Mt. Vernon Food & Deli, Inc. v. United States of America et al

Filing 11

OPINION AND ORDER denying 3 Motion to Stay the temporary stay granted by the court on December 15, 2014, is hereby LIFTED. Signed by Senior Judge Peter C. Economus on 12/19/2014. (ds)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
MT. VERNON FOOD & DELI, INC.,
D/B/A STEVE’S FOODMART & DELI,
Plaintiff,

Case No. 2:14-cv-2325
Judge Peter C. Economus

v.
UNITED STATES OF AMERICA, et al.,

ORDER AND OPINION

Defendants.

Plaintiff Mt. Vernon Food & Deli, Inc., d/b/a Steve’s Foodmart and Deli (“Steve’s
Foodmart”) brought this case challenging an administrative decision by the United States
Department of Agriculture Food and Nutrition Service (“FNS”) withdrawing Steve’s Foodmart’s
authorization to participate in the Supplemental Nutrition Assistance Program (“SNAP”). This
matter is before the Court for consideration of Plaintiff’s Motion for Stay of Administrative
Determination (Dkt. 3), on which this Court held a hearing on December 15, 2014. For the
reasons that follow, Plaintiff’s motion is DENIED.
I.

Administrative Background
Steve’s Foodmart was previously owned by Ahmad Rawahneh (“Ahmad”) and Atef

Alrawahneh (“Atef”), and is still owned by Ahmad. (A.R. 69, Doc. 7-1 at 72.)
Prior to owning Steve’s Foodmart, Ahmad and Atef owned H&R Foods, Inc., d/b/a A&M
Market (“A&M Market”). (A.R. 69–70, Doc. 7-1 at 72–73.) On November 25, 1998, FNS sent a
charging letter to Ahmad as President of A&M Market, charging that store with a number of
food stamp violations, including trafficking food stamps for cash. (Compl. Ex. F, Doc. 2-1 at 15.)
On January 11, 1999, A&M Market was permanently disqualified from the SNAP, pursuant to
Section 278.6(a) of the Food Stamp Program Regulations. (Id. at 13.)

On June 3, 2003, Atef submitted an application for Food Stamp authorization for Steve’s
Foodmart (A.R. 13), which was granted on July 2, 2003 (Compl. Ex. C, Doc. 2-1 at 6). FNS
asserts that this authorization was inadvertent. (Doc. 9 at 6; A.R. 138, Doc. 7-1 at 141.)
On July 3, 2013, FNS notified Steve’s Foodmart that its location was due for
reauthorization and requested certain information and documentation. (A.R. 16, Doc. 7-1 at 19.)
In response, Ahmed submitted an affidavit (the “2013 Affidavit”) in which he certified that no
persons “who were owners or managers of any store that has been permanently disqualified from
SNAP . . . [were] financially involved or have other operational interest” in Steve’s Foodmart.
(Id. at 21.) However, the 2013 Affidavit also includes a narrative that explains the circumstances
of A&M Market’s permanent disqualification. (Id. at 22.)
On October 30, 2013, FNS sent a letter (the “2013 Decision”) to Ahmed stating the
following:
This is to notify you that your authorization to participate as [a]
retail food store within . . . [SNAP] is permanently withdrawn.
It is the determination of the . . . [FNS] that your application
submitted by you on behalf of Steve’s Foodmart & Deli . . .
constituted an attempt to avoid or circumvent the permanent
withdrawal of you and your partner, Atef Mohammad Alrawahneh
at A & M Market. You both were permanently withdrawn from
SNAP at A & M Market . . . effective January 13, 1999 due to
business integrity and therefore were ineligible to apply at the
location listed above.
In accordance with Sections 278.1(l)(iv) of the SNAP regulations
your application is withdrawn. The withdrawal shall be effective
permanently in accordance with 278.1(k)(3) of the SNAP
regulations.
(A.R. 70, Doc. 7-1 at 73 (emphasis omitted, emphasis added).)
Following an administrative appeal, FNS issued its final decision (“2014 Decision”) on
October 15, 2014, upholding the 2013 Decision permanently withdrawing Steve’s Foodmart’s

