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United States District Court, Northern District of California

April 3, 2003


The opinion of the court was delivered by: Samuel Conti, United States District Judge.


For the reasons stated in the Court's Order Re: Defendant's Motion for Summary Judgment, judgment is entered in favor of Defendant.




On January 17, 2002, the United States Department of Agriculture's Food and Nutrition Service ("FNS" or "Defendant") disqualified Cilles Liquor, a food and convenience store owned by plaintiffs Mohamed Mohamed Thabit and Amirah Attayed Thabit ("Plaintiffs"), from participation in the food stamp program. After an unsuccessful administrative appeal, Plaintiffs appealed the disqualification to this Court. For the following reasons, the Court now grants Defendant's motion seeking summary judgment upholding the disqualification.


In 1998, Plaintiffs purchased Cilles Liquors, a liquor and convenience store in Oakland. The previous store owners had participated in the food stamp program, and Plaintiffs applied to accept food stamps. In June 1998, FNS approved their application. Originally Mohamed Thabit and his brother Ahmed Attayib operated Cilles Liquors alone, but in January 1999, according to Mohamed Thabit, his son Mutahar began working with Ahmed Attayib on afternoon/evening shifts.

From October 11, 2000 until April 4, 2001, an FNS investigator made ten visits to Cilles Liquors. Her reports state that during those visits she attempted to buy ineligible items and/or traffic in food stamps with the store clerks. On the first two visits, Mutahar Thabit allowed the investigator to purchase both eligible and ineligible items using food stamps. AR at 109-14. On the third visit, Mohamed Thabit refused to sell ineligible items. AR at 115-17. On subsequent visits, the investigator again purchased ineligible items, including liquor, from Mutahar Thabit, and on the last three visits Mutahar Thabit allowed her to exchange food stamps for cash. AR at 118-40. According to the investigator, another clerk was present during two of these trafficking incidents.

The investigator's reports do not state that Mohamed Thabit ever sold ineligible items or trafficked. Likewise, they do not state that trafficking or ineligible sales ever occurred while Mohamed Thabit was in the store. They do state that Mutahar Thabit never refused her requests to make ineligible purchases or sell food stamps.

On July 26, 2001, following these visits, another FNS investigator visited Cilles Liquors and introduced herself to Mohamed Thabit. Her report states that she informed him of an investigation against him and described its nature; according to Thabit, she informed him that his son had sold an ineligible item — a "wet burrito" — to a customer using food stamps. AR at 141; Thabit Decl. at 15. She then told him he would receive a letter in approximately sixty to ninety days. Mr. Thabit, according to the investigator's report, appeared to become angry with his son; according to his declaration, Mr. Thabit responded by telling his son that he could no longer work at the store or live in his house.

On November 16, 2001, FNS sent Plaintiffs a certified letter documenting the investigation and informing them that they might face permanent disqualification from participation in the food stamp program, that they had ten days to respond, and that they might, upon demonstration that they had an adequate program to prevent illegal sales involving food stamps, seek to have the penalty reduced from permanent disqualification to a monetary fine. AR at 37-38.

Plaintiffs sought and received extensions of the deadline responding to this letter, and they filed their written response on December 28, 2002. In the response, Mohamed Thabit noted that he had found no overages (excess income, which might be expected if a food stamp had been traded for less than its full value in currency) in the cash registers on the days the alleged violations occurred. He urged that a monetary penalty was appropriate because he was personally unaware of and uninvolved in the alleged misconduct, because he was not warned by FNS of the alleged misconduct, because he had fully cooperated with the investigator, and because he had an effective program in place to prevent violations. AR at 28-33. Describing the program, Thabit stated:

I have established a policy in the store regarding accepting food stamps, anybody working in the store has to have good knowledge about food stamp regulations. I do a walkthru with any new clerk pointing out all the items and whether it is eligible or not, and after a complete walkthru, I test the individual making sure that he knows all the regulations he is supposed to know. No one works the cash register without this training.
AR at 33. Thabit did not, however, submit any documentation of training or testing and did not produce any other evidence of the existence or nature of his compliance program.

