district court properly reviewed de novo the Agency’s finding that
Estremera sold the store in February 2002. The district court order states
explicitly that “this court must review [the Agency’s findings] de novo.” It
is clear from the order that the district court did so. The order contains a
thorough discussion of the evidence and legal theories offered by both
parties, and contains no indication that the district court gave deference to
the findings of the Agency.
Ibid. Estremera stands for the proposition that a federal court reviews de novo USDA factual
findings even if those findings are pertinent only to the penalty the USDA imposed on a retailer
for violating SNAP regulations.
The same proposition is established in Affum v. United States, 566 F.3d 1150 (D.C. Cir.
2009). The retailer in Affum was found by the USDA to have engaged in “trafficking” food
stamp benefits, which means exchanging such benefits for cash. Id. at 1153. Much like 7 C.F.R.
§ 278.6(f)(1), which is the SNAP penalty provision at issue in this case, the governing provisions
in Affum permit the USDA to impose a CMP in lieu of disqualification if a store produces
“substantial evidence” that it had an “effective policy and program” to prevent trafficking. Id. at
1153 (quoting 7 U.S.C. § 2021(b)(3)(B)). The USDA found that the retailer did not satisfy the
criteria for a CMP and therefore imposed a permanent disqualification. Ibid. The district court
dismissed the retailer’s lawsuit for lack of standing, and the D.C. Circuit reversed, holding that
the retailer had standing. Id. at 1158-59.
The D.C. Circuit then addressed the standard of review that would apply on remand. The
United States contended that the USDA’s “determination whether to impose permanent
disqualification or a civil money penalty is subject to only limited review under the deferential
arbitrary and capricious standard.” Id. at 1160. The D.C. Circuit disagreed. The court observed
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that the “trial de novo” requirement of 7 U.S.C. § 2023(a)(15) “is clearly broader than the review
standard provided for under the Administrative Procedures Act. It requires the district court to
examine the entire range of issues raised, and not merely to determine whether the administrative
findings are supported by substantial evidence.” Ibid. (internal quotation marks omitted). From
this premise, the court held that “when an aggrieved party challenges the [agency’s] failure to
impose a civil money penalty in lieu of disqualification,” the district court must “conduct a trial
de novo as required by § 2023(a)(15) to determine the facts on which the sanction was
predicated.” Id. at 1161. The court concluded that although judicial review of the agency’s
“choice of penalty is subject to the abuse of discretion standard,” the plaintiff “is still entitled to
a trial de novo to create a factual record on the [agency’s] determination not to a impose a civil
money penalty in lieu of disqualification, and judicial review of the Secretary’s choice of penalty
is based on that de novo record.” Ibid.
Mehrab therefore is entitled to a trial de novo on the factual question of whether there are
“other authorized retail food store[s] in the area selling as large a variety of staple food items at
comparable prices.” 7 C.F.R. § 278.6(f)(1). This does not foreclose summary judgment; as the
D.C. Circuit noted, the trial de novo requirement “is compatible with a summary judgment
disposition if there are no material facts in dispute.” Affum, 566 F.3d at 1160 (internal quotation
marks omitted). To obtain summary judgment, however, the United States was required to show
that it is undisputed that other SNAP retailers near Mehrab sell “as large a variety of staple food
items at comparable prices.”
The United States does not even attempt to make that showing. Nowhere does its Local
Rule 56.1 statement contend, based on the evidence of record, that there actually are other SNAP
retailers in the area offering the same variety of staple food items as Mehrab at comparable
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prices. Instead, the United States focuses only on what the USDA found and on what evidence
Mehrab adduced during the administrative process—stating, for example, that the Chicago Field
Office of the FNS “review[ed] all of the available information and the existence of other
authorized retail stores accepting food stamps in the area,” that the Field Office’s letter
“provided that Mehrab was not eligible for a [CMP] under the regulations because there were
other authorized retail stores in the area selling as large a variety of staple foods at comparable
prices,” and that “[a]t no point in the administrative process did Mehrab provide any
documentation that would contradict the Field Office’s conclusion that there were other
authorized retail stores in the area selling as large a variety of staple foods at comparable prices.”
Doc. 24 at ¶¶ 20-21, 23. Although these submissions would have been appropriate if the
USDA’s factual findings were subject to arbitrary and capricious review, they have no weight
where, as here, factual issues are resolved by a trial de novo. See Affum, 566 F.3d at 1160 (“A
trial de novo is a trial which is not limited to the administrative record—the plaintiff may offer
any relevant evidence available to support his case, whether or not it has been previously
submitted to the agency.”) (internal quotation marks omitted).
Given the foregoing, the United States’ summary judgment motion does not even get out
of the gate. There is no need to determine whether the facts in the United States’ Local Rule
56.1 statement are undisputed because those facts, even if indisputably true, would not establish
an entitlement to summary judgment. In any event, the United States would not have obtained
summary judgment even if its Local Rule 56.1 statement had affirmatively contended that there
are other SNAP retailers in the area offering the same variety of staple food items at comparable
prices. The reason is that Mehrab, in opposing summary judgment, submitted an affidavit from
Khan averring that it “is the only seller of 100% Zabiha Halal products for the area, as
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distinguished from other stores in the area which are not 100% Zabiha Halal merchants” and that
suspending Mehrab from the SNAP program “will cause a great hardship to the community that
relies on a 100% seller of Zabiha Halal products, for which there is no substitute in the area.”
Doc. 31-1 at 1. Thus, the record reveals a genuine issue of material fact regarding whether
Mehrab’s disqualification would cause hardship to SNAP households because there is no other
SNAP retailer in the area selling as large a variety of staple food items at comparable prices.
For these reasons, the United States’ summary judgment motion is denied. This case will
proceed to a trial de novo on whether any other SNAP retailer in Mehrab’s vicinity offers an
equivalent variety of Zabiha Halal items at comparable prices. “Because [Mehrab seeks] de
novo review of the decision of the Administrative Review Branch, it [is Mehrab’s] burden to
prove by a preponderance of the evidence that the agency’s determination was invalid.”
Estremera, 442 F.3d at 587. Then, based on the de novo factual record, the court will determine
whether the USDA’s decision to impose a six-month disqualification was arbitrary and
capricious. See id. at 585; Affum, 566 F.3d at 1161 (holding that the district court “may only
overturn the agency’s choice of penalty if, on the de novo factual record, it is determined that the
[agency] abused [its] discretion in declining to impose a civil money penalty in lieu of
disqualification”).

November 23, 2011
United States District Judge

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