Saudabad Convenience, Inc. v. United States Department of Agriculture

Filing 21

MEMORANDUM AND ORDER granting Defendant USDA's 15 Motion for Summary Judgment. So Ordered by Judge Mary M. Lisi on 2/18/2014. (Duhamel, John)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND

SAUDABAD CONVENIENCE, INC., d/b/a
NEWPORT MART,
Plaintiff
v.

C.A. No. 013-298-ML

UNITED STATES DEPARTMENT OF
AGRICULTURE,
Defendant

MEMORANDUM AND ORDER
The plaintiff, Saudabad Convenience, Inc. d/b/a Newport Mart
(“Newport Mart”), challenges its permanent disqualification

from

participating in the Supplemental Nutrition Assistance Program
(“SNAP”) following a determination by the Food and Nutrition
Service (“FNS”) of the United States Department of Agriculture
(“USDA”) that Newport Mart was engaged in the trafficking of
Electronic Benefit Transfers (“EBT”).
The matter before the Court is the USDA’s motion for summary
judgment (Dkt. No. 15).

Newport Mart has filed an objection

(Dkt. No. 17), to which the USDA has filed a reply (Dkt. No. 20).
For

the

reasons

that

follow,

the

judgment is granted.

1

USDA’s

motion

for

summary

I. Summary of Facts1
SNAP is intended “to safeguard the health and well-being of
the Nation's population by raising levels of nutrition among
low-income

households.”

7

U.S.C.

§

2011.

To

implement

that

policy, eligible households receive monthly allotments which may
be “used only to purchase food from retail food stores which have
been approved for participation” in SNAP. 7 U.S.C. §2013(a).
Families receive monthly SNAP benefits via plastic EBT debit
cards, which can be used only at authorized retail stores and
only for eligible food items, such as “[a]ny food or food product
intended

for

human

tobacco,

and

hot

consumption

foods

or

except

hot

food

alcoholic
products

beverages,

prepared

for

immediate consumption.” 7 U.S.C. § 2012(k); 7 C.F.R. § 271.2.
Other eligible foods include seeds and plants to grow foods for
personal

consumption

and,

under

certain

conditions,

meals

prepared and delivered or served in a communal or residential
setting. 7 U.S.C. § 2012(k); 7 C.F.R. § 271.2. Non-food items
such

1

as

paper

goods

or

household

cleaning

supplies

are

not

The Summary of Facts is based on the Administrative Record
(“AR”)(Dkt. No. 7) and the government’s Statement of Undisputed
Facts (“SUF”) in support of its motion for summary judgment (Dkt.
No. 16). The Court notes that Newport Mart’s Statement of
Disputed Facts (“SDF”), (Dkt. No. 18), does not controvert any of
the facts asserted in the SUF; rather, the SDF seeks to provide
explanations for the government’s assertions. See Local Rule LR
Cv 56(3).
2

eligible for purchase with SNAP benefits. Id.
SNAP regulations specifically prohibit participating stores
from

“trafficking,”

Trafficking
otherwise
accessed

is

i.e.

defined

effecting
via

exchanging
as

an

“buying,

exchange

Electronic

SNAP

of

Benefit

benefits

selling,

SNAP

cash.

stealing,

benefits

Transfer

for

(EBT)

issued
cards,

or
and
card

numbers and personal identification numbers (PINs), or by manual
voucher
eligible

and

signature,

food...”

7

for

cash

C.F.R.

§

or

consideration

271.2.