Despite Thabit's response, FNS rejected his request for a civil penalty and disqualified his store from participation in the program. It found that the evidence presented by Thabit was insufficient to demonstrate that the compliance program was in place prior to the violations or that Thabit had implemented an effective personnel training program.

Thabit sought administrative review, but the review officer affirmed FNS's initial decision.*fn1 Following this denial, the Thabits filed this action.


A. Summary Judgment

Summary judgment is proper only when there is no genuine issue of material fact and, when viewing the evidence in the light most favorable to the nonmoving party, the movant is clearly entitled to prevail as a matter of law. Fed.R.Civ.P. 56(c); Cleary v. News Corp., 30 F.3d 1255, 1259 (9th Cir. 1994). Once a summary judgment motion is made and properly supported, the nonmoving party may not rest on the mere allegations of its pleadings, but must set forth specific facts showing that there is a genuine issue for trial. See Fed.R.Civ.P. 56(e); Celotex Corp. v. Myrtle Nell Catrett, 477 U.S. 317 (1986). In addition, to withstand a proper motion for summary judgment, the nonmoving party must show that there are "genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).

B. The Food Stamp Program

Congress founded the food stamp program in an effort to combat poverty-caused malnutrition. 7 U.S.C. § 2011. The program allows participants to use stamps to purchase eligible food items at participating stores. The Food Stamp Act contains provisions designed to ensure that stamps will only be used for their proper purposes; in response to fears that food stamps were chronically being used to purchase non-food items, or were being traded for cash, Congress enacted a scheme of stringent penalties for stores that allow impermissible use of stamps. 7 U.S.C. § 2021; see Kim v. United States, 121 F.3d 1269, 1272-73 (9th Cir. 1997).

Specifically, section 2021(a) states that "any approved retail food store or wholesale food concern may be disqualified for a specified period of time from participation in the food stamp program . . . on a finding, made as specified in the regulations, that such store or concern has violated any of the provisions of this chapter." The regulations create a detailed penalty scheme, with the severity of the penalty depending upon a host of factors. See 7 C.F.R. § 278.6 (e).

That scheme treats trafficking in food stamps with particular severity. 7 C.F.R. § 278.6 (e) states that "[t]he FNS Regional Office . . . shall disqualify a firm permanently if . . . personnel of the firm have trafficked as defined in § 271.2."*fn2 Section 2021(b) states that even the first trafficking disqualification must be permanent unless "the Secretary determines that there is substantial evidence that such store or food concern had an effective policy and program in effect to prevent violations of the chapter and the regulations."*fn3

The trafficking violation need not be committed by the store owner, or even with the knowledge of the store owner, to justify permanent disqualification. Kim, 121 F.3d at 1272-73. The store owner's innocent ignorance may be considered in reducing a penalty from disqualification to a monetary fine; Section 2021(b)(3)(B) indicates that, as a component of any demonstration of an effective compliance program, a store owner must show that he was unaware of and uninvolved in any trafficking violations. This requirement is merely one component of showing an effective compliance policy, however, and if he does not show the other elements of an effective policy, an ignorant owner may still be disqualified because of violations about which he had no knowledge.

C. Judicial Review of FNS Decisions

In the Ninth Circuit, FNS actions under the Food Stamp Act are reviewed using a bifurcated standard. "Whereas the FNS finding that a firm violated the Food Stamp Act is reviewed de novo, review of the sanction imposed by the FNS is governed by the arbitrary and capricious standard." Wong v. United States, 859 F.2d 129, 132 (9th Cir. 1988); Lopez v. United States, 962 F. Supp. 1225, 1230 (N.D. Cal. 1997).

