Ramzi, Inc. v. Dep't of Pub. Health

85 Mass.App.Ct. 353

10 N.E.3d 139

RAMZI, INC.,¹ & others ²

v.DEPARTMENT OF PUBLIC HEALTH.

No. 12–P–1450.

Appeals Court of Massachusetts, Worcester.

Argued Dec. 6, 2013.

Decided May 28, 2014.

John M. Goggins, Worcester, for the plaintiffs.

Iraida J. Alvarez, Assistant Attorney General, for the defendant.

Present: FECTEAU, SULLIVAN, & MALDONADO, JJ.

SULLIVAN, J.

Ramzi, Inc., doing business as North End Market, Nahed Benyamin, and Emad Benyamin (collectively, Ramzi) appeal from a judgment of the Superior Court affirming, in pertinent part, a decision of the Division of Administrative Law Appeals (DALA) ³ upholding a determination of the Department of Public Health (department) to disqualify Ramzi as a WIC ⁴ vendor for three years and to terminate Ramzi's WIC vendor status. On appeal, Ramzi contends that the judge erred as a matter of law in affirming the DALA decision. We conclude that an amendment to the governing statute, and ensuing regulatory changes, require a remand to DALA for further consideration of so much of its decision disqualifying Ramzi for a three-year period. Accordingly, we affirm in part and reverse in part.

Background. The undisputed facts are set forth in the administrative record and are summarized as follows.

1. The regulatory scheme. WIC is a federally funded supplemental food program for income-eligible women, infants, and children. The program, which is administeredby the States, provides WIC checks redeemable in grocery stores, pharmacies, and farmers' markets for approved foods. See 42 U.S.C. § 1786 (2012); 7 C.F.R. § 246.1 (2009).⁵ In the Commonwealth, WIC is administered by the department, subject to regulations promulgated by the United States Department of Agriculture (Department of Agriculture). See 42 U.S.C. § 1786(b)(12), (f); 7 C.F.R. §§ 246.1, 246.3(b).

2. Vendor agreements and compliance monitoring. The department's vendor agreement incorporates pertinent regulatory requirements applicable to WIC vendors. The department and Ramzi entered into a vendor agreement, which outlines the responsibilities of a WIC vendor and potential violations and penalties for those violations, as set forth in the Federal regulations. 7 C.F.R. § 246.12(h)(1)(i), (h)(3)(i)-(xxv). Upon entering into the vendor agreement, Ramzi became a qualified WIC vendor and was authorized to sell WIC-approved items to WIC recipients according to the protocol set out in the vendor agreement. Ibid.

Federal regulations require that the department routinely monitor State-approved WIC vendors for “compliance with program requirements.” 7 C.F.R. § 246.12(j)(1). Violations of the standards set forth in the vendor agreement may result in sanctions up to and including suspension or termination from the WIC program. The vendor agreement sets out four classes of violations, ranging from Class I to Class IV. Each class represents a different and more serious degree of violation (Class I being the highest), and carries penalties of increasing severity. See 7 C.F.R. § 246.12( l )(1)(ii)-(iv), ( l )(2)(i).

3. The covert buys. The department sent an undercover compliance buyer (buyer) to the North End Market (market) on four separate occasions in September and October of 2009. See 7 C.F.R. §§ 246.2, 246.12(j)(4)(i)-(ii). During the first visit, the buyer purchased items using two types of WIC checks.⁶ The cashier asked the buyer to sign the WIC checks before the cashier wrote the total amount of the buyer's purchase on the checks, a Class IV violation. See 7 C.F.R. § 246.12( l )(2)(i). After the visit, Ramzi submitted the checks to the department for reimbursement for an amount greater than the actual amount of the items purchased by the buyer, a Class II violation. See 7 C.F.R. § 246.12( l )(1)(iii)(C). This conduct was repeated on each of the three subsequent visits to the market by the buyer.⁷ The department also determined that Ramzi failed to disclose prices of WIC-approved items offered for sale on two occasions, posted a price for a WIC item that was higher than the price Ramzi had on file with the department, and failed to enter the amount of the purchase before the buyer countersigned the check on four occasions, all Class IV violations. See 7 C.F.R. § 246.12( l )(2)(i).

4. The sanctions. Based on the Class II violations, the department imposed the sanctions set forth in the Federal regulations and incorporated in the vendor agreement. The department terminated Ramzi's vendor agreement and disqualified Ramzi from participating as a WIC vendor for three years. See 7 C.F.R. §§ 246.12( l )(1)(iii). The department also assessed seventy sanction points for the Class IV violations that occurred during the 2009 investigation. The penalty for the Class IV violations was a one-year disqualification. See 7 C.F.R. § 246.12( l )(2). Because the State agency must disqualify the vendor for the period corresponding to the most serious mandatory violation, the three-year disqualification for the Class II violation was imposed. See 7 C.F.R. § 246.12( l )(1)(xii).