As

other

provided

by

than
SNAP

regulations, “if [p]ersonnel of the [store] have trafficked as
defined

in

§

271.2,”

such

a

violation

will

result

in

the

permanent disqualification of a store from participating in SNAP.
7 C.F.R. § 278.6(e)(1); 7 U.S.C. § 278.6.2
In order to detect trafficking or other fraudulent activity
involving SNAP benefits, the FNS monitors stores through the
Anti-Fraud Locator Using Electronic Benefit Retailer Transactions
(“ALERT”) computer program. When a store triggers an ALERT report
2

As noted by the USDA in its memorandum, under a limited
exception to permanent disqualification, the USDA may impose a
civil monetary penalty (“CMP”) if a timely request for a CMP is
made and eligibility for a CMP is established. 7 U.S.C. §
2021(b)(3)(B) (requiring “substantial evidence that such store or
food concern had an effective policy and program in effect to
prevent violations of the chapter and the regulations.”). It is
undisputed that (1) the USDA informed Newport Mart of the exception
to permanent disqualification and imposition of a CMP by letter
dated August 7, 2012 (AR 96–98); and (2) in its August 17, 2012
response to the USDA, Newport Mart did not request consideration of
a CMP. (AR 131-135).
3

through a pattern of suspicious transactions, the FNS may conduct
an investigation, including a store visit, and the USDA may open
a case and proceed with an administrative action against the
store.

Under SNAP regulations, “disqualification shall result

from a finding of a violation on the basis of evidence that may
include

facts

inconsistent

established

redemption

through

data,

on-site

evidence

investigations,

obtained

through

a

transaction report under an electronic benefit transfer system,
or the disqualification of a firm from the Special Supplemental
Nutrition

Program

specified

in

for

paragraph

278.6(a) (emphasis

Women,

Infants

(e)(8)

added);

7

of

and

this

U.S.C.

§

Children

section.”

7

(WIC),
C.F.R.

as
§

2021(a)(2)(“Regulations

promulgated under this chapter shall provide criteria for the
finding of a violation of, the suspension or disqualification of
and the assessment of a civil penalty against a retail food store
or wholesale food concern on the basis of evidence that may
include

facts

established

inconsistent

redemption

transaction

report

through

data,

under

or

an

on-site

evidence
electronic

investigations,

obtained
benefit

through

a

transfer

system.”)(emphasis added).
Newport Mart, a small convenience store in Middletown, Rhode
Island, has been authorized under SNAP since September 10, 2001.
AR 82. In 2012, the store came to the attention of the FNS when
4

its EBT transactions triggered an ALERT report. SUF ¶ 4. The
report - which was generated for Newport Mart’s transactions
between January and March 2012 (the “Review Period”) - reflected
four

different

categories

of

statistically

unusual

EBT

transactions:
(1) purchases of multiple items by different households
within
a
short
time
frame
(“multiple
purchase
transactions were made too rapidly to be credible”),
see AR 8;
(2) rapid and repetitive transactions involving the
same household (“multiple transactions were made from
individual benefit accounts in unusually short time
frames”), see AR 16;
(3) the depletion of all or a majority of monthly
benefits in one transaction (“the majority or all of
individual
recipient
benefits
were
exhausted
in
unusually short periods of time”), see AR 25; and
(4)
a
large number of
high-dollar
transactions
(“excessively large purchase transactions were made
from recipient accounts”), see AR 28; SUF ¶ 5.

As to the first category, the ALERT report reflected 61 sets
of purchases ranging from 22 seconds between transactions to 3
minutes and 44 seconds. SUF ¶¶ 6,7.
Regarding the second category, the ALERT report identified
181 sets of multiple purchases by the same individual households
transacted within a short time period. SUF ¶¶ 8, 9.
With respect to the third category, the USDA notes (and
Newport

Mart

does

not

dispute)

that

“[a]n

analysis

of

EBT

redemption patterns reflects that an average of 90 percent of a
household’s monthly SNAP allotment is not spent until three weeks
5

after the day that the benefits are issued.” SUF ¶ 21. However,
the ALERT report on the EBT transactions at the Newport Mart
identified 41 accounts in which a household depleted the majority
or all of its monthly SNAP allotment in one or a few transactions
at Newport Mart and the report reflected that all but one of
those 41 households depleted their balance within the first week
of the month. SUF ¶¶ 15, 16.
Regarding the category involving large purchases, the USDA
notes

that,

convenience

in

Rhode

store

is

Island,
$11.00,

the
and,

average
in

a

transaction

small

grocery

in

a

store,

$16.49. SUF ¶¶ 10, 11. In contrast, 50 of the 181 Newport Mart
transaction identified in the ALERT report exceeded $50.00 and 23
of the transactions had a total of more than $100.00. In the
course of the Review Period, 523 EBT transactions conducted at
Newport Mart ranged from $45.56 to 409.81. SUF ¶ 25.
those numbers

in

context, in

March

2012,

Newport

To put

Mart’s

EBT

redemption totals were between three to thirty-four times the
amount transacted for the same month at four nearby comparable
stores. SUF ¶ 31.
On