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authorization to participate in the SNAP. (Compl. Ex. H, Doc. 2-1 at 27; A.R. 137–48, Doc. 7-1
at 140–151.) In the 2014 Decision, FNS made factual findings, cited 7 CFR §§ 278.1(l)(1)(iv) 1
and 278.6(e)(1)(iii)), and responded to several arguments.
The 2014 Decision noted that “FNS inadvertently approved [the Appellants] for
participation in the SNAP as owners of Steve's Foodmart even though [they] had informed FNS
that they had been permanently disqualified from the SNAP in 1999 for trafficking as owners of
A & M Market.” (A.R. 144, Doc. 7-1 at 147 (emphasis in original).) “In 2013, Steve’s Foodmart
was included in FNS’ High Risk Reauthorization pool and, therefore, was required to submit
high risk documentation for reauthorization purposes.” (Id.) FNS found that such documentation
confirmed that Steve's Foodmart was purchased by the Appellants and incorporated after the
effective date of A & M Market’s permanent disqualification. (Id.) Also included in the high risk
documentation was the 2013 Affidavit, containing what FNS determined to be false information:
a statement that “no persons who were owners or managers of any store that has been
permanently disqualified from the SNAP or WIC are financially involved or have other
operational interest in this store.” (Id.)
The 2014 Decision first cited 7 CFR § 278.1(l)(1)(iv), which provides that FNS shall
withdraw a firm’s Food Stamp authorization if “[t]he firm fails to maintain the necessary
business integrity to further the purposes of the program, as specified in paragraph (b)(3) . . .
Such firms shall be withdrawn . . . for periods of time in accordance with those stipulated in
paragraph (k)(3) . . . for specific business integrity findings.” 7 CFR § 278.1(l)(1)(iv) (emphasis
added).

1

The decision actually cites 7 CFR §278.1(l)(iv), which the Court assumes is a typographical error.

3

Paragraph (b)(3) lists several types of information that may demonstrate a lack of
business integrity requiring denial of authorization:
•

Paragraph (b)(3)(iii) provides that “FNS shall deny the authorization of any firm
. . . based on consideration of . . . [e]vidence of an attempt by the firm to
circumvent a period of disqualification . . . imposed for violations of the Food
Stamp Act and program regulations.” 7 CFR §278.1(b)(3)(iii).

•

Paragraph (b)(3)(iv) provides that “FNS shall deny the authorization of any firm
. . . based on consideration of . . . [p]revious Food Stamp Program violations
administratively and/or judicially established as having been committed by
owners, officers, or managers of the firm for which a sanction had not been
previously imposed and satisfied.” 7 CFR §278.1(b)(3)(iv).

•

Paragraph (b)(3)(vi) provides that “FNS shall deny the authorization of any firm
. . . based on consideration of . . . [c]omission of any other offense indicating a
lack of business integrity or business honesty of owners, officers or managers of
the firm that seriously and directly affects the present responsibility of a person.”
7 CFR §278.1(b)(3)(vi).

Paragraph (k)(3) provides different periods of time for denial of authorization based on
specific findings relating to business integrity:
•

Paragraph 278.1(k)(3)(iii) provides that “[f]irms for which evidence exists of an
attempt to circumvent a period of disqualification . . . shall be denied for a period
of three years from the effective date of denial.” 7 CFR §278.1(k)(3)(iii).

•

Paragraph 278.1(k)(3)(iv) provides that “[f]irms for which evidence exists of prior
Food Stamp Program violations by owners, officers, or managers of the firm for
which a sanction had not been previously imposed and satisfied shall be denied
for a period of time equivalent to the appropriate disqualification period for such
previous violations, effective from the date of denial.” 7 CFR §278.1(k)(3)(iv).

•

Paragraph 278.1(k)(3)(vi) provides that “[f]irms for which any other evidence
exists which reflects negatively on the business integrity or business honesty of
the owners, officers or managers of the firm as specified in § 278.1(b)(3)(vi) shall
be denied for a period of one year from the effective date of denial.” 7 CFR
§278.1(k)(3)(vi).

Citing 7 CFR § 278.1(l)(1)(iv), FNS stated in the 2014 Decision that “[t]he Appellants
were ineligible to participate in the SNAP when they applied . . . in 2003 due to the fact that they
were serving a permanent disqualification as owners of [A & M Market].” (A.R. 144–45, Doc. 7-

