Opinion
No. A04-548.
Filed October 19, 2004.
Appeal from the Minnesota Department of Health, File No. 70900155012.
Michael R. Drysdale, Dorsey Whitney, L.L.P., Minneapolis, Mn, (for relator)
Mike Hatch, Attorney General, Kristen M. Olsen, Audrey K. Manka, Assistant Attorneys General, St. Paul, Mn, (for respondent)
Considered and decided by Stoneburner, Presiding Judge; Shumaker, Judge; and Wright, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
Relator Hy-Vee Food Stores, Inc. challenges its three-year disqualification by respondent Minnesota Department of Health (MDH) from participating in the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) for violating program rules prohibiting the sale of tobacco for a WIC voucher. Relator argues that MDH erred when it concluded that a violation occurred and, in the alternative, that regulations mandating a three-year disqualification for inadvertent violations are arbitrary and capricious. Because the evidence and the law support the conclusion that a violation occurred, and MDH's regulations do not arbitrarily and capriciously sanction unintentional rule violations, we affirm.
FACTS
Relator's store in Windom allowed a $3.19 package of cigarettes to be purchased with a WIC voucher. MDH found that the inclusion of the cigarettes on the voucher was "entirely inadvertent" but disqualified relator from the WIC program for three years under state and federal regulations that mandate such disqualification for even one instance of the sale of tobacco products in exchange for a WIC voucher. This certiorari appeal followed.
The WIC program provides designated women and children with nutritious food, nutrition education, and referrals for other health-care services. The program is federally funded, managed by the state, and administered by approximately 70 local WIC agencies. The WIC agencies provide eligible women and children with WIC vouchers that they can redeem for specific WIC-allowed foods at approved retail stores and pharmacies. Each voucher contains a unique identification number and lists the amounts and types of food the participant is entitled to receive with that voucher.
DECISION
This court will reverse an agency decision if it is unconstitutional, in excess of statutory authority, affected by an error of law, unsupported by substantial evidence in view of the entire record as submitted, made on unlawful procedure, or arbitrary and capricious. Minn. Stat. § 14.69 (2002). An agency's conclusions are not arbitrary and capricious if a rational connection has been articulated between the facts and the choice made. Matter of the Excess Surplus Status of Blue Cross Blue Shield of Minnesota, 624 N.W.2d 264, 277 (Minn. 2001).
When reviewing agency decisions, we presume that the decision is correct and defer to the agency's expertise and its special knowledge in the field of its technical training, education, and experience. Id. at 278 (noting that the agency is presumed to have the expertise necessary to decide technical matters within the scope of its authority). We also defer to the agency's interpretation of statutes the agency is charged with administering and enforcing. Id.
I. The violation
Minn. Rule 4617.0084, subp. 4 (2003) provides that "[e]xcept as provided in subparts 15 and 16, the commissioner shall disqualify a vendor for three years if the vendor provides any. . . . tobacco product in exchange for one or more vouchers." (Emphasis added.) Federal rules also require that a state agency must disqualify a vendor for three years for "one incidence of the sale of. . . . tobacco products in exchange for food instruments." 7 C.F.R. 246.12(l)(1)(iii)(A) (2004) (emphasis added). The parties agree that the term "provides," as used in the Minnesota rule, should be construed to require a "sale," as the term is used in the federal rule. Relator first argues that MDH erred in determining that a sale occurred under the facts of this case because, relator asserts, MDH failed to include an element of intent in interpreting the term "sale," and there is no evidence that relator intended to sell cigarettes on a WIC voucher. And relator asserts that MDH's interpretation is not entitled to deference because MDH is not interpreting its own rule, and the term "sale" is not technical. But relator's argument that this court should not defer to MDH's interpetation of the word "sale," as used in the federal rule, is directly contrary to the "fundamental concept that decisions of administrative agencies enjoy a presumption of correctness, and deference should be shown by courts to the agencies' expertise and their special knowledge in the field of their technical training, education, and experience." Blue Cross Blue Shield, 624 N.W.2d at 278 (citations omitted).