May

10,

2012,

FNS

Field

Officer

David

Dombroski

(“Dombroski”) conducted an on-site inspection of the Newport Mart
store. During his visit, Dombroski took photographs inside and
outside the store, took an inventory survey, and made a diagram
6

of the store’s physical layout. SUF ¶ 32. In his “Store Visit
Summary” (AR 33-48), Dombroski noted that Newport Mart had only
one POS [point-of-sale] device, no optical scanners, no conveyor
belts, no hand-held baskets, and no shopping carts. Dombroski
also observed that the check-out area was very small and that the
actual counter space for food placement was only 3 by 2 feet. SUF
¶ 34. At the time in question, “Newport Mart did not sell hot
food, had no promotional, special or packaged items, no bulk
sales,

stocked

a

moderate

supply

of

staple

food

items,

few

perishable items, and carried no high-priced staple foods.” SUF ¶
35.

Specifically, Dombroski’s report noted that of 10 coolers,

only one contained milk and eggs, another contained some packaged
meats and cheeses; and the rest contained a mix of soda and
juice. AR 38.

Most of the food items were snack foods or small

quantity packages of food; the food stock in the rear of the
store consisted mainly of canned foods that did not seem to be
moving as they showed evidence of dust. Id.; SUF ¶ 36. With
respect to SNAP eligible food items carried by Newport Mart, the
most expensive items were a one-pound package of bacon at $5.65;
a five-pound package of sugar at $5.29, and a 1.25 pound ham at
$4.99.

SUF

¶

37;

AR

84.

Dombroski

also

noted

that

a

Shaws

supermarket was directly across the street from Newport Mart,

7

another supermarket was located within a half mile; and a number3
of other SNAP-authorized stores were within a one-mile radius.
SUF ¶ 38; (AR 33).
Based on an analysis of the four categories of statistically
unusual EBT transactions and Dombroski’s site visit, the FNS
determined that Newport Mart engaged in prohibited trafficking of
EBT benefits. SUF ¶ 39.
II. Procedural History
By letter dated August 7, 2012 (the “Determination Letter”),
the USDA informed Newport Mart that the store had violated SNAP
regulations and that the USDA was charging Newport Mart with
trafficking as defined in Section 271.2. AR 96-98. The USDA noted
that the sanction for trafficking was permanent disqualification
and it described the four categories of unusual EBT transactions
that had occurred at the store between January and March 2012.
Id.

The Determination Letter also set out the procedure and

conditions

under

which

Newport

Mart

could

make

a

timely

application to be considered for a CMP and it noted that the
amount of such a penalty would be $59,000. (AR 97). Newport Mart
3

Although the USDA asserts in its SUF (without objection from
Newport Mart) that it “identified 50 SNAP-authorized stores within
a one-mile radius,” SUF ¶ 38, that number is not supported by the
citation to the AR (AR 161-174). However, the USDA Final Agency
Decision notes that, including the supermarket across the street
from Newport Mart and two super stores located less than onequarter of a mile from the store, “[t]here are 11 SNAP-authorized
firms within a one-mile radius of Appellant’s store.” AR 191.
8

was advised that it could respond to the charges by phone and/or
in

writing within ten days of receipt of the Determination

Letter. (AR 97-98.)
Newport Mart responded by letter dated August 16, 2012,
generally denying that it had engaged in trafficking. AR 131-134.
In its response, Newport Mart addressed the four categories of
EBT transactions by offering the following explanations:
(1) “To avoid having its regular customers wait in line,
during the peak sales periods the store oftentimes allows its
loyal

