Arias et al v. United States of America et al

Filing 21

OPINION AND ORDER re: 13 MOTION for Summary Judgment filed by Tom Vilsack, United States of America. Accordingly, for all the foregoing reasons, defendants' motion for summary judgment is granted, and plaintiffs' claims are dismissed in their entirety. (Signed by Magistrate Judge Henry B. Pitman on 9/29/2014) Copies Mailed By Chambers. (mro)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------X
JUAN E. BURGOS ARIAS and TOWNSEND :
DELI GROCERY CORP.,
:
Plaintiffs,
:
-against:
THE UNITED STATES OF AMERICA and
TOM VILSACK, Secretary of
:
Agriculture,
:
Defendants.
:
-----------------------------------X

13 Civ. 8542(HBP)
OPINION
AND ORDER

PITMAN, United States Magistrate Judge:

I.

Introduction

Juan E. Burgos Arias and Townsend Deli Grocery Corporation ("Townsend Deli") commenced this action, pursuant to 7
U.S.C. § 2023(a)(13)-(15) and 7 C.F.R. § 279.7, challenging
Townsend Deli's permanent disqualification from the Supplemental
Nutrition Assistance Program ("SNAP") by the Food and Nutrition
Service (the "FNS"), a component of the United States Department
of Agriculture (the "USDA").

FNS disqualified Townsend Deli

after it concluded that Townsend Deli had engaged in the trafficking of SNAP benefits as defined by 7 C.F.R. § 271.2.

Among

other things, trafficking includes the exchange of SNAP benefits
for cash.

Plaintiffs claim (1) that they did not know of nor

engage in trafficking of SNAP benefits and (2) that FNS's refusal
to impose a civil monetary penalty in lieu of permanent disqualification was an abuse of agency discretion.
All parties have consented to my exercising plenary
jurisdiction in this matter pursuant to 18 U.S.C. § 636(c).
By notice of motion, dated April 17, 2014 (Docket Item
13), defendants move for summary judgment dismissing the complaint.

For the reasons set forth below, defendants' motion is

granted in all respects.

II.

Facts

Juan E. Burgos Arias is the president and sole officer
of the plaintiff corporation, Townsend Deli (Complaint, dated
Nov. 29, 2013, (Docket Item 1) ("Compl.") at ¶ 7).

Townsend Deli

operates a small grocery store in the Bronx, which opened on
January 26, 2010 and obtained SNAP authorization from FNS on
March 3, 2010 (Administrative Appeal Record, dated Apr. 17, 2014,
("A.R.") at 1, 4, annexed as Appendices 1-9 to Notice of Certified Administrative Record (Docket Item 16); Cmpl. at ¶ 8).

2

A.

FNS and SNAP Benefits-Trafficking Investigations

Governed by the Food Stamp Act ("FSA"), "SNAP, previously known as the Food Stamp Program, is a federal benefits
program that enables qualified households or 'beneficiaries' to
purchase food items at participating stores (known as
'firms'[)]."

Makey Deli Grocery Inc. v. United States, 873 F.

Supp. 2d 516, 517 (S.D.N.Y. 2012) (Cott, D.J.).
§§ 2011, 2013(a); 7 C.F.R. § 278.1.

See 7 U.S.C.

FNS, as part of the USDA,

administers SNAP through which qualifying households receive
benefits via electronic benefit transfer ("EBT") cards, similar
to debit cards (Declaration of Denise Thomas in Support of the
Motion for Summary Judgment, dated Apr. 17, 2014, (Docket Item
17) ("Thomas Decl.") at ¶ 3).

See 7 U.S.C. §§ 2013(a), 2016.

Each month the card is credited with food stamp benefits that can
then be used at authorized firms (Thomas Decl. at ¶ 3).

The firm

swipes the card and the SNAP beneficiary enters a personal identification number ("PIN") (Thomas Decl. at ¶ 3).

The amount of

each purchase is deducted from the SNAP account and is electronically credited to the firm's bank account (Thomas Decl. at ¶ 3).
FNS maintains a record of the EBT transactions, and a
computerized system reviews each transaction to identify patterns
that suggest potential SNAP benefits trafficking (Thomas Decl. at
3

¶¶ 3, 6).

Once identified, the suspect transactions are referred

to a Program Specialist in the Investigative Analysis Branch
("IAB") of the FNS Retailer Operations Division (Thomas Decl. at
¶¶ 7-8).

The Program Specialist analyzes the firm's suspect

transactions by comparing them to the transactions of at least
one comparable store within the vicinity of the firm and makes a
recommendation to the FNS Section Chief as to whether the firm
has engaged in trafficking (Thomas Decl. at ¶¶ 8-9, 11).

If the

Section Chief agrees with a Program Specialist's determination
that trafficking has or is occurring, FNS issues a letter to the
firm charging it with trafficking (the "charge letter") (Thomas
Decl. at ¶ 16).

See 7 C.F.R. § 278.6(b).

The firm may respond to the charges and request consideration of a civil monetary penalty ("CMP") in lieu of disqualification.

See 7 C.F.R. § 278.6(b), (i) (process and criteria for

imposition of a monetary penalty).

FNS can permanently disqual-

ify a store for a single trafficking violation.
7 C.F.R. § 278.6(e)(1).
issues the determination.

The FNS IAB reviews the documents and
7 C.F.R. § 278.6(c).

tion is final unless the firm requests review.
§ 278.6(n).

7 U.S.C. § 2021;

That determina7 C.F.R.

An administrative review is conducted pursuant to 7

C.F.R. § 279.1, and the firm may provide further information to
support its position pursuant to 7 C.F.R. § 279.4(b).
4

The firm

may then seek judicial review of the final agency decision pursuant to 7 C.F.R. § 279.7.

B.

Investigation
of Plaintiffs

After FNS's computer system identified a significant
number of Townsend Deli's transactions that occurred between
December 2012 and February 2013 as suspicious, it referred the
matter to Program Specialist Minetya A. Juarbe for investigation
(A.R. at 45, 229-30).

On February 21, 2013, Townsend Deli was

visited by an independent contractor retained by FNS who investigated the store and submitted a report to FNS (A.R. at 11-44, 4647).