The terms "provide" and "sale" are not defined in the state or federal rules. MDH adopted the definition of "sale" contained in Minn. Stat. § 336.2-106 (1): "[a] `sale' consists in the passing of title from the seller to the buyer for a price." Relator does not challenge the use of the UCC definition of "sale," but argues that there was no "mutual intent to sell," in this case and that therefore MDH erred in concluding that the transaction at issue was a sale. Relator asserts that intent is an essential element of all contracts; all sales are contracts, therefore, absent intent, this transaction was not a sale.
Absent an explicit agreement otherwise, title passes at the time and place at which the seller completes his or her performance with respect to physical delivery of the goods. Minn. Stat. § 336.2-401 (2002).
MDH, however, did not explicitly reject relator's assertion that a sale involves an element of intent. Relying on the UCC definition of "sale," MDH concluded that, as here, when a
[c]ustomer placed items in the checkout aisle, those items were scanned by [relator's employee], a total price was identified, a food instrument (WIC voucher) was offered by the customer as payment, the food instrument was accepted as payment for all items scanned, a receipt was given to the customer, and the customer left with the items[,]
a sale occurred. We read MDH's decision to implicitly hold that, given the parties' objective conduct, any intent requirement for a sale was met in this transaction. See Speckel v. Perkins, 364 N.W.2d 890, 893 (Minn.App. 1985) (stating that outward manifestation of assent, rather than subjective intention, is determinative); Johnson v. City of Jordan, 352 N.W.2d 500, 503 (Minn.App. 1984) (stating that contract formation must be judged by parties' words and actions). Relator's counsel candidly conceded at oral argument that relator intended to sell the cigarettes and the customer intended to buy the cigarettes. The record demonstrates that the cigarettes were delivered to the customer and relator received the price. We conclude that, under these facts, the sale was intentional even if the violation that occurred when relator accepted payment by a WIC voucher was unintentional. MDH did not make an error of law in concluding that a sale occurred.
Relator also argues that its "course of dealing" establishes that there was no sale, pointing to affidavits in the record stating that it was relator's "course of dealing" to exclude non-eligible items like tobacco from WIC transactions. But "course of dealing" is "a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct." Minn. Stat. § 336.1-205 (1) (2002). The record contains no evidence of a course of dealing between relator and the customer in this transaction. Relator's protocol for preventing WIC violations is not evidence of a sequence of conduct between these parties previous to this transaction that can be used to interpret this transaction.
Relator next argues that MDH erred in interpreting the regulatory history of the vendor-violation provisions to conclude that intent is not an element of a "sale" under 7 C.F.R. § 246.12 (l)(1)(iii)(A). But relator has misstated how MDH used the regulatory history. MDH expressly stated that it looked to the regulatory history in the context of relator's assertion that "the Federal Register's discussion of the Federal rules' mandating sanctions demonstrates that intent to violate the rules is a requirement that must be proven before a vendor can be disqualified." In this context, MDH correctly noted that the regulations define "vendor violation" as "any intentional or unintentional action . . . that violates the vendor agreement or Federal or State statutes, regulations, policies, or procedures governing the Program." 7 C.F.R. § 246.2 (2003). The regulatory history expressly provides that state agencies are not required to show that a vendor intended the violation.
One commenter opposed the proposed definition [for high-risk vendor] unless it is modified to distinguish between intentional and unintentional conduct.
As discussed in the preamble to the Vendor Disqualification final rule, the violations that trigger mandatory sanctions do not require the State agency to distinguish between fraudulent (intentional) or abusive (unintentional) vendor violations, because both types of vendor violation(s) result in loss of program funds. The State agency is not required to demonstrate that a vendor intended to commit a vendor violation(s) to support its sanction. Instead, the State agency is required to provide evidence that the vendor committed the vendor violation(s) and that the evidence is sufficient to support the sanction being imposed. For this reason, we did not accept the commenter's recommendation and adopted the definition with one revision to incorporate the defined term "vendor violation."
65 Fed. Reg. 83265-66 (Dec. 29, 2000).
Relator also relies on principles of statutory construction to argue that the vendor-violation definition means only that intent is not a required element of all violations and that a provision describing a specific vendor violation supersedes the more general definition of vendor violation. This argument is based on relator's previous argument, discussed above, regarding the intent requirement for a sale. Because we have rejected relator's argument that there was not a sale, this argument has no merit. There is no authority to support relator's assertion that the particular violation in this case required evidence of intent to violate the regulation.
