On Appeal from the United States District Court for the Middle District of Pennsylvania; District Court Civil No. 90-0137.
Stapleton, Greenberg, and Seitz, Circuit Judges.
In this case we are asked to determine whether a grocery store participating in the Food Stamp Program can be subject to a civil money penalty for the independent trafficking violations of its clerk when the owner establishes that she had no knowledge of the trafficking and did not participate in or benefit from it, and further establishes to the satisfaction of the Food and Nutrition Service of the United States Department of Agriculture that prior to the violations she had implemented an effective program to prevent violations. We determine that it can.
Appellant, Charlotte Freedman, owns Superior Store Number 3 in Harrisburg, Pennsylvania, an approved participant in the Food Stamp Program. Between November 12 and December 15, 1987, the clerk, Mildred Crawford, trafficked in food stamps from the store on four separate occasions, purchasing stamps with a total value of $1,500 for $750 from an undercover investigator for the Food and Nutrition Service ("FNS"), in violation of the Food Stamp Act of 1977, 7 U.S.C. § 2011 et seq.*fn1
On November 29, 1988, Crawford was indicted for trafficking violations under 7 U.S.C. § 2024(b)(1) and she pleaded guilty to these charges and was placed on probation on May 18, 1989. In a written statement on June 20, 1989, Crawford set forth that she knew the trafficking was against store policy, she was the only employee involved, and Freedman was unaware of the trafficking.*fn2 Freedman was formally notified of the investigation by a letter from the FNS on June 8, 1989, and was advised that her store was liable for Crawford's trafficking violations under 7 C.F.R. § 278.6(e)(1) (1989).*fn3 The store was charged with violations of 7 C.F.R. § 278.2(a).*fn4 Freedman was further informed that her store could be permanently disqualified from the Food Stamp Program or, pursuant to a new regulation published in the Federal Register on May 2, 1989, could be subject to a civil money penalty of up to $20,000 in lieu of permanent disqualification. See 54 Fed. Reg. 18,642-43 (1989) (interim rule setting forth criteria for civil penalty in lieu of permanent disqualification). Previously, permanent disqualification was mandated for any trafficking violation. See 7 U.S.C.A. § 2021(b) (1986). Under the new regulation, to be eligible for the civil money penalty in lieu of permanent disqualification, Freedman was required to submit substantial evidence that she had an effective policy in place to prevent violations. See 54 Fed. Reg. 18,642-43.
On June 22, 1989, Freedman requested the FNS to dismiss the charges against her, arguing that she should not be subject to a penalty for Crawford's independent criminal violations as she had no knowledge of them and derived no benefit from them. In the alternative, Freedman requested that the FNS impose a nominal civil money penalty of $50 for each violation. In support of her position, Freedman submitted affidavits from herself and two long-time employees attesting to her training of employees regarding the correct procedure for handling food stamps. By letter dated September 13, 1989, the FNS informed Freedman that it had determined that she did have an effective policy to prevent violations and it was assessing a civil money penalty of $20,000 in lieu of permanent disqualification.
Freedman requested and was given an administrative review of the $20,000 penalty. However, on December 29, 1989, the Administrative Review Officer assigned to the case informed her that he had determined that the imposition of the $20,000 civil money penalty was "fair and proper" and would not be changed.
Freedman then filed a complaint against the United States Department of Agriculture seeking judicial review of the determination of the Administrative Review Officer in the United States District Court for the Middle District of Pennsylvania. The Department moved for summary judgment and, on June 22, 1990, the district court granted its motion.*fn5 The district court found that Freedman's case "fell within the guidelines for sanctioning and satisfied the criteria for avoiding a permanent disqualification" and for the imposition of the civil money penalty. The district court also upheld the amount of the civil money penalty as within the allowable range established by the Food Stamp Act and found that it was not arbitrary and capricious. Freedman appealed from the order of June 22, 1990, to this court. The district court had jurisdiction pursuant to 7 U.S.C. § 2023(a) and we have jurisdiction under 28 U.S.C. § 1291.
Penalties for violations of the food stamp program by retail food stores are governed by section 12 of the Food Stamp Act. The act provides:
Any approved retail food store or wholesale food concern may be disqualified for a specified period of time from further participation in the food stamp program, or subjected to a civil money penalty of up to $10,000 for each violation if the Secretary determines disqualification would cause hardship to food stamp households, on a finding, made as specified in the regulations, that such store or concern has violated any of the provisions of this chapter or the regulations issued pursuant to this chapter.
7 U.S.C. § 2021(a). [Emphasis added].
Trafficking violations have been subject to especially strong penalties. Until 1988, 7 U.S.C. § 2021(b) provided for mandatory permanent disqualification from participation in the food stamp program for the first trafficking violation. The section set forth:
Disqualification under subsection (a) of
(3) permanent upon the third occasion of disqualification or the first occasion of a disqualification based on the purchase of coupons or trafficking in coupons or authorization cards by a retail food store or wholesale food concern.
See 7 U.S.C.A. § 2021(b) (1986). [Emphasis added].
The Code of Federal Regulations, which implements section 2021(b) of the Food Stamp Act, provides, in relevant part, that:
The FNS regional office shall:
(1) Disqualify a firm permanently if:
(i) Personnel of the firm have trafficked in coupons or ...