In addition to applying to FNS's discretionary decisions about the severity of the penalty imposed, the arbitrary and capricious standard applies to the Court's review of FNS's decision regarding the adequacy of a firm's compliance program. The adequacy of such a program does appear to be a question of fact, and in Wong the Ninth Circuit clarified that underlying facts, even if relevant only to the severity of the penalty imposed, must be reviewed de novo. 859 F.2d at 132. The Food Stamp Act, however, specifically commits to FNS's discretion determinations about the adequacy of compliance programs. Section 2021(b)(3)(B) states that "the Secretary shall have discretion to impose a civil money penalty . . . if the Secretary determines that there is substantial evidence that such store or concern had an effective policy and program in effect . . ." Accordingly, this Court, in reviewing that determination, must ask only whether the Secretary was arbitrary or capricious in his assessment of the evidence before him regarding Plaintiffs' compliance program, and will not conduct de novo review of the program's adequacy.


A. The Existence of Violations

Since this is only a motion for summary judgment, Plaintiffs need only show disputed issues of material fact, and do not yet need to demonstrate by a preponderance of the evidence that the violations in question did not occur. Plaintiffs fail to meet this standard. In response to the detailed, sworn statements of the FNS investigators, Plaintiffs produce only the generalized assertion that such violations were against policy and would not have occurred and the somewhat more specific assertion that they found no overages in the cash registers on the days in question. The former assertion is far too general and conclusory to create an issue of material fact, and the latter, while perhaps providing a scintilla of circumstantial evidence that the violations in question might not have occurred, does not directly rebut the specific statements and observations of the investigators. See Wehab v. Yeutter, 743 F. Supp. 1353 (N.D. Cal. 1990).

B. The Severity of the Penalty

Likewise, Plaintiffs do not demonstrate the existence of any genuine issues of material fact regarding FNS's imposition of the penalty. The regulations clearly empower FNS to disqualify a firm upon a finding of trafficking, and empower FNS to determine whether the firm had produced substantial evidence of an effective compliance policy. Here, FNS does not dispute Plaintiff's assertion that he provided a written statement describing his "walkthru" training, and Plaintiff does not dispute FNS's contention that he had provided no other documentation, other than his brief statement, of that policy or of the completion of that training. Based on that record, and on FNS's observations that trafficking was in fact occurring — sometime when two of the three store employees were present — this Court cannot say that FNS was arbitrary and capricious in finding the compliance program inadequate.

Plaintiffs add a host of other implications of factual uncertainties and possible improprieties, but none persuade the Court that any genuine issues of material fact remain. Noting the agency's failure to warn Mr. Thabit, its withdrawal of what might have been a warning letter in favor of a charge letter, the somewhat odd "hot burrito" episode, the concurrence of its enforcement actions with the period shortly following the 9/11 bombings, and FNS's incorrect statement regarding the transfer penalty, Plaintiffs suggest that the severity of their penalty may arise out of an impermissible agency animus against persons of Middle Eastern descent. Plaintiffs have produced no other evidence of racial or religious animus, however, and together all of these facts show only an agency engaged in a lawful enforcement proceeding, albeit a proceeding marred by one incorrect explanation of the law, at a time of heightened prejudice against people of Middle Eastern descent. Such facts fall well short of creating a genuine issue of fact as to the legality of the agency's justifications for the harsh but lawful penalty it selected.

C. The Transfer of Ownership Penalty

At the end of their opposition brief, Plaintiffs assert that the Court also should deny summary judgment because factual issues remain regarding whether a transfer of ownership penalty is constitutional. According to Plaintiffs, FNS seeks to impose, pursuant to 7 U.S.C. § 2021 (e)(1), a penalty of $75,248; Plaintiffs argue that this penalty is grossly disproportionate to the degree of the offense and thus violates the Eighth Amendment.

Before the Court may address this issue, it must be faced with a ripe dispute. Here, Plaintiffs have introduced no evidence that they intend to sell the store and have provided neither evidence nor discussion explaining when and how FNS attempted or is attempting to impose the penalty. Plaintiffs did not even hint at this contention in their original complaint, which ostensibly sought review only of the disqualification decision. Plaintiffs have not set forth a ripe dispute, and the Court may not address this argument.


For the foregoing reasons, Defendant's Motion for Summary Judgment is GRANTED.


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