Opinion
No. 94 C 5809.
January 30, 1996
MEMORANDUM OPINION AND ORDER
Plaintiff Izieh Abdelkhalik brought this action pursuant to 7 U.S.C. § 2023 seeking judicial review of a decision by the Food and Nutrition Service of the United States Department of Agriculture ("FNS") that permanently disqualified Izieh Finer Foods from participating in the federal food stamp program. The defendant United States of America has filed a counterclaim against plaintiff under the False Claims Act, 31 U.S.C. § 3729 et seq. Plaintiff and the United States have filed cross-motions for summary judgment. For the reasons stated below, plaintiff's motion for summary judgment is denied and defendant's motion for summary judgment is granted.
Plaintiff Abdelkhalik filed this case against the Department of Agriculture. As defendant notes, however, pursuant to 7 U.S.C. § 2023(a), the United States is the proper defendant.
BACKGROUND
Plaintiff owns Izieh Finer Foods ("Store") in Joliet, Illinois. The Store was authorized by the FNS to participate in its Food Stamp Program ("FSP"). (Pl. 12(m) ¶ 1). Plaintiff submitted an application to be able to participate in the FSP. ( Id. at ¶¶ 1-2). In this application, plaintiff accepted responsibility "on behalf of the firm [Store] to prevent violations of the Food Stamp Program regulations," including "trading cash for Food Stamp Benefits." (Pl. Mem. Ex. 1, p. 4). Plaintiff also accepted responsibility for violations committed by the Store's employees, including new and part-time, paid or unpaid employees. ( Id.).
Memorandum in Support of Plaintiff Izieh Abdelkhalik's Amended Motion for Summary Judgment, p. 1 ("Pl. Mem."). Plaintiff's 12(m) statement will be cited as "Pl. 12(m)."
Between August 11, 1993 and October 22, 1993, FNS conducted an investigation of the Store to determine whether it was complying with the regulations governing the Food Stamp Program. (Pl. 12(m), ¶ 3). Based on this investigation, FNS alleges that on two separate occasions, a Store clerk gave the FNS investigator cash in exchange for food stamps. ( Id. at ¶ 4). In a letter dated April 6, 1994, the FNS's Chicago Field Office formally charged the Store with violating the food stamp regulations. ( Id. at ¶ 5).
The Store, through its manager Waleed Abdelkhalik ("Waleed"), responded to the charges in person on April 13, 1994; and on May 11, 1994, at the Chicago Field Office; and by telephone, on May 9, 1994. Waleed is plaintiff's son, has plaintiff's power of attorney, and plaintiff's authorization to run and manage the Store. (Def. 12(m), ¶ 4). Waleed stated that the area in which the Store is located is controlled by the Outlaws motorcycle gang, and that one of them might have purchased the coupons from the FNS investigator. Waleed denied that any violations had occurred in which he was involved. Waleed also stated that members of the gang do come behind the counter and could have trafficked without his knowledge. Waleed admitted that he leaves the cash register unlocked all day, even when he is in the storeroom in the back of the Store. ( Id. ¶ 11).
Defendant's 12(m) Statement, ¶ 10 ("Def. 12(m)").
On July 11, 1994 FNS issued its determination letter, finding that violations did occur and that the Store was permanently disqualified from participation in the FSP. ( Id. ¶ 12). The Store appealed the decision of the Chicago Field Office to the FNS Administrative Review Division. (Pl. 12(m), ¶ 9). In a five-page decision, Richard J. Havnen, Administrative Review Officer, determined that the violations had occurred. He noted that even if Waleed had not, himself, handled the violative transactions, the Store was responsible for any transactions handled by a person permitted to handle the checkout register. Havnen further stated that the contention that a gang member might have done the trafficking was belied by the fact that in four visits to the store, the FNS investigator dealt with the same individual. Finally, Havnen reaffirmed that the Store was permanently disqualified from the Food Stamp Program. (Def. 12(m), ¶ 13).
The Store filed the present action seeking judicial review of the FNS's determination. (Pl. 12(m), ¶ 11). Plaintiff, in the memorandum filed in support of his motion for summary judgment, argues that the FNS' determination was "invalid and/or `arbitrary and capricious' because it was unwarranted in law." (Pl. Mem., p. 3). Plaintiff argues that plaintiff is entitled to judgment as a matter of law because no genuine issue exists. ( Id.). Defendant United States' cross-motion for summary judgment asserts that there is no genuine issue of material fact concerning the validity of plaintiff's disqualification or concerning its counterclaim under the False Claims Act, and that defendant is entitled to judgment as a matter of law in its favor on both issues. (Def. Mem., p. 2).
