Bakal Bros. v. United States

Citations: 105 F.3d 1085; 1997 WL 35083Docket: No. 95-2163

Court: Court of Appeals for the Sixth Circuit; January 29, 1997; Federal Appellate Court

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Plaintiff Bakal Brothers, Inc., owner of 7-Van Drugs in Detroit, appeals a District Court ruling that upheld the United States Department of Agriculture, Food and Consumer Service's (FCS) decision to permanently disqualify the store from the federal food stamp program due to food stamp trafficking. In November 1994, Bakal Brothers employed 17-year-old Saimir Janiel, who engaged in illegal transactions involving food stamps without the co-owners' knowledge. An undercover officer approached the store to sell food stamps, but both co-owners rejected the offer. However, Janiel, after witnessing the interactions, pursued the officer and purchased food stamps in three separate transactions totaling $1,065 for $620 in cash. Following these incidents, FCS notified Bakal Brothers of potential disqualification, ultimately issuing a permanent disqualification notice on May 9, 1995. Bakal Brothers appealed to the FCS Administrative Review Branch and subsequently to the U.S. District Court, which affirmed the disqualification. On appeal, Bakal Brothers argues that it should not be held responsible for Janiel's actions. The appellate court's role is to determine if FCS acted within its authority in disqualifying Bakal Brothers from the food stamp program.

Under 7 U.S.C. § 2021(b), retail food stores face sanctions for trafficking in food stamps, defined as buying or selling food stamp coupons for cash or non-eligible food. Stores are liable for trafficking conducted by their employees. Prior to 1988, the law mandated permanent disqualification from the food stamp program for any trafficking violation, but an amendment provided the Secretary of Agriculture discretion to impose a civil money penalty, up to $20,000, instead of permanent disqualification. Permanent disqualification remains applicable for trafficking violations, but if the store can demonstrate an effective policy to prevent such violations, the Secretary may opt for a civil penalty instead. This indicates that even "innocent" owners can be sanctioned for employee trafficking, with the owner's innocence relevant only for determining the type of sanction imposed. The Secretary's decision on sanctions is not subject to judicial review. The next issue to resolve is whether Bakal Brothers is liable for trafficking by an employee named Jamel.

Bakal Brothers acknowledges Jamel's involvement in food stamp trafficking but argues that his actions should not be attributed to the store. They reference regulations stating that a store is accountable for trafficking by its 'personnel,' a term not explicitly defined in the regulations. The ordinary definition of 'personnel' includes all employees engaged in service roles. Bakal Brothers claims Jamel acted as an individual, not as store personnel, and was a 17-year-old stock boy without authority to accept food stamps, thus the store should not be liable.

However, the document explains that Jamel's trafficking occurred in the store's parking lot while he was on duty, indicating the area was effectively an extension of the store. Consequently, the store remains responsible as Jamel's job duties included maintaining the parking lot. The regulations hold stores liable for trafficking by any personnel, regardless of their authority to accept food stamps. Furthermore, stores must train all employees working with food stamps, which includes Jamel, making Bakal Brothers subject to sanctions for his actions.

The House Committee Report emphasizes that stores should be penalized for the unauthorized actions of their personnel, illustrating a legislative intent to hold stores accountable even for independent acts of employees. Bakal Brothers could have sought a civil money penalty instead of disqualification by demonstrating effective trafficking prevention policies within a specified timeframe after receiving a charge letter.

A store is ineligible for a civil money penalty unless a request and supporting documentation are submitted, as outlined in 7 C.F.R. 278.6(b)(2)(iii) (1996). Bakal Brothers opted not to pursue such a penalty, resulting in the Food and Consumer Services (FCS) imposing a permanent disqualification. An amicus curiae brief argues that strict liability for unauthorized employee trafficking violates the Fourteenth Amendment's substantive due process rights; however, since this argument was not raised by the plaintiff, it is not addressed here, as per Knetsch v. United States, 364 U.S. 361 (1960). The Eleventh Circuit has ruled that imposing strict liability on innocent store owners does not infringe upon their due process rights (TRM, 52 F.3d at 944-47). The judgment of the District Court is affirmed. A parenthetical added in 1990 directed the Secretary to consider specific evidence and amended the civil money penalty limits. The regulation mandates permanent disqualification if a firm’s personnel engage in trafficking as defined in 7 C.F.R. 271.2. Notably, the amended statute clarifies that permanent disqualification is not mandatory if the firm can demonstrate an effective policy to prevent violations and that the owners and managers were not involved.