FNS compared Townsend Deli's EBT transactions from the

review period to those of two other small grocery stores located
within a half-mile of Townsend Deli (A.R. at 48, 53-54; Thomas
Decl. at ¶¶ 14-15).

Based on the foregoing, Juarbe recommended

to FNS Section Chief Denise Thomas that FNS charge Townsend Deli
with trafficking (A.R. at 59).

C.

FNS Charge Letter to
Plaintiffs (April 30, 2013)

On April 30, 2013, Thomas sent a charge letter to
Townsend Deli alleging that plaintiffs engaged in trafficking in

5

violation of 7 C.F.R. § 271.2,1 exchanging SNAP benefits "for cash
or consideration other than eligible food" (Cmpl. at ¶ 9; Letter
of Denise Thomas to Luis M. Acosta & Juan E. Burgos Arias, dated
Apr. 30, 2013 ("USDA April 30, 2013 Letter"), annexed as Exhibit
A to Cmpl.).

She wrote that "[a]nalysis of [Townsend Deli's]

records reveal [EBT] transactions that establish clear and repetitive patterns of unusual, irregular, and inexplicable activity
for" a firm of Townsend Deli's size (USDA April 30, 2013 Letter).
She informed plaintiffs that, under 7 C.F.R. § 278.6(e)(1), the
sanction for trafficking is permanent disqualification (USDA
April 30, 2013 Letter).
FNS identified four categories of SNAP EBT patterns or
irregularities as evidence of trafficking:

(1) "multiple pur-

chase transactions [that] were made too rapidly to be credible,"
(2) "multiple transactions [that] were made from individual
benefit accounts in unusually short time frames," (3) "a series
of . . . transactions [that exhausted] the majority or all of
individual recipient benefits . . . in unusually short periods of
time" and (4) "excessively large purchase transactions [that]

1

While plaintiffs claim they were charged with trafficking
pursuant to 7 C.F.R. § 278.6(e)(1), it is clear from the USDA
charge letter, dated April 30, 2013, that they were charged with
trafficking pursuant to 7 C.F.R. § 271.2, which warranted a
sanction of permanent disqualification pursuant to 7 C.F.R.
§ 278.6(e)(1).
6

were made from recipient accounts" (USDA April 30, 2013 Letter).
She informed plaintiffs that "FNS may impose a [CMP] of up to
$59,000.00," as calculated under 7 C.F.R. § 278.6(j), "in lieu of
permanent disqualification of [Townsend Deli] for trafficking"
(USDA April 30, 2013 Letter).

However, she also explained that

in order to qualify for the limited sanction of a CMP, plaintiff
had to establish four criteria by adequate documentation within
ten days of plaintiffs' receipt of the letter (USDA April 30,
2013 Letter).

Finally, Thomas also attached lists of the suspi-

cious transactions, broken down into the four categories set
forth above, with some transactions appearing on multiple lists
(A.R. at 63-141; Thomas Decl. at ¶ 17).

The lists contained over

600 transactions totaling more than $90,000 in SNAP benefits
(A.R. at 141).

There is no dispute between the parties that

these transactions actually occurred.
In the four-month period immediately preceding Thomas's
letter, the plaintiffs averaged $37,741.96 per month in SNAP redemptions (A.R. at 279).

Following receipt of the charge letter

on May 3, 2013, the plaintiffs' total redemptions in May 2013
were $10,737.76, a seventy-two percent decline in SNAP redemptions (A.R. at 279).

7

D.

Plaintiffs' Response to the
Charge Letter (May 13, 2013)

By a letter and supporting documents to FNS dated May
13, 2013, plaintiffs denied all allegations and requested a CMP
be considered in lieu of disqualification (A.R. at 145; Cmpl. at
¶ 10).

Plaintiffs also enclosed (1) a letter introducing the

newly hired Townsend Deli manager, Glenny Burgos, (2) a record of
employees' signatures of receipt and acceptance of the Employee
Handbook, (3) a copy of the handbook and (4) employees' signatures acknowledging "Annual Compliance Training" for 2011, 2012
and 2013 (A.R. at 146-73).

The employee handbook did not, how-

ever, mention SNAP benefits or the limited products for which
SNAP benefits could be exchanged (A.R. at 154-73).

E.

Disqualification
Determination (June 4, 2013)

On May 24, 2013, upon reviewing the materials submitted
by plaintiffs, Juarbe recommended that Townsend Deli be permanently disqualified (A.R. at 175-78).

She determined that plain-

tiffs failed to train employees properly regarding SNAP benefits
even though FNS provided plaintiffs with training materials upon
plaintiffs' receipt of their license (A.R. at 176).

Moreover,

although Juarbe recognized that Townsend Deli's hiring of Glenny

8

Burgos as store manager evidenced an intent to correct the situation, it did not mitigate the violations that had already occurred (A.R. at 176).

Further, she noted that in 2012, Townsend

Deli had previously been fined for violations of the Supplemental
Food Program for Women, Infants and Children (WIC) for overcharging and engaging in unauthorized transactions (A.R. at 47).
Finally, she determined that FNS could not consider a CMP because
the plaintiffs failed to provide sufficient evidence of an effective compliance program to prevent future violations of SNAP.
For all these reasons, the plaintiffs did not satisfy the four
CMP criteria set forth in 7 C.F.R. § 278.6(i) (A.R. at 176-77).
By a June 4, 2013 letter, Thomas informed plaintiffs of
FNS's decision to permanently disqualify Townsend Deli from the
SNAP program, notwithstanding plaintiffs' May 13, 2013 submission2
(Cmpl. at ¶ 11; Letter of Denise Thomas to Luis M. Acosta & Juan
E. Burgos Arias, dated June 4, 2013, ("USDA June 4, 2013 Letter"), annexed as Exhibit C to Cmpl.).

She concluded that Town-

send Deli "failed to submit sufficient evidence to demonstrate
that [it] had established and implemented an effective compliance
policy and program to prevent violations of" SNAP (USDA June 4,
2013 Letter).

2

Referred to as "reply of May 14, 2013" in the letter.
9

F.

Administrative Review and Final
Agency Decision (October 28, 2013)

On June 7, 2013, the plaintiffs appealed, seeking an
administrative review, to the Chief of the FNS Administrative
Review Branch (Cmpl. at ¶ 12; Letter of Mark Hidalgo to Chief of
the FNS Administrative Review Branch, dated June 7, 2013, annexed
as Exhibit D to Cmpl.).

