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West Town Market, Inc. v. United States

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

August 28, 2019

WEST TOWN MARKET, INC. and HAYTHAM BESHI, Plaintiffs,
v.
UNITED STATES OF AMERICA, et al., Defendants.

          ORDER DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT [ECF No. 19], GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR SUMMARY JUDGMENT [ECF No. 20], AND GRANTING IN PART PLAINTIFFS' MOTION FOR LEAVE TO AMEND WITNESS LIST [ECF No. 25]

          HON. GEORGE CARAM STEEH JUDGE

         Haytham Beshi is the owner of the West Town Market convenience store (Beshi and West Town Market will be referred to collectively as “plaintiff”). West Town Market was permanently disqualified from participating in the federal Supplemental Nutrition Assistance Program (“SNAP”) due to a finding by the United States Department of Agriculture Food and Nutrition Services that plaintiff trafficked in SNAP benefits.[1]Plaintiff filed a complaint in this court seeking to reverse the disqualification. The matter is before the court on cross motions for summary judgment.

         PROCEDURAL BACKGROUND

         On July 28, 2017, the United States Department of Agriculture (“USDA”) issued a “charge letter” that permanently disqualified West Town Market from accepting SNAP Benefits. The USDA alleged that plaintiff trafficked SNAP benefits in two ways: (1) by conducting numerous transactions within a short time frame within the same household; and (2) by conducting transactions too excessive in value to be actual purchases in West Town Market. Plaintiff responded to the charge letter by providing a legitimate explanation for the types of purchases made by its customers and attaching receipts for its food purchases to demonstrate that it had the inventory to support the SNAP purchases made in its store. On October 5, 2017, the USDA denied plaintiff's request to reverse the USDA action. Plaintiff appeals the denial to this court.

         FACTUAL BACKGROUND

         The USDA operates SNAP under the Food Stamp Act, 7 U.S.C. §§ 2011, et seq. SNAP is administered by the USDA's Food and Nutrition Services (“FNS”), with a mission to “promote the general welfare and safeguard the health and well-being of the Nation's population by raising the levels of nutrition among low-income households.” 7 U.S.C. § 2011. Electronic benefit transfer (“EBT”) cards are distributed to households qualified to participate in SNAP. The EBT cards function like a debit card. The household's account is credited monthly with the amount of benefits allocated and members of the household access the benefits by swiping the card at a specially programmed point-of-sale device issued to stores authorized to participate in SNAP. The benefits are debited from the household's account and credited to the store's designated bank account. Benefits may only be used to purchase eligible items.

         FNS employs the Anti-Fraud Locator using EBT Retailer Transactions (“ALERT”) system to monitor SNAP transactions and flag those with unusual patterns that may be consistent with trafficking. The ALERT system records EBT transactions at every retail store participating in SNAP. One manner of trafficking occurs when SNAP recipients sell their benefits for cash to food retailers, usually at a discount. FNS looks for patterns indicative of trafficking, like multiple transactions by the same household in a short period, to avoid a single high dollar transaction, or unusually high dollar transactions at stores that otherwise have small transactions. If FNS identifies a retailer with unusual patterns it will conduct further investigation.

         West Town Market, located in Wayne, Michigan, is a 2, 000 square foot store that is described as a grocery store by plaintiff and as a convenience store by defendants. (Beshi Aff. ¶ 4; Denise Thomas Decl. ¶14). In 1995, West Town Market was authorized to participate in SNAP. Significantly, plaintiff had no compliance issues in he 22 years preceeding this action.

         West Town Market showed up on the ALERT system and FSN researched its EBT data from February 1, 2017 through May 31, 2017. The average SNAP transaction at a convenience store in all of Wayne County during the relevant four month period was $5.67, while West Town Market's average ranged from $10.88 a month to $15.06 a month. West Town Market had total SNAP sales of $25, 906.10, which was nearly double the average SNAP sales ($13, 936.64) for convenience stores in Wayne County during the same period.

         An FNS contractor, Kelli Chambliss, visited West Town Market to conduct an on-site review. She noted the market did not have scanners at the checkout, did not have shopping baskets or carts, and that it operated through a plastic barrier. Chambliss's report contained several errors, such as the size of the store (she said the store was 1500 square feet, but it is 2000 square feet), the size of the counter (she said it is 1 x 1, but it is 3 x 3), whether it has baskets for shopping (she said it does not, but it does) and how many entrances it has (she said it had only one entrance, but it has two).

