AJ Mini Market, Inc. v. United States

United States Court of Appeals
For the First Circuit
No. 22-1348
AJ MINI MARKET, INC.,
Plaintiff, Appellant,
v.
UNITED STATES,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. John J. McConnell, Jr., U.S. District Judge]
Before
Kayatta, Selya, and Montecalvo,
Circuit Judges.
George J. West on brief for appellant.
Zachary A. Cunha, United States Attorney, and Leslie J. Kane,
Assistant United States Attorney, on brief for appellee.
July 5, 2023
SELYA, Circuit Judge. The supplemental nutrition
assistance program (SNAP) — commonly known as the food-stamp
program — is an important feature of the social net that assists
underserved populations. Like many social programs, SNAP's
integrity (and, thus, its utility) depends on the commitment of
the affected parties — the government, the benefit recipients, and
the participating grocers — to play by the rules.
A failure to abide by the rules has consequences. The
Food and Nutrition Service (FNS) of the United States Department
of Agriculture is tasked with overseeing grocers' participation in
SNAP. When FNS determines that a grocer has colored outside the
lines and flouted programmatic guidelines, it is empowered to
impose penalties (up to and including permanent program
disqualification).
This is such a case. After an investigation that in its
judgment revealed evidence of unlawful trafficking in SNAP
benefits, FNS disqualified plaintiff-appellant AJ Mini Market,
Inc. (the Market) from further participation in SNAP. The Market
did not take this exile lightly: it brought suit in the United
States District Court for the District of Rhode Island, asking
that the court overturn FNS's liability finding and vacate the
program-disqualification order as arbitrary and capricious. In a
thoughtful rescript, the district court rejected the Market's
importunings and entered summary judgment for the United States.
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See AJ Mini Mkt., LLC v. United States, 597 F. Supp. 3d 537, 541
(D.R.I. 2022). The Market appeals. After careful consideration,
we affirm.
I
We briefly rehearse the relevant facts and travel of the
case. Because this appeal follows the district court's entry of
summary judgment, we array those facts in the light most favorable
to the nonmoving party (here, the Market). See Minturn v. Monrad,
64 F.4th 9, 14 (1st Cir. 2023).
The Market is a convenience store located in Woonsocket,
Rhode Island. It sells some groceries, mainly inexpensive items,
including canned and packaged foods, meats, snacks, and beverages
(all of which are SNAP-eligible). It also sells a variety of other
items, such as delicatessen foods (some of which are SNAP-eligible)
and baby formula (which is SNAP-eligible). And, finally, the
Market sells a salmagundi of items that are not SNAP-eligible,
such as prepared foods, tobacco products, and lottery tickets.
The Market has been authorized to accept SNAP benefits
since 1989. It has limited checkout counter space and ten shopping
baskets but no shopping carts. And the Market has one cash
register for food purchases, one point-of-sale device to process
SNAP payments, and one optical scanner.
Prior to December of 2018, FNS's database flagged
statistically unusual spending patterns at the Market — patterns
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that could indicate SNAP trafficking. FNS proceeded to launch an
investigation that included a store visit and a comparison between
the shopping habits of the Market's customers and shoppers at other
SNAP-eligible stores in the area. In the process, FNS reviewed
transaction data from December of 2018 through May of 2019.
The investigation confirmed FNS's suspicions and — on
July 11, 2019 — FNS sent a charge letter to the Market describing
384 SNAP violations based on the data, the store visit, and the
shopping comparison. The charge letter grouped the violations
into three categories, from which it drew an inference of SNAP
trafficking: multiple transactions within a short period by the
same household; depletion of a household's SNAP benefits within an
abbreviated time frame; and a high volume of larger-than-expected
transaction totals (based on store characteristics and food
stock). The letter notified the Market that the sanction would be
permanent disqualification from participation in SNAP. Last but
not least, the letter informed the Market that it had an
opportunity — in advance of a final determination — to produce
evidence to refute both the liability finding and the proposed
sanction. See 7 C.F.R. § 278.6(b)-(c).
The Market responded by providing 174 pages of receipts,
claiming that these receipts clarified the nature of the allegedly
offending transactions. Additionally, the Market suggested that
its customers typically shop in bulk once or twice a month after
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receiving their SNAP benefits, thus accounting for the spending
patterns that FNS had deemed suspicious. The Market also requested
that if FNS found a violation, it impose a monetary penalty in
lieu of permanent disqualification. In its response, though, the
Market did not identify any particular customers, nor did it
furnish any materials describing SNAP compliance policies or
training programs.
