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Sky Grocery LLC v. United States Department of Agriculture - Food and Nutrition Service

United States District Court, D. Connecticut

March 20, 2017

Sky Grocery, LLC, Plaintiff,
United States Department of Agriculture - Food and Nutrition Service, Defendant.


          Janet Bond Arterton, U.S.D.J.

         Plaintiff Sky Grocery, LLC ("Sky"), a convenience store in Hartford, Connecticut, commenced the instant action pursuant to 7 U.S.C. § 2023(a)(13)-(15) and 7 C.F.R. § 279.7, against the United States Department of Agriculture-Food and Nutrition Services ("FNS" or the "Agency") challenging Sky's permanent disqualification from participation in the Supplemental Nutrition Assistance Program ("SNAP" or the "Act"). FNS disqualified Sky after it concluded that Sky had engaged in "trafficking" as defined by 7 C.F.R. § 271.2 which includes the exchange of SNAP benefits for cash. The United States now moves [Doc. # 18] for summary judgment, affirming the validity of the Agency's decision to disqualify Sky from participation in SNAP and rejecting Plaintiffs claims that the sanctions imposed were arbitrary and capricious or that Plaintiffs due process rights were violated. For the reasons articulated below, the Court grants Defendant's Motion for Summary Judgment.

         I. Background

         A. The Statutory and Regulatory Regime

         Congress established SNAP (7 U.S.C. § 2011 et seq., 7 C.F.R. § 271.1 et seq.) as a means of "alleviat[ing] hunger and malnutrition" by providing qualified households with food stamps that increase the funds those household have to spend on authorized food items at participating retail food stores. 7 U.S.C. §§ 2011, 2013(a), 2016(b); 7 C.F.R. § 274.2. The Act and regulations authorize FNS to administer the program. See 7 C.F.R. § 271.3.

         SNAP benefits are delivered through Electronic Benefit Transfer ("EBT") cards that work similarly to ATM cards. (Sweezy AS., Ex. 1 to Mot. Summ. J. [Doc. # 18-1] ¶ 8.) At the beginning of each month, a SNAP recipient's card is credited with a dollar amount of SNAP benefits which can then be used at authorized retail food stores to purchase eligible food items. (Id. ¶ 9.) The amount of each purchase is deducted from the card-holder's monthly allotment and credited to the retail store owner's bank account. (Id. ¶ 10.)

         SNAP regulations prohibit stores from "trafficking, " which the regulations define to include "the buying, selling, stealing, or otherwise effecting an exchange of SNAP benefits issued and accessed via Electronic Benefit Transfer (EBT) cards ... for cash or consideration other than eligible food" See 7 C.F.R. §§ 278.2(a), 271.2. For example, trafficking occurs when a store charges $25 to a customer's EBT card, the cashier then gives the customer a $20 bill, and the store retains the difference.

         The Act instructs the Agency to establish regulations for finding violations "on the basis of evidence that may include facts established through on-site investigations, inconsistent redemption data, or evidence obtained through a transaction report under an electronic benefit transfer system." 7 U.S.C. 2021(a)(2). At issue in this case is whether "transaction reports" are sufficient, without direct evidence of trafficking conduct, to warrant the conclusion that a violation has occurred.

         Under the statute and regulations, FNS may conduct an investigation and, when it finds that a retail store has engaged in trafficking, it may permanently disqualify that store from participating in SNAP. 7 U.S.C. §2021(b); 7 C.F.R. 278(e)(1).[1] The process by which a store is permanently disqualified proceeds through several steps: after detecting irregular transaction patterns through monitoring of EBT transactions or other evidence, FNS sends the suspected store a charge letter that specifies the basis on which FNS believes a violation has occurred. 7 C.F.R. 278(b)(1). The store is afforded a chance to respond with information, explanation and evidence. Id. After that response, FNS makes an initial finding. Id. The store may then request administrative review by an Administrative Review Officer (an "ARO") who renders the final decision of the Agency. 7 C.F.R. 279, Part A.

         After receiving notice of the Agency's final decision, a store is entitled to seek judicial review in either federal or state court. 7 C.F.R. 279, Part B. Such judicial review takes the form of a trial de novo. Id.

         B. Factual Background

         Sky is a retail convenience store located in Hartford, Connecticut that is solely owned by Ms. Alejandra Perdomo. (Administrative Record ("AR") at 1, 3.) The store opened in 2013 and was authorized to participate in the SNAP program in early 2014 after successful completion of an application process that included an in-store inspection. (AR at 3, 9-41, 64.) The store is approximately 1280 square feet and stocked with a range of "inexpensive food items such as canned goods, cereals, juice, pasta, rice, ramen noodles, beans and a variety of snack items. The coolers are stacked with packed meat items, cheese, milk and eggs." (AR at 68.) Photos taken during the authorization inspection and the investigation show shelves that are well-stocked with canned goods, dry goods, snack foods and cereals and a small amount of fresh produce, but no fresh meat. (AR at 28-41, 66-67.) The store also has a deli area in which hot food is prepared and sold for off-premise consumption. In addition, the store sells many non-food items, including tobacco products, alcohol, cleaning products, paper products, lottery tickets, and pet food. (AR at 68.) These items are not eligible for purchase with SNAP benefits.

