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J & L Liquor, Inc. v. United States

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

September 28, 2017

J & L LIQUOR, INC. Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant.

          OPINION AND ORDER RE: DEFENDANT'S MOTION FOR SUMMARY JUDGMENT (DKT. 15)

          STEPHANIE DAWKINS DAVIS, UNITED STATES MAGISTRATE JUDGE

         I. PROCEDURAL HISTORY

         A. Proceedings in this Court

         On February 29, 2016, plaintiff filed the instant suit seeking judicial review of the USDA's Food and Nutrition Service (FNS) determination that plaintiff trafficked in Supplemental Nutrition Assistance Program (SNAP, known colloquially as the food stamp program), and to review the decision to permanently disqualify plaintiff from participation in the program. (Dkt. 1). With consent of the parties, this case was referred to the undersigned for final judgment in accordance with 28 U.S.C. § 636(c) and Federal Rule of Civil Procedure 73. (Dkt. 12). This matter is before the Court on defendant's motion for summary judgment. (Dkt. 15). Plaintiff also filed a response brief in opposition to defendant's motion. (Dkt. 18). Defendant filed a reply brief in further support of its motion. (Dkt. 19). The Court has reviewed the pleadings, and has heard oral argument from the parties at a hearing held on May 2, 2017.

         B. Administrative Proceedings

         On June 9, 2015, the FNS issued a letter to plaintiff charging it with trafficking in SNAP benefits.[1] (Dkt. 14, PgID 180-182). The letter was the culmination of an investigation triggered by the FNS's computerized ALERT system identifying suspicious benefit redemption patterns at the retail convenience store operated by plaintiff in 2014, which included a visit to the store and a manual analysis of redemption data. (Dkt. 14, PgID 148-179, 223-232). The charge letter advised plaintiff that the penalty for SNAP trafficking is permanent disqualification from SNAP, but that plaintiff could request a civil monetary penalty in lieu of permanent disqualification by submitting certain documentation as set forth in 7 C.F.R. §278.6 within ten days of its receipt of the charge letter. (Dkt. 14, PgID 180-182). Plaintiff disputed the trafficking charge, and did not request a civil monetary penalty in lieu of permanent disqualification. (Dkt. 14, PgID 197-208).

         On July 23, 2015, FNS permanently disqualified plaintiff from participating in SNAP and sent a letter to plaintiff advising it of that determination. (Dkt. 14, PgID 237-238). The July 23, 2015 FNS letter also advised plaintiff of its right to review by the Administrative Review Branch, and plaintiff submitted its request for such a review on July 29, 2015. (Dkt. 14, PgID 237-243). FNS granted plaintiffs timely request for Administrative Review of the adverse action taken against plaintiff. (Dkt. 14, PgID 310-311). On or about February 2, 2016, the administrative review officer issued a Final Agency Decision upholding the permanent disqualification of plaintiff from SNAP participation. (Dkt. 14, PgID 391-418). The Final Agency Decision advised plaintiff of its right to judicial review pursuant to 7 U.S.C. §2023 and 7 C.F.R. §279.7. (Dkt. 14, PgID 417). Plaintiff timely commenced the present action for judicial review. (Dkt. 1). The defendant filed a motion for summary judgment, which is now ripe for determination by the Court. (Dkt. 15, 18, 19).

         II. FACTUAL BACKGROUND AND PARTIES ARGUMENTS

         A. Factual Background

         Plaintiff J & L Liquor, Inc. owns and operates a retail market in Highland Park, Michigan known as J & L Market. (Dkt. 1, ¶2-3, 8). In March 2013, FNS authorized plaintiff to accept SNAP benefits as payment for eligible food items. (Dkt. 14, PgID 223). Plaintiff market carries an assortment of food products, including, but not limited to, a deli counter offering meats and cheeses, eggs, baby food and formula, bread, milk, juices, soft drinks and snack foods, as well as nonfood items such as tobacco products, liquor and lottery tickets. (Dkt. 14, PgID 148-167). FNS's computerized fraud detection system identified suspicious benefit redemption patterns at plaintiffs store, which triggered a manual analysis of redemption data for plaintiffs store for the months of September through December 2014. (Dkt. 14, PgID 168- 179). FNS also conducted an on-site visit in order to observe the store, complete a survey and take photographs of the premises in November 2014. (Dkt. 14, PgID 146-167). FNS's manual analysis of benefit redemption data revealed average transaction dollar amount, average transaction dollar volume and total purchase count significantly higher than comparable retail outlets, as well as multiple transactions from the same benefit accounts within an unusually short period of time. FNS deemed 22 groups of 2 to 4 rapid transactions suspicious as they are unusual and suggestive of trafficking. (Dkt. 14, PgID 183-232). The FNS investigator concluded that the data from September through December 2014 established clear and repetitive patterns of unusual, irregular and inexplicable SNAP activity warranting the issuance of a trafficking charge letter. (Dkt. 14, PgID 232).

