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Dinner Bell Markets, Inc. v. United States Department of Agriculture

United States District Court, S.D. Indiana, Indianapolis Division

July 2, 2015

DINNER BELL MARKETS, INC., #233, Plaintiff,
v.
UNITED STATES OF AMERICA, DEPARTMENT OF AGRICULTURE, Defendant.

ORDER ON PLAINTIFF'S MOTION TO STAY ENFORCEMENT OF AGENCY DECISION

LARRY J. McKINNEY, District Judge.

This case involves a decision by Defendant the U.S.A. Department of Agriculture (the "USDA"), that prohibits Plaintiff Dinner Bell Markets, Inc., #233 ("Dinner Bell") from participating in the Supplemental Nutrition Assistance Program ("SNAP") because the USDA concluded that Dinner Bell had engaged in trafficking of those benefits. Dinner Bell has moved to stay enforcement of the USDA's decision during the pendency of this law suit. For the reasons stated herein, the Court DENIES the Motion to Stay.

I. BACKGROUND

SNAP is designed to help people in eligible households obtain a more nutritious diet. 7 U.S.C. §§ 2011, 2013(a). Recipients of the benefit may only purchase food from approved retailers. Id. § 2013(a). The Food and Nutrition Service ("FNS"), an agency of the USDA, is responsible for running SNAP. 7 C.F.R. § 271.3(a). Under the civil penalty provision of SNAP, the agency may make decisions about violations of the statutes "on the basis of evidence that may include facts established through on-site investigations, inconsistent redemption data, or evidence obtained through a transaction report under an electronic benefit transfer system." 28 U.S.C. § 2021(a)(2). The same provision directs the agency to promulgate regulations that establish criteria for finding a violation of the statutes. Id. Under those regulations, "trafficking" in SNAP benefits is defined as "the buying, selling, stealing, or otherwise effecting an exchange of SNAP benefits... for cash or consideration other than eligible food...." 7 C.F.R. § 271.2.

On November 1, 1974, FNS approved Dinner Bell for participation in SNAP. R. at 1.[1] At the time of the initial approval, FNS classified Dinner Bell as a supermarket because more than 65% of the store's sales came from staple goods (meaning meat, dairy, fruit and vegetables, and bread or grains). Hr'g, Skaer - Direct & Cross. In 2011, FNS changed that classification to convenience store when the staples percentage of Dinner Bell's business dropped below 65%. Id. There are other classifications for businesses and an "other" category that includes businesses such as gas/grocery combination stores, military commissaries and others. Hr'g, Skaer - Cross.

Since the advent of electronic transactions and subsequently Electronic Benefit Transfer or "EBT" for SNAP benefits, FNS has been using computer algorithms to look for patterns in EBT data that may indicate fraud or trafficking. Hr'g, Skaer - Direct. If a store is flagged, FNS does further analysis, including a store visit and human analysis of store data. Id.

In or around April 2013, FNS' system flagged Dinner Bell's EBT redemption patterns as potential trafficking. Hr'g, Skaer - Direct & Cross. Specifically, the patterns included: (1) using the same EBT card two or more times within 24 hours for transactions greater than $100.00; (2) individual accounts using 90% to 100% of their benefits in a single 24-hour period; and (3) excessive average EBT transactions for that store type. Hr'g, Skaer - Direct. See also R. at 78-80. With respect to the latter indicator, the average SNAP EBT transaction at a convenience store is approximately $6.00; the average SNAP EBT transaction at Dinner Bell was close to $20.00. Hr'g, Joyce - Direct & Cross; Skaer - Direct & Cross. For reference, the average SNAP EBT transaction at the "other" category stores is approximately $20.00. Hr'g, Skaer - Cross.

In light of those concerns, on July 18, 2013, FNS initiated a visit to Dinner Bell to obtain information for a review of the store's SNAP redemption patterns. R. at 13-27, 168-69. Subsequently, FNS monitored and analyzed Dinner Bell's SNAP transactions from April 2013 through September 2013. R. at 166. Based on that analysis, FNS determined that Dinner Bell's redemptions contained several patterns indicative of trafficking and sent Dinner Bell a charge letter dated July 25, 2014. R. at 78-80. Accompanying the charge letter was a report listing the transactions that FNS believed to be indicative of trafficking; there were approximately 1400 transactions. R. at 81-117. The charge letter further indicated that, under 7 C.F.R. § 278.6(e)(1), the sanction for trafficking was permanent disqualification and Dinner Bell had ten days to respond to the charge letter before FNS would issue a determination. R. at 78-79.

On August 7, 2014, the agency received a response from Dinner Bell in which it claimed that it had not engaged in trafficking. R. at 119-22. Specifically, Dinner Bell asserted that it was a high volume store on the densely populated southeast side of Indianapolis. R. at 120. It claimed that it built its business on low overhead, heavily discounted items not found in traditional stores and that it has a "great array of SNAP eligible items" including milk, bread, juice, groceries, etc. R. at 120. Dinner Bell also stated that it carries additional eligible items including snacks, beverages, bulk groceries and candy. R. at 120. The store claimed that because of the heavy discounts on these items, they sell "a great deal of these products to SNAP beneficiaries...." R. at 120. Dinner Bell reported that less than 5% of purchases at its store were made with SNAP benefits. R. at 120. In other words, SNAP "is a very small portion of [its] customers." R. at 120.

Further, Dinner Bell asserted that it had systems in place to ensure that it followed SNAP guidelines. R. at 121. Therefore, upon review of the items detailed in the agency's letter, Dinner Bell claimed that "many of the items... are exceptions to the vast amount of SNAP transactions." R. at 121. The following summarizes Dinner Bell's response to the agency's specific allegations:

1. Multiple transactions in unusually short periods of time
Dinner Bell claimed that at least 63 times in the relevant period SNAP customers were inquiring about their balance, which would create a second transaction. R. at 121. In addition, SNAP customers are unsure of the cost of the items they want to purchase, therefore, a second transaction takes place once a total has been given on a subset of items. R. at 121. Dinner Bell noted that 294 transactions were declined during the relevant period. R. at 121.
2. The majority or all of individual recipient's benefits were exhausted in unusually short periods of time
Dinner Bell cited data attached to its response that showed that 80 out of 7400 transactions in the relevant period evidenced this phenomenon. R. at 122. Dinner Bell admitted that it did not know how specific individuals used their benefits, but the average transaction was below $20.00. R. at 122. Dinner Bell reiterated that SNAP customers could ...

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