Although they had the opportunity to do

so, it does not appear that plaintiffs provided any additional
information to support their position (Letter of Daniel S. Lay to
Mark Hidalgo, dated June 11, 2013, annexed as Exhibit E to
Cmpl.).
On October 28, 2013, the Administrative Review Branch
issued a final decision affirming the permanent disqualification
of Townsend Deli (A.R. at 280).

III.

Analysis

A.

Plaintiffs' Claims
& Defendants' Motion

Plaintiffs have exhausted their administrative remedies
and now seek de novo judicial review of the disqualification
decision (Cmpl. at ¶ 15).

Plaintiffs contend "[t]hat the firm

ownership was not aware of, did not approve, nor did it 'benefit'
from, or was not in any way involved with in the conduct or
10

approval of trafficking violations" (A.R. at 145).

Plaintiffs

deny all allegations of trafficking, arguing that the suspect
transactions were repayments for Townsend Deli's extensions of
credit to SNAP beneficiaries.

Moreover, plaintiffs claim that

FNS abused its discretion in refusing to impose a CMP in lieu of
permanent disqualification.
Defendants move for summary judgment, arguing that, in
light of the evidence presented, a reasonable fact-finder could
only conclude that plaintiffs trafficked SNAP benefits and that
plaintiffs have not met their burden of proving FNS's determination erroneous (Memorandum of Law in Support of the Motion by
Defendants the United States and Tom Vilsack for Summary Judgment, dated Apr. 17, 2014, (Docket Item 14) ("Defs.' Mem.") at 12).

Further, defendants contend that permanent disqualification

was warranted under the regulations, because plaintiffs failed to
satisfy the four necessary criteria that would justify the limited sanction of a CMP and that FNS did not, therefore, abuse its
discretion in imposing the penalty of disqualification (Defs.'
Mem. at 2).

Finally, defendants argue that plaintiffs' claim

against Secretary Vilsack should be dismissed because it is
barred by sovereign immunity (Defs.' Mem. at 7 n.3).
On June 19, 2014, I issued an Order directing plaintiffs to serve and file opposition to the defendants' pending
11

motion for summary judgment no later than July 31, 2014 (Order,
dated June 19, 2014, (Docket Item 19) at 1).

To date, plaintiffs

have not submitted anything in opposition to defendants' motion.

B.

Standards Applicable to a
Motion for Summary Judgment

The standards applicable to a motion for summary judgment are well-settled and require only brief review.
Summary judgment may be granted only where there is no
genuine issue as to any material fact and the moving
party . . . is entitled to a judgment as a matter of
law. Fed.R.Civ.P. 56(c). In ruling on a motion for
summary judgment, a court must resolve all ambiguities
and draw all factual inferences in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). To
grant the motion, the court must determine that there
is no genuine issue of material fact to be tried.
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106
S.Ct. 2548, 91 L.Ed.2d 265 (1986). A genuine factual
issue derives from the "evidence [being] such that a
reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505.
The nonmoving party cannot defeat summary judgment by
"simply show[ing] that there is some metaphysical doubt
as to the material facts," Matsushita Elec. Indus. Co.
v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct.
1348, 89 L.Ed.2d 538 (1986), or by a factual argument
based on "conjecture or surmise," Bryant v. Maffucci,
923 F.2d 979, 982 (2d Cir. 1991). The Supreme Court
teaches that "all that is required [from a nonmoving
party] is that sufficient evidence supporting the
claimed factual dispute be shown to require a jury or
judge to resolve the parties' differing versions of the
truth at trial." First Nat'l Bank of Ariz. v. Cities
Serv. Co., 391 U.S. 253, 288-89, 88 S.Ct. 1575, 20
L.Ed.2d 569 (1968); see also Hunt v. Cromartie, 526
U.S. 541, 552, 119 S.Ct. 1545, 143 L.Ed.2d 731 (1999).
12

It is a settled rule that "[c]redibility assessments,
choices between conflicting versions of the events, and
the weighing of evidence are matters for the jury, not
for the court on a motion for summary judgment."
Fischl v. Armitage, 128 F.3d 50, 55 (2d Cir. 1997).
McClellan v. Smith, 439 F.3d 137, 144 (2d Cir. 2006); accord Hill
v. Curcione, 657 F.3d 116, 124 (2d Cir. 2011); Jeffreys v. City
of New York, 426 F.3d 549, 553-54 (2d Cir. 2005); Powell v. Nat'l
Bd. of Med. Exam'rs, 364 F.3d 79, 84 (2d Cir. 2004).
"Material facts are those which 'might affect the
outcome of the suit under the governing law,' and a dispute is
'genuine' if 'the evidence is such that a reasonable jury could
return a verdict for the nonmoving party.'"

Copolla v. Bear

Stearns & Co., 499 F.3d 144, 148 (2d Cir. 2007), quoting Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); accord McCarthy
v. Dun & Bradstreet Corp., 482 F.3d 184, 202 (2d Cir. 2007).
"'[I]n ruling on a motion for summary judgment, a judge must ask
himself not whether he thinks the evidence unmistakably favors
one side or the other but whether a fair-minded jury could return
a verdict for the [non-movant] on the evidence presented[.]'"
Cine SK8, Inc. v. Town of Henrietta, 507 F.3d 778, 788 (2d Cir.
2007), quoting Readco, Inc. v. Marine Midland Bank, 81 F.3d 295,
298 (2d Cir. 1996).
Local Rule 56.1(a) requires that a party moving for
summary judgment submit a "separate, short and concise statement,
13

in numbered paragraphs, of the material facts as to which the
moving party contends there is no genuine issue to be tried."

A

non-moving party's "failure to comply with Local Rule 56.1 is [a
sufficient ground] for deeming admitted the facts contained in
[the movant's] Rule 56.1 statement" and granting the motion.
Taylor v. Local 32E Serv. Employees Int'l, Union, 286 F. Supp. 2d
246, 248 n.1 (S.D.N.Y. 2003) (Conner, D.J.), aff'd, 118 F. App'x
526 (2d Cir. 2004); Watt v. N.Y. Botanical Garden, 98 Civ. 1095
(BSJ), 2000 WL 193626 at *1 n.1 (S.D.N.Y. Feb. 16, 2000) (Jones,
D.J.).

