Food stamp trafficking: why small groceries need judicial protection from the Department of Agriculture (and from their own employees).

Author:Regenstein, Elliot

A neon sign in the window of 7-Van Drugs reads "Food Stamps," but the contradictory truth is posted inside on a handwritten sign taped to a thick pane of bulletproof plastic.

7-Van Drugs sits at the intersection of Seven Mile Road and Van Dyke in northern Detroit, where it has "serv[ed] the community since 1948 at the same corner."(1) Inside 7-Van is an array of staple foods and basic household cleaning items, and there is a small pharmacy in the back. Customers must use a turnstile to pass their purchases through the bulletproof plastic to the cashier. There are no open windows, which could afford a clean shot. There is, however, a small slot to pass money back and forth, and above it is taped a pink piece of paper that says in black magic marker "We don't accept food stamps."

The store was still part of the food stamp program when an undercover officer from the Michigan State Police walked in on December 12, 1994.(2) The officer was there to ensure that 7-Van was not illegally trafficking in food stamps. He walked up to two cash registers offering to sell food stamps for cash. Neither cashier took the bait. The officer then left the store but was followed into the parking lot by Saimir Jamel, a seventeen-year-old clerk who is the nephew of the store's co-owners. Jamel, whose duties were limited to sweeping the floor and parking lot and stocking the shelves, offered to buy the food stamps for cash. He bought $270 in food stamps with $150 of his own money and gave the officer his pager number. He went on to make two more illegal food stamp purchases in January 1995, using his own money in both cases. After the third, the police arrested him in the parking lot outside of 7Van.

After Jamel's arrest, the Department of Agriculture's Food and Consumer Service (FCS)(3) notified the owners of 7-Van that Jamel's actions might result in the store's permanent disqualification from the food stamp program.(4) As part of that notification, the FCS told the store's owners that if, within ten days, they provided all the information necessary to request an agency hearing officially, the FCS would consider fining the store instead of permanently disqualifying it.(5) The store's owners did not, however, file a response with the FCS within ten days, and the agency punished 7-Van with permanent disqualification.(6)

Between 1982 and 1988, permanent disqualification was the only punishment the FCS could administer to a store whose employees illegally trafficked in food stamps.(7) The FCS could use this sanction on store owners who were entirely unaware of their employees' illegal acts.(8) In 1988, however, Congress amended the statute and allowed the Department of Agriculture (USDA) to impose a monetary sanction instead of permanent disqualification in some innocent-owner(9) cases.(10)

Although this change in the law granted the Department of Agriculture new discretion in deciding what sanction to impose, the Department quickly displayed its reluctance to exercise it to benefit innocent owners.(11) Its new regulations created an arduous procedure for groceries seeking to benefit from the USDA's discretion. First, the regulations require stores to request a hearing on the civil monetary penalty -- and to submit all of the evidence supporting their case -- within ten days of receiving a charge letter.(12) Second, the evidence submitted may not include evidence about hardship to households that might arise from the store's closure.(13) Third, when the civil monetary penalty is applied, the formula for assessing it makes it likely that even small grocery stores will receive the maximum penalty.(14)

Innocent owners have challenged these three provisions through the Food Stamp Act's provision for de novo judicial review,(15) and store owners in St. Louis have met with some success. The Eighth Circuit has found that the ten-day limit to request a hearing is arbitrary and capricious,(16) that the FCS cannot bar evidence about hardship to households for stores that have committed trafficking violations,(17) and that the formula for determining the civil monetary penalty is also arbitrary and capricious,(18) Outside of the Eighth Circuit, however, courts have found the ten-day requirement to be either beyond the scope of judicial review(19) or permissible;(20) they have approved the agency's formula for the civil monetary penalty or found it to be beyond the scope of their review;(21) and they have upheld the FCS's refusal to allow evidence of hardship to households.(22)

This Note argues that courts should adopt the Eighth Circuit's approach in addressing the penalty procedures that follow food stamp trafficking violations. Part I argues that the Food Stamp Act's review provision allows for judicial review of the agency's rules, and that the ten-day response requirement is an arbitrary and capricious standard to which small store owners should not be held. Part II contends that Congress intended to allow stores to present evidence that their permanent disqualification would cause hardship to households -- and that even absent that intent, the agency has no basis for excluding it. Part III asserts that courts that refuse to review the agency's formula for punishing violations misapply Supreme Court doctrine, and that courts reviewing the formula will find it cannot be upheld. This Note concludes that courts should not allow the FCS to require stores to respond to charge letters within ten days, that they should force the FCS to hear stores' evidence that their permanent disqualification would hurt the surrounding community, and that they should find the FCS's penalty formula too harsh for small grocery stores.


