Petition for Writ of Certiorari — Thompson v. United States

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CT 3 198

No. is °

NIOL, JR.

® CLERK

eee -

IN THE

Supreme Court of the Hnited States

OCTOBER TERM, 1986

ANGELO THOMPSON, d/b/a

LIBERTY SUPERMARKET NO. 29,

CLARKSDALE, MISSISSIPPI,

Petitioner

.

UNITED STATES OF AMERICA,

Respondent

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

WILLIAM G. WILLARD, JR.

THOMAS J. SUSZEK

HOLCOMB, DUNBAR, CONNELL,

CHAFFIN & WILLARD, P.A.

P. O. Box 368

Clarksdale, MS 38614

(601) 627-2241

Attorneys for Petitioner

WILSON - EPges PRINTING Co., INC. - 789-0086 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

The Food and Nutrition Service (FNS) of the United

States Department of Agriculture disqualified Petition-

er’s grocery store from participating in the Food Stamp

Program for a period of one year. Under the applicable

regulation, the FNS may impose such a sanction only if

certain requirements are met, including a determination

that there existed a store “policy” to violate the Program

rules and a finding that Petitioner received adequate

“warning” prior to the alleged violative transactions, that

violations may be occurring. The questions presented are

as follows:

1) The FNS Instruction expressly requires that there

be no “refusals” during the FNS investigation in order

for a series of improper sales to constitute a “policy”.

May a store clerk’s refusal to sell an ineligible item for

food stamps be disregarded in order to impose the

sanction?

2) Whether the letter from the FNS received by Pe-

titioner’s son and which followed a discussion between

an FNS employee and Petitioner’s son of alleged Pro-

gram violations constituted adequate prior “warning” to

Petitioner.

(i)

TABLE OF CONTENTS

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STATUTES, REGULATIONS AND FNS INSTRUC-

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SiAcmmmes OF THE CASE ...............2.....20.2....cccecceoe-

REASONS FOR GRANTING THE WRIT

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TABLE OF AUTHORITIES

CASES Page

Badwan v. United States, 541 F.2d 1388 (10th Cir.

WIE aiisnesicnckktakiieciieiSisinlsiccanntecibotae ciaiainnebaeidallnsscaibadk 7

Bruno’s Inc. v. United States, 624 F.2d 592 (5th

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Cross v. United States, 512 F.2d 1212 (4th Cir.

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Goodman v. United States, 518 F.2d 505 (5th Cir.

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Otto v. Block, 693 F.2d 472 (5th Cir. 1982) ............ 9,10

Tant v. United States, 656 F.2d 691 (4th Cir.

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STATUTES AND REGULATIONS

TERR ER a ra ee ORNS NC es 5

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FNS INSTRUCTIONS

FNS Instruction 744-9 III B ..............2.2..222.22......... 2, 6, 7, 8, 9

FNS Instruction 744-9 IIT D ....0... 2, 3, 9, 10, 11

IN THE

Supreme Court of the United States

OCTOBER TERM, 1986

No.

ANGELO THOMPSON, d/b/a

LIBERTY SUPERMARKET NO. 29,

CLARKSDALE, MISSISSIPPI,

Petitioner

‘Vi

UNITED STATES OF AMERICA,

Respondent

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

OPINIONS BELOW

The order of the district court (App. C) and its memo-

randum opinion (App. B) were entered on September 26,

1985. The memorandum opinion of the court of appeals

(App. A) was issued on June 13, 1986. The opinions are

not published in the official reports.

STATEMENT OF JURISDICTION

The judgment of the United States Court of Appeals

for the Fifth Circuit (App. C) was entered on June 13,

1986, and its order denying the Petition for Rehearing

(App. C) was entered on August 15, 1986. The jurisdic-

tion of this Court is invoked under 28 U.S.C. § 1254(1).

STATUTES, REGULATIONS AND

FNS INSTRUCTIONS

7 US.C. § 2023.

7 C.F.R. § 278.6(e).

2

FNS INSTRUCTION 744-9 III A 2 a, B 1, D.

The pertinent text of the listed authorities is found

at Appendix D.

STATEMENT OF THE CASE

Petitioner Angelo Thompson, d/b/a Liberty Super-

market No. 29, has been an authorized participant in the

Federal Food Stamp Program since its inception in 1965.

The Program is operated by the Food and Nutrition

Service (FNS) of the United States Department of

Agriculture.

In overseeing the Program, the FNS is empowered to

impose various penalties on participants for violations

of the Program’s rules. The FNS may disqualify a store

from participation in the Food Stamp Program for a

period of one year if the store has a policy of selling

clearly ineligible items in exchange for food stamps, pro-

vided that the store was previously warned about possible

violations and their consequences. 7 C.F.R. § 278.6(e).

To assist it in its determination of which, if any, ad-

ministrative sanction to impose upon a store for Pro-

gram violations, the FNS has prepared Instructions. In-

struction 744-9 III B 1 describes what is needed to be

found to satisfy the “policy” requirement of the one year

disqualification penalty. Instruction 744-9 III D contains

considerations applicable to the determination of whether

an adequate “warning” was given to the participant.

Over the years, the FNS took various educational and

compliance actions in connection with Petitioner’s store,

including visits to the store and discussions with store

personnel. As a result of an investigation performed by

the FNS in 1974, a warning letter (Trial Exhibit D-6)

was sent by the FNS to the Petitioner on February 25,

1975. The letter charged in no uncertain terms that

Food Stamp Program violations had occurred and that

a disregard of the Program regulations was demon-

strated. The warning letter further stated as follows:

3

This is an official warning from the U.S. Depart-

ment of Agriculture that if you are again found to

be in violation cf the regulations, you may lose your

authorization te participate in the Food Stamp Pro-

gram. You should take every precaution to insure

that you and your employees understand arid care-

fully follew the provisions of the program regula-

tions.