DISCUSSION
Under Rule 56(c), summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.Pro. 56(c). In ruling on a motion for summary judgment, the evidence of the non-movant must be believed and all justifiable inferences must be drawn in the non-movant's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513 (1986). This court's function is not to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue of material fact for trial.
A party who bears the burden of proof on a particular issue, however, may not rest on its pleadings, but must affirmatively demonstrate, by specific factual allegations, that there is a genuine issue of material fact which requires trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553 (1986). There is no issue for trial "unless there is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party." Anderson, 477 U.S. at 249, 106 S.Ct. at 2511.
Pursuant to 7 U.S.C. § 2023(a), district courts must conduct a " de novo review of administrative actions concerning the eligibility of stores to participate in the food stamp program. . . ." East Food Liquor, Inc. v. United States, 50 F.3d 1405, 1411 (7th Cir. 1995) (citing McGlory v. United States, 763 F.2d 309, 310-11 (7th Cir. 1985)). The plaintiff has the burden of showing that "the alleged violations of the Food Stamp Act and its regulations did not occur." Brooks v. U.S. Dept. of Agriculture, 841 F. Supp. 833, 839 (N.D. Ill. 1994), aff'd 64 F.3d 251 (7th Cir. 1995). The FNS' decision "must be upheld unless [the plaintiff] can show by a preponderance of the evidence that the decision is invalid." Id.
While the district court determines de novo the validity of the FNS' determination that a violation occurred, the FNS' penalty determination "may be set aside only" if it is "arbitrary and capricious." McGlory, 763 F.2d at 311. In other words, a district court cannot set aside the penalty determination unless it is "unwarranted in law" or "without justification in fact." Woodward v. United States, 725 F.2d 1072, 1077 (6th Cir. 1984) (citation omitted).
I. The Food Stamp Act Violation
The United States presented evidence that the food stamp sales occurred in the Store on multiple occasions with money taken from the Store's cash register. Plaintiff failed to present evidence sufficient to meet his burden of proof that the violations did not occur. Neither plaintiff's denials nor his speculation about gang members prove that the violations did not occur. Likewise, plaintiff's self-serving affidavit about the Store's employees does not suffice to establish by a preponderance of the evidence that the FNS decision is invalid. It is, therefore, affirmed.
II. The Permanent Disqualification of the Store
In support of plaintiff's assertions in his motion for summary judgment that the Store's disqualification from the FSP was arbitrary and capricious because it was "unwarranted in law," (Pl. Mem., p. 5), plaintiff argues that the FNS failed to follow its own regulations.
The regulations concerning disqualification of stores from the FSP are found at 7 C.F.R. § 278.6. Plaintiff first argues that the FNS failed to follow § 278.6(b) when it issued plaintiff a charge letter. This section reads in part:
The letter shall specify the violations or actions which FCS believes constitute a basis for disqualification or impositions of a civil money penalty or fine. The letter shall specify the violations or actions which FCS believes constitute a basis for disqualification 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 charge letter shall advise a firm being considered for permanent disqualification based on evidence of trafficking . . . that the firm must notify FCS if the firm desires FCS to consider the sanction of a civil money penalty in lieu of permanent disqualification.7 C.F.R. § 278.6(b).
Plaintiff argues that the April 6, 1994 Charge Letter that plaintiff received failed to follow these requirements in that it (1) did not mention if any violations constituted the basis for a fine; (2) did not track the language of the regulations that a firm "may respond either orally or in writing to the charges contained in the letter within 10 days of receiving the letter;" and (3) did not affirmatively state that "the firm must notify FNS if the firm desires FNS to consider the sanction of a civil money penalty in lieu of permanent disqualification." (Pl. Mem., pp. 6-7).
As the United States asserts, plaintiff's arguments are without merit. The Charge Letter at issue mentioned the violations that constituted the basis for disqualification or a penalty, but did not mention any possibility of a fine. Not only was plaintiff not being considered for a fine, but 278.6(1) and (m) demonstrate that a fine was not applicable to plaintiff's case.
Furthermore, while the letter did not exactly track the language of the regulations, the letter "informed" plaintiff that plaintiff could present information, explanation or evidence regarding the charges within 10 days "in writing or in person" and the letter "advised" plaintiff that a request for a civil money penalty and specific documentation had to be submitted in order to be eligible for consideration. (Pl. Mem., Ex. 2). This is all that the regulations require. Therefore, the FNS' penalty was not arbitrary and capricious or unwarranted in law based on a failure to comply with § 278.6(b).