Discussion. Our view of the order allowing judgment on the pleadings is governed by G.L. c. 30A, § 14. We “may overturn or modify the agency's decision only on narrow grounds, such as if it is ‘[u]nsupported by substantial evidence’ or ‘[b]ased upon an error of law.’ ” Gauthier v. Director of the Office of Medicaid, 80 Mass.App.Ct. 777, 783, 956 N.E.2d 1236 (2011), quoting from G.L. c. 30A, § 14(7), as appearing in St.1973, c. 1114, § 3.

1. The Class II violations. The vendor agreement specifies that Class II violations include, among other things, “a pattern of ... [o]vercharging ... by writing in a price on the WIC check that is higher than ... [what was] actually purchased” and “a pattern of ... [c]harging ... a set price by check type instead of pricing each check for actual, authorized WIC products actually purchased.” This definition mirrors the Federal regulation. 7 C.F.R. § 246.12( l )(1)(iii)(C), (E). The vendor agreement defines a pattern “as two or more incidences of a violation.” The department found, and DALA concluded, that Ramzi committed multiple Class II violations by (1) overcharging the department on four separate occasions, and (2) charging a set price by check type instead of charging the actual price of the items purchased on four separate occasions.

a. Notice. On appeal, Ramzi does not contest the sufficiency of the evidence of the violations.⁸ Rather, Ramzi contends that it did not receive written notice of the initial violation in contravention of the clause in the vendor agreement that requires the department to “notify a vendor in writing when an investigation reveals an initial violation for which a pattern of violations must be established in order to impose a sanction, before another such violation is documented, unless the [department] determines that notifying the vendor would compromise its investigation ” (emphasis original). Ramzi contends that in the absence of notice, it was improper to find that there was a pattern of violations.⁹ The department contends, and the judge found, that no notice was required because there was an ongoing covert operation that fell within the exception in the vendor agreement.

As noted above, the vendor agreement is a creature of Federal law and regulation. See 7 C.F.R. § 246.12(h)(1)(i), (h)(3)(i)-(xxv). By its terms, and the provisions of the governing regulations, the vendor agreement must be construed in accordance with applicable law. Similarly, while “we give ‘substantial deference’ to an agency's interpretation of those statutes which it is charged with enforcing,” Souza v. Registrar of Motor Vehicles, 462 Mass. 227, 228–229, 967 N.E.2d 1095 (2012), quoting from Providence & Worcester R.R. v. Energy Facilities Siting Bd., 453 Mass. 135, 141, 899 N.E.2d 829 (2009), the department may not enforce the vendor agreement in a manner violative of the Federal mandate.

b. Congressional action. The notice provision in the vendor agreement is a result of the passage of § 203(c)(5) of the Child Nutrition and WIC Reauthorization Act of 2004, Pub. L. No. 108–265, 118 Stat. 773 (2004) (Act). The Act, which was effective October 1, 2004, amended the Child Nutrition Act of 1966 to require notice of an initial violation where sanctions are based on a finding of a pattern of occurrences, unless notice would compromise the investigation.¹⁰ See 42 U.S.C. § 1786(f)(26). In December of 2004 and April of 2005, the Department of Agriculture issued policy memoranda to the State agencies. Those memoranda explained that the new legislation superseded previous regulations, and imposed the written notice requirement. See WIC Final Policy Memorandum # 2005–1, Implementation of Certain WIC Vendor Provisions of P.L. 108–265 (Dec. 6, 2004) (“Vendor agreements and sanction schedules need to be reviewed and amended as appropriate to reflect this new requirement”); ¹¹ WIC Final Policy Memorandum # 2005–1A, Implementation of Certain WIC Vendor Provisions of P.L. 108–265 (Apr. 20, 2005).¹²

c. Regulatory proceedings. The December 6, 2004, Memorandum suggested that a covert operation was sufficient to justify an exception to the notification requirement.¹³ After issuance of a proposed regulation ¹⁴ and the ensuing notice and comment period, the Department of Agriculture rejected a categorical approach to covert operations in the final regulation.¹⁵ The comments and the final regulation, like the proposed regulation, state that determinations must be made on a case-by-case basis, and that the agency must either issue a written notice after the first violation, or document in the vendor file the “reason(s) for determining that such notice would compromise an investigation.” 74 Fed. Reg. 551 (2009). 7 C.F.R. § 246.12( l )(3)(i). By way of further explanation, the background section to the final rule also states, “ § 246.12( l )(3) of the final rule, unchanged from the proposed rule, does not permit the State agency to exclude an...