Four Winds Behavioral Health v. United States

FOUR WINDS BEHAVIORAL HEALTH, Plaintiff, v. UNITED STATES OF AMERICA, Defendant.

Civ. No. 19-212 SCY/LF

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

July 15, 2020

MEMORANDUM OPINION AND ORDER DENYING FOUR WINDS' MOTION FOR ADDITIONAL DISCOVERY AND DENYING UNITED STATES' MOTION FOR SUMMARY JUDGMENT¹

In administrative proceedings, Defendant United States concluded that Plaintiff Four Winds Behavioral Health (a residential substance abuse treatment facility) was allowing individuals to exchange food stamps for cash in its retail store. Such behavior is called "trafficking" and violates the rules of the food stamps program. The agency relied on evidence that Plaintiff's store saw an unusually high number of same-cents transactions (transactions ending in 00 cents or 50 cents); repetitive transactions from the same household account within unusually short time frames; unusually high-dollar value purchases for a small convenience/grocery store; and a total cost of purchased inventory that, assuming a markup of 64%, did not match the total cost of sold inventory. The agency permanently disqualified Plaintiff from participating in the food stamps program. Plaintiff now appeals from that decision.

The relevant statute provides for de novo review of the agency's decision in federal district court. The Court finds that, at this stage of the case when all reasonable inferences mustbe drawn in Plaintiff's favor, the undisputed material facts are not sufficient to establish trafficking violations in Plaintiff's retail store. The United States does not have direct evidence of trafficking, and while its facts support an inference that trafficking has occurred, it is not the only reasonable inference that can be drawn from the undisputed facts. Because all reasonable inferences must be drawn in favor of the non-moving party, the Court DENIES the United States' motion for summary judgment.

BACKGROUND

A. The Supplemental Nutrition Assistance Program

The Food and Nutrition Services ("FNS") of the United States Department of Agriculture ("USDA") is charged with administering the Supplemental Nutrition Assistance Program ("SNAP"). Doc. 55-1 ¶ 1 (Declaration of Gilda Torres, Section Chief of Retailer Operations and Compliance in the Investigative Analysis Branch of FNS). SNAP provides eligible households with monetary benefits (colloquially known as food stamps) to purchase eligible food items at authorized retail food stores. Id. ¶ 5. SNAP uses Electronic Benefit Transfer ("EBT") cards, which operate similarly to debit cards. Id. ¶ 6. Stores are prohibited from accepting EBT benefits as payment for ineligible items, such as non-food items. Id. ¶ 9; 7 C.F.R. § 278.2(a). Stores are also prohibited from exchanging EBT benefits for cash, regardless of whether the store discounts the benefits. Torres Decl. ¶ 10; 7 C.F.R. §§ 271.2, 278.2(a). These prohibited behaviors are defined as trafficking. Torres Decl. ¶ 11; 7 U.S.C. § 2021(b)(3)(B); 7 C.F.R. § 271.2.

FNS routinely monitors EBT transactions of stores that accept SNAP benefits to detect trafficking. Every transaction made with an EBT card is stored in a national database called the Anti-Fraud Locator using EBT Retailer Transactions ("ALERT"). Torres Decl. ¶ 15. ALERT stores the date, time, and amount of each transaction and the store and household identification numbers involved in the transaction. Id. Using the ALERT system, FNS can identify EBTtransactions within a given period of time that fall within certain patterns that are statistically unusual and suggest transactions that are in violation of SNAP. Id. ¶¶ 16, 17.

B. Four Winds Behavioral Health

Plaintiff Four Winds Behavioral Health, located in Sandoval County, New Mexico, is a 72-bed residential for-profit substance abuse treatment facility where clients live on-site for up to six months and do not leave. United States' Undisputed Material Fact ("UMF")² No. 1. Plaintiff provides all its clients' meals, and clients are not allowed to bring in outside food products. Clients do not have adequate space to store food inside their rooms, only a small refrigerator. Id. Plaintiff operates a small convenience store to make available supplemental food and snacks to its residents. UMF No. 2.

On April 17, 2018, an FNS contractor conducted a store visit at Plaintiff's facility to observe the nature and scope of its operation, stock, and facilities. UMF No. 3. According to his observations, the retail store is open Monday through Friday from 3:00 p.m. to 7:00 p.m., for a total of 20 hours per week. UMF No. 4. The retail area at the store is approximately 64 square feet.³ The store has a small, cluttered checkout counter. UMF No. 5. It has no shopping basketsor carts available for customer use. Id. The store's inventory is characteristic of a convenience store. UMF No. 6. Candy, chips, and soft drinks make up a large portion of its inventory. Id. None of its SNAP-eligible items cost more than $5.00; most cost less than $2.50. UMF No. 7. The contractor did not observe any unusual price structures, such as most product prices ending with $.00, during the store visit. UMF No. 8. While the store is open to the public as well as residents, there is no signage outside of the facility that would alert the public to the existence of the store inside the facility. UMF No. 9.

