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January 21, 1998

FEATHER O. HOUSTOUN, Secretary of Public Welfare, and CITICORP SERVICES, INC., Defendants

The opinion of the court was delivered by: CALDWELL

 I. Introduction.

 The plaintiffs are the Pennsylvania Food Merchants Association, a trade association of retail food merchants, and four of its members, Aldi, Inc. (Pennsylvania), Save-A-Lot, Greenwich Market and Redner's Markets, Inc. *fn1" They allege that Pennsylvania's plan for implementing computerized transfers of food stamp benefits violates the Food Stamp Act. See 7 U.S.C. § 2011-2030. The defendants are Feather O. Houstoun, Pennsylvania's Secretary of Public Welfare, and Citicorp Services, Inc., the third party administrator of the plan.

 Briefly, Pennsylvania's plan is to provide food retailers with free computer terminals so that they can have free processing of food-stamp point-of-sale transactions. The retailers need not accept the terminals, but if they do so, they must forego processing cash-assistance point-of-sale transactions.

 The plaintiffs contend that this plan violates the Food Stamp Act in two ways. First, it improperly imposes certain costs of the food stamp program on retailers. Second, it illegally ties free food stamp terminals to not accepting point-of-sale service from Citicorp's competitors. Invoking 42 U.S.C. § 1983, the plaintiffs sought declaratory relief along with preliminary and permanent injunctive relief.

 The parties agreed that, before the court would consider granting equitable relief, the plaintiffs would file a motion for summary judgment to test the merits of their cause of action. The plaintiffs complied and we are considering that motion. We are also considering whether the case is moot, based, as the plaintiffs urge in their reply brief, on an assertion in Citicorp's summary-judgment opposition brief that Citicorp's recent agreement with the MAC network provides the plaintiffs with access to cash-assistance point-of-sale transactions, and so there is no longer any live controversy.

 II. Background.

 In 1990, Congress required the states to "implement an electronic benefit transfer system" to take the place of the paper food-stamp coupon system. 7 U.S.C. § 2016(i)(1)(A). The cost of this "EBT" system was not to exceed the of operating the paper coupon system it was intended to replace. Id. at § 2016(i)(2)(A).

 On November 1, 1997, Pennsylvania began to establish such a computerized system and contracted with Citicorp to administer it. The system operates the same way as electronic banking does for private bank accounts that are accessible by ATM cards or debit cards. A food stamp recipient has an account in a central database and is given a "Pennsylvania Access" card and a PIN number. When purchases are made at a participating food store, the card is swiped through a terminal at the point of sale, the PIN number is entered, and the recipient's account is debited, resulting in a so-called POS (for point of sale) transaction.

 The card has an additional feature. For those eligible for welfare (or cash assistance) payments, the card will allow them to access a cash-assistance account. Like food-stamp eligible purchases, purchases can be made at the point of sale and the account debited (as long as the retailer is eligible to do so under the plan). Further, the card can be used to access cash-assistance benefits at ATM machines.

 Section 2016(g), in effect before the 1990 amendment required the states to convert to a computerized system, prohibits a state in subsection (2) from imposing on food retailers the cost of a computerized system for distributing food stamp benefits. Section 2016(g) reads, in pertinent part, as follows:

(A) to issue or deliver coupons using alternative methods, including an automatic data processing and information retrieval system; or
(B) . . . .
(2) The costs of documents or systems that may be required pursuant to this subsection may not be imposed upon a retail store participating in the food stamp program.

 After the states were required to switch to a computerized system, the Secretary of Agriculture issued 7 C.F.R. § 274.12 (1997), a regulation dealing with the change-over. The regulation also dealt with "retailer participation" in the system. In regard to retailer costs, it provided as follows:

Authorized retailers shall not be required to pay costs essential to and directly attributable to EBT system operations as long as the equipment or services are provided by the State agency or its contractor and are utilized solely for the Food Stamp Program. In addition, if Food Stamp Program equipment is deployed under contract to the State agency, the State agency may, with USDA approval, share appropriate costs with retailers if the equipment is also utilized for commercial purposes.