This determination shall not preclude the Depart-

ment of Agriculture or any other agency or Depart-

ment of the United States from taking further ac-

tion to collect any claim determined under the reg-

ulations governing the Food Stamp Program or un-

der any other pertinent statutes or regulations, nor

shall this determination preclude prosecution under

any applicable penal statutes.

This letter was the most recent official warning letter

prior to the alleged violations giving rise to the present

action. Without question, this letter fails to satisfy the

“warning” requirement because it was in excess of three

years old at the time of the subject transactions. FNS

Instruction 744-9 III D.

The FNS had sent other letters to Petitioner confirm-

ing visits by FNS employees to discuss complaints of

Program violations or other matters of concern. The last

such letter prior to the subject transactions was sent by

the FNS on December 7, 1979, following a discussion

between an FNS employee and Mr. Thompson’s twenty-

three year old son.' The letter was received by Petition-

1 The letter (Trial Exhibit D-4) delivered to and signed for by

Petitioner’s son, reads as follows:

Dear Mr. Thompson:

This will confirm the conversation in your store on November

29, 1979, between your son, Marshall Thompson, and Food

Program Specialist Lucille McDonald.

During this visit Ms. McDonald discussed with Mr. Thompson

a complaint received by this office alleging that your store was

selling ineligible items for food stamps and discounting food

stamps. These acts are violations of the Food Stamp Program

4

er’s aon, who was not the owner or manager of the store.

At the time, Mr. Jack Morganti was the manager and

Petitioner was not working at the store due to a serious

iliness.

In late 1980 and earty 1981, the FNS conducted an

undercover investigation of Petitioner’s store. Several

FNS agenis attempted to purchase with food stamps

- eligible item:s and ineligible items. The details of each

transactior: are set forth in the agents’ reports in the

administrative record. During the transaction on October

16, 1980, the sales clerk refused to sell the agent a six-

pack of beer for food stamps.? During the transaction

Reguiations, Section 278.2(a) which states coupons shall be

accepted by an authorized retail food store only in exchange for

eligible food. Your son denied that any violations were occur-

ring in your store.

Ms. McDonald completely reviewed the regulations governing

food stamp transactions with special emphasis on those which

prohibit the sale of ineligible items or acceptance of coupons

for cash loans (Section 278.2(a)), acceptance of coupons on

credit accounts ((Section 278.2(f)), and redeeming coupons

from unauthorized persons or sources (Section 278.2(g)).

A copy of the Food Stamp Program Regulations is enclosed

for your review.

You should take special care to prevent violations because

they may lead to your disqualification from the Food Stamp

Program. You are responsible for violations committed by

your employees. Therefore, it is vital that you make sure that

all store employees, including new and part-time employees,

know the program regulations and adhere to them.

If any of the above information is incorrect, you should con-

tact this office. Please let us know if we can assist you in any

way in meeting your responsibility as an authorized retailer

in the Food Stamp Program.

Sincerely,

L. C. Ellis

Officer-in-Charge

2 There was some question that the refusal may have been due

to the agent being underage rather than the beer’s ineligibility.

Ree set ee nn ane

ened + Cited are

5

on December 17, 1980, the FNS agent asked a sales clerk

to allow the purchase of a carton of cigarettes for food

stamps. This request was refused. During the same

transaction, the clerk allegedly allowed the agent to pur-

chase several ineligible items including two packs of

cigarettes, but only after the clerk checked to determine

whether anyone was watching. -

The FNS decided that the investigation showed viola-

tions of the Food Stamp Program regulations. The FNS

disqualified Petitioner’s store from participation in the

Food Stamp Program for a period of one year. Further

administrative review upheld the sanction.

Having exhausted the administrative remedies, Peti-

tioner brought this action pursuant to 7 U.S.C. § 2023

seeking judicial review of the administrative action in the

United States District Court for the Northern District

of Mississippi, Delta Division. The matter came on to

be heard for a non-jury trial on June 26, 1985. The

District Court, Honorable Neal B. Biggers, Jr. presiding,

affirmed the administrative sanction, its order being en-

tered September 26, 1985. (App. C). Aggrieved, Peti-

tioner sought the review of the United States Court of

Appeals for the Fifth Circuit. The Court of Appeals

affirmed the District Court’s judgment and denied the -

Petition for Rehearing. (App. C).

Despite the finding that during the December 17, 1980,

transaction the clerk had refused to sell a carton of

cigarettes in exchange for food coupons, both the Dis-

trict Court and the Court of Appeals held that this re-

fusal could be disregarded in determining whether the

store had a “policy” of violating Food Stamp Program

regulations. The transaction involving the refusal to

There is no question that after the agent assured the clerk that the

agent was of sufficient age, the clerk still refused to sell this major

non-grocery-type ineligible item for food stamps.

6

allow the beer purchase was also disregarded. The “re-

fusals” are significant because the Instruction concern-

ing store “policy” relied upon below, FNS Instruction

744-9 III B 1 ¢, expressly requires that there be no re-

fusals to sell ineligible items for food stamps during the

FNS investigation.

Both the District Court and the Court of Appeals

further held that the December 7, 1979, corfirmation

letter satisfied the “warning” requirement for the im-

position of the one year sanction.

REASONS FOR GRANTING THE WRIT

The Petition seeking the Writ of Certiorari should be

granted so that the Court may carefully scrutinize the

proceedings below to assure that an injustice has not

been done. The one year disqualification from participa-

tion in the Food Stamp Program is a harsh penalty. The

Petitioner has worked for over 20 years to develop a

substantial food stamp clientele, catering to the needs of

the less affluent of the area’s residents. In addition to

substantial food sales in exchange for food coupons, food

stamp customers also utilize cash or credit in making

purchases of other items not eligible for purchase by

food stamps while shopping. If unjustly penalized, the

severity of the injury to Petitioner’s business and liveli-

hood, as well as to the employees and their families, is

apparent.