Next plaintiff argues that the FNS's determination to disqualify plaintiff is unwarranted in law because it fails to comply with § 278.6(d). This section states:
The FCS regional office making a disqualification or penalty determination shall consider: (1) The nature and scope of the violations committed by personnel of the firm, (2) any prior action taken by FCS to warn the firm about the possibility that violations are occurring, and (3) any other evidence that shows the firm's intent to violate the regulations.7 C.F.R. § 278.6(d). Plaintiff first argues that the Determination Letter which permanently disqualified plaintiff from participation in the FSP, failed to specifically state that it considered one of plaintiff's responses to the charges — a May 9, 1994 telephone call. A record of this phone call notes that Waleed stated that the Store has two cash registers rather than one, that no violations had occurred in which he was involved, and that no one named "Steve" worked at the Store. While the Determination Letter does not mention that the telephone conversation occurred, it recounts the important information from the call. Furthermore, as defendant asserts, on administrative review of this determination, the Administrative Review Officer specifically mentioned the May 9, 1994 call. (Def. Mem., p. 9 Ex. 16).
Although plaintiff does not state as much, presumably plaintiff considers this a violation of 278.6(c) which requires that all information and responses be considered in making a determination.
The letter states that plaintiff's response included the point that, although the investigator asked for "Steve" during an identification interview, no "Steve" has ever been connected to the Store in any way. (Pl. Mem., Ex. 5). Waleed's contention that he had never been involved in a violation is also implicit in the letter, as it recounts an assertion that a gang member may have been involved in trafficking food stamps. Furthermore, the letter states that while the responses presented some question as to who purchased the food stamps for cash, they did not call into question the fact that the transactions took place. ( Id.)
Next plaintiff argues that the Determination Letter failed to comply with § 278.6(d) because it did not consider (1) any prior action taken by FNS to warn the firm about the possibility that violations were occurring; and/or (2) any other evidence that showed the firm's intent to violate the regulations. (Pl. Mem., p. 8).
Pursuant to § 278.6(a), a firm may be disqualified for violating the food stamp regulations. The "disqualification shall be permanent for . . . a disqualification based on trafficking. . . ." 7 C.F.R. § 278.6(a). The regulations do not mandate that a store owner "receive a warning, intend to violate the regulations, or benefit from the trafficking." Goldstein v. United States, 9 F.3d 521, 523 (6th Cir. 1993). Again, the court finds that the disqualification cannot be said to be arbitrary and capricious on this ground. While the Determination Letter does not specifically outline the three areas that the FNS is to consider in determining a sanction, the regulations do not require a Determination Letter to contain such information. Rather, the regulations require that the three areas be considered in making the determination. Furthermore, the applicable statute and regulations mandate the sanction imposed. See 7 U.S.C. § 2021(b)(3)(B); 7 C.F.R. § 278.6(a) (e)(1)(i). In fact, based on the nature of the violation and the plaintiff's failure to submit the documentation required to be considered for a civil money penalty, permanent disqualification was the only sanction that should be imposed.
While the regulations allow a civil money penalty in lieu of permanent disqualification, 7 C.F.R. § 278.6(b)(2), plaintiff did not provide the documentation required to be considered for a civil money penalty. (Def. Mem., p. 8 n. 2).
Finally, although plaintiff admits that the Determination Letter considered the nature and the scope of the violations, defendant failed to consider whether the violations were "committed by personnel of the firm." (Pl. Mem., p. 8).
That the United States has not identified the specific clerk who exchanged money for food stamps is not fatal to the government's claim. Rather, as this court recognized in its September 30, 1994 Memorandum Opinion and Order in this case, the language of the Food Stamp Act in § 2021(a) punishes violations committed by the store. Therefore, the FNS' failure to properly identify the person who accepted the food stamps in exchange for cash is irrelevant. Wolf v. United States, 662 F.2d 676, 678 (10th Cir. 1981). See also, Wilson v. United States, 651 F. Supp. 701, 705 (E.D. Wis. 1986) ("The Act punishes violations committed by the store. Thus, it is irrelevant if the Food Nutrition Service cannot identify the clerks who accepted the food stamps").
This section provides:
Any approved retail food store or wholesale food concern may be disqualified for a specified period of time from participation in the food stamp program, or subjected to a civil money penalty of up to $10,000 cash for each violation if the Secretary determines that its disqualification would cause hardships 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).