C. Suspicious Transactions at the Retail Store

Transactions FNS considers suspicious and indicative of trafficking include (a) multiple withdrawals by the same household account in unusually short timeframes (violators often engage in multiple transactions to avoid suspicious single high-dollar transactions); (b) excessively large purchases from small retailers, like convenience stores, that are not equipped with scanning devices or shopping carts, have limited counter space, and lack sufficient inventory to support such purchases; and (c) a high percentage of transactions ending in same-cents values, like $.00 or $.50, which appear contrived because they do not reflect the random data patterns created by real purchases. UMF No. 11.

Plaintiff appeared on the EBT ALERT system as having met patterns for a small grocery store consistent with EBT trafficking violations. UMF No. 10. As a result, FNS undertook a close analysis of the EBT transaction records at Plaintiff's store from January to May 2018. Id. The total transaction dollar volume during the review period was $50,031.52, while the average for small grocery stores—most of which are open more than 20 hours per week—in Sandoval County was $34,172.48. UMF No. 12. The total transaction count during the review period was 2,922, whereas the average for small grocery stores in Sandoval County was 1,871. UMF No. 13.The average transaction amount in Sandoval County for small grocery stores was $18.27, whereas Plaintiff's store conducted transactions as high as $239.30. UMF No. 14.

There are nine stores, including two superstores, within a one-mile radius of Plaintiff's facility. UMF No. 15. There are fifty-three comparably or better stocked retailers within nine miles of the facility. Id. Households engaged in suspicious transactions at Plaintiff's store were also shopping at larger and better stocked stores during the same time period, sometimes on the same day. UMF No. 16. Some of these households were conducting transactions at Plaintiff's store followed within minutes or hours by transactions at stores hundreds of miles away. Id.

D. Administrative Proceedings

On July 2, 2018, FNS issued Plaintiff a charge letter charging trafficking and included three attachments identifying the unusual transactions. UMF No. 17. The letter provided Plaintiff with an opportunity to challenge FNS' findings. Id. Specifically, the letter warned that "[i]f it is determined that your firm committed the trafficking violations noted above, it will be permanently disqualified" from SNAP. UMF No. 18. The letter advised Plaintiff that it could request consideration of a civil money penalty in lieu of permanent disqualification, but such a request must be submitted within ten calendar days. Id. If no request was timely received, the letter advised that Plaintiff would lose its right for any further consideration for a monetary penalty. Id.

On Attachment 1 to the charge letter, FNS identified 1,167 discrete instances of transactions ending in 00 cents or 50 cents, totaling $26,518.00. UNM No. 19. Same-cents transactions comprised approximately 64% of SNAP transactions over $9.00 during the review period. Id.

On Attachment 2, FNS identified 57 sets of repeat transactions by individual SNAP households within a set time frame of roughly 24 hours, totaling $7,064.05. UMF No. 20. Forexample, Household *8951 made a $45.80 purchase, followed by an $84.75 purchase fourteen minutes later. Id. Household *5181 made a $56.50 purchase, followed by a $20.50 purchase four minutes later. Id. Household *0316 bought $126.25 from Plaintiff's limited inventory, then purchased another $40.00 worth of items thirty-six minutes later. Id. Every transaction in these sets ranged from $20.00 to $239.30. Id. The majority of the combined purchases in these sets totaled more than $100, with the largest household expenditure being a set of four purchases totaling $340.85 in just over twenty-four hours. Id. The secondary or subsequent transaction amounts ranged from $20.00 to $84.75. UMF No. 21. In a portion of the sets of repeat transactions identified on Attachment 2, the secondary transaction amount or combined subsequent transaction amounts exceeded the initial transaction amount. Id. Some households appeared multiple times on Attachment 2. Id.

On Attachment 3, FNS identified 59 "excessively large purchase transactions," totaling $5,597.30. UMF No. 22. These transactions ranged from $66.50 to $239.30, with 19 transactions over $100. Id. Some households appeared on all three attachments. UMF No. 23.

In letters dated July 9, July 11, and August 20, and in a phone call...