Court: District Court, District of Columbia; March 12, 2019; Federal District Court
Judith Gail Dein, United States Magistrate Judge, addressed the USDA's Motion for Summary Judgment regarding the plaintiff, Rifat M. Cheema, d/b/a Cheema's Supermarket, who contested an agency ruling alleging that Cheema's trafficked in Supplemental Nutrition Assistance Program (SNAP) benefits, resulting in disqualification from the program. The burden of proof lies with Cheema's to demonstrate by a preponderance of the evidence that the agency's ruling was incorrect. To avoid summary judgment, Cheema's must present credible evidence that a jury could reasonably use to rule in its favor. The court found that Cheema's did not meet this requirement and granted summary judgment in favor of the USDA.
The SNAP program, established under the Food Stamp Act, aims to enhance the nutrition of low-income households. It is administered by the Food and Nutrition Service (FNS), which certifies stores to accept SNAP benefits through electronic benefit transfer (EBT) cards. These cards can only be used for approved food items, with strict regulations prohibiting the purchase of certain goods (e.g., alcohol, tobacco, non-food items) and the exchange of EBT benefits for cash, which constitutes trafficking. EBT transactions are monitored for suspicious activities, recorded in a USDA-maintained database that tracks transaction details, and analyzed by FNS's Investigative Analysis Branch to detect violations.
Disciplinary actions by the Food and Nutrition Service (FNS) following investigations are subject to administrative and judicial review as per 7 C.F.R. 278 and 279. When a store is permanently disqualified for trafficking benefits, the disqualification takes effect upon the retailer's receipt of the notice, in accordance with 7 U.S.C. 2023(a)(1). Retailers can request a review from an Administrative Review Officer (ARO), who makes a final determination (7 U.S.C. 2023(a)(3); 7 C.F.R. 279.2, 279.5), after which federal court review is available (7 U.S.C. 2023(a)(1)).
Cheema's is a grocery store in Allston, Massachusetts, owned by brothers Farhat, Nusrat, and Rifat Cheema. Authorized to accept SNAP benefits since March 1997, Cheema's has undergone several classifications: initially a "small grocery store," it became a "combination store/other" in 2011 and was reclassified as a "medium grocery store" in 2015 based on inventory changes. The store operates in approximately 1300 square feet with one cash register, lacking scanning devices and large shopping carts, offering handheld baskets instead.
Cheema's claims a loyal customer base, specializing in unique Halal meats, often purchased in bulk, which can deplete SNAP benefits quickly. Customers frequently place phone orders, and upon arrival, their totals are pre-calculated, leading to additional in-store purchases. To manage phone orders, the brothers maintain a notebook updated every three months.
In June 2015, the USDA's ALERT system flagged suspicious transactions at Cheema's, prompting an investigation by FNS that included transaction analysis for the following months. An FNS contractor visited the store on September 28, 2015, assessing various operational factors and comparing Cheema's transactions to similar stores. Subsequently, a "Charge Letter" was issued to the Cheema brothers, detailing the investigation and allegations of SNAP benefit trafficking.
The Agency notified the brothers of its intent to disqualify Cheema's from the Supplemental Nutrition Assistance Program (SNAP) due to alleged trafficking. The Charge Letter outlined suspicious transactions categorized into four areas: rapid multiple transactions, transactions from individual accounts in quick succession, rapid depletion of benefit allotments, and unusually large transactions, totaling 830 individual violations. Cheema's was permitted to submit evidence against these allegations and responded with two fax submissions. Their defense included claims of increased customer activity due to religious observances, higher credit card sales than EBT transactions, and specific shopping behaviors among customers.
Cheema's provided meat invoices and was later asked for non-meat invoices but did not submit requested telephone order evidence. A more recent notebook detailing phone orders was submitted to illustrate their order tracking. However, the Agency found Cheema's explanations insufficient, noting discrepancies in the volume of phone orders and the operational capacity of the store. The Agency concluded that Cheema's likely engaged in trafficking and officially disqualified them from SNAP on April 27, 2016. Following the disqualification, Cheema's requested a review from the FNS' Administrative Review Branch but failed to provide the necessary documentation within the specified time frame.
