AJ Mini Market, Inc. v. United States

73 F.4th 1

• Court: Court of Appeals for the First Circuit
• Decided: July 5, 2023
• Docket: 22-1348P
• Status: Published

Opinion

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.

- 2 - 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

- 3 - 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

- 4 - 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

- 5 - 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

- 6 - 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)).

- 7 - 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

- 8 - 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.

- 9 - 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

- 10 - 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

- 11 - 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.

- 12 - § 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.

- 13 - 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.

- 14 - 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

- 15 - 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,

- 16 - 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

- 17 - 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).

- 18 -