A review of the proceedings below will demonstrate

that the action of the FNS in imposing the one year

disqualification penalty is not factually or legally jus-

tified. The action was erroneously upheld in the courts

below and merits the attention of this Court.

The standard of review is to determine whether the

sanction is arbitrary or capricious. This rule of law was

succinctly stated by the Court of Appeals for the Fourth

Circuit in Cross v. United States, 512 F.2d 1212, 1218

(4th Cir. 1975), as follows:

ERLE N T= PEE Oe NTE

7

To be “valid”, a sanction must not be arbitrary and

capricious, and a sanction is arbitrary and capricious

if it is unwarranted in law or without justification

in fact.

The courts below recognized this standard, citing Good-

man v. United States, 518 F.2d 505 (5th Cir. 1975).

However, at least two errors were made below in de-

termining that the requirements for the one year dis-

qualification penalty had been satisfied.

A. The “Policy” Requirement

The first error concerns a finding that there was a

store “policy” of accepting food stamps for purchases of

ineligible items. The one year penalty is proper only if:

It is the firm’s policy to sell expensive or conspicuous

non-food items, cartons of cigarettes, or alcoholic

beverages, in exchange for food coupons....

7 C.F.R. § 278.6 (e) (2) (i) (A).

The FNS and the courts below relied upon FNS In-

struction 744-9 III B 1 ¢ in upholding the finding that

such a policy existed. (See Appendix D for full text.)

This Instruction does not require management personnel

to be involved in the allegedly violative sales.* The In-

struction does require that the improper sales occur

“without refusal during the course of the investigation.”

There is no question that during the December 17,

1980, transaction the store clerk refused to sell the FNS

agent a carton of cigarettes for food stamps. This fact

was acknowledged by the FNS and both the District

Court and the Court of Appeals found that this refusal

had occurred. The lower courts opined that this refusal

3It is significant that management personnel were not involved

in any of the alleged violations. Some courts have refused to

penalize the store for employee misconduct due to the lack of

involvement by ownership/management personnel. See, e.g., Badwin

v. United States, 541 F.2d 1388 (10th Cir. 1976).

8

could be disregarded due to other violations by the same

salesperson. We respectfully submit that this was error

and that the existence of the refusal negates a finding of

a “policy” under the FNS Instruction relied upon.*

The wording of the Instruction is clear. If a refusal

occurs during the investigation, then a finding of a store

policy under the Instruction is not proper. For a policy

to be found, other criteria must be met, such as violations

by the owner or management personnel. See FNS In-

struction 744-9 III B 1 a, b.

The FNS drafted its Instructions to provide guidance

and to give uniformity to determinations for the imposi-

tion of sanctions. To allow the undisputed “refusal” to

be disregarded is to delete the words “without refusal

during the course of the investigation” from the Instruc-

tion. This is not appropriate. There is no reason or

authority to justify disregarding the refusal. It is logi-

cal that a store is not deemed to have a policy of violat-

ing Program rules when a clerk flat out refuses to sell

a major non-grocery-type ineligible item for food stamps.

That the clerk allegedly allowed the sale of a mere two

packs of cigarettes, after checking to see if anyone was

watching, does not erase the refusal to sell the carton

of cigarettes. To allow exceptions to be carved out of the

provisions is unjust and should not be permitted. This

Court has yet to decide the question under consideration

and no reported decisions of other courts have been found.

4 We submit that a single “refusal” during the investigation is

sufficient to negate a finding of store “policy” under Instruction

744-9 III B 1 c. Nevertheless, the October 16, 1980, transaction

involving the refusal to sell the beer should not be overlooked. The

Regional Food Stamp Office considered this a “partial refusal”,

while the later determination, upheld below, disregarded the event.

While there may be some question as to whether this incident

nullifies a finding of “policy”, fairness dictates that such doubts be

resolved in favor of the alleged violator.

The Court’s guidance is needed to assure that decisions

as to sanctions are made in a just and uniform manner.

B. The “Warning” Requirement

In order to satisfy the “warning” requirement of 7

C.F.R. § 278.6(e) (2) (ii), FNS Instruction 744-9 III D

requires a finding that within three years of the alleged

violations, the store owner or manager was given a

written warning that violations may be occurring and

the consequences thereof. In the event of a change in

management, the Instruction counsels the reviewer to

determine whether the person in charge at the time of

the alleged violations was aware of the earlier action.

FNS Instruction 744-9 IIT D.

The opinion of the Court of Appeals (App. A) con-

tains little discussion as to its determination that the

December 1979 letter satisfied the warning requirement.

The panel does state that Petitioner received the letter,

but this finding is clearly erroneous.

The District Court opined that the question of whether

the confirmation letter satisfied the warning requirement

had been previously addressed and answered contrary to

Petitioner’s position in Otto v. Block, 693 F.2d 472 (5th

Cir. 1982). However, close scrutiny of Otto v. Block

demonstrates that it is not on point. There the court was

required to determine whether “compliance action” had

occurred. FNS Instruction 744-9 III D defines “com-

pliance action” as “any action taken to confront the re-

tailer with the possibility that violations are being com-

mitted in the store and cautioning him/her against fur-

ther violations.” The Court in Otto v. Block was attempt-

ing to decide whether a “policy” existed from the record

and the alleged “previous compliance action” under FNS

Instruction 744-9 III B. The “warning” requirement of

7 C.F.R. § 278.6(e) (ii) was not in issue. The existence

of a firm “policy” of selling ineligible items for food

10

stamps is an entirely different consideration from the

existence of an adequate “warning” of previous viola-

tions. 7 C.F.R. 278.6(e). That compliance action oc-

curred does not require a finding that an adequate warn-

ing, as defined in the Instructions, was given to the store

owner.