ARO Gwinn reviewed Cheema's case and concluded there was a likelihood of trafficking, leading to the USDA's final decision to disqualify Cheema's from the SNAP program. Cheema's subsequently filed a Second Amended Complaint in federal court on September 11, 2017, seeking a de novo review of the USDA’s determination to bar them as an authorized retailer. The USDA filed a Motion for Summary Judgment on August 22, 2018, followed by a court hearing on December 13, 2018.
The summary judgment standard requires the moving party to demonstrate that there is no genuine dispute regarding any material fact, which could affect the case's outcome. The court must view evidence favorably for the non-moving party, who must then provide specific facts to show a genuine issue for trial. Conclusory statements, unsupported speculation, or improbable inferences cannot be used to counter a summary judgment motion.
In SNAP-related cases, an aggrieved party may seek judicial review of a final FNS determination by filing a complaint in the appropriate district court, which will conduct a trial de novo. This review is broader than typical agency reviews under the Administrative Procedure Act, allowing the court to examine all issues raised and reach its own factual and legal conclusions, rather than being limited to the administrative record.
The court disregarded the agency's finding of trafficking, placing the burden of proof on the store disputing the Food and Nutrition Service (FNS) decision. If the government presents evidence of trafficking, summary judgment is appropriate if the store, as the nonmovant, fails to provide significantly probative evidence to counter the claim. The First Circuit emphasized that stores are best positioned to document activities on their premises and that assigning the burden of proof to them encourages accurate record-keeping, avoiding rewards for poor practices.
The court may rely on circumstantial evidence, such as Electronic Benefit Transfer (EBT) data, for summary judgment, as the statute allows this type of evidence. Although there are no precedents primarily using EBT data, the law supports its use in fraud detection. While it may be easier for a plaintiff to challenge EBT data inferences compared to direct evidence, the FNS can still use it if the plaintiff fails to raise substantial factual issues.
The USDA can determine a SNAP violation based on onsite investigations, inconsistent data, or EBT transaction reports, as both types of evidence are authorized by Congress to detect fraud. Such information may serve as circumstantial evidence of trafficking. Although a store can be permanently disqualified for a first trafficking offense, the First Circuit does not require a specific response to each alleged violation, allowing a singular rebuttal to address multiple transactions. However, if a store rebuts one violation but not others, it cannot escape summary judgment due to unrebutted instances of trafficking.
The court evaluates the evidence presented by the Plaintiffs regarding three categories of EBT data used by the FNS to determine trafficking. It finds that a genuine issue of fact exists for Attachment 1, but not for Attachments 2 and 3, resulting in summary judgment regarding the Plaintiffs' involvement in trafficking. The court emphasizes that the accused store must provide competent evidence to rebut trafficking claims, rather than relying on mere generalizations. The presence of circumstantial evidence from the USDA indicates that the store has not effectively countered the agency's findings, as established in the precedent case of Irobe.
The USDA identified four behavioral patterns indicative of trafficking, beginning with 62 pairs of transactions occurring within ten minutes or less, which are deemed too closely spaced to represent legitimate sales. Among these, some transactions were completed in under two minutes, raising credibility concerns, particularly given the store's operational limitations, such as the absence of shopping carts and scanners, and the presence of only one cashier. The court concurs with the USDA's assessment that these factors undermine the credibility of the transactions and support the inference of trafficking.