II. MDH regulations are not arbitrary and capricious
Relator argues that even if there was a sale and a violation of the WIC regulations, the mandatory sanction imposed is arbitrary and capricious because it punishes innocent vendors who have procedures in place to prevent violations. Relator relies on three federal court decisions involving trafficking in food stamps for the proposition that mandatory disqualification of an "innocent owner" is arbitrary and capricious. But all of the cases cited by relator involve permanent disqualification from the food-stamp program. And two of the cases make a clear distinction between trafficking by a rogue employee who is personally benefiting from the transaction and cases in which an employee accepts food stamps for non-food items. See R Ranch Market Corp. v. United States, 861 F.2d 236, 240-41 (9th Cir. 1988) (holding punitive sanction against innocent owner not authorized by law where employee acted solely for personal gain and concealed conduct from owner); Badwan v. United States, 541 F.2d 1388, 1390-91 (10th Cir. 1976) (holding owner could not be held responsible for act of employee done for personal advantage and concealed from owner).
In R Ranch and Badwan, the courts noted that both trafficking by a rogue employee and exchanging food stamps for non-food items may involve an innocent owner, but in the case of an employee exchanging food stamps for non-food items, the store receives a benefit and makes a profit on the sale. R Ranch, 861 F.2d at 240; Badwan, 541 F.2d at 1390. When the store benefits from the transaction, federal courts have determined that personal knowledge or participation of the owner is not required in order to disqualify the store from participating in the program. R Ranch, 861 F.2d at 240 (discussing Badwan distinction between acceptance of food stamps for ineligible items and rogue trafficking). Subsequent to the decision in R Ranch, Congress amended the Food Stamp Act, giving the regulatory agency discretion to impose a civil financial penalty in lieu of disqualification if it determined the vendor had an effective policy and program in effect to prevent violations of the act, but maintaining permanent disqualification as a sanction for first-time trafficking even where the act was concealed from the owner. 7 U.S.C. § 2021(b)(3)(B) (1988). In Kim v. United States, the third case relied on by relator, the Ninth Circuit Court of Appeals held that the amendments clearly demonstrated Congress's intent to permanently disqualify an innocent vendor for trafficking by an employee and that R Ranch is "no longer viable as to actions commenced under the 1988 amendments." 121 F.3d 1269, 1273 (9th Cir. 1997).
We conclude that the cases relied on by relator do not support relator's argument that imposition of a temporary disqualification for a cashier's inadvertent acceptance of a voucher to pay for cigarettes is arbitrary and capricious.
When an administrative agency has been entrusted with the responsibility of selecting the means of achieving statutory policy, the "relation of remedies to policy is peculiarly a matter for administrative competence," and a choice of sanction should not be overturned unless it was "unwarranted in law" or "without justification in fact." Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 185-86, 93 S. Ct. 1455, 1458 (1973) (citations omitted). Because 7 C.F.R. § 246.12(l)(1)(iii)(A) requires a state agency to disqualify a vendor for three years for one incidence of the sale of alcohol or tobacco products in exchange for a food instrument, relator's three-year disqualification is not "unwarranted in law." And because relator concedes that it exchanged a pack of cigarettes for a WIC voucher, the disqualification is also not "without justification in fact."
Additionally, "[t]he employment of a sanction within the authority of an administrative agency is not rendered invalid in a particular case just because it is more severe than sanctions imposed in other cases." Butz, 411 U.S. at 187, 93 S. Ct. at 1459. An agency acts arbitrarily and capriciously only when its actions lack a rational basis. See Blue Cross Blue Shield, 624 N.W.2d at 277. Although the temporary disqualification of an innocent vendor who has a protocol designed to prevent inadvertent WIC violations is harsh, it is rationally related to the government's goal of reducing the fraud and abuse that plague the WIC program. See Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 14, 111 S. Ct. 1032, 1040 (1991) (stating that "[i]mposing liability without independent fault deters fraud more than a less stringent rule. It therefore rationally advances the [government's] goal.") The sanction creates a powerful incentive for employers to guard against illegal or improper conduct. As the Kim court noted, "employers are in a much better position vis a vis [an agency] to police their employees' daily compliance with the [law]." 121 F.3d at 1274. Accordingly, the sanction, although harsh, is not arbitrary and capricious.