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1 at 147–8.) “The Appellants are/were attempting to avoid or circumvent the permanent
disqualification of their store A & M Market by purchasing and managing a replacement store
(i.e., Steve’s Foodmart is a replacement store for the permanently disqualified store A & M
Market).” (Id. (emphasis added).)
Based on the above language, it appears that both the 2013 Decision and the 2014
Decision implicitly rely on 7 CFR § 278.1(b)(3)(iii), which provides for denial of authorization
based on “[e]vidence of an attempt by the firm to circumvent a period of disqualification.” The
period of disqualification for this reason, however, is three years, as set forth in 7 CFR
§ 278.1(k)(3)(iii).
Rather than citing the provision on attempting to circumvent disqualification, 7 CFR
§ 278.1(b)(3)(iii), FNS instead cited 7 CFR § 278.1(k)(3)(iv), which provides that “[f]irms for
which evidence exists of prior Food Stamp Program violations by owners, officers, or managers
of the firm for which a sanction had not been previously imposed and satisfied shall be denied
for a period of time equivalent to the appropriate disqualification period for such previous
violations, effective from the date of denial.” 7 CFR §278.1(k)(3)(iv) (emphasis added). FNS
argued that, pursuant to this provision:
the Appellants shall be permanently withdrawn from participating
in the SNAP as owners of Steve’s Foodmart as this is the proper
“period of time equivalent to the appropriate disqualification
period for such previous violations” (i.e., the Appellants were
permanently disqualified from participating as authorized retailers
in the SNAP in 1999 as owners of A & M Market).
(A.R. 139, Doc. 7-1 at 142.) In the absence of briefing on the issue, the Court finds that it is
unclear whether FNS properly applied § 278.1(k)(3)(iv).
Secondly, the 2014 Decision cited 7 CFR § 278.6(e)(1)(iii), a regulation which was not
cited in the 2013 Decision, and which provides that FNS shall “[d]isqualify a firm permanently if
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. . . [i]t is determined that personnel of the firm knowingly submitted information on the
application that contains false information of a substantive nature that could affect the eligibility
of the firm for authorization in the program.” The 2014 Decision states:
FNS determined that the Appellants shall be permanently
withdrawn/denied from participation as authorized retailers . . . for
making a false statement on the . . . [2013 Affidavit]. . . . The . . .
decision to permanently withdraw the Appellants on behalf of
Steve’s Foodmart from participation in the SNAP is substantiated,
per [§ 278.6(e)(1)(iii)], based on consideration of information
regarding the business integrity and reputation of the Appellants as
there is evidence of an attempt by the Appellants to circumvent a
period of disqualification . . .
(A.R. 145, Doc. 7-1 at 148.)
The 2014 Decision also rejected Plaintiff’s arguments regarding Plaintiff’s 10 year
history of SNAP participation without incident (A.R. 145, Doc. 7-1 at 148), Ahmad and Atef’s
lack of personal involvement in the violations at A&M Market (id.), staff training and other
actions at Steve’s Foodmart’s to prevent SNAP violations (id. at 149), and economic hardship
(id.). Responding to Appellants’ alternative request for a three year SNAP withdrawal, FNS
simply restated its regulatory findings summarized above. (A.R. 147, Doc. 7-1 at 150.)
II.

Plaintiff’s Complaint and Motion to Stay
On November 7, 2014, Plaintiff filed this case in the Franklin County Court of Common

Pleas, and Defendant United States removed it to this Court on November 18, 2014. (Dkt. 1.)
Plaintiff may obtain judicial review pursuant to 7 C.F.R. § 279.7, which provides that, “[e]xcept
for firms disqualified from the program in accordance with § 278.6(e)(8) of this chapter, a firm
aggrieved by the determination of the designated reviewer may obtain judicial review of the
determination by filing a complaint against the United States in the U.S. district court . . .”
Plaintiff alleges that the 2014 Decision relies on facts and regulations “that were totally
different from those cited in the” 2013 Decision, and that reliance “deprived the Plaintiff of a
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meaning[ful] review of the . . . [2013 Decision] in that the Plaintiff[] obviously was not able to
address the legal basis relied upon . . . [in the 2014 Decision] but NEVER relied upon as a basis
for the” 2013 Decision. (Compl. ¶¶ 29, 31.) It also alleges that “[t]he facts and legal arguments
relied upon by FNS do not support let alone require the Permanent withdrawal of Plaintiff as a
licensed SNAP firm.” (Id. at ¶ 32.)
Plaintiff seeks a stay of FNS’ decision pursuant to 7 C.F.R. § 279.7(d), which provides:
During the pendency of any judicial review, . . . the administrative
action under review shall remain in force unless the firm makes a
timely application to the court and after hearing thereon, the court
stays the administrative action after a showing that irreparable
injury will occur absent a stay and that the firm is likely to prevail
on the merits of the case. However, permanent disqualification
actions taken in accordance with § 278.6(e)(1) of this chapter shall
not be subject to such a stay of administrative action.
7 CFR 279.7(d). In its motion for a stay, Plaintiff elaborates on its complaint and asserts that it
will suffer substantial economic hardship in the absence of a stay. (Doc. 3.)
A.