The court evaluates Cheema's arguments against the government's evidence regarding transaction processing capabilities and potential trafficking activities at its Market. The Market lacks sufficient infrastructure, such as ample counter space, a conveyor belt, an optical scanner, and multiple registers, to efficiently handle high-volume transactions. Cheema's claims that extended store hours lead to increased customer traffic are unsupported by evidence showing customers shopped more frequently due to these hours. The Market's assertion that rapid transactions stem from customers carpooling is undermined as it fails to demonstrate how this practice accounts for the number of high-dollar transactions identified by the government. Cheema's reliance on generalized customer affidavits does not effectively dispute the USDA's data, as the affidavits lack specifics on individual transactions or corroborative details. The court finds that Cheema's claims about family members shopping together and pre-tallied phone orders are mere conclusions without concrete examples or supporting evidence. Additionally, the submitted phone order records are largely illegible and do not provide essential details such as transaction times or payment methods, further weakening Cheema's defense. Overall, Cheema's has not produced credible evidence to establish a genuine issue of material fact regarding the legitimacy of its transaction practices.
Cheema's has not provided sufficient evidence to demonstrate that the high volume of phone orders resulted in rapid transactions or transactions involving significant amounts of money. The Owners' Affidavit from the Cheema brothers claims that customers often place phone orders and make additional purchases upon arrival, but this generalized statement lacks specific evidence linking the volume of phone orders to quick in-store transactions. Additionally, Cheema's failed to satisfactorily explain how pre-ordering enhances checkout efficiency as suggested by the defendant's data. The argument that the government did not have access to phone records during its investigation does not adequately challenge the summary judgment motion. The court emphasized that it must assess the evidence presented before it, independent of the Agency's findings, and noted that summary judgment is appropriate when the nonmovant does not present significant probative evidence. Ultimately, the court concluded that the evidence of rapid paired transactions remains unrefuted, supporting the inference of trafficking.
The USDA identified 62 instances where the same household made multiple transactions from an EBT account within 18 hours, with 51 of these occurring in ten minutes or less. Cheema's Supermarket argues that these patterns result from customers ordering by phone and then making additional purchases upon arrival, or forgetting items. However, the USDA questions this rationale, noting that in 11 instances, the second purchase was equal to or larger than the first, which undermines the claim that these were simply forgotten items. The court finds Cheema's explanations unconvincing due to the size of the transactions and the general nature of the Customers' Affidavit, which fails to address the high frequency of transactions from single beneficiaries. Cheema's assertion that similar patterns occur at other stores does not diminish the suspicion surrounding transactions at its own establishment, especially as there is no evidence that those transactions were legitimate SNAP purchases. The court concludes that the frequent transactions from the same EBT account within a short timeframe serve as further evidence of potential trafficking.
The USDA identified 110 instances where beneficiaries used most or all of their monthly SNAP benefits in unusually short time frames, with 45 transactions matching the remaining balance in their accounts. In contrast, a government study indicates that the average beneficiary typically spends 90% of their benefits over three weeks. Cheema's disputes the study's applicability, arguing that it does not account for varied shopping behaviors, particularly large purchases of halal meat. Despite this, Cheema's fails to provide concrete evidence to effectively counter the USDA's findings regarding the suspect transactions. The court referenced the Irobe case, where generalized claims about customer shopping habits were insufficient to challenge transactional data. Additionally, the USDA flagged 596 EBT transactions over $47 as unusually large, with 437 exceeding $100. Cheema's transaction data showed an average transaction amount of $134.99, significantly higher than the $50 average at comparable stores selling halal meat.
Cheema's transaction data indicates sales exceeding 300% of the average purchase amount for medium grocery stores. Cheema's contends this data is misleading, claiming comparisons were made to inappropriate store categories. They argue that, based on their meat sales, they should be classified as a specialty store, which focuses primarily on meat products, rather than a medium grocery store. However, Cheema's fails to provide evidence from specialty stores to support this classification. Instead, they assert that 70% of their sales are from halal meat, which they argue should negate comparisons to other medium grocery stores with similar ethnic offerings.