The Market's response did not move the needle. On August
15, 2019, FNS wrote to the Market, stating that the submitted
receipts were not sufficient either to change the picture or to
illustrate the legitimate use of SNAP benefits. Rejecting the
Market's other arguments, FNS permanently disqualified it from
further participation in SNAP.
The Market requested administrative review of both the
liability finding and the sanction. It was given an opportunity
to submit additional evidence to FNS's review officer, see id.§ 279.3(b), but it made no further submissions. On June 12, 2020,
the review officer upheld FNS's determination that the Market had
violated SNAP regulations by engaging in trafficking. Relatedly,
the review officer upheld the order for permanent
disqualification.
Dissatisfied with the review officer's rulings, the
Market commenced an action against the United States in the
district court. Its complaint challenged both the liability
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finding and the sanction. See 7 U.S.C. § 2023(a)(13), (15). After
the close of discovery, the United States moved for summary
judgment. See Fed. R. Civ. P. 56(a). Although the Market opposed
the motion, the district court granted it. See AJ Mini Mkt., 597
F. Supp. 3d at 541. The court concluded that the Market had not
shown the existence of any disputed issue of material fact
sufficient to undercut the finding that it had trafficked in SNAP
benefits. See id. at 540. Moreover, the court concluded that
permanent disqualification was neither arbitrary nor capricious
but, rather, was a fitting sanction under the applicable
regulations. See id. at 541 (citing 7 C.F.R. § 278.6(e)(1)).
This timely appeal followed.
II
In this venue, the Market advances two claims of error.
First, it argues that it should not be held liable for trafficking
in SNAP benefits because the transactions upon which FNS relied
were legitimate. Second, it argues that — even if the liability
finding withstands scrutiny — FNS should have reduced the penalty
imposed to a monetary sanction. We address these arguments
sequentially.
A
Our starting point is the Market's claim that it did not
traffic in SNAP benefits. We review the district court's entry of
summary judgment de novo. See Minturn, 64 F.4th at 13. Our
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appraisal, like that of the district court, gives no weight to the
agency's finding that trafficking occurred. See Irobe v. U.S.
Dep't of Agric., 890 F.3d 371, 376, 379 (1st Cir. 2018); see also
7 U.S.C. § 2023(a)(15). Instead, we must consider afresh the
entirety of the expanded record compiled before the district court.
See Irobe, 890 F.3d at 377.
Summary judgment is appropriate when the movant can
demonstrate both that there is no genuine dispute as to any
material fact and that it is entitled to judgment as a matter of
law. See Minturn, 64 F.4th at 13-14; see also Fed. R. Civ. P.
56(a). In reviewing the summary judgment record, we must construe
the facts in the light most favorable to the nonmovant and draw
all reasonable inferences to its behoof. See Minturn, 64 F.4th at
14.
Shifting from the general to the specific, it is clear
that a store that engages in SNAP trafficking violates the law.
See 7 C.F.R. §§ 278.2(a), 271.2. Typically, such trafficking
occurs when a store accepts SNAP benefits in exchange for cash or
prohibited items. See id. § 278.2(a). For example, "a store
trafficks when it 'accept[s] food stamps for sales that never took
place,' allowing its customers to receive 'cash rather than
merchandise.'" Irobe, 890 F.3d at 375 (quoting Idias v. United
States, 359 F.3d 695, 698-99 (4th Cir. 2004)).
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In this instance, FNS proffered no direct evidence of
unlawful transactions. But direct evidence of unlawful
transactions is not necessary to prove trafficking:
circumstantial evidence may suffice. See 7 U.S.C. § 2021(a)(2);
7 C.F.R. § 278.6(a); see also Irobe, 890 F.3d at 379. To this
end, FNS often identifies potential trafficking through a system
that tracks data from SNAP-authorized stores and flags spending
patterns indicative of trafficking. See Irobe, 890 F.3d at 375.
Such telltale patterns include the presence of transactions that
are large when compared to the items offered for sale by the store,
see Euclid Mkt. Inc. v. United States, 60 F.4th 423, 427 (8th Cir.