         FNS commenced investigation into Sky in the spring of 2014 after the computerized EBT ALERT system that FNS uses to monitor authorized retail stores showed patterns of purchase indicating possible trafficking violations. (AR at 64.) Because of these suspicious patterns, FNS analyzed EBT SNAP transaction data for the months of June, July, August, September, October, and November 2014. Analysis of the data produced two separate findings of suspicious transactions: (1) a large number of households that completed multiple transactions within a 24-hour period, and (2) a large number of high-dollar-amount purchases.

         In its initial analysis of the case, FNS stated that "[m]ultiple transactions conducted within a 24 hour period are methods which stores use to avoid single high dollar transactions that cannot be supported and are suggestive of trafficking." (AR at 68.) In the first group, the analysis uncovered 52 transaction pairs or triplets (110 individual transactions total, most in pairs) completed by 38 households within a 24-hour period that ranged in total value from $100.38 to $263.22. (AR at 82-88.) For example, one household made an initial purchase of $100.39 at 7:29 AM on September 2, 2014 and then a second purchase for $38.99 two hours later at 9:30 AM. Another household made a purchase for $57.69 at 2:11 PM on September 4, 2014, a second purchase for $42.14 at 7:19 PM, and then a third purchase for $81.21 the next morning at 8:50 AM.

         In the second group, the analysis uncovered 790 individual EBT transactions, ranging from $35.25 to $165.25 "that exceeded the average transaction for the same store type (convenience store) in the same state by at least 300%." (AR at 218.) Of those, 94 transactions exceeded $100. After conducting a site visit, FNS concluded "there is no apparent legitimate reason for these high transaction amounts at [Sky] given the limited stock and variety of eligible foods and the fact that tobacco, alcohol, paper products, household items, pet food and hot foods are not eligible for purchase with SNAP benefits." (AR at 218.)

         Because of these suspicious transaction records, FNS conducted further investigation: (i) it performed a site visit on November 5, 2014 to determine if the store's stock could support or explain these transactions and to observe regular business during the busy period early in the month; (ii) it compared Sky's EBT transaction records to nearby stores; and (iii) using EBT data, it examined household purchasing patterns for families that shopped at Sky and elsewhere.

         The site visit supported FNS's initial suspicion that the transaction records were suggestive of trafficking. With respect to the paired transactions within 24 hours, the site inspection led the case investigator to conclude that

The store is not large enough for customers to consider Sky Grocery as a first choice destination to fulfill large and multiple purchases of food. The store does not have fresh meat and only has a small amount of fresh vegetables and fruit.

(AR at 68.) With respect to the second set of suspicious transactions-high dollar value purchases-the case investigator reported that

The store does not have any expensive food items that would justify large purchases. The store has mostly inexpensive food items as well as non-food items. SNAP recipients do not have a compelling reason to purchase large amount of food items from this store. The store does not have shopping carts or baskets for households to transport their large purchases to the register area. Moreover, the checkout area is not capable of processing large transactions due to its limited space. This is very unusual and highly unlikely and a strong indicator that trafficking may be occurring.

(AR at 69.)

         In addition to the site visit, FNS compared Sky's transaction data with nearby stores. Noting that there were 26 convenience stores, 15 grocery stores and 4 superstores/supermarkets within a one-mile radius, FNS compared Sky's EBT transaction data to six convenience stores within a one-mile radius (one as close as l/10th of a mile; the others just over Vi mile away) and to statewide averages for convenience stores. (AR at 70.) These comparisons revealed that Sky "had an average transaction amount of $18.85 during the review period while the 6 other convenience stores had a combined averaged transaction amount of $4.52." Id. In addition, FNS observed that Sky

had a higher total purchase transaction count and a high dollar volume compared to other convenience stores in the State of ConnecticutSky Grocery store had an average transaction amount of $18.85 during the review period while other convenience stores in the state had an average transaction amount of $8.95.

(AR at 74.)

         Further, whereas Sky had 52 paired transactions within 24 hours that triggered FNS's ALERT system, the convenience store l/10th of a mile away had only four such transactions, another had two such transactions and the remaining four comparator convenience stores had no such paired transactions. (AR at 217-18.) Likewise, whereas Sky had 790 high dollar value transactions, its neighbors had 39, 15 and 7 respectively at three nearby stores and 0 at the remaining three. (AR at 218.)

         FNS also surveyed the EBT purchases of select households that shopped at Sky and observed that households frequently made large purchases at chain grocery stores like Walmart or Stop 8c Shop, but that they also make significant purchases at Sky on the same day or within a day or two. (AR at 75-77.) For example, one household made purchases on June 2, 3, and 4 at Sky for $99.52, $59.02 and $64.37 respectively and then, again on June 4, spent the remaining $424.04 of its monthly allotment at Save-a-Lot. (AR at 76.) The investigator noted that such behavior "indicates that households in the area have access to larger stores and do not depend on the subject store for their major food needs." (AR at 75.) The investigator again noted that Sky ...

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