"A district court[, however,] has broad discretion to

determine whether to overlook a party's failure to comply with
local court rules," and, thus, "may . . . opt to conduct an
assiduous review of the record even" when a party has not complied with Rule 56.1.

Holtz v. Rockefeller & Co., 258 F.3d 62,

73 (2d Cir. 2001) (internal quotation marks omitted).
The Court of Appeals for the Second Circuit has further
explained that
in determining whether the moving party has met [its]
burden of showing the absence of a genuine issue for
trial, the district court may not rely solely on the
statement of undisputed facts contained in the moving
party's Rule 56.1 statement. It must be satisfied that
the citation to evidence in the record supports the
assertion[s].
Vt. Teddy Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 244 (2d
Cir. 2004); see also Giannullo v. City of New York, 322 F.3d 139,
14

140 (2d Cir. 2003); Holtz v. Rockefeller & Co., supra, 258 F.3d
at 74 ("The local rule does not absolve the party seeking summary
judgment of the burden of showing that it is entitled to judgment
as a matter of law, and a Local Rule 56.1 statement is not itself
a vehicle for making factual assertions that are otherwise unsupported in the record.").

Finally, even when a summary judgment

motion is unopposed, I must examine the record to determine
whether a genuine issue of fact exists for trial; a summary
judgment motion cannot be granted on default.

Jackson v. Fed.

Express, No. 12-1475-CV, 2014 WL 4412333 at *6 (2d Cir. Sept. 9,
2014), accord Vt. Teddy Bear Co. v. 1-800 Beargram Co., supra,
373 F.3d at 244.
Given the strong preference in this Circuit for resolving cases on the merits, see, e.g., Jamison v. Fischer, 11 Civ.
4697 (RJS), 2012 WL 4767173 at *6 (S.D.N.Y. Sept. 27, 2012)
(Sullivan, D.J.), I shall overlook plaintiffs' failure to submit
a Rule 56.1 statement and review the record independently.

See

Am. Med. Ass'n v. United HealthCare Corp., 00 Civ. 2800 (LMM),
2007 WL 1771498 at *3 (S.D.N.Y. June 18, 2007) (McKenna, D.J.)
(conducting review of the record "to fill . . . gaps" resulting
from plaintiffs' failure to file a 56.1 counter-statement in
response to defendants' 56.1 statement); Citibank, N.A. v. Outdoor Resorts of Am., Inc., 91 Civ. 1407 (MBM), 1992 WL 162926 at
15

*4 (S.D.N.Y. June 29, 1992) (Mukasey, D.J.) (declining to grant
summary judgment based on nonmoving party's failure to submit a
Rule 56.1 statement).

C.

De Novo
Review Standard

I have reviewed de novo the determination that plaintiffs engaged in benefits trafficking.
§ 2023(a)(15).

See 7 U.S.C.

In conducting a de novo review of the issues

arising from the administrative decision, I have examined the
entire record to determine whether the administrative decision
was supported by the evidence.

7 U.S.C. § 2023(a)(15); Ibrahim

v. United States, 834 F.2d 52, 53-54 (2d Cir. 1987), citing
J.C.B. Super Markets, Inc. v. United States, 57 F.R.D. 500, 50203 (W.D.N.Y. 1972), aff'd, 530 F.2d 1119 (2d Cir. 1976).

Plain-

tiffs, as the parties challenging their permanent disqualification from SNAP, bear the burden of proving by a preponderance of
the evidence that the agency's action was "invalid."

7 U.S.C.

§ 2023(a)(16); see Hernandez v. U.S. Dep't of Agric. Food &
Consumer Serv., 961 F. Supp. 483, 485 (W.D.N.Y. 1997); see also
Fells v. United States, 627 F.3d 1250, 1253 (7th Cir. 2010),
citing Kim v. United States, 121 F.3d 1269, 1272 (9th Cir. 1997);

16

Warren v. United States, 932 F.2d 582, 586 (6th Cir. 1991);
Redmond v. United States, 507 F.2d 1007, 1011-12 (5th Cir. 1975).

D.

Plaintiffs Engaged
in Trafficking

To determine whether a trafficking violation has occurred, FNS may consider "facts established through on-site
investigations, inconsistent redemption data, evidence obtained
through a transcript report under an [EBT] system, or the disqualification of a firm from" WIC, along with other relevant
evidence.

7 C.F.R. § 278.6(a).

Defendants' motion rests largely

on the conclusions of Juarbe and Thomas, their comparison of
plaintiffs' EBT transactions to similar retailers and their
experience as trafficking investigators.

However, their conclu-

sion is also supported by photographs, store observations, reports and sufficient data to demonstrate the implausibility of
the plaintiffs' claims and to support FNS's determination that
Townsend Deli trafficked SNAP benefits.

1.

Transactions "Made Too
Rapidly to Be Credible"

First, FNS identified eighty-seven EBT transactions
totaling $15,215.33 that occurred so rapidly that FNS concluded
they could not be bona fide food purchases (A.R. at 63-72).
17

All

of those transactions occurred between December 2012 and February
2013; an average of twenty-nine such transactions occurred per
month.
For example, on December 9, 2012, Townsend Deli redeemed $67.00 in SNAP benefits thirty-five seconds after a transaction for $3.25 (A.R. at 64).

Similarly, on January 5, 2013, it

redeemed $70.59 in SNAP benefits fifty-eight seconds after a
recorded purchase of $10.83 and then, three minutes and forty
seconds later, it recorded a third transaction for $221.40 (A.R.
at 67-68).

Other examples include forty-two seconds between

redemptions of $15.00 and $199.67 and fifty-two seconds between
redemptions of $1.25 and $199.81 (A.R. at 68, 72).
At the time, Townsend Deli had one cash register or
check-out station and one point-of-sale device for EBT transactions (A.R. at 11).

Townsend Deli did not have optical scanners

for pricing items nor did it provide customers with shopping
baskets or carts (A.R. at 11).
I agree that the lack of optical scanners and the need
to ring up all purchases renders the eighty-seven rapid EBT
transactions implausible.