The Court of Appeals did not cite Otto v. Block or

any other decision in finding the 1979 confirmation letter

to have satisfied the warning requirement. The ruling

below is in conflict with the decision of the Fourth Cir-

cuit Court of Appeals in Tant v. United States, 656 F.2d

691 (4th Cir. 1981), wherein the grocer contended that

the sanction was unjustified because no warning letter

had been sent. It was undisputed that FNS agents had

made numerous educational and compliance visits and

that confirmation letters were sent by the FNS to the

store owner on three occasions. The panel found that a

prior warning was not required to impose the sixty day

suspension in issue. It is clear that the panel did not

consider the letters confirming compliance visits to con-

stitute a sufficient warning of program violations. A re-

view by this Court could resolve the conflict between the

Tant decision and the decision of the panel below.

The letters under consideration in Bruno’s Inc. v.

United States, 624 F.2d 592 (5th Cir. 1980), clearly

stated that the FNS thought the subject grocer was vio-

lating the Food Stamp Act. Such letters, like the official

warning letter of 1975 herein, give the grocer fair warn-

ing of alleged violations and their consequences. To the

contrary, the 1979 letter does not have the force of a

clear warning and merely confirmed a brief visit by an

FNS employee and Petitioner’s son.

Moreover, the alleged warning was not given to the

owner or the manager, contrary to the dictates of FNS

Instruction 744-9 III D 1, and the fact that there was

a change in management between the time of the 1979

11

compliance action and the time of the subject transactions

was overlooked below. The determination that the Peti-

tioner received sufficient warning is factually unwar-

ranted. FNS Instruction 744-9 III D. The FNS action

is therefore deemed to be arbitrary and capricious under

Goodman v. United States, supra, and the Court’s re-

versal of the unjustified action is required.

CONCLUSION

The FNS failed to follow its own guidelines in impos-

ing the one year disqualification sanction upon the Peti-

tioner. The finding of a store “policy” of allowing the

use of food stamps for the purchase of ineligible items

is improper in the face of a “refusal” during the FNS

investigation. Furthermore, the facts and the law fail

to show that Petitioner received satisfactory “warning”

of previous possible violations as defined by the FNS

Instructions.

This Court has not previously considered the questions

presented herein. The Court’s guidance is needed to set-

tle these important issues to assure that the penalty

provisions of the food stamp regulations are fairly and

uniformly applied to the Petitioner, as well as to the

thousands of other participating stores.

Accordingly, we respectfully request that the Court

grant the Petition for Writ of Certiorari so as to re-

view the sanction imposed upon the Petitioner.

Respectfully submitted,

WILLIAM G. WILLARD, JR.

THOMAS J. SUSZEK

HOLCOMB, DUNBAR, CONNELL,

CHAFFIN & WILLARD, P.A.

P. O. Box 368

Clarksdale, MS 38614

(601) 627-2241

Attorneys for Petitioner

APPENDICES

la

APPENDIX A

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 85-4727

Summary Calendar

ANGELO THOMPSON, d/b/a

LIBERTY SUPERMARKET # 29

CLARKSDALE, MISSISSIPPI,

Plaintiff-A ppellant,

versus

UNITED STATES OF AMERICA,

Defendant-A ppellee.

Appeal from the United States District Court

for the Northern District of Mississippi

(June 13, 1986)

Before GEE, RANDALL and DAVIS, Circuit Judges.

PER CURIAM :*

* Local Rule 47.5 provides: “The publication of opinions that

have no precedential value and merely decide particular cases on

the basis of well-settled principles of law imposes needless expense

on the public and burden on the legal profession.” Pursuant to

that Rule, the court has determined that this opinion should not

be published.

2a

Appellant, Angelo Thompson, appeals the district court’s

order affirming a decision of the Food and Nutrition

Service (FNS) of the United States Department of Agri-

culture that appellant’s grocery store be disqualified from

participating in the food stamp program for a period of

one year. We find no error and affirm.

In response to complaints that appellant was violating

food stamp program rules, FNS investigated appellant’s

food stamp transactions between August 1980 and Janu-

ary 1981. During each of the eight shopping visits FNS

investigators made to the store, a significant number of

ineligible non-food items such as paper products, house-

hold cleaning products and cigarettes were sold by appel-

lant for food stamps. Because the continued sale of in-

eligible items violated program rules, FNS disqualified

appellant from the program for one year. Appellant

sought review of this decision and exhuasted administra-

tive remedies. The district court affirmed the one year

sanction.

FNS may impose a one year disqualification for pro-

gram violations if: (1) “it is the firm’s policy to sell

expensive or conspicuous non-food items, cartons of ciga-

rettes or alcoholic beverages” for food stamps; and (2)

“the firm was warned about the possibility that violations

were occurring and the possible consequences of violating

the regulations.” 7 C.F.R. § 278.6(e) (2). Under pub-

lished FNS implementing instructions, the above regu-

lation is satisfied when there have been: (1) four clearly

violative sales of ineligible items; (2) without refusal;

(3) including three incidents where a major ineligible

item such as a carton of cigarettes is sold; (4) involving

two or more clerks; (5) less than three years after a

written warning has been given. FNS Instructions 744-9

III A 2a (3) (b) and 744-9 III Ble.

Both parties agree that our review of this administra-

tive decision is restricted to determining whether the

sanction is “arbitary or capricious,” that is, unwarranted

3a

in law and without justification in fact. Goodman v.

United States, 518 F.2d 505 (5th Cir. 1975).

Appellant contends that during two of the visits by

investigators, he refused to sell ineligible items and that

those sales cannot be used to justify a one year dis-

qualification. On one occasion an investigator attempted

to purchase a six pack of beer with food stamps. The

clerk refused to sell the beer. The investigator’s report

indicates, however, that this sale was refused because

the purchaser appeared to be underage, not because the

purchase was attempted with food stamps. The finding

that this did not constitute a refusal under FNS instruc-

tions is adequately supported by the record.

On another occasion when an investigator attempted

to purchase a carton of cigarettes, the clerk refused to

sell the carton but agreed to sell several loose packs.