The Determination Letter stated that plaintiff's responses had raised some question as to exactly who purchased the food stamps for cash, but did not call into question that the transactions took place. The letter further stated: "It is your responsibility as the store's representative for the store's owner, to assure that no violative transactions occur in that store. In the transaction that occurred on October 22, 1993, the cash used to purchase the food stamps was taken from the store's cash register by a person standing behind the counter." (Def. Mem., Ex. 14).
Furthermore, the administrative review decision states that "To allow store ownership to disclaim accountability for the acts of person whom the ownership allows to handle the checkout register would render virtually meaningless the enforcement provisions of the Food Stamp Act and the enforcement efforts of the Department. . . ." (Def. Mem., Ex. 16). The Administrative Review Officer also rejected the contention that the violations may have been committed by a gang member who loitered at the Store, because the investigator in the case encountered the same person at the Store in four visits and in both trafficking violations, the cash was withdrawn from the register. ( Id.).
There is no question that the violations occurred in the Store and that someone who was allowed access to the open cash register, whether authorized or not, paid for the food stamps with cash from the Store's cash register on more than one occasion. The FNS determination was well within the realm of reasonable inference from the facts presented in the record. It was neither arbitrary or capricious.
III. The False Claims Act
The United States has filed a counterclaim against plaintiff based on the False Claims Act. 31 U.S.C. § 3729 et seq. The False Claims Act prohibits persons from "knowingly" presenting or causing to be presented to the United States "a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1). The term "knowingly" is defined by the Act as (1) having "actual knowledge of the information"; (2) acting "in deliberate ignorance of the truth or falsity of the information"; or (3) acting "in reckless disregard of the truth or falsity of the information, and no proof of specific intent to defraud is required." 31 U.S.C. § 3729(b). Thus, "[i]nnocent mistakes or negligence are not actionable under this section." Hindo v. University of Health Sciences, 65 F.3d 608, 613 (7th Cir. 1995). Rather, "[t]he requisite intent is the knowing presentation of what is known to be false." Id. (citation omitted). Finally, the United States must prove by a preponderance of the evidence "all essential elements of a claim for violation of the False Claims Act." Brooks v. United States, 64 F.3d 251 (7th Cir. 1995) ( citing 31 U.S.C. § 3731(c)).
The United States argues that it is entitled to judgment as a matter of law on its counterclaim. (Def. Mem., p. 14). The United States asserts that each time a store redeems food stamps, it must provide a bank with a food stamp redemption certificate which certifies that the food stamps have been exchanged for eligible food. (Def. Mem., p. 15). In his deposition, Waleed testified that he signs the Store's food stamp redemption certificates and takes them to the bank. (Def. Mem., Ex. 2 p. 17). Furthermore, the United States has included as an exhibit the signed food stamp redemption certificates that the Store presented to its bank between October 5, 1993 and November 12, 1993. (Def. Mem., Ex. 18). The United States asserts that between these dates, the bank redeemed food stamps for the Store "in reliance on the truthfulness of the redemption certificates presented and signed by Waleed." (Def. Mem., p. 16).
The redemption certificate states: "I certify that . . . the food coupons redeemed were accepted in accordance with Food Stamp Program Regulations." (Def. Mem., p. 15).
Plaintiff asserts, however, that defendant's motion should be denied because the following facts are disputed: (1) that the trafficking was committed by personnel of the firm; and (2) that personnel of the firm "knowingly presented, or caused to be presented . . . a false or fraudulent claim for payment or approval." Furthermore, plaintiff contends, the specific food stamp coupons in question have not been tied into the redemption certificates that the United States has submitted as an exhibit. (Pl. Opp., p. 6).
Plaintiff's Memorandum in Opposition to Defendant's Cross-Motions for Summary Judgment. ("Pl. Opp.").
The United States asserts that the "specific redemption certificates need not be tied to the specific food stamp trafficking." Defendant's Reply, p. 4. In Brooks v. United States, 64 F.2d 251 (7th Cir. 1995), the Seventh Circuit affirmed the district court judgment against the plaintiff for a violation of the False Claims Act. The plaintiff had violated the act by redeeming food stamps in amounts that significantly exceeded his projected sales. The Seventh Circuit explained, "Since [the plaintiff] claimed that he did not retain any sales receipts or purchase invoices, there was no evidence of the precise amount of his actual sales. Nonetheless, there was substantial evidence establishing that Brooks' food stamp redemptions exceeded his actual food sales." Id. at 255. Thus, in light of the circumstantial evidence in Brooks, the court apparently did not find it necessary to tie a specific book of food stamps obtained in violation of the regulations to a specific redemption certificate.