With only one cash register and one

point-of-sale device, it is not credible, for example, that an
employee could process a $15.00 purchase, then, forty-two seconds
later, manually calculate a purchase totaling $199.67, enter the
18

EBT transaction into the point-of-sale device and have the customer swipe his or her card and enter a PIN.

The speed and size

of the identified transactions strongly suggests that Townsend
Deli was exchanging SNAP benefits for cash.

2.

Multiple Transactions by Individuals
"in Unusually Short Time Frames"

Second, FNS identified one hundred sixteen EBT transactions totaling $11,963.54 where multiple transactions by the same
beneficiary occurred in less than twenty-four hours (A.R. at 7379).
For example, one beneficiary allegedly made three redemptions of $79.99, $240.59 and $40.23, for a total of $360.81, in
just under seven hours (A.R. at 76).

Another beneficiary re-

deemed $149.50 and $109.58 ($259.08 total) in three hours and
thirty-seven minutes, while another beneficiary redeemed $289.69
and $142.50 (totaling $432.19) in five hours and one minute (A.R.
at 74, 75).
Townsend Deli's limited selection of eligible food
items makes it virtually impossible to believe that customers
would return to the store within twenty-four hours to make repeated large transactions.

Townsend Deli offers typical grocery

items, including fruits, vegetables, snack foods, breads, eggs,

19

dairy products and meats, as well as ineligible items, such as
tobacco products, alcohol, cleaning supplies and pet food (A.R.
at 11-13).

Both photographs and inventory lists of eligible food

from Townsend Deli clearly demonstrate that there was nothing
special or unique about Townsend Deli which would cause customers
to repeatedly visit the store within such short periods of time.
It is highly unlikely, for example, that a customer would need to
make repeated purchases of $40.00 to $290.00 in less than seven
hours at the store.

Rather, it seems most likely that Townsend

Deli offered cash, rather than eligible food items, in exchange
for SNAP benefits, and that the redemptions were structured into
multiple transactions in a clumsy effort to avoid detection.

3.

Transactions Which Exhausted
Benefits Within a Short Period of Time

Third, FNS identified one hundred sixty EBT transactions totaling $25,056.14 which exhausted an individual's account
benefits in an unusually short time period (A.R. at 80-94).
Multiple beneficiaries withdrew the precise balance of each of
their accounts, including, for example, one-time redemptions of
$279.99, $270.59, $254.34 and $250.50 (A.R. at 80).

On other

occasions, individual beneficiaries would engage in multiple
same-day transactions to deplete the account balance.

20

For exam-

ple, one beneficiary withdrew $100.99 and $99.10 (totaling
$200.09) in less than four hours, exhausting the benefit account
(A.R. at 82).

Another beneficiary made purchase transactions of

$150.45 and $16.53 (totaling $166.98) within two hours and fortytwo minutes, emptying the account (A.R. at 90).
Data collected and analyzed by the USDA regarding the
rate at which SNAP benefits are redeemed shows that, on average,
all SNAP beneficiary households tend to spend 21.2% of benefits
by the end of the first day of the month, 60.3% of benefits by
the end of the first week and 80.5% of benefits by the end of the
second week of the month (Thomas Decl. Ex. A, at A-31).

Even

after three weeks have expired, households tend to retain at
least nine percent of their benefits (Thomas Decl. Ex. A, at A31).
At Townsend Deli, however, many beneficiaries redeemed
most, if not all, of their benefits within the first week of the
month or in a single day.

Again, there is nothing in the record

explaining why so many Townsend Deli customers would break from
typical spending patterns of SNAP beneficiaries unless they were
being offered something that other SNAP beneficiaries were not,
such as cash.

With Townsend Deli's limited inventory of eligible

food items, it is highly unlikely that a beneficiary would choose
to spend most or all of his or her allotted monthly benefits in a
21

store with limited inventory where, presumably, not all items
that were needed or wanted were available.
The highly atypical manner in which Townsend Deli's
customers purportedly redeemed their benefits is further evidence
of trafficking.

4.

Excessively
Large Transactions

Fourth, FNS identified six hundred sixty-three EBT
transactions totaling $90,805.08 in which individual beneficiaries made "excessively large purchase[s]" (A.R. at 95-141).

For

example, one beneficiary made large purchases during the first
week of each month, redeeming $281.25 in December, $205.14 in
January and $142.12 in February (A.R. at 99).

Another individual

redeemed exactly $79.99 each month (A.R. at 99).

A third benefi-

ciary redeemed $201.53, $280.83, $282.89 and $102.50 (totaling
$867.75) within the first five days of December (A.R. at 105).
Such large transactions are inconsistent with the food
inventory of Townsend Deli.

Townsend Deli does not sell items in

bulk, nor does it sell specialty or higher-priced items; it
offers only staples such as meats, fruits, vegetables and dairy
products (A.R. at 11-13, 53).

Townsend Deli did not maintain

sufficient eligible food items in its inventory to justify the

22

six hundred sixty-three EBT transactions of the magnitude described above.
These transactions are particularly suspect considering
that Townsend Deli does not provide shopping carts or baskets for
customers and, as is clear from the photographs of the premises
in the record, it has limited counter space for customers to
place items for purchase.

To warrant redemptions of $100 or

more, one would expect the store either to cater to customers
purchasing a large volume of items in one visit or to maintain a
stock of bulk, high-priced or specialty items.

Townsend Deli

does neither.
Furthermore, Townsend Deli's transactions, on average,
were much larger than those of two comparator stores identified
by FNS -- Pauriany Deli Grocery #1 and AC1 Supermarket & Deli
Corp.

Townsend Deli's average redemption was $35.93 -- more than

three times that of the comparator stores' averages of $6.57 and
$9.06, respectively, and more than double the $13.51 average
redemption of all small New York grocery stores (A.R. at 54).
Beneficiaries also commonly made large purchases at
Townsend Deli while making more typical-sized purchases at other
supermarkets and super stores which appear to have had larger
inventories and more competitive pricing (A.R. at 55, 58).
example, less than five hours after a beneficiary redeemed
23

For

$282.57 at Townsend Deli, the same beneficiary redeemed $155.46
at BJ’s Wholesale Club 176, a super store (A.R. at 58).

