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Alhalemi Inc. v. Roberts

United States District Court, E.D. Michigan, Southern Division

December 1, 2016

ALHALEMI, INC., PLAINTIFF,
v.
ROBERTS, UNITED STATES OF AMERICA, ET AL, DEFENDANTS.

          ORDER GRANTING DEFENDANTS' MOTION TO DISMISS

          Victoria A. Roberts United States District Judge.

         I. STATEMENT OF FACTS

         This action arises out of a final decision of the United States Department of Agriculture, Food and Nutrition Service's (“Agency”) to permanently disqualify Alhalemi, Inc. (“Alhalemi”) as an authorized retailer of the Supplemental Nutrition Assistance Program (“SNAP”). Alhalemi says the decision was arbitrary and capricious and in violation of laws, regulations, and the U.S. Constitution.

         Alhalemi brings this suit against the United States and Secretary of the United States Department of Agriculture, Tom Vilsack. The complaint contains three counts: (I) judicial review and reversal of the Agency's determination of trafficking pursuant to the Food Stamp Act, 7 U.S.C. § 2023 (II); violation of the Administrative Procedure Act, 5 U.S.C. § 701 et seq. (“APA”); and (III) violation of the Fifth Amendment's procedural and substantive due process clauses.

         The United States filed a motion to dismiss Count II and Count III, and to dismiss Secretary Vilsack as a Defendant. The motions are fully briefed. Oral argument was heard on November 18, 2016.

         Alhalemi is a privately held corporation that operates a gas station, retail convenience store, and food market in Highland Park, MI. Alhalemi was authorized to participate in SNAP on November 12, 2003. SNAP provides benefits through an Electronic Benefit Transfer (“EBT”) system as a part of the Food and Nutrition Act of 2008, 7 U.S.C §§ 2011-2036 (“the Act”). Recipients of SNAP benefits pay for eligible food purchases at retailers like Alhalemi, using EBT cards as debit cards. Customers swipe EBT cards, enter personal identification numbers, and the point of sale device transmits the sale information to the Agency which processes and stores the information.

         On January 11, 2016, the Agency notified Alhalemi it was charged with trafficking in SNAP benefits as defined in 7 C.F.R. § 271.2. The letter to Alhalemi cited EBT transactions that showed: “multiple transactions made from individual benefit accounts in unusually short time frames, ” and “a series of excessively large purchase transactions made from recipient accounts.” The Agency charged that Alhalemi was “trafficking, ” defined by regulations to mean the “buying or selling of coupons…or other beneficial instruments for cash or consideration other than eligible food.” The letter advised Alhalemi the sanction for trafficking is permanent disqualification. The Agency notified Alhalemi it could be eligible to receive a $59, 000 civil money penalty (“CMP”) in lieu of permanent disqualification if Alhalemi replied within ten days of receiving the charge letter, and provided documentation showing it meets criteria for the CMP exception set forth in 7 C.F.R. § 278.6 (i) .

         Alhalemi responded to the Agency's letter on January 20, 2016, requesting a CMP in lieu of disqualification. The Agency concluded disqualification was the more appropriate sanction and issued Alhalemi a notice of permanent disqualification. The February 15, 2016 notice of disqualification informed Alhalemi of its right to request an administrative hearing to review its determination within ten days. Alhalemi requested administrative review on February 24, 2016.

         The Agency reviewed the evidence submitted by Alhalemi and issued a Final Agency Decision on April 11, 2016, upholding the determination of trafficking and sanction of permanent disqualification. The review officer concluded Alhalemi did not provide sufficient evidence to rebut the prima facie case of trafficking and that Alhalemi “failed to provide Retailer Operations with the required documentation to be considered for a trafficking CMP in lieu of disqualification.” The review officer concluded that the determination of ineligibility for a trafficking CMP in lieu of permanent disqualification was correct. Ex. D at A.R.227.

         Alhalemi filed suit on May 11, 2016.

         In its motion to dismiss Count II under Fed.R.Civ.P. 12(b)(6), the United States alleges review under the APA is foreclosed because the Act provides an adequate mechanism for de novo judicial review. The United States also moves to dismiss Count III, contending that Alhalemi cannot state a claim for a procedural or substantive due process violation. Finally, the United States moved to dismiss Secretary Vilsack as a defendant for lack of subject matter jurisdiction because SNAP only provides for suits against the United States and, therefore, Secretary Vilsack retained sovereign immunity.

         Alhalemi agreed to dismiss Secretary Vilsack as a defendant.

         In opposition to the balance of the United States' motion, Alhalemi contends that Sixth Circuit case law suggests the Agency's Final Decision to assess a permanent disqualification rather than a CMP is not entitled to review under the Act's de novo review procedure. Alhalemi asserts the type of sanction assessed is reviewable under the APA because it was an arbitrary and capricious decision. Alhalemi relies on the Sixth Circuit decision in Bakal Bros. v. United States, 105 F.3d 1085, 1087 (6th Cir. 1997).

         Alhalemi alleges Count III should not be dismissed because: (1) Alhalemi's substantive due process rights were violated when the Agency failed to consider evidence to determine whether Alhalemi qualified for the CMP exception without rational basis; and (2) Alhalemi's procedural due process rights were violated because: (a) the Agency's ten day limit to respond to both the initial charge and the notice of disqualification did not give Alhalemi a meaningful opportunity to contest the issue; (b) the discretionary power to provide a CMP in lieu of permanent disqualification requires further adjudication beyond the review provided by the Act; and (c) while the Agency ...


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