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Diamond Mini Market v. Department of Health

Commonwealth Court of Pennsylvania

November 7, 2013

Diamond Mini Market, Petitioner
Department of Health, Respondent

Argued: October 8, 2013




Diamond Mini Mart (Diamond or the Store) appeals from the order of the Department of Health's Chief Hearing Officer affirming the Department's decision to disqualify Diamond from participation in the Supplemental Nutrition Program for Women, Infants and Children (WIC Program or Program) for three years.[1] The three year disqualification was based upon credited evidence that Diamond overcharged the WIC Program on three separate occasions during a compliance investigation. On appeal, Diamond argues, in a somewhat confounding manner, that a disqualification from the Program based upon the commission of separate overcharges on three different occasions during the same compliance investigation is contrary to the applicable regulations. In addition, Diamond argues that disqualification is not a mandatory sanction and, in this case, represents an abuse of discretion.

The WIC Program serves

to provide allowable foods to income eligible pregnant, breast-feeding or postpartum women, infants and children up to 5 years of age, who are at nutritional risk because of medical problems or poor diets. The WIC Program provides these individuals with nutritious foods to supplement their diets during critical stages of growth and development.

28 Pa. Code § 1101.1(a)(1). The Program is funded through the United States Department of Agriculture (USDA) and provides cash grants to State agencies to administer the Program through local agencies. See generally 7 C.F.R. § 246.1; 28 Pa. Code § 1101.1(a). In Pennsylvania, the Department of Health (Department) is responsible for developing policies and procedures pertaining to Program administration, including, inter alia, authorizing store participation in the Program, monitoring and evaluating Program services provided by authorized stores and otherwise carrying out the duties delegated by the USDA.[2] 28 Pa. Code § 1101.3(a). The Department's Program Integrity Unit monitors WIC-authorized stores for compliance with WIC regulations. Compliance monitoring is accomplished through different methods, including compliance investigations, which entail a "series of at least two compliance buys conducted at the same WIC authorized store." Id. § 1101.2. See also 28 Pa. Code § 1105.6(b)(1). A "compliance buy" is a "covert purchase at a WIC authorized store, with a WIC check, conducted to enable the Department to evaluate adherence by a WIC authorized store with [applicable regulations] governing the store's participation in the WIC Program." Id. § 1101.2. In general, the Department provides written notification to the WIC authorized store of the results of each compliance buy, including any violations of the statutory or regulatory authority governing the store's participation in the Program. Id. § 1105.6(b)(3).

A compliance investigation of a WIC-authorized store is closed if no violations are discovered after two consecutive compliance buys. Id., § 1105.6(b)(7). Notably, the Department considers that each visit to an authorized store during the course of a compliance investigation to be a separate compliance buy. If an overcharge violation occurs during a compliance buy, the Department considers that specific compliance buy to be one overcharge incident. See Notes of Testimony at 47 (Hearing of October 9, 2012).

Prior to disqualification, Diamond was an authorized WIC store located in Philadelphia. Diamond was the subject of a compliance investigation.[3]Consequently, four separate compliance buys occurred at the Store. While it is not necessary to review the specific details of each compliance buy, suffice it to say that although no overcharges occurred during the first compliance buy in August 2010, violations were detected, causing the Department to direct the local agency to conduct another compliance buy at the Store. The second compliance buy in March 2011 detected an overcharge in the amount of 22 cents.[4] Consequently, the Department notified Diamond of the violation and directed that its personnel were required to attend mandatory training. Diamond's owners, Jose and Yolanda Peralta, attended the mandatory training.[5]

A third compliance buy was conducted at the Store in October 2011, resulting in a 9 cent overcharge to the Program.[6] The Department notified Diamond of the violation and indicated, inter alia, that a follow-up unannounced review would occur and that disqualification from further participation in the Program could result if further violations were detected. The final compliance buy occurred in February 2012, during which an overcharge of 20 cents occurred.[7]Consequently, the Department notified Diamond that it was disqualified from participation in the WIC Program for three years for two or more incidences of overcharges.[8] Diamond appealed and a hearing followed.

The Department's witnesses established, inter alia, the manner in which each compliance buy occurred, the facts leading to the Department's conclusion that Diamond committed three separate overcharges on three separate occasions (i.e., during three separate compliance buys), that the Department considers any overcharge, no matter how small, to constitute a violation, and that the Department considers the sanctions mandatory, leaving the Department without discretion to change them. Counsel for Diamond cross-examined the Department's witnesses trying to establish that the calculated overcharge could have resulted from purchaser error during the compliance buy. In addition, Diamond presented the testimony of Jose Peralta, the Store owner. Peralta testified that he is responsible for completing the paperwork necessary to receive payment from the WIC Program and that to his knowledge he has always done so correctly. He further indicated that if an overcharge occurred, he was not aware of it and it was not intentional.

The hearing officer credited the Department's witnesses, finding that Diamond overcharged the Program three times during three separate compliance buys. The hearing officer concluded that the Department's decision to disqualify the Store from WIC participation for three years was consistent with both federal and Departmental regulations. In doing so, the hearing officer noted that the Department's regulations provide that a sanction will be imposed if three compliance buys (not three compliance investigations) detect violations. See 28 Pa. Code § 1105.6(b)(6). In affirming the disqualification, the hearing officer also noted that under the Department's regulations, a lack of intent to overcharge the Program is not a defense to the violation. Finally, the hearing officer rejected the argument that the Department abused its discretion in imposing the sanction. This appeal followed.

On appeal, Diamond first raises a confusing challenge to the Department's regulations providing for disqualification following two or more incidents of overcharges. Diamond argues: "The preliminary determination for the Hearing Examiner was whether the process followed by the [Department] constituted a single investigation or whether each of the described 'compliance buys' was [a separate instance] sufficient to constitute a determination of the requisite 'pattern of vendor overcharges' which is mandated under the federal regulations to warrant the non-discretionary three year disqualification." Brief at 9-10.[9]

We discern no merit in this contention. Both the federal and the state regulatory schemes contemplate disqualification following a single compliance investigation if a sufficient number of violations have occurred. Specifically, the federal regulations require the State agency to conduct compliance investigations on a specified percentage of its high-risk vendors. 7 C.F.R. § 246.12(j)(4). Further, "[a] compliance investigation of a high-risk vendor may be considered complete when the State agency determines that a sufficient number of compliance buys have been conducted to provide evidence of program noncompliance, [or] when two compliance buys have been conducted in which no program violations are found . . . ." Id. § 246.12(j)(4)(i). Section 246 provides that the State agency must notify a vendor in writing "when an investigation reveals an initial incidence of a violation for which a pattern of incidences must be established in order to impose a sanction." Id. § 246.12(l)(3). In addition, "[p]rior to imposing a sanction for a pattern of violative incidences, the State agency must either provide such notice to the vendor" or document the reason for determining that provision of notice would compromise an investigation. Id. § 246.12(l)(3)(i). Moreover, once notification of an incidence of violation is provided, the agency may continue its investigation. Id. ยง 246.12(l)(3)(iii). Notably, "[a]ll of the incidences of a ...

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