Another

beneficiary redeemed $200.25 at Townsend Deli, only to redeem
$20.01 at a supermarket a little more than three hours later
(A.R. at 56).
In addition to the transactions being unusually large,
defendants note that many of the transactions are similar, using
patterns of repeated digits and suggesting fabrication.

Two

patterns frequently appearing are transactions at or near $200.00
and $280.00 (A.R. at 51-52).

For example, one household redeemed

$199.77, $199.75 and $199.83 on the twelfth of December, January
and February respectively, while on the same dates, another
household redeemed $199.98, $199.79 and $199.81 (A.R. at 109,
129).

One beneficiary redeemed $199.82, $199.89 and $199.82 each

month, and still another redeemed $199.89 and $199.58 in December, $199.85 in January and $199.08 in February (A.R. at 113,
132).

Many other beneficiaries appear to repeat this pattern as

well (see, e.g., A.R. at 114, 123, 138).

FNS identified eighty-

seven transactions which each total approximately $200.00 in
benefits (A.R. 243-44).

In another example, a beneficiary re-

deemed $280.89, $282.89 and $283.89 near the middle of December,
January and February, while another beneficiary redeemed $280.89,
$280.29 and $280.49 in December, January and February as well
24

(A.R. at 130, 134).

This pattern was also repeated by other

beneficiaries (see, e.g., A.R. at 105, 109).
All the foregoing facts are further evidence that
Townsend Deli routinely fabricated transactions as part of an
established routine of exchanging certain amounts of SNAP benefits for set amounts of cash.

5.

Plaintiffs' Explanation
is Insufficient

Plaintiffs have offered two explanations for the charges against them, neither of which give rise to a genuine issue of
material fact.
During the administrative proceedings, plaintiffs
claimed that they were unaware of and did not benefit from any
trafficking in SNAP benefits.

After this action was commenced,

plaintiffs first offered a different defense.

At a pretrial

conference before me on February 14, 2014, plaintiffs through
their attorney, claimed that the transactions that gave rise to
the charges were the product of Townsend Deli's practice of
extending credit to its customers.

According to plaintiffs'

counsel, Townsend Deli's employees allowed SNAP recipients to
purchase items on credit, and Townsend Deli's employees maintained a record of those transactions.

25

According to plaintiffs'

counsel, at the beginning of each month, those beneficiaries who
received extensions of credit would redeem SNAP benefits to pay
down their debt.

Plaintiffs have never submitted anything beyond

their attorney's proffer in support of this argument.
Plaintiffs' "innocent owner" explanation fails as a
matter of law.

It is well-settled that there is no "innocent

owner" defense applicable to any violations of the FSA.

Kassem

v. United States, No. 02-CV-0546E(F), 2003 WL 21382906 at *3
(W.D.N.Y. Apr. 15, 2003), citing J.C.B. Super Markets Inc. v.
United States, supra, 530 F.2d at 1122 ("The abuse of [the Food
Stamp Program] by employees authorized to act by [the firm]
suffices to inculpate the corporation.").

See 7 C.F.R. §

278.6(e)(1)(i) (imposing permanent disqualification if
"[p]ersonnel of the firm have trafficked").

While FNS may con-

sider evidence of an owner's purported lack of knowledge as one
factor in deciding what sanction is appropriate, see 7 U.S.C.
§ 2021(b)(3)(B), it is not a defense to the violations of the FSA
and its regulations.
has so held."

"Every court that has addressed the issue

Kim v. United States, supra, 121 F.3d at 1273

(collecting cases).
Plaintiffs' second argument -- that the suspicious
transactions were the repayment of advances of credit -- fails as
a matter of law for two independent reasons.
26

First, firms are

prohibited by 7 C.F.R. § 278.2(f) from accepting SNAP benefits as
"payment for items sold to a household on credit."

See, e.g.,

Makey Deli Grocery Inc. v. United States, supra, 873 F. Supp. 2d
at 516.

Second, apart from counsel's proffer, there is no evi-

dence whatsoever in the record that supports this contention.
Unsupported statements of counsel are insufficient to generate a
genuine issue of fact.
Since [plaintiff] properly supported its motion,
[defendant] then had the burden of showing that there
was a genuine issue of material fact to preclude summary judgment in favor of [plaintiff]. [Defendant],
however, failed to submit competent evidence to meet
his burden. See Fed.R.Civ.P. 56(e) (adverse party must
respond to summary judgment motion by affidavit or
other appropriate evidence and failure to do so results
in the entry of judgment if it otherwise is appropriate). Accord Celotex Corp. v. Catrett, 477 U.S. 317,
324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986) (Rule
56(e) requires that non-movant with burden of proof on
dispositive issue oppose proper summary judgment motion
with any of the evidentiary materials -- affidavit,
depositions, answers to interrogatories and admissions
-- listed in Rule 56(c)); Boruski v. United States, 803
F.2d 1421, 1428 (7th Cir. 1986) (in submitting unverified memorandum plaintiff failed to meet requirement of
defeating summary judgment with counter-affidavits or
other competent evidentiary material); Brown v.
Chaffee, 612 F.2d 497, 504 (10th Cir. 1979) (once movant established prima facie case for summary judgment,
opponent must show by "affidavits or otherwise" that
there is a genuine issue of fact).
Although [defendant] pointed to certain issues of
fact in his memorandum of law and at oral argument, he
failed to provide evidentiary support for his contentions. See British Airways Bd. v. Boeing Co., 585 F.2d
946, 952 (9th Cir. 1978) (legal memoranda and oral
argument are not evidence and cannot create issues of
27

fact capable of defeating otherwise valid motion for
summary judgment); Smythe v. American Red Cross Blood
Servs., 797 F. Supp. 147, 152 (N.D.N.Y. 1992) (same);
Paulson, Inc. v. Bromar, Inc., 775 F. Supp. 1329, 1332
(D. Haw. 1991) (same). Since [defendant] failed to
offer competent evidence raising a genuine issue of
material fact sufficient to preclude summary judgment,
entry of judgment in favor of [plaintiff] was proper.
Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 526 (2d Cir.
1994); see also Tompkins v. City of New York, 12 Civ. 7771 (VB),
2014 WL 4467814 at *9 (S.D.N.Y. Sept. 10, 2014) (Briccetti, D.J.)
(no issue of fact arose from assertions made solely in defendants' memorandum of law and summary judgment granted); Kingsway
Fin. Servs., Inc. v. Pricewaterhouse-Coopers LLP, 03 Civ. 5560
(RMB)(HBP), 2007 WL 473726 at *6 (S.D.N.Y. Feb. 14, 2007)
(Pitman, M.J.) (collecting cases). Because plaintiffs have offered no evidence to support their loan-repayment claim, counsel's bare assertion is insufficient to give rise to a genuine
issue of fact.