Exception in § 279.7(d)

The Government argues that this case falls into the exception in 7 C.F.R. § 279.7(d),
which provides that “permanent disqualification actions taken in accordance with § 278.6(e)(1)
of this chapter shall not be subject to such a stay of administrative action.” 7 CFR 279.7(d). The
Government asserts that “[t]his matter is based upon permanent withdrawal of authorization
pursuant to 7 C.F.R. § 278.6(e)(1),” and that “[t]his case involves the permanent disqualification
of Steve’s Foodmart.” (Doc. 9 at 8.)
According to the plain language of § 279.7(d), the exception applies specifically to
“permanent disqualification actions taken in accordance with § 278.6(e)(1),” not the broader set
of all cases “involving” permanent disqualification, as the Government apparently suggests. The

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Government’s cited cases are consistent with this finding. Therefore, the Court must determine
whether this is a “permanent disqualification action[] taken in accordance with § 278.6(e)(1).”
The Court finds that the 2014 Decision is less than clear regarding its reliance on specific
regulations, and particularly unclear regarding its reliance on § 278.6(e)(1)(iii), which was not
cited in the 2013 Decision. As set forth above, the 2014 Decision states:
FNS determined that the Appellants shall be permanently
withdrawn/denied . . . for making a false statement on the . . .
[2013 Affidavit]. . . . The . . . decision to permanently withdraw the
Appellants . . . is substantiated, per [§ 278.6(e)(1)(iii)], based on
consideration of information regarding the business integrity and
reputation of the Appellants as there is evidence of an attempt by
the Appellants to circumvent a period of disqualification . . .
(A.R. 145, Doc. 7-1 at 148.) Moreover, both the 2013 and 2014 Decisions characterize the
agency action as “withdrawing,” rather than “disqualifying,” the Appellants. Finally, 7 C.F.R.
§ 278.6(c) provides:
In the case of a firm subject to permanent disqualification under
paragraph (e)(1) of this section, the determination shall inform
such a firm that action to permanently disqualify the firm shall be
effective immediately upon the date of receipt of the notice of
determination from FNS, regardless of whether a request for
review is filed in accordance with part 279 of this chapter.
The parties agree that FNS granted a temporary stay of its decision, inconsistent with a finding
that this is a permanent disqualification action taken in accordance with § 278.6(e)(1).
Considering the language of the 2014 Decision as well as the context of the agencygranted temporary stay, the Court finds that this is not a “permanent disqualification action[]
taken in accordance with § 278.6(e)(1).” Section 279.7(d) therefore authorizes a stay if Plaintiff
can show irreparable injury and likelihood of success on the merits. Because the parties agree
that Plaintiff would suffer irreparable injury in the absence of a stay, the Court must address only
whether Plaintiff has demonstrated likelihood of success on the merits.

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B.

Likelihood of Success on the Merits

As stated above, Plaintiff makes two claims: (1) the 2014 Decision relied on facts and
regulations different from those cited in the 2013 Decision, depriving the Plaintiff of the
opportunity to address the legal basis of the 2014 Decision (Compl. ¶¶ 29, 31); and (2) the facts
and law do not support Plaintiff’s permanent withdrawal or disqualification. (Id. at ¶ 32.) On the
first claim, the Court agrees with Plaintiff that the 2014 Decision lacks clarity and cites a basis
not mentioned in the 2013 Decision. However, it is Plaintiff’s second claim that truly relates to
the merits, and Plaintiff has not demonstrated that it is likely to prevail as to whether the facts
and law support disqualification.
1.