EBT

customers

to

count

and

state

the

amount

of

their

purchase themselves and accept that amount on trust;”
(2) “[t]o avoid having its regular customers wait a long
time to ring up the sale of one or two items, it is not unusual
at all for the sales clerk to ring up a portion of an EBT
customer’s purchase and then ring up a regular customer’s one or
two item purchase and then complete the EBT customer’s purchase
as a separate transaction;”
(3) “[i]t is not at all unusual for EBT customers to buy
most of their groceries at or near the beginning of each month
thereby causing them to exhaust most or all of their account at
that time4;” and
4

Newport Mart also explained, with respect to a questioned
$409.81 EBT transaction, that an error had occurred. AR 133. In an
accompanying affidavit, the customer in question represented that
“[t]he sales clerk gave me a credit for the amount charged in error
9

(4) “[a]t or near the first of the month when recipient EBT
accounts are replenished . . . many EBT customers purchase all or
most of their groceries for the month.” AR 133.
Newport Mart also asserted that it was “not your typical
convenience store;” that it “operate[d] as a grocery store;” and
that

its

“highly

competitive”

prices

were

competitive

with

Walmart. AR 133.
By letter dated August 21, 2012, the USDA informed Newport
Mart of its finding that the violations cited in the August 7,
2012 charge letter had occurred at the store.5 AR 137-138. The
USDA also stated that Newport Mart was not eligible for a CMP
because the store had failed to submit sufficient evidence that
it had established and implemented an effective compliance policy
and program to prevent violations of SNAP. AR 137. Effective upon
receipt

of

the

August

21,

2012

letter,

Newport

Mart

was

permanently disqualified from SNAP, unless the disqualification
was

subsequently

reversed

through

administrative

or

judicial

review. Id.

and I used the credit to make purchases at Newport Mart during the
month of March 2012.” AR 135.
5

Although the USDA states that Newport Mart did not reply to
the August 7, 2012 letter, see AR 137, it is evident from the
record that Newport Mart did send a letter in response and that
this response was subsequently considered by the USDA. AR 139.
10

A second USDA letter, dated September 6, 2012, noted that
the USDA had given consideration to Newport Mart’s written reply
but reiterated that, notwithstanding Newport Mart’s assertions,
the store

was

found

to

be in

violation

of

SNAP and

it

was

permanently disqualified from participating therein. AR 139.
By letter dated September 12, 2012, Newport Mart requested a
review of the USDA’s decision to disqualify the store permanently
from SNAP. AR 144-148. In its request for a review, Newport Mart
again denied that it had engaged in trafficking and it contended
that (1) there was no competent evidence for such an allegation,
AR 144; and (2) the USDA’s decision ignored competent evidence
presented by Newport Mart. AR 145. With respect to the latter
assertion,
explanations

Newport
it

had

Mart

reiterated

previously

and

offered

to

expanded
address

on

the

the

four

categories of suspicious EBT transactions. AR 145-147.
On April 5, 2013, the Administrative Review Branch (“ARB”)
of the USDA/FNS issued a final agency decision (the “Decision”)
in which it sustained the permanent disqualification of Newport
Mart from SNAP. AR 175-194. The Decision reflects that the ARB
considered each of Newport Mart’s arguments proffered to explain
the four categories of EBT transactions on which the trafficking
charge was based, AR 187-188. The Decision also addressed each of
Newport Mart’s contentions related thereto in some detail. AR
11

188-194. Based on all the evidence before it and in consideration
of the explanation provided by Newport Mart, the ARB sustained
the permanent disqualification. AR 194.
On