Because the clerk sold the loose packs as well as several

other ineligible items during the transaction, the failure

to sell the carton of cigarettes constitutes only a “partial

refusal.” The applicable FNS instruction provides:

Only occasionally should a violative transaction in

which there has been a partial refusal be disregarded,

and then only when: there is good reason for doing so.

For example, partial refusals to sell only major non-

grocery ineligible items or to discount food stamps

would not diminish the seriousness of four sales of

common grocery-type ineligible items without re-

fusals to sell those types of items.

In light of the number of ineligible items sold, FNS’s

refusal to disregard this transaction in determining the

sanction to impose was justified.

Appellant also argues that he was not properly warned

before disqualification. FNS instructions and regulations

require a warning within three years of the investiga-

tion informing the owner of possible violations and the

potential consequences of non-compliance with program

4a

regulations. The record indicates appellant was given

such a warning in a compliance action confirmation letter

he received December 7, 1979, less than one year before

the investigation.

AFFIRMED.

5a

APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF MISSISSIPPI

DELTA DIVISION

No. DC82-117-NB

ANGELO THOMPSON, d/b/a

LIBERTY SUPERMARKET # 29,

Plaintiff,

V.

AGRI-FOOD NUTRITION SERVICE, et al.,

Defendants.

MEMORANDUM OPINION

Plaintiff Angelo Thompson, d/b/a Liberty Supermarket

No. 29, Coahoma County, Mississippi, brings this action

under 7 U.S.C. § 2023 seeking de novo review of the

decision by the Food and Nutrition Service (FNS) to

disqualify the plaintiff’s store from participation in the

Food Stamp Program for a period of one year. During

the non-jury trial held before this court, plaintiff did not

choose to contest the administrative finding that the

plaintiff viclated the food stamp regulations. Rather,

plaintiff challenges the imposition cf the one-year sanc-

tion. Although the court may review de novo the factual

findings of the administrative agency, since the determi-

nation of the specific period of disqualification is a matter

lying within the discretionary authority of the FNS, this

court’s scope of review is limited to whether the decision

was arbitrary and capricious. See Goodman v. United

States, 518 F.2d 505, 509 (5th Cir. 1975).

6a

7 C.F.R. 278-6! deals with disqualifications of retail

food stores, and the pertinent parts of this section are

as follows:

Section 278.6 Disqualification of retail food stores

and wholesale food food concerns, and imposition of

civil money penalties in lieu of disqualifications.

(a) Authority to disqualify or subject to a civil

money penalty. FNS may disqualify any authorized

retail food store or authorized wholesale food con-

cern from further participation in the program for

a reasonable period of time, not to exceed 3 years,

as FNS may determine, if the firm fails to comply

with the Food Stamp Act....

(b) Charge letter. Any firm considered for disqual-

ification or imposition of a civil money penalty un-

der paragraph (a) of this section shall have full

opportunity to submit to FNS information, explana-

tion, or evidence concerning any instances of non-

compliance before FNS makes a final administra-

tive determination. The FNS regional office shall

send the firm a letter of charges before determina-

tion. The letter shall specify the violations or actions

which FNS believes constitute a basis for disqual-

ification or imposition of a civil money penalty. The

letter shall inform the firm that it may respond

either orally or in writing to the charges contained

in the letter within 10 days of receiving the letter.

The firm’s response shall set forth a statement of evi-

dence, information, or explanation concerning the

specified violations or acts. The firm shall makes

its response, if any, to the officer in charge of the

1 All citations to 7 C.F.R. are references to the regulations that

were in effect in 1981 that are controlling in this case. Since that

time, both the Food Stamp Act and the regulations thereunder

have been amended. Among other changes, the length and severity

of periods of disqualification have bcen substantially increased.

Ta

FNS field office which has responsibility for the

project area in which the firm is located.

(c) Review of evidence. The letter of charges, the

response, and any other information available to

FNS shall be reviewed and considered by the ap-

propriate FNS regional office, which shall then is-

sue the determination.

(d) Basis for determination. The FNS regional of-

fice making a disqualification or penalty determina-

tion shall consider: (1) the nature and scope of

the violations committed by personnel of the firm,

(2) any prior action taken by FNS to warn the

firm bout the possibility that violations are occur-

ring, and (3) any other evidence that shows the

firm’s intent to violate the regulations.

(e) Penalties. FNS shall take action as follows

against any firm determined to have violated the

Act or regulations. The FNS regional office shall:

. . . (2) Disqualify the firm for one year if:

(i) The evidence shows that: (A) It is the

firm’s policy to sell expensive or conspicuous

nonfood items, cartons of cigarettes, or alcoholic

beverages, in exchange for food coupons, and

the firm has engaged in such practices, or (B)

The firm bought coupons at discount, and (ii)

The firm was warned about the possibility that

violations were occurring and of the possible

consequences of violating the regulations. The

regional office may disqualify a firm for 1 year,

even though the firm was not warned about the

possibility that violations were occurring, if the

regional office finds that the firm has committed

unusually serious violations of the kind de-

scribed in (i) (A) or (B) of this subparagraph.

In the instant case, the store was originally authorized

to participate in the food stamp program, under plain-

8a

tiff’s ownership, in 1965 as Liberty Cash Grocery No. 29.

Thereafter, from 1965 through 1981, food stamp program

representatives made a total of thirty-one visits to plain-

tiff’s store. These visits were made for the purpose of

assuring a complete understanding of the food stamp

program rules and the need for strict compliance there-

with. Following six of these visits involving discussions

of program compliance matters, letters were sent to

Angelo Thompson by certified mail which confirmed the

discussions.

An investigation to determine the level of compliance

was subsequently made at plaintiff’s store. During this

compliance investigation, a total of one hundred and

ninety items were listed as sold during the transactions,

of which sixty-five or about thirty-four percent were in-

eligible items including four cartons and two packs of

cigarettes, bleach, insect spray, furniture polish, glue,

household ammonia, foot powder, aluminum foil, de-

odorant, toothpaste, tampons, stain remover, spray starch,

birthday candles, cotton swabs and a variety of other

soap, paper, plastic and household cleaning items.