2023), the presence of transactions that are substantially greater
in dollar amount than transactions at similar stores in the area,
see Fells v. United States, 627 F.3d 1250, 1254 (7th Cir. 2010),
and the presence of high-dollar-amount SNAP transactions recorded
in rapid succession, see Idias, 359 F.3d at 698. When such
patterns are present, they give rise to an inference of
trafficking. See Irobe, 890 F.3d at 380.
Stores can refute the inference of trafficking by
contesting the accuracy of the data or providing evidence to
demonstrate the legitimacy of the transactions. See 7 C.F.R.
§ 278.6(b). When challenging a finding that it trafficked in SNAP
benefits, "the store bears the burden of proving by a preponderance
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of the evidence that its conduct was lawful." Irobe, 890 F.3d at
378.
In the case at hand, FNS charged the Market with 384
violations based on numerous suspicious transactions. Among those
putative violations were 303 transactions that were at least 300
percent higher than monthly averages at comparable Rhode Island
stores and more than twenty instances of a single household making
purchases in rapid succession (sometimes completely depleting the
household's SNAP benefits in the process). The Market has not
challenged the accuracy of any of the data presented by FNS.
There was more. FNS examined the habits of six
households receiving SNAP benefits and concluded that those
households all shopped at larger and better-stocked grocery stores
on the same days that they shopped at the Market. FNS noted that
— at the time of the investigation — there were twenty-two other
SNAP-eligible stores within a one-mile radius of the Market.
These statistical analyses gave rise to an inference of
trafficking. See id. at 380. The burden shifted, then, to the
Market to rebut that inference. See 7 C.F.R. § 287.6(b)(1).
In an effort to dispel the inference of trafficking and
to prove the legitimacy of the suspect transactions, the Market
submitted 174 pages of receipts (with many pages including more
than one receipt). The receipts purport to be itemized, but many
include the generic description "DELI" for most or all entries.
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For example, many receipts include over $100 worth of transactions
labeled "DELI." Several of these include single "DELI" items
priced at over sixty dollars — which is more than the cost of any
single item at the Market. Many other items shown on the receipts
are listed as "MISC NON-TAXA(B)" with no further identifying
information. The receipts indicate that the purchases were made
using SNAP benefits, but they do not clarify which SNAP household
made them.
Viewed in their totality, these receipts do not
adequately refute the inference of trafficking. They lack any
meaningful detail that would explain the unusually large SNAP-
benefit transactions that FNS identified. Indeed, many of the
receipts appear to confirm the oddities that troubled FNS. We
explain briefly.
To begin, the receipts are more opaque than informative.
Many of them include only or mostly a series of "DELI" purchases,
without further elaboration. Only certain deli items were SNAP-
eligible, and the receipts do not shed any light on which items
were eligible to be purchased with SNAP benefits and which were
not. What is more, many receipts include items labelled "MISC
NON-TAXA(B)" with various prices, giving no explanation as to what
that item was or whether it was SNAP-eligible.
Importantly, the receipts do not answer the questions
that FNS raised. For instance, FNS noted that the dollar amounts
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of many transactions at the Market were unusually high given the
relatively inexpensive inventory of items that the Market offered,
the fact that there were better-stocked and cheaper grocery stores
nearby, and the apparent conflict between the large purchases and
the Market's limited stock.
An example helps to put the point into perspective.
Presumably in response to FNS's allegation of unusually expensive
purchases, the Market provided numerous receipts showing high-
value purchases of baby formula — including many purchases of over
$100 worth of formula at a time. But the formula receipts raise
more questions than they answer. First, most SNAP recipients also
qualify for the Special Supplemental Nutrition Program for Women,
Infants, and Children (WIC), which covers baby formula. Second,
the Market was authorized to accept WIC benefits during the
relevant period, yet the receipts reflect exclusive use of SNAP
benefits for formula purchases. Third, there was at least one
larger WIC-authorized grocery store within a half-mile of the
Market. Seen in this light, these receipts do not answer FNS's
question about unusually expensive purchases but do raise a
question as to why households would spend large amounts of SNAP
benefits on formula at the Market.
Nor do the receipts explain the large serial
transactions within single households over short time frames. They
do not identify customers by SNAP household. And they provide no
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explanation for how or why large transactions could be accomplished
in rapid succession at a store selling mostly low-price goods and
equipped only with one small checkout counter.