    On March 1, 1995, the FCS notified the owners of 7-Van Drugs that the agency was considering permanently disqualifying their store from the food stamp program.(23) The FCS rules allowed the store's owners only ten days to request a civil monetary penalty in lieu of the permanent disqualification; otherwise, they faced an automatic permanent disqualification from the program.(24) The store's owners did not respond within ten days, and that, according to the Sixth Circuit, required the FCS to disqualify the store permanently.(25) Section I.A contends that courts can and should review whether the FCS's ten-day response requirement is consistent with Congress's intent in passing the Food Stamp Act. Section I.B further argues that when courts review the requirement they should Find it arbitrary and capricious because of the hardship it causes to the owners of small grocery stores, who may not have the resources necessary to prepare the immediate and thorough response that the agency requires.

    1. The Legitimacy of Judicial Review

      Judges should review the legitimacy of the FCS's ten-day response requirement because the Food Stamp Act requires reviewing courts to consider the validity of the FCS's rules.(26) Courts evaluating the validity of the ten-day response requirement should determine whether the requirement is consistent with both the language of the Food Stamp Act and Congress's intent in passing the Act.(27)

      The Supreme Court requires courts evaluating the "validity" of an agency's actions to consider whether the regulations conform to the language and purpose of the statute.(28) If Congress has expressed a clear intent as to how an agency should act, the Court requires the agency to act in that manner.(29) Lower courts applying this legal standard when considering the validity of a statute generally have understood that a regulation's "validity" hinges on its compliance with a statutory scheme.(30) Courts should therefore compare the FCS's ten-day response requirement to the statutory scheme to see if the requirement is consistent with Congress's intent.

      The Sixth Circuit has not followed the Supreme Court's directive.(31) Instead of comparing the ten-day requirement to the statutory scheme to evaluate its validity, the Sixth Circuit has merely ensured that the penalty imposed in each particular case is consistent with the agency's overall regulatory scheme.(32) It refuses to evaluate the regulation itself on the grounds that the Supreme Court prohibits it from interfering in the "shaping" of agency sanctions.(33) Because stores are foreclosed from a certain kind of sanction if they fail to meet the deadline, the Sixth Circuit found that the ten-day requirement affects the severity of the agency's sanction, which it sees as shaping the sanction.(34)

      The fundamental problem with this rationale is that the ten-day response requirement is not a sanction. Black's Law Dictionary defines a sanction as a "penalty imposed."(35) The ten-day response requirement is a procedural requirement,(36) not a penalty. The agency itself makes this distinction -- the ten-day requirement is described in a subsection of the Code of Federal Regulations titled "Charge letter,"(37) while the agency's available range of sanctions is discussed separately in a section titled "Penalties."(38) Because the requirement is procedural and is not a sanction, courts that compare the FCS's regulation to the statutory scheme need not show deference to it as if it were a sanction. When courts compare the ten-day response requirement to the statutory scheme, they are doing what the Food Stamp Act and the Supreme Court require of them: they are assessing the validity of the agency's rules.(39)

    2. The Arbitrariness and Capriciousness of the Ten-Day Requirement

      Courts that assess the validity of the ten-day requirement must determine whether the requirement is consistent with Congress's intent and whether it is arbitrary and capricious.(40) This section argues that the FCS's ten-day requirement is contrary to Congress's intent and arbitrary and capricious and should therefore be invalidated. Section I.B.1 argues that the FCS's requirement is inconsistent with Congress's intent to allow stores access to secretarial discretion...

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