On April 3, 1981, the violations were sent forth in

the form of a charge letter sent to plaintiff.

An administrative review and evaluation was made

and a determination was made that plaintiff had violated

the Food Stamp Act and regulations, and plaintiff’s store

was disqualified from participation in the food stamp

program for a period of one year.

Plaintiff requested an administrative review of the

decision of the Food and Nutrition Service and the one-

year disqualification was sustained.

Thereafter, plaintiff filed the instant action requesting

judicial review of the administrative decision. Plaintiff

notes that under 7 C.F.R. § 278.6(e), the FNS may not

impose a one-year disqualification unless it determines

that (1) it was plaintiff’s policy to sell ineligible items

9a

and (2) the plaintiff was adequately warned prior to the

alleged violations. It is plaintiff's contention that the

administrative record does not contain sufficient facts to

support a finding that either of the above requirements

has been satisfied. Thus, according to the plaintiff, the

decision to impose the one-year disqualification was arbi-

trary and capricious.

I. Adequate Warning

In regard to the issue of adequate warning, the evi-

dence showed that from 1965 through 1981, a total of

thirty-one visits were made by food stamp program

Officials to plaintiff’s store. The majority of these visits

were educational in nature. However, compliance visits

were made on six occasions. Compliance visits are based

upon reports to food stamp officials of violations or ex-

cessively high and/or erratic food stamp redemptions.

After each of said compliance visits, confirming letters

were mailed to plaintiff.

The last confirming letter, dated December 7, 1979,

sent to plaintiff less than one year prior to the beginning

of the investigation which led to the one-year disqualifi-

cation stated in part:

During this visit Ms. McDonald discussed with Mr.

Thompson a complaint received by this office alleging

that your store was selling ineligible items for food

stamps and discounting food stamps. These acts

are violations of the Food Stamp Program Regula-

tions, Section 278.2(a) of which states coupons shall

be accepted only in exchange for eligible food. Your

son denied that any violations were occurring in your

store.

The letter further stated that:

Ms. McDonald completely reviewed the Regulations

governing food stamp transactions with special em-

phasis on those which prohibit the sale of ineligible

10a

items or acceptance of coupons for cash loans...

and redeeming coupons from unauthorized persons or

sources ....

Plaintiff was warned in the letter that:

You should take special care to prevent violations

because they may lead to your disqualification from

the Food Stamp Program. You are responsible for

violations committed by your employees. Therefore,

it is vital that you make sure that all store em-

ployees, including new and part-time employees know

the regulations and adhere to them.

A copy of the Program Regulations was enclosed with

the letter.

This letter, dated December 7, 1979, confirming the

compliance visit of November 29, 1979, less than one year

prior to the investigation, constitutes adequate warning

“about the possibility that violations were occurring and

of the possible consequences of violating the Regulations”

as required for a one-year disqualification by Food Stamp

Regulations, 7 C.F.R. § 278.6(e) (2) (ii). Plaintiff would

have the court to believe that the compliance visit and

confirming letter failed to adequately warn plaintiff of

“the possibility that violations were occurring.”

This precise question has been addressed by the United

States Court of Appeals for the Fifth Circuit in Otto v.

Block, 693 F.2d 472 (5th Cir. 1982). There, the Food

and Nutrition Service, following the same procedure as in

the instant case, visited plaintiff’s store, discussed with

plaintiff the store’s high coupon redemption rate, re-

viewed food stamp regulations and followed up the visit

by letter to plaintiff, the court found that “[c]learly,

adequate formal warnings, or ‘compliance action,’ took

place in this case.” This ruling is in accordance with

FNS Instruction 744-9 III(c) (2) which defines com-

pliance action as “any action taken to confront the re-

tailer with the possibility that violations are being com-

lla

mitted in his store and cautioning him against further

violations.” Therefore, it is clear in this case that plain-

tiff was adequately warned of the possibility that viola-

tions were occurring and the consequences of such viola-

tions.

II. Firm Policy

Plaintiff also argues that the FNS erred in finding that

it was the policy of plaintiff’s firm to sell ineligible items,

by considering evidence of specific acts of the sale of

ineligible items. The testimony of two FNS officials, Mr.

Louis Mathis and Mr. Ralph Dean, established that the

finding of a firm policy was based on the following FNS

guideline:

1 Operating Policy of the Store. As a general rule,

violations shall be attributed to a disregard of pro-

gram regulations as opposed to carelessness or poor

supervision, when there have been a minimum of

four clearly violative sales of ineligible items, and

any or all of the following persons took an active

part in the violations:

e Two or more clerks who sell common grocery-

type or major non-grocery-type ineligible items

without refusal during the course of the investi-

gation when there is a record of previous com-

pliance action which documents that the owner

or appropriate store official had been cautioned

about the possibility of violations occurring in

the store and the consequence of being found

violating.

FNS Instruction 744-9 III (B) (1).

Plaintiff contends that there were two “refusals” ta

sell ineligible items during the investigation thus pre-

venting an administrative finding, under the test pro-

vided by the above FNS Instruction, that a policy existed.

The investigative report, a part of the administrative

record introduced into evidence at trial, shows that plain-

12a

tiff’s employees violated food stamp regulations during

each of the eight transactions which constituted the

investigation. On one occasion, Carrie Belbedresi, a clerk

at the store, declined to sell a six-pack of beer to the

investigative aide, stating that the aide did not appear

old enough to purchase beer. The clerk did not refuse

to sell the beer to the aide because the aide was using

food stamps. In fact, during the same transaction, Carrie

Belbedresi sold all nine of the other ineligible items with-

out hesitation. In addition, the same clerk, Cerrie Bel-

bedresi, later sold without hesitation a total of seven

ineligible items to a different investigative aide who used

food stamps to make the purchase.