The Market argues that it is not unreasonable for
individual SNAP accounts to have multiple transactions within
short periods of time because shoppers forget items and because
shopping patterns at a small store (such as one having shopping
baskets but no carts) may make buying a plethora of goods at once
unwieldy. That may be so, but the Market has provided no proof,
beyond its own speculation, that such purchasing patterns were
prevalent at its store. Guesswork and conjecture, without more,
are not enough to blunt the force of curated data showing
suspicious spending patterns. See Irobe, 890 F.3d at 381.
Taking a different tack, the Market argues that the
inference of trafficking based on data is "pure surmise" because
that data "was unaccompanied by any physical observance of a[]
deviation from SNAP rules." But this is merely a recasting of the
Market's argument, previously rejected, that circumstantial
evidence alone cannot support a finding of a SNAP violation. FNS
is not obliged to catch the Market red-handed in order to determine
that it has engaged in SNAP-benefit trafficking. Instead, FNS may
base its findings — as it has here — on circumstantial evidence as
long as that evidence is "adequate to ground a strong inference of
trafficking." Id. at 380; see 7 U.S.C. § 2021(a)(2); 7 C.F.R.
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§ 278.6(a). FNS gathered ample data which, combined with its
observations, was strongly suggestive of unlawful trafficking.
The Market has wholly failed to rebut that compelling inference.
To be sure, the Market proffers a mélange of observations
that it claims explain FNS's data. It contends, for instance,
that the Market's customers shop in bulk once or twice a month and
that the Market's previous history of compliance should be weighed
in the balance. These contentions were not advanced before the
district court and, thus, are deemed waived. See Teamsters,
Chauffeurs, Warehousemen & Helpers Union, Local No. 59 v. Superline
Transp. Co., 953 F.2d 17, 21 (1st Cir. 1992).
We add, moreover, that even if not waived, these
contentions would provide no lifeline for the Market.
Notwithstanding its assertion that customers shop in bulk once or
twice a month, the Market has offered no evidence to support that
assertion.1
1 The Market's attempt to draw an analogy to Skyson USA, LLC
v. United States, 2010 WL 651032 (D. Haw. Feb. 22, 2010), invites
us to compare plums with pomegranates. There, a bulk grocery store
successfully rebutted trafficking charges based on evidence of
unusually high household depletion of SNAP benefits at the start
of the month. See id. at *11. The store supplied evidence showing
that it restocked its inventory more frequently during the
beginning of the month as well as detailed receipts showing that
more of its inventory was SNAP-eligible than FNS had thought. See
id. at *6, 11. Here, however, the Market has offered no comparable
evidence — and it is a convenience store, not a bulk grocer.
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By the same token, the Market's contention that FNS
should have considered the Market's entire history of SNAP
transactions as evidence that it did not engage in trafficking is
unavailing. Even if we assume that the Market has a satisfactory
record of past compliance — a matter on which we take no view2 —
such a record would be irrelevant to the issue of liability where,
as here, FNS has supportably found compelling evidence of pervasive
trafficking. See Idias, 359 F.3d at 697; see also 7 U.S.C.
§ 2021(b)(3)(B); 7 C.F.R. § 278.6(e)(1)(i).
To sum up, FNS made out, through circumstantial
evidence, a cognizable case of trafficking. In the face of that
case, the Market has not proffered any evidence sufficient to carry
its burden of proof. See Irobe, 890 F.3d at 381. Nonspecific
receipts and conclusory observations comprise too flimsy a shield
to deflect the swing of the summary judgment axe. See id.(explaining that "'a conglomeration of conclusory allegations,
improbable inferences, and unsupported speculation is
insufficient' to ward off summary judgment" (internal quotation
marks omitted) (quoting DePoutot v. Raffaelly, 424 F.3d 112, 117
(1st Cir. 2005))). Consequently, we hold that the district court
2 Even though the Market repeatedly argues that it "had no
history of non-compliance prior to the instant complaint," the
record indicates that the Market was previously subjected to a
temporary six-month disqualification order.
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did not err in entering summary judgment in favor of the United
States on the liability issue.
B
This leaves the Market's challenge to the permanent
program-disqualification sanction. The Market argues that program
disqualification is too draconian a sanction and that a monetary
penalty would be sufficient.