E.

The Permanent
Disqualification of Townsend
Deli Was Not an Abuse of Discretion

1.

Review for
Abuse of Discretion

Pursuant to 7 U.S.C. § 2021(b)(3)(B), FNS has "the
discretion to impose a civil penalty . . . in lieu of disqualifi-

28

cation."

I have reviewed the factual record de novo to determine

whether failure to assert a CMP in lieu of permanent disqualification was an abuse of discretion.

Willy's Grocery v. United

States, 656 F.2d 24, 26 (2d Cir. 1981) (citations omitted)
(courts should determine "whether the Secretary's action was
arbitrary or capricious, i.e., whether it was unwarranted in law
or without justification in fact").

"'Whether the imposition of

a penalty by the FNS [is] arbitrary or capricious is a matter of
law appropriately determined on a motion for summary judgment.'"
Lugo v. United States, 08 Civ. 2960 (RJS), 2009 WL 928136 at *3
(S.D.N.Y. Mar. 30, 2009) (Sullivan, D.J.), quoting Yafaie v.
United States, 94 Civ. 7825 (KMW), 1995 WL 422169 at *1 (S.D.N.Y.
July 18, 1995) (Wood, D.J.).

I conclude there was no abuse of

discretion here.
The "abuse of discretion" or "arbitrary and capricious"
standard requires an agency's decision be given substantial
deference.
1987).

Soler v. G. & U., Inc., 833 F.2d 1104, 1107 (2d Cir.

"An agency's action is arbitrary and capricious if the

agency relies on factors that Congress did not intend it to
consider, fails to consider an important factor, or offers an
explanation for its decision that is contrary to the evidence
before the agency."

Connecticut Dep't of Pub. Util. Control v.

FCC, 78 F.3d 842, 849 (2d Cir. 1996).
29

Under the arbitrary and

capricious standard, a "'court is not empowered to substitute its
judgment for that of the agency.'"

Friends of the Ompompanoosuc

v. Fed. Energy Regulatory Comm'n, 968 F.2d 1549, 1554 (2d Cir.
1992), quoting Citizens to Preserve Overton Park, Inc. v. Volpe,
401 U.S. 402, 416 (1971).

"If the penalty imposed is in accor-

dance with the settled policy of the FNS, it is not arbitrary or
capricious."

Yafaie v. United States, supra, 1995 WL 422169 at

*1, citing Lawrence v. United States, 693 F.2d 274, 277 (2d Cir.
1982); Ai Hoa Supermarket, Inc. v. United States, 657 F. Supp.
1207, 1209 (S.D.N.Y. 1987) (Leisure, D.J.).
As explained below, FNS's decision not to impose a CMP
in lieu of permanent disqualification was not arbitrary and
capricious because the agency's action was well within its regulations.

2.

Permanent Disqualification
Comported with FSA Regulations

The applicable regulations require that, in the absence
of documentary evidence of certain facts, which are discussed in
more detail below, the FNS must permanently disqualify a firm
that has trafficked SNAP benefits.

7 C.F.R. § 278.6(e)(1)(i)

("The FNS regional office shall [d]isqualify a firm permanently
if [p]ersonnel of the firm have trafficked as defined in

30

§ 271.2." (emphasis added)).

In order to avoid disqualification,

a firm that has trafficked in SNAP benefits must submit "substantial evidence" establishing each of four criteria:
Criterion 1. The firm shall have developed an effective
compliance policy as specified in § 278.6(i)(1); and
Criterion 2. The firm shall establish that both its
compliance policy and program were in operation at the
location where the violation(s) occurred prior to the
occurrence of violations cited in the charge letter
sent to the firm; and
Criterion 3. The firm had developed and instituted an
effective personnel training program as specified in §
278.6(i)(2); and
Criterion 4. Firm ownership was not aware of, did not
approve, did not benefit from, or was not in any way
involved in the conduct or approval of trafficking
violations; or it is only the first occasion in which a
member of firm management was aware of, approved, benefited from, or was involved in the conduct of any trafficking violations by the firm. . . .
7 C.F.R. § 278.6(i); see also 7 U.S.C. § 2021(b)(3)(B) (FNS has
"the discretion to impose a civil penalty . . . in lieu of disqualification . . . [if] there is substantial evidence that [the
firm] had an effective policy and program in effect to prevent
violations of the" FSA.).

In order to comply with the "substan-

tial evidence" requirement, a firm must submit documentary evidence sufficient to establish the foregoing elements.
The regulations further set out the supporting
documentation that the FNS requires and will consider.
As to the existence of an effective compliance policy,
"FNS shall consider written and dated statements of
31

firm policy." Id. at § 278.6(i)(1). As to the existence of the policy before the violations occurred,
"policy statements shall be considered only if documentation is supplied which establishes that the policy
statements were provided to the violating employee(s)
prior to the commission of the violation." Id. And as
to the existence of an effective personnel training
program, "A firm which seeks a civil money penalty in
lieu of a permanent disqualification shall document its
training activity by submitting to FNS its dated training curricula and records of dates training sessions
were conducted; a record of dates of employment of firm
personnel; and contemporaneous documentation of the
participation of the violating employee(s) in initial
and any follow-up training held prior to the violation(s)." Id. at § 278.6(i)(2).
21871 Hempstead Food Corp. v. United States, 14 Civ. 0006 (ILG),
2014 WL 4402069 at *3 (E.D.N.Y. Sept. 4, 2014); see also,
Traficanti v. United States, 227 F.3d 170, 175 (4th Cir. 2000)
("Store owners cannot simply attest to having effective antifraud
programs; rather, they must prove it."); De Jung Yun v. United
States, 63 F. Supp. 2d 578, 582-83 (E.D. Pa. 1999) ("While the
statute and the regulations permit a discretionary monetary
penalty in lieu of permanent disqualification, a plaintiff must
satisfy all four criteria to be eligible for consideration.").
The imposition of permanent disqualification here
comported with the applicable regulations because plaintiffs did
traffick in SNAP benefits and failed to establish, by "substantial evidence," the four criteria necessary to make them eligible
for a CMP.