In this case, the United States has established the Store's typical practice of going to the bank and signing the redemption certificates. The United States also has submitted the redemption certificates for the period surrounding the dates when the trafficking violations occurred. Furthermore, the investigator stated in the report of one violation that the discounted food stamps were placed in the cash register. (Def. Mem., Ex. 8). Although Waleed has denied personal knowledge or involvement with any trafficking violations and has offered other explanations for who might have had access to the cash register, the Store has not submitted any evidence that the specific food stamps at issue were not submitted to the bank along with any legitimately obtained food stamp books during the days surrounding the violations. Nor has the Store claimed that it has any food stamps in its possession that it has not redeemed.
First, the court has already found that the plaintiff did not demonstrate by a preponderance of the evidence that the Food Stamp Act violation did not occur. Therefore, the court will examine whether genuine issues of material fact exist as to whether personnel of the Store "knowingly" presented a false claim for payment. Plaintiff contends that based on the evidence contained in the FNS file, defendant cannot establish the state of mind of Waleed. Furthermore, plaintiff has submitted the affidavit of Waleed which attests that Waleed (1) has never been involved in any trafficking; (2) has no knowledge of any of the Store's personnel being involved in any trafficking; and (3) "did not `knowingly' (as defined by § 3729b) present or cause to be presented a false or fraudulent claim for payment or approval." (Pl. Opp., Ex. A).
While Waleed can attest to facts within his personal knowledge, his assertion that he did not have knowledge "as defined by § 3729b" is not within the realm of "facts" that the court may consider pursuant to Federal Rule of Civil Procedure 56(e). Still, Waleed attests that he had no involvement with the trafficking and has no knowledge of his employee's involvement in the trafficking. Yet, at his deposition, Waleed testified that he sometimes leaves the cash register open by mistake and he does not lock the cash register when he goes in the back room of the store. (Def. Mem., Ex. 2, p. 34). When asked how someone could have had access to the cash register to commit the violations while Waleed was present in the store, Waleed responded: "Lots of these gangs, lots of my friends comes around there, drink coffee; I be busy — could be jumping in the cash register." ( Id. at p. 52).
"[U]ltimate or conclusory facts and conclusions of law, as well as statements made on belief or `on information and belief' cannot be utilized on a summary judgment motion." Toro Co. v. Krouse, Kern Co., Inc., 827 F.2d 155, 162-63 n. 3 (7th Cir. 1987) (quoting, 10A C. Wright, A. Miller M. Kane, Federal Practice Procedure § 2738, at 467 (2d ed. 1983)) (internal quotation marks omitted).
Even viewing the evidence in the light most favorable to the plaintiff, this lack of supervision demonstrates at least the reckless disregard of the Store in certifying that the food stamps redeemed had been accepted in compliance with the Food Stamp Program Regulations. Indeed, the typical business practice of counting the money in the cash register at the end of the day should have alerted the Store that relatively substantial sums of money had been taken out of the cash register without explanation on the days that the violations occurred. Therefore, the court holds that the United States has demonstrated by a preponderance of the evidence that the Store exhibited a reckless disregard for the truth of the certification it signed and, thus, knowingly presented to the United States a false claim for payment.
A person who violates the False Claims Act is liable to the United States "for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person. . . ." 31 U.S.C. § 3729(a). As the United States notes, it has incurred damages in the amount of at least $170, the value of the food stamp coupons that were discounted. Three times this amount is $510. Furthermore, because trafficking is the most serious violation under the food stamp regulations, the United States requests a civil penalty of $7,500 for each violation for a total of $15,000. (Def. Mem. pp. 16-17). While the court recognizes the seriousness of trafficking food stamps and of a False Claims Act violation, the United States does not point to any aggravating circumstances connected to the violation. Thus, the court will impose a fine of $5,000 for each of the food stamp redemption certificates signed and presented in violation of the False Claims Act, for a civil penalty in the amount of $10,000. In sum, plaintiff is ordered to pay the United States a total of $10,510.
CONCLUSION
For the above-stated reasons, plaintiff's motion for summary judgment is denied and defendant United States' motion for summary judgment is granted as to plaintiff's claim and defendant United States' counterclaim. Judgment is entered against plaintiff and for the defendant. Plaintiff is ordered to pay the United States the sum of $10,510, consisting of $510 in damages and a civil penalty of $10,000. All other pending motions are moot.