A&M Market Disqualification Extended to Owners

Plaintiff’s primary argument is that an “innocent owner” of a previously disqualified
store is not personally disqualified from participating in the SNAP. The law is clear, however,
that an owner’s personal innocence does not protect him or her from disqualification. In Bakal
Bros. v. United States, the Sixth Circuit concluded that 7 U.S.C. § 2021(b) “permits the
permanent disqualification of an innocent owner from the food stamp program,” and noted that
“Congress has made clear that innocent store owners should be held responsible for the
independent, unauthorized acts of store personnel.” 105 F.3d 1085, 1089, 1090 (6th Cir. 1997).
While the law could be clearer as to whether a store’s disqualification automatically
extends to its owners, the Court finds that Plaintiff has not demonstrated a likelihood of success
on this issue. The statute authorizing disqualification of stores, 7 U.S.C. § 2021(e)(1), provides
that, when an owner of a disqualified store transfers ownership of that store, “[t]he
disqualification period . . . shall continue in effect as to the person or persons who sell or
otherwise transfer ownership of the retail food store . . .” 7 U.S.C. § 2021(e)(1). According to the
2013 Affidavit, A&M Market closed in February 2001. While it is unclear whether Ahmad and
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Atef transferred ownership of that business, the Court finds that the statutory intent reflected in
§ 2021(e)(1) is that the business’s disqualification would continue in effect as to Ahmad and
Atef.
Several cases lend support to this finding. In United States v. Smith, the Fifth Circuit held
“that the term ‘retail food store’ in the . . . [food stamp program statutes and regulations] means
the owner and operator of a firm doing a retail food business in a building at a designated
location, whether the owner is . . . a corporation, or some other legal entity.” 572 F.2d 1089,
1095 (5th Cir. 1978). In Abdelaziz v. U.S., Through Dep't of Agric., the Second Circuit states:
Although [FNS’ letter brief] refers to an “FNS policy to
permanently disqualify the owners of stores who traffic in food
stamps,” the reference lacks any citation to legal authority. Later,
the letter brief states, “The agency ... has construed ‘retail food
store’ to include the management of the enterprise committing the
violation.” This statement also lacks any citation to legal authority
except for a footnote stating enigmatically that the FNS'
interpretation is “reflected” in agency regulations that use the
undefined word “firm” as well as the statutory language “retail
food store” and “wholesale food concern.” Lacking clear guidance,
we decline to adopt a broad rule concerning the disqualification of
owners of stores that unlawfully traffic in food stamps. Instead, we
rely on the established principle that the corporate form should be
disregarded “where it is interposed to defeat legislative policies.”
837 F.2d 95, 98 (2d Cir. 1988) (emphasis added). In Kim v. United States, the Ninth Circuit
stated, “we must join our unanimous sister circuits in holding that 7 U.S.C. § 2021(b) allows the
FCS to disqualify even innocent owners permanently from participation in the Food Stamp
Program for trafficking violations,” and finding that “[p]ermanently disqualifying innocent store
owners who lack an effective program or policy to prevent trafficking violations . . . promot[es]
adoption of such effective programs or policies.” 121 F.3d 1269, 1273–74 (9th Cir. 1997).

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At the hearing, Plaintiff’s counsel asserted that a contrary regulatory intent is expressed
in 7 C.F.R. 278.6(f)(2), which provides:
In the event any retail food store . . . which has been disqualified is
sold or the ownership thereof is otherwise transferred . . ., the
person . . . who sells or otherwise transfers ownership . . . shall be
subjected to and liable for a civil money penalty . . . 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. The disqualification shall
continue in effect at the disqualified location for the person . . .
who transfers ownership of the retail food store or wholesale food
concern notwithstanding the imposition of a civil money penalty
under this paragraph.
7 C.F.R. 278.6(f)(2) (emphasis added). Because § 278.6(f)(2) specifically provides for the
owner’s continuing disqualification “at the disqualified location,” Plaintiff argues that the owner
is not specifically disqualified at other locations. The Court finds, however, that such an
interpretation is inconsistent with 7 U.S.C. § 2021(e)(1).
2.

Equitable estoppel

Plaintiff also appears to raise an equitable estoppel claim based on FNS’ 2003
authorization of Steve’s Foodmart. Any such claim fails, however, because Plaintiff has not
alleged affirmative misconduct:
Estoppel is an equitable doctrine which a court may invoke to
avoid injustice in particular cases. The elements of an estoppel
claim are: (1) misrepresentation by the party against whom
estoppel is asserted; (2) reasonable reliance on the
misrepresentation by the party asserting estoppel; and (3) detriment
to the party asserting estoppel. However, the government may not
be estopped on the same terms as any other litigant. A party
attempting to estop the government bears a very heavy burden. At
a minimum, Plaintiff must show some “affirmative misconduct” by
the government in addition to establishing the other elements of
estoppel. Affirmative conduct is more than mere negligence. It is
an act by the government that either intentionally or recklessly
misleads the claimant.

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Premo v. United States, 599 F.3d 540, 547 (6th Cir. 2010) (citing and quoting Mich. Express,
Inc. v. United States, 374 F.3d 424, 427 (6th Cir. 2004); Heckler v. Cmty. Health Servs. of
Crawford County, Inc., 467 U.S. 51, 60 (1984); Fisher v. Peters, 249 F.3d 433, 444 (6th Cir.
2001).) (internal citations and quotation marks omitted) (emphasis added).
III.

Conclusion
For the reasons set forth above, Plaintiff’s motion (Doc. 3) is DENIED, and the

temporary stay granted by the Court on December 15, 2014, is hereby LIFTED.
IT IS SO ORDERED.

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