United States District Court, E.D. Michigan, Southern Division
ORDER GRANTING DEFENDANTS' MOTION TO
Victoria A. Roberts United States District Judge.
STATEMENT OF FACTS
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.
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.
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.
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.
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)
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.
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.
filed suit on May 11, 2016.
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
agreed to dismiss Secretary Vilsack as a defendant.
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).
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 ...