Plaintiff also claims that there was a refusal by J. T.

Miller to sell cigarettes. The investigative report shows

that on one occasion J. T. Miller declined to sell a carton

of cigarettes but did sell two packs of cigarettes for food

stamps. In assessing whether a partial refusal may be

deemed a refusal for purposes of determining the exist-

ence of a firm policy, FNS Instruction 744-9 III B(2)

provides guidance:

Refusals to Violate. Complete or partial refusals to

violate the program must be carefully examined to

determine whether reported violations were possibly

a result of error or misunderstanding. Attention

shall be given to the store personnel and the types

of attempted violations involved in the refusals, the

extent of the refusals, and the pattern of the re-

fusals. For example, a case in which the clerk sold

ineligible items and the owner refused to do so would

be considered less serious than a case in which the

opposite occurred.

In evaluating partial refusals, the reviewer shall

carefully examine the type and number of items sold

and refused, and the number of times partial and

complete refusals occurred. Also, the remarks of

the clerks may be significant in this evaluation. Only

13a

occasionally should a violative transaction in which

there has been a partial refusal be disregarded, and

then only when there is good reason for doing so.

For example, partial refusals to sell only major non-

grocery type ineligible items or to discount food

stamps would not diminish the seriousness of four

sales of common grocery-type ineligible items with-

out refusals to sell those types of items.

The above instruction directs the investigator and the

reviewing officer to look beyond the form of the transac-

tion to the apparent basis for the refusal and to the

surrounding circumstances in order to determine whether

the refusal may be characterized as such for purposes

of determining compliance with the Food Stamp Act. The

administrative record reveals that both Carrie Belbedresi

and J. T. Miller were involved in the sale of numerous

ineligible items during the investigation of plaintiff’s

store. In fact, J. T. Miller, although refusing to sell a

carton of cigarettes on one occasion, did not hesitate to

sell two cartons of cigarettes on another occasion. It is

clear, therefore, that the alleged refusals cannot be char-

acterized as such for present purposes. Therefore, ample

facts exist to support the finding of a firm policy to sell

ineligible items.

From the foregoing, it is the opinion of this court that

the decision of the FNS to impose a one-year disqualifica-

tion was justified by the facts and warranted by existing

law, and is therefore not found to be arbitrary and ca-

pricious. The agency’s decision is therefore affirmed. An

order will issue accordingly.

THIS, the 26th day of September, 1985.

/s/ Neal Biggers

NEAL B. BIGGERS, JR.

United States District Judge

14a

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 85-4727

Summary Calendar

D.C. Docket No. DC82-117-NB-O

ANGELO THOMPSON, d/b/a

LIBERTY SUPERMARKET # 29

CLARKSDALE, MISSISSIPPI,

Plaintiff-A ppellant,

versus

THE UNITED STATES OF AMERICA,

Defendant-A ppellee.

Appeal from the United States District Court

for the Northern District of Mississippi

Before GEE, RANDALL and DAVIS, Circuit Judges.

JUDGMENT

This cause came on to be heard on the record on appeal

and was taken under submission on the briefs on file.

ON CONSIDERATION WHEREOF, It is now here

ordered and adjudged by this Court that the judgment of

the District Court in this cause is affirmed.

15a

IT IS FURTHER ORDERED that plaintiff-appellant

pay to defendant-appellee the costs on appeal, to be taxed

by the Clerk of this Court.

June 13, 1986

ISSUED AS MANDATE:

16a

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 85-4727

ANGELO THOMPSON, d/b/a

LIBERTY SUPERMARKET # 29

CLARKSDALE, MISSISSIPPI,

Plaintiff-Appellant,

versus

THE UNITED STATES OF AMERICA,

Defendant-A ppellee.

Appeal from the United States District Court for the

Northern District of Mississippi

ON PETITION FOR REHEARING

(August 15, 1986)

Before GEE, RANDALL and DAVIS, Circuit Judges.

PER CURIAM:

IT IS ORDERED that the petition for rehearing filed

in the above entitled and numbered cause be and the

same is hereby denied.

ENTERED FOR THE COURT:

/s/ W. E. Davis

United States Circuit Judge

17a

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF MISSISSIPPI

DELTA DIVISION

No. DC82-117-NB

ANGELO THOMPSON, d/b/a

LIBERTY SUPERMARKET # 29,

Plaintiff,

Vv.

AGRI-FOOD NUTRITION SERVICE, et al.,

Defendants.

ORDER

In accordance with a memorandum opinion this day

issued, it is hereby ORDERED:

That the administrative decision in the above-styled

cause shall be and hereby is AFFIRMED; and

That this cause is hereby DISMISSED with prejudice.

THIS, the 26th day of September, 1985.

/s/ Neal Biggers

NEAL B. BIGGERS, JR.

United States District Judge

18a

APPENDIX D

7 U.S.C. § 2023. Administrative and judicial review; res-

toration of rights

(a) Whenever an application of a retail food store or

wholesale food concern to participate in the food stamp

program is denied pursuant to section 2018 of this title,

or a retail food store or wholesale food concern is dis-

qualified or subjected to a civil money penalty under the

provisions of section 2021 of this title, or a retail food

store or wholesale food concern forfeits a bond under :

section 2021(d) of this title, or all or part of any claim

of a retail food store or wholesale food concern is denied

under the provisions of section 2022 of this title, or a

claim against a State agency is stated pursuant to the

provisions of section 2022 of this title, notice of such .

administrative action shall be issued to the retail food

store, wholesale food concern, or State agency involved.

Such notice shall be delivered by certified mail or personal

service. If such store, concern, or State agency is ag-

grieved by such action, it may, in accordance with reg- |

ulations promulgated under this chapter, within ten |

days of the date of delivery of such notice, file a written |

request for an opportunty to submit information in sup- .

port of its position to such person or persons as the

regulations may designate. If such a request is not made

or if such store, concern, or State agency fails to submit

information in support of its position after filing a re-

quest, the administrative determination shall be final.