May

2,

2013,

Newport

Mart

filed

a

complaint

(the

“Complaint”) in this Court, in which it sought (1) a de novo
review of the USDA’s determination that Newport Mart engaged in
the trafficking of food stamps; and (2) a stay of the USDA’s
decision to disqualify Newport Mart from participation in the
SNAP program, pending a hearing on the merits. Complaint (Dkt.
No. 1). In response, the USDA filed a motion for summary judgment
(Dkt. No. 6) on September 18, 2013, to which Newport Mart filed
an objection on December 16, 2013 (Dkt. No. 13). Initially, the
USDA’s motion

was

administratively

terminated

because

neither

side had complied with Local Rule 56, which requires the filing
of a separate statement of undisputed/disputed facts. Local Rule
LR Cv. 56 (a)(1)-(2).6
On January 8, 2014, the USDA refiled its motion for summary
judgment (Dkt. No. 15), together with a supporting memorandum and
the requisite SUF (Dkt. No. 16). As noted by the USDA in its
reply (Dkt. No. 20), Newport Mart did not dispute the USDA’s
6

Rule 56 provides that “[f]or purposes of a motion for summary
judgment, any fact alleged in the movant’s Statement of Undisputed
Facts shall be deemed admitted unless expressly denied or otherwise
controverted by a party objecting to the motion.” Local Rule LR Cv.
56(a)(3).
12

submitted facts in the SDF (Dkt. No. 18) which Newport Mart
submitted in support of its objection. (Dkt. No. 17).
III. Standard of Review
“Summary judgment is appropriate where ‘the movant shows
that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.’ Fed.R.Civ.P.
56(a).” Pruco Life Ins. v. Wilmington Trust Co., 721 F.3d 1, 6
(1st Cir. 2013). In considering a motion for summary judgment,
the Court must draw “all reasonable inferences in favor of the
non-moving

party

while

ignoring

‘conclusory

allegations,

improbable inferences, and unsupported speculation.’ ” Id. at 7
(quoting Sutliffe v. Epping Sch. Dist., 584 F.3d 314, 325 (1st
Cir.2009) (quoting Sullivan v. City of Springfield, 561 F.3d 7,
14 (1st Cir.2009)).
Pursuant to 7 U.S.C. §2023, the Court conducts a de novo
review

to

“determine

the

validity

of

the

questioned

administrative action.” 7 U.S.C. §2023(a)(15); Ibrahim v. United
States, 834 F.2d 52, 53–54 (2nd Cir.1987)(noting that “[t]his
review ‘requires a reexamination of the entire matter rather than
a mere determination of whether the administrative findings are
supported by substantial evidence.’” (quoting Saunders v. United
States, 507 F.2d 33, 36 (6th Cir. 1974)).
However, de novo review is applicable only to the USDA's
13

determination that a violation took place. See Objio v. United
States, 113 F.Supp.2d 204, 208 (D.Mass. Sept. 29, 2000) (noting
that “[t]he First Circuit has adopted a bifurcated standard of
review in food stamp cases, applying a de novo standard to the
determination

of

the

violation

and

a

limited

administrative

standard to the sanction imposed.”). If the USDA's determination
that a violation has taken place is upheld by the district court,
a review of the sanction imposed by the USDA is limited to the
administrative record, and the sanction is overturned only if it
is deemed “arbitrary or capricious.”7 See Wong v. United States,
859 F.2d 129, 132 (9th Cir.1988)(noting that “[w]hereas the FNS
finding that a firm violated the Food Stamp Act is reviewed de
novo, review of the sanction imposed by the FNS is governed by
the arbitrary and capricious standard.”)
A party challenging its permanent disqualification from SNAP
by the USDA bears the burden of proving by a preponderance of the
evidence

that

the

agency’s

decision

was

“invalid.”

7

U.S.C.

§2023(a)(16)8. Fells v. United States, 627 F.3d 1250, 1253 (7th
7

The Court notes that Newport Mart has not challenged the
severity of the imposed sanction and that it did not avail itself
of the opportunity to seek a CMP.
8

Subsection 2023(a)(16) provides that “[i]f the court
determines that such administrative action is invalid, it shall
enter such judgment or order as it determines is in accordance with
the law and the evidence.”
14

Cir.2010)(listing cases and noting that, although the statute is
silent

as

to

which

party

bears

the

burden

of

proof,

“other

circuits have held consistently that, given the nature of the
statutory scheme, a store owner who seeks to set aside an agency
action bears the burden of proof.”). Accordingly, Newport Mart
has the burden of proving that it was improperly disqualified
from participation in SNAP. Fells v. United States, 627 F.3d at
204 (citing Redmond v. United States, 507 F.2d 1007, 1011–12 (5th
Cir.1975)

(“[T]he

agency

action

stands,

unless

the

plaintiff

proves that it should be set aside.”)).
IV.