         At the time relevant to the facts of this case, Beshi had only one employee, Stiven Toma, who worked as a cashier. (Beshi Dep. p. 9). Chambliss spoke to Toma who said that the most expensive SNAP eligible item sold at West Town Market was a 12.5 oz. can of baby formula that sold for $20.99. The next most expensive items ranged from $5.69 to $6.99.

         FNS Specialist Anthony Pesini reviewed the ALERT data and results of the on-site review. Pesini found 29 sets of violations in which a household conducted multiple higher-than-average SNAP transactions in fewer than 24 hours. (EFC No. 11, AR 92). One such household spent $20.96, $35.21, $26.50 and $32.92 in a 24 hour period, with two of the transactions occurring in less than one hour. Id. Pesini also identified 219 SNAP transactions exceeding $24, and 23 SNAP transactions exceeding $100. Id. at 93. A comparison of larger convenience stores located less than 2 miles away with similar inventory showed no transactions unusually close in time from the same household during the same period, 87 SNAP transactions over $24, and 5 transactions over $100. Id. at 94.

         Next Pesini analyzed data for three of the specific households involved in the suspicious transactions and found that within days of the households making an unusually large SNAP transaction at West Town Market, they also made a SNAP purchase at a superstore. Id. at 100-107. One household spent $1, 797.63 in SNAP benefits at a superstore and during the same period spent $3, 026.76 at West Town Market. Id. at 107. Pesini noted that this was indicative of trafficking because there were not many products a household could purchase at West Town that they could not get at better-stocked and lower-priced superstores.

         West Town Market did not carry fresh meat, specialty or ethnic foods that would provide a reason for it to have uniquely high transactions compared to its lower-priced competitors. Pesini described West Town Market as a “place to pick up a few items forgotten at the grocery store or to get a few items to make dinner with.” Id. at 93. Based on his analysis of the transaction data, he concluded there were “clear and repetitive patterns of unusual, irregular, and inexplicable SNAP activity” which warranted issuance of a trafficking charge letter. Id. at 107.

         FNS sent Beshi a charge letter on July 28, 2017. Id. at 128-30. The transactions FNS considered to be violations of SNAP regulations were attached to the charge letter. Id. at 131-38. The letter informed Beshi he could submit any information, explanation or evidence for FNS to consider in making a final determination.

         Beshi, through counsel, responded by submitting numerous receipts and invoices he believed showed that he purchased enough food inventory to support the amount of claimed SNAP sales. ECF No. 11-1, AR 184-280. Beshi explained that the large and multiple transactions occurred because there were no other grocery stores in the immediate neighborhood. Id. at 144; ECF No. 11-2, AR 333. He claimed that the data on large transactions was not indicative of trafficking because he sold baby formula for $20.99 and $74.99 and cases of soda or energy drinks for $9.99 to $49.99. Id. at 147. Beshi emphasized that large purchases were due to the sale of baby formula not reimbursed by the Special Supplemental Nutrition Program for Women, Infants and Children (WIC”), as well as the sale of soda and energy drinks. Id. at 334.

         Pesini reviewed the documentation submitted by Beshi and determined that 78% of West Town Market's SNAP-eligible inventory consisted of soda, snacks and candy and noted that it seemed unlikely a household would spend a large proportion of their monthly benefits on these items. ECF No. 11-3, AR 462. Pesini determined that within one mile of West Town Market there were 12 other convenience stores, a supermarket, a meat market, a medium grocery store and a farmer's market. Id. at 462-63.

         West Town's WIC redemptions for March - May were $15, 722.62. Id. at 466. Beshi provided invoices for $5, 339.70 of baby formula inventory purchased during the period at issue. Even considering a 100% markup on formula, Pesini concluded there would be a large excess in WIC redemptions, making it reasonably likely that most formula sales were made with WIC rather than SNAP benefits. Pesini also determined it was highly unlikely a household would spend over $100 on cases of energy drinks and soda in a convenience store when the same could be obtained more cheaply at a superstore. Id.

         One of the households had 18 SNAP transactions totaling $1, 459.63 at West Town in a 6-day timeframe in March and had no other transactions at West Town before or after that date. Id. at 466-67. The particular household shopped at Kroger and other markets during the same period, causing FNS to conclude it was unlikely the household would legitimately spend such a large amount on food at a convenience store.

         Based on Pesini's analysis and Beshi's evidence, Pesini's supervisor, Denise Thomas, found by a preponderance of the evidence that the transactions identified in the charge letter were more likely than not the result of trafficking. Id. at 468-69. FNS informed Beshi that West Town Market would be permanently disqualified from the SNAP program. Beshi requested administrative review of the decision. Id. at 474. On June 28, 2018, FNS issued a ...


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