If such request is made by such store, concern, or State

agency, such information as may be submitted by the

store, concern, or State agency, as well as such other

information as may be available, shall be reviewed by

the person or persons designated by the Secretary, who

shall, subject to the right of judicial review hereinafter |

provided, make a determination which shall be final and )

which shall take effect thirty days after the date of the

delivery or service of such final notice of determination.

If the store, concern, or State agency feels aggrieved by

such final determination, it may obtain judicial review

ee nn ee

cae aerate Catt ad eee

19a

thereof by filing a complaint against the United States

in the United States court for the district in which it

resides or is engaged in business, or, in the case of a retail

food store or wholesale food concern, in any court of

record of the State having competent jurisdiction, within

thirty days after date of delivery or service of the final

notice of determination upon it, requesting the court to

set aside such determination. The copy of the summons

and complaint required to be delivered to the official or

agency whose order is being attacked shall be sent to the

Secretary or such person or persons as the Secretary may

designate to receive service of process. The suit in the

United States district court or State court shall be a trial

de novo by the court in which the court shall determine

the validity of the questioned administrative action in

issue. If the court determines that such administrative

action is invalid, it shall enter such judgment or order as

it determines is in accordance with the law and the evi-

dence. During the pendency of such judicial review, or

any appeal therefrom, the administrative action under re-

view shall be and remain in full force and effect, unless

on application to the court on not less than ten days’

notice, and after hearing thereon and a consideration by

the court of the applicant’s likelihood of prevailing on the

merits and of irreparable injury, the. court temporarily

stays such administrative action pending disposition of

such trial or appeal.

(b) In any judicial action arising under this chapter,

any food stamp allotments found to have been wrongfully

withheld shall be restored only for periods of not more

than one year prior to the date of the commencement of

such action, or in the case of an action seeking review of

a final State agency determination, not more than one

year prior to the date of the filing of a request with the

State for the restoration of such allotments or, in either

case, not more than one year prior to the date the State

agency is notified or otherwise discovers the possible loss

to a household.

apace iia i

20a

7 C.F.R. § 278.6(e)

Penalties. FNS shall take action as follows against

any firm determined to have violated the Act or regula-

tions. The FNS regional office shall:

* * & *

(2) Disqualify the firm for one year if: (i) The

evidence shows that: (A) It is the firm’s policy to

sell expensive or conspicuous nonfood items, cartons

of cigarettes, or alcoholic beverages, in exchange for

food coupons, and the firm has engaged in such prac-

tices, or (B) The firm bought coupons at discount,

and (ii) The firm was warned about the possibility

that violations were occurring and of the possible

consequences of violating the regulations.

+ * an *

3

4

$

4

a

:

2la

FNS Instruction 744-9 ITI A2a

Types Of Ineligible Items. To help the reviewer in

his/her evaluation, ineligible items are divided into three

types—marginal, common grocery, and major non-grocery

types. The reviewer must carefully consider the types of

ineligibles sold in order to determine the seriousness of

the violations.

(1) Marginal ineligible items are items which can

easily be mistaken for ineligible items, such as

canned pet food, or any orally administered patent

medicine.

(2) Common grocery-type ineligible items are easily

identifiable ineligible items of low cost such as clean-

ing products, paper products, and other low-cost

household items.

(3) Major non-grocery-type ineligible items consist

of the following types of items:

(a) Alcohol: Any quantity of “hard” liquor,

four, six, or eight-packs of beer or malt liquor,

or 4/5 quart of wine (or its comparable meas-

urement in liters). Single bottles or cans of beer

sold in quantities of less than four, or bottles of

wine smaller than described above, are not con-

sidered major items.

(b) Cigarettes: A carton of cigarettes, or ten

loose packages purchased at one time. Loose

packages of cigarettes in quantities of less than

10 are not considered major items.

(c) Gasoline: Any amount of gasoline may be

considered to be a sale of a major non-grocery

item.

(d) High Cost Ineligible Items: Easily identifi-

able ineligible items costing in the range of $5

or more.

_* * s *

22a

FNS Instruction 744-9 III B 1

Operating Policy of the Store. As a general rule, vio-

lations shall be attributed to a disregard of program

regulations, as opposed to carelessness or poor super-

vision, when there have been a minimum of four clearly

violative sales of ineligible items, and any or all of the

following persons took an active part in the violations:

a The owner, spouse, sons, daughters, or other close

relatives of the owner who are regularly involved in

the operation of the store.

b Members of management, including a person des-

ignated as a clerk, but who is in effect running a

store in the absence of the owner for extended periods

of time or on a regular basis.

ce Two or more clerks who sell common grocery-type

or major non-grocery-type ineligible items without

refusal during the course of the investigation when

there is a record of previous compliance action which

documents that the owner or appropriate store official

had been cautioned about the possibility of violations

occurring in the store and the consequence of being

found violating.

* * * *

FNS Instruction 744-9 III D

The Record of Previous Compliance Action. Previous

compliance action is any action taken to confront the

retailer with the possibility that violations are being

committed in the store and cautioning him/her against

further violations. Such action may be taken as a result

of admitted or observed violations, rumors or complaii.ts,

unusually high or erratic redemptions, or some other

cause for suspicion. Normally, the firm will have been

sent a letter before an investigation is conducted for the

following reasons:

23a

1 Informing the owner or manager that there are in-

dications that violations may be occurring, and

2 Warning them of the possible consequences of be-

ing found violating.

The compliance action should have occurred within 3

years of the date that violations were uncovered during

investigation of the store. If there has been a change in

management in the store since the compliance action was

taken, consideration shall be given as to whether the

record shows that the owner or appropriate representa-

tive of the store, such as a district manager, was made

aware of the action.