The choice of a sanction rests largely within FNS's
discretion. See 7 C.F.R. § 278.6(a). We will only upset FNS's
choice of a sanction if that choice is "arbitrary, capricious, or
contrary to law." Irobe, 890 F.3d at 377 (quoting Mass. Dep't of
Pub. Welfare v. Sec'y of Agric., 984 F.2d 514, 520 (1st Cir.
1993)). The party challenging a sanction bears the burden of
showing that the sanction is inappropriate, that is, arbitrary or
capricious. See 7 U.S.C. § 2023(a)(15); 7 C.F.R. § 279.7(c).
To qualify for a monetary penalty in lieu of permanent
disqualification, a store must establish by substantial evidence
that it satisfies four criteria: that it has "an effective
compliance policy" as outlined in 7 C.F.R. § 278.6(i); that "its
compliance policy and program were in operation at the location
where the violation(s) occurred prior to the occurrence of
violations"; that it has "an effective personnel training program"
as described in 7 C.F.R. § 278.6(i); and that the store owner "was
not aware of, did not approve, did not benefit from, or was not in
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any way involved in the conduct or approval of trafficking
violations," or that it was "only the first occasion" in which
store management was involved. 7 C.F.R. § 278.6(a), (i).
As a general rule, a store has several opportunities to
submit the evidence necessary to qualify for the reduced sanction
of a monetary penalty. See id. §§ 278.6(b)(1), 279.3(b), 279.7(c)
(providing stores with opportunities to submit new evidence after
charge letter, after requesting administrative review, and after
commencing lawsuit in district court). These opportunities were
available to the Market, but the Market squandered them.
In response to the charge letter, the Market provided
only receipts. It did not submit further documentation either to
the FNS review officer or to the district court. So, too, it
provided no evidence showing either a store-wide compliance policy
or a training program for cashiers. And although the Market boasts
that it has "an effective personnel training program," this boast
is not backed by facts: the Market has not produced training
materials, a list of dates on which training took place, a
description of methods employed in checking for employees'
understanding of store policies, or anything else that would
suggest the existence of a viable training regime. Nor did the
Market adduce any evidence to show either that it had installed
anti-trafficking software or that its owner was unaware of and did
not benefit from whatever trafficking may have occurred. In short,
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the Market failed to provide evidence sufficient to show that it
had satisfied any of the four criteria.
In an effort to fill this yawning void, the Market cites
7-Eleven #22360 v. United States, 560 F. Supp. 3d 892 (D. Md.
2021). There, the district court preliminarily enjoined FNS from
enforcing a permanent disqualification sanction against a store
during litigation challenging the agency's decision to permanently
disqualify it. See id. at 896. The court found that the store
was likely to succeed in showing that the permanent
disqualification was arbitrary or capricious because, in part,
"[t]he disqualification of the [s]tore upon its first offense in
16 years of business seems to be an 'unduly harsh' policy." Id.
at 916 (quoting Ahmed v. United States, 47 F. Supp. 2d 389, 397
(W.D.N.Y. 1999)).
7-Eleven is readily distinguishable. In that case, the
permanent disqualification was based on only two instances of SNAP
trafficking by a "rogue employee." Id. at 896. Moreover, the
store provided ample documentation in support of the four criteria
enumerated above. See id. at 915-16. That is a far cry from this
case, in which the violations were numerous and the Market failed
to provide any compliance policies, training materials, or other
evidence in support of the criteria.
The Market makes one last effort to undermine the
sanction. It argues that significant harm to the community will
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occur if it were disqualified from SNAP because low-income families
will lose their local grocery store. This argument will not wash.
For one thing, hardship to the community is not a factor
to be considered in determining the appropriateness of a permanent
SNAP program-disqualification order.3 See 7 C.F.R. § 278.6(i).
For another thing, the claim of hardship rings hollow here: the
record indicates that there are at least twenty-two other SNAP-
eligible grocery stores within a one-mile radius of the Market
(some of which are better-stocked and cheaper).
That ends this aspect of the matter. We hold, without
serious question, that the sanction imposed (the permanent
program-disqualification order) was neither arbitrary nor
capricious.
III
We need go no further. For the reasons elucidated above,
the judgment of the district court is
Affirmed.
3 Hardship may be considered, though, with respect to the
imposition of temporary disqualification orders. See 7 C.F.R.
§ 278.6(a), (f)(1).
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