Despite these claims, the government maintains that Cheema's large transactions are atypical compared to other halal meat sellers and medium grocery stores. Cheema's attorney argued that comparisons to stores like Stop & Shop and BJ's were unfair, but the government used these comparisons to illustrate that customers at Cheema's spent significantly more than at comparable stores. Additionally, Cheema's attempts to explain large transaction amounts as being related to holiday purchases are undermined by evidence showing that customers made comparable purchases at other halal and even non-halal stores during the same periods. This contradicts Cheema's assertion of bulk monthly grocery shopping at their store, further weakening their position in the case.
Redemptions of SNAP benefits at Cheema's during the review period (June to August 2015) were comparable to non-holiday months, contradicting Cheema's assertion that holidays caused irregular transaction patterns. Cheema's claimed that large purchases coincided with fresh meat deliveries, supported by the Owners' Affidavit stating deliveries occur one to three times per week. However, Cheema's failed to provide specific evidence for this claim. Out of 596 reported excessively large purchases, 494 aligned with delivery dates or the Fourth of July, leaving 100 purchases unaccounted for, many correlating with religious holidays. Cheema's did not sufficiently demonstrate that holidays drove these transactions, and there were approximately 100 uncontested violations justifying the USDA's charges. Additionally, the USDA noted insufficient refrigeration space to support Cheema's claims regarding high transaction values. Cheema's argued that its specialty foods are sold at significant markups—69% for chicken, 81.5% for beef, 26.5% for lamb, and 20% for goat—but did not provide evidence that these higher markups could explain the discrepancies between projected and actual sales. While FNS estimated a 40% markup based on Cheema's invoices, Cheema's did not effectively challenge this estimate or account for specific high purchases. The argument that some combination of food offerings justifies the large transactions was deemed insufficient. Cheema's also criticized the government's inventory calculations for being incomplete due to poor record-keeping, yet failed to substantiate this claim.
Cheema's argues that the Agency's conclusion regarding its alleged trafficking, inferred from a lack of inventory documentation for approximately $150,000 in sales over three months, is speculative. Cheema's claims that if proper records had been maintained, they would have demonstrated sufficient inventory corresponding to the flagged sales. It highlights that its credit card sales of $310,007.10 exceed the government’s estimated inventory sales of $274,307.46. However, Cheema's did not submit invoices to clarify the discrepancies or evidence of inventory for comparable periods. The burden lies with Cheema's to counter the government's suspicions stemming from high transaction volumes, and mere claims of poor record-keeping are insufficient to establish a defense. The court emphasizes that businesses must maintain accurate records; failing to do so would unjustly reward poor practices. Additionally, a customer's general assertion about making large purchases at Cheema's does not substantiate its claims due to a lack of supporting evidence.
On the issue of sanctions, the court notes that Cheema's has not provided evidence to dispute liability for trafficking, leading to the consideration of the USDA's decision to disqualify Cheema's from the SNAP program. This sanction can only be overturned if deemed arbitrary or contrary to law, with permanent disqualification being the standard penalty for trafficking. The USDA may opt for a civil penalty instead if there is substantial evidence of the store's effective compliance measures to prevent violations.
Cheema's has not provided sufficient evidence to contest the statutory disqualification, which the court confirms is not arbitrary or capricious. The court grants the USDA's Motion for Summary Judgment, referencing that the facts primarily derive from the defendant's Local Rule 56.1 Statement of Undisputed Facts. The court notes that Cheema's did not properly submit a statement of facts in compliance with local rules, leading to the acceptance of the defendant's facts as true. Although Cheema's included some evidence in its memorandum, the court will only consider it if it directly contradicts the defendant's established facts. The court highlights the exclusion of 37 invoices from review due to various issues, including duplication and lack of verification. Cheema's attempts to draw comparisons with a different store in Irobe are dismissed, as the court finds the circumstances fundamentally dissimilar. Despite Cheema's long-standing operation as a SNAP retailer without significant issues, this does not mitigate the evidence of trafficking found in the current case. Additionally, inconsistencies in the affidavits submitted by Cheema's are noted, including missing pages in one affidavit.