 7 C.F.R. § 274.12(g)(2).

 When the rule was first proposed and opened to public comment, the Secretary of Agriculture explained it as follows:

Under section 7(g) of the Act (7 U.S.C. 2016(g)), the cost of documents or systems that utilize an automatic data processing and information retrieval system to enable households to purchase their food shall not, if the system is required by the Secretary, be imposed on participating retailers. Even though section 7(g) is not directly applicable to the voluntary system addressed in this proposed rule, the Department has placed reliance on the expression of Congressional intent in that subsection. Therefore, this rule would prohibit a State agency from requiring retailers to bear costs essential to and directly attributable to an EBT system utilized solely for the Food Stamp Program. However, the State agency would not be required to pay the costs of terminals or terminal installation for retailers that choose to utilize their own terminals or terminals supplied by third party processors. As a result, retailers that choose to operate their own POS terminals or obtain terminals and other commercial electronic funds transfer services through a third party processor would be making a business decision not to utilize the EBT system's equipment.

 56 Fed. Reg. 65114, 65124 (1991).

 To meet its statutory and regulatory responsibility to provide a cost-free system to participating retailers, Pennsylvania is doing the following. Any retailer who wants terminals for processing food-stamp point-of-sale transactions will receive them free, and there will be no processing charge for transactions made on these terminals. However, if a retailer accepts a food stamp terminal, it will not be able to process cash-assistance point-of-sale transactions. This is true even if it has its own terminals on which such transactions could be processed and on which it processes point-of-sale transactions for private bank accounts. If a retailer wants to be able to process both food-stamp and cash-assistance point-of-sale transactions, it must acquire on its own (either by purchase or lease) the terminals to do so (what the plaintiffs have styled "commercially-purchased POS devices") and pay any processing fees a third party processor (TPP) may impose for both types of transactions. The Secretary of Agriculture has approved this approach. (See Houstoun's counterstatement of material facts, correspondence attached as exhibit B).

 The plaintiffs' complaint arises from the alternatives Pennsylvania decided to provide. In their words, the system provided them with the following alternatives:

 (Complaint, P 35). *fn2"

 The plaintiffs allege that, as a result, they and other members of PFMA will in general suffer the following costs: if the first alternative is chosen, costs in the form of lost cash-assistance sales and "curtailed customer service," (complaint, P 36); if the second alternative is chosen, costs in the form of acquiring or leasing terminals, connection fees and telephone charges. (Id., P 37).

 The plaintiffs also allege that connecting the offer of free food-stamp terminals and processing to a prohibition on cash-assistance point-of-sale transactions was intended to coerce retailers to forgo the free machines out of fear of losing sales to customers using cash assistance. As a result, and contrary to the statute, the costs of the computerized food-stamp system will be imposed on retailers because retailers will decide not to accept the free machines and instead rely on their own terminals to process and pay for both food-stamp and cash-assistance point-of-sale transactions. (Id., P 47).

 In support, the plaintiffs further allege that this system differs from those in other states where the state-supplied food-stamp machine may be used to process both food-stamp transactions and cash-assistance transactions, or where a state supplies a machine to process food stamp transactions and allows a retailer to process cash-assistance transactions on its own terminal. (Id., P 48).

 For this alleged violation of the no-cost requirement, the plaintiffs requested in count I against both defendants that the court:

issue a declaratory judgment that [the] EBT system violates 42 U.S.C. § 1983 and the federal food stamp statute and regulations by improperly imposing costs upon retailers; to grant the appropriate preliminary and permanent injunctive relief to effectuate this declaration . . . .

 (Id., pps. 13-14) (brackets added).

 The Food Stamp Act also contains an antitying provision, 7 U.S.C. §§ 2016(i)(11)(B), which provides, in pertinent part, as follows:

A company may not sell or provide electronic benefit transfer services, or fix or vary the consideration for electronic benefit transfer services, on the condition or requirement that the customer--
(i) . . . .
(ii) not obtain some additional point-of-sale service from a competitor of the company or competitor of ...

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