         Plaintiff responded to the charge letter by arguing that the suspect repetitive transactions were sometimes separated by more than 24 hours, and thus did not lead to a reasonable inference that plaintiff violated SNAP regulations. Plaintiff argued that the demographics of its customer population provided legitimate explanations for the irregular redemption data. (Dkt. 14, PgID 197-200). Specifically, plaintiff suggests that Highland Park is a poor community, under-served by large chain supermarkets which leads its residents to rely on small markets like plaintiff for grocery staples. Additionally, plaintiff asserted that the citizens in the community lack access to transportation, thereby requiring customers to make repeated trips on foot to satisfy their shopping needs. Plaintiff reasons that these circumstances explain the frequent, repeated transactions on the same benefit account and also supports the legitimacy of the larger than average transactions. (Id.) Plaintiff maintains that it is not uncommon for its customers to do all of their grocery shopping at a store like J & L. (Dkt. 14, PgID 411).

         Plaintiff also disputed the characterization of the 491 identified transactions as excessively large because nearly 40% of them were for $40 or less, and only 14 of them exceeded $100. (Dkt. 14, PgID 197-200). Plaintiff repeatedly argued to FNS that its own "analysis of the transactions demonstrates that the store did not engage in any violations." (Dkt. 14, PgID 242). Plaintiff also asserts that it conducted its own investigation into the transactions and found no SNAP violations, and that FNS's speculative findings were specious. (Dkt. 14, PgID 411). Plaintiff supplied photographs of the store's interior, including shelves of a variety of grocery and other food items. (Id.). One photograph shows a sign advertising large packages of frozen chicken wings for $37.99, packages of frozen fish for $22.99, as well as for spare ribs, baby back ribs and frozen potato wedges. (Dkt. 14, PgID219).

         The Final Agency Decision addressed plaintiffs responses by noting that its on-site investigation revealed a substantial inventory of prepared, ready-to-eat foods and accessory food items, as well as beer, wine and liquor, household items, paper products, cleaning supplies, laundry detergent, health and beauty products, and lottery tickets. "Store visit photos reflected that canned/packaged items were dusty, and staple food shelves were sparsely stocked, indicating a low turnover." (Dkt. 14, PgID 412). The store offered no fresh meat, fish or poultry, other than cold cuts; and no fresh vegetables or fruit was in inventory aside from two bags of onions, three tomatoes and one bunch of bananas. (Id.).

         Additionally, at the time of the on-site investigation, there was one shopping cart present, and it contained merchandise for sale. There was one hand-held shopping basket available. There were two cash registers situated behind a Plexiglass barrier. There was no check-out counter or conveyor belt; purchased items had to be handed through 8"xl8" openings in the Plexiglass. (Id.). "The majority of SNAP-eligible food items on hand consisted of snack foods and soft drinks. There was no indication of advertised specials/promotions or bulk/expensive food items." (Id.) The FNS administrative review officer questioned how, without any available shopping carts, only one shopping basket and little to no checkout space, customers were able to gather and transport large orders of inexpensive snack food to the cash registers and waiting transportation.

         FNS also refuted plaintiffs assertion that its customers had no access to better-stocked outlets in the area by noting that plaintiffs customers who were documented to have conducted implausible transactions with plaintiff were shopping at super stores, supermarkets and grocery stores - stores which likely offered better stock with more competitive prices than plaintiff, at or near the same time of the suspicious transactions. (Dkt. 14, PgID413). Specifically, FNS notes that at the time of the charge letter, there were 89 SNAP-authorized stores within a two-mile radius of plaintiff, including four super stores, three supermarkets, four medium grocery stores, four small grocery stores ...


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