Discussion

The facts of this case, as detailed by the government in its
motion,

supporting

memorandum,

and

the

SUF,

are

entirely

undisputed by Newport Mart. The additional contentions by Newport
Mart set forth in its SDF (Dkt. No. 18) are unsupported by any
evidence. Rather, Newport Mart once again seeks to explain the
data on which the USDA based its determination that Newport Mart
was

engaged

in

trafficking.

Newport

Mart’s

contention

that

“[t]here is no direct proof in the record that EBT cards were
‘exchanged for cash or consideration other than eligible food,’”
SDF ¶ 2, fails to acknowledge that such direct proof is not
necessary

under

SNAP

regulations.

See

7

U.S.C.

§

2021(a)(2)

(disqualification may be based on “inconsistent redemption data,
15

or

evidence

obtained

through

a

transaction

report

under

an

electronic benefit transfer system.”)
In essence, Newport Mart offers the same explanations it
already
Mart’s

asserted

in

the

unsubstantiated

administrative

contentions

proceedings.

attempt

to

Newport

explain

the

occurrence of four distinct categories of transaction patterns
which led

to

the

USDA’s

determination

that

Newport

Mart was

engaged in the trafficking of EBT benefits. However, none of
those explanations are supported by evidence and some of Newport
Mart’s suggestions are directly contradicted by the otherwise
unchallenged facts presented by the USDA.
By example, Newport Mart contends that the May 10, 2012 site
visit “did not reveal anything unusual or irregular about the
store’s activities.” In fact, the site visit established that the
store featured a very small checkout area with only one POS
device, no shopping carts or carrying baskets, and only a very
limited selection of foods, none of which included high-priced
items.

Based

on

those

observation

alone,

Newport

Mart’s

explanations for rapid transactions, large purchases, and quick
depletion

of

EBT

accounts

are

unsupported

by

the

undisputed

facts. Likewise, the site visit clearly established that, in
contrast

to

Newport

Mart’s

own

characterization,

its

limited

inventory of food items clearly demonstrated that Newport Mart
16

does not “operate more like as [sic] grocery store.” SDF ¶ 14.
Newport Mart also points out that it is in close proximity
to several low-income housing projects, in an attempt to explain
the increase in customers and/or the size of their purchases. SDF
¶ 7. Newport Mart fails to acknowledge, however, that it is in
close

proximity

to

two

SNAP-authorized

super

stores

and

is

located directly across from a SNAP-authorized supermarket with a
full complement of groceries. Under those circumstances, and in
the

absence

of

any

supporting

evidence,

Newport

Mart’s

explanations regarding large purchases and the rapid exhaustion
of EBT accounts fail to raise a material factual dispute.
The transaction patterns identified by the USDA established
that considerable numbers of EBT transaction at Newport Mart (1)
were made in rapid succession, (2) were made from individual
accounts

in

unusually

short

time

frames,

(3)

were

unusually

large, and/or (4) quickly depleted a recipient’s EBT account.
None

of

Newport

Mart’s

explanations

are

substantiated

by

evidence, nor are they credible in light of the store’s location,
lay-out, and limited inventory. In sum, Newport Mart’s renewed
attempt to explain the identified data patterns fails to show, by
a preponderance of the evidence, that the USDA’s determination
that Newport Mart engaged in trafficking of EBT benefits was
invalid. Accordingly, Newport Mart’s claims cannot withstand the
17

USDA’s motion for summary judgment.
Conclusion
For the reasons stated herein, the USDA’s motion for summary
judgment is GRANTED. The Clerk is directed to enter judgment in
favor of the USDA.
SO ORDERED.
/s/ Mary M. Lisi
Mary M. Lisi
United States District Judge
February 18, 2014

18