32

First, plaintiffs have failed to offer dated, documentary evidence of a compliance policy.

Although plaintiffs did

submit a copy of Townsend Deli's employee handbook, it does not
mention SNAP benefits, compliance training or compliance policies.

Plaintiffs also failed to submit any other dated training

curricula or other firm policies that "reflect a commitment to
ensure that [Townsend Deli] is operated in a manner consistent
with" the FSA.

7 C.F.R. § 278.6(i)(1).

Plaintiffs did submit three documents, signed by three
employees, entitled "Annual Employee Training of Adherence to
Compliance of Permits and Licenses for the Business," dated
January 7, 2011, January 6, 2012 and January 4, 2013 (A.R. at
148-50).

Each document states "ALL STAFF trained and given

copies of manuals [sic] State Liquor Authority (beer), NYC Consumer Affairs (cigarettes, health, and food), USDA SNAP Program
(food stamps)" (A.R. at 148-50).

These documents neither contain

policy statements nor set forth the requirements of the SNAP
program as set forth in the regulations.

Furthermore, they do

not include the statements required by 7 C.F.R.
§ 278.6(i)(2)(iii).3

Moreover, no evidence was presented to show

3

"Training materials shall clearly state that the following
acts are prohibited and are in violation of the Food Stamp Act
and regulations: the exchange of food coupons, ATP cards or
(continued...)
33

that the three employees whose signatures appear on the documents
were the only employees of Townsend Deli in 2011, 2012 and 2013.
Thus, plaintiffs have failed to establish that all employees were
appropriately trained.
Plaintiffs argue that the May 6, 2013 hiring of Glenny
Burgos as manager of Townsend Deli and his acknowledgment of
having reviewed SNAP guidelines are further evidence of compliance.

However, Burgos was only hired after the trafficking

violations occurred; therefore, his hiring does not demonstrate
the existence of a compliance policy prior to the occurrence of
the violations.
Finally, plaintiffs assert that Burgos Arias's lack of
knowledge of trafficking is a mitigating factor under the fourth
criterion, but they fail to offer any documentation or other
evidence to support this assertion.

Cf. Corder v. United States,

107 F.3d 595, 597 (8th Cir. 1997) (civil monetary penalty imposed
where firm owner submitted statement from employee that he accepted benefits without owner's knowledge or consent and provided

3

(...continued)
other program access devices for cash; and, in exchange for
coupons, the sale of firearms, ammunition, explosives or
controlled substances, as the term is defined in section 802 of
title 21, United States Code." 7 C.F.R. § 278.6(i)(2)(iii).
34

"substantial evidence . . . [of] a comprehensive compliance
policy and employee training program").
Plaintiffs have not produced documentation to FNS or
myself demonstrating that Townsend Deli had a written compliance
policy that was provided to employees prior to the commission of
trafficking violations, nor have they raised a genuine issue of
material fact as to whether they developed and implemented a
compliance training program.

Because plaintiffs have not pro-

vided substantial evidence demonstrating compliance with any of
the four applicable criteria, the FNS acted within the regulations when it permanently disqualified plaintiffs; FNS did not,
therefore, abuse its discretion in asserting a penalty of permanent disqualification rather than a CMP.

F.

Plaintiffs' Claims Against
Secretary Vilsack Are Barred
Under the Doctrine of Sovereign Immunity

The United States, as a sovereign entity, may only be
sued to the extent that it has waived its sovereign immunity.
United States v. Navajo Nation, 537 U.S. 488, 502 (2003); United
States v. Mitchell, 463 U.S. 206, 212 (1983); United States v.
Lee, 106 U.S. 196, 206 (1882).

"It is axiomatic that the United

States may not be sued without its consent and that the existence

35

of consent is a prerequisite for jurisdiction."

United States v.

Mitchell, supra, 463 U.S. at 212.
The United States has not waived the defense of sovereign immunity with respect to claims brought against the USDA,
FNS or its officials under the FSA.

The FSA provides for suits

only "against the United States"; therefore, the only proper
defendant in this case is the United States.

7 U.S.C.

§ 2023(a)(13); 7 C.F.R. § 279.7; see Santana v. U.S. Dep't of
Agric., No. 11-CV-5033 (ENV)(RLM), 2012 WL 2930223 at *2 n.5
(E.D.N.Y. July 18,2012) (dismissing complaint against the USDA
and substituting the United States as defendant); see also Minhas
v. U.S. Dep't of Agric. Food & Nutrition Serv., No. C13-756
(MJP), 2013 WL 5675116 at *1 (W.D. Wash. Oct. 17, 2013); Ruhee
M., Inc. v. United States, Civ. A. No. H-05-1547, 2006 WL 1291356
at *2 (S.D. Tex. May 5, 2006); Calderon v. U.S. Dep't of Agric.,
Food & Nutrition Serv., 756 F. Supp. 181, 183-84 (D.N.J. 1990);
Martin's Food & Liquor, Inc. v. U.S. Dep't of Agric., 702 F.
Supp. 215, 216 (N.D. Ill. 1988) (dismissing suits against USDA
and FNS as improper under the FSA).

The plaintiffs' suit against

Secretary Vilsack must, therefore, be dismissed.

36

IV.

Conclusion

Accordingly, for all the foregoing reasons, defendants'
motion for summary judgment is granted, and plaintiffs' claims
are dismissed in their entirety.
Dated:

New York, New York
September 29, 2014
SO ORDERED

H2in~/~
United States Magistrate Judge
Copies mailed to:
Mark A. Hidalgo, Esq.
233b East 149th Street
Bronx, New York 10451
Caleb M. Deats, Esq.
Assistant United States Attorney
Southern District of New York
Third Floor
86 Chambers Street
New York, New York 10007

37