In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 05-2278

LIDUINA ESTREMERA,

Plaintiff-Appellant,

v.

UNITED STATES OF AMERICA,

Defendant-Appellee.

____________

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 03-CV-00712—William E. Callahan, Jr., Magistrate Judge.

____________

ARGUED JANUARY 5, 2006—DECIDED MARCH 27, 2006

____________

Before FLAUM, Chief Judge, and ROVNER and WILLIAMS,

Circuit Judges.

FLAUM, Chief Judge. Plaintiff-Appellant Liduina

Estremera (“Estremera”) owned a grocery store in Milwaukee. One of the clerks in her store violated Food Stamp

Program regulations by selling ineligible items to customers. The Department of Agriculture, Food and Nutrition

Services (“FNS” or “Agency”) permanently disqualified Estremera’s store from participating in the Food Stamp

Program. Soon after, Estremera sold the store to Sousa

Investment, LLC (“Sousa Investment”). At this time, FNS

assessed a $66,000 civil monetary penalty against

Estremera, pursuant to 7 C.F.R. § 278.6(f)(2). This regulation allows FNS to impose a penalty when a business that
2 No. 05-2278

has violated Food Stamp Program regulations transfers

ownership of the business. Estremera brought suit in

federal district court challenging the penalty. The district

court granted summary judgment for the government, and

Estremera appealed. For the following reasons, we affirm

the decision of the district court.

I. Background

Estremera was the owner, sole stockholder and director

of a grocery store in Milwaukee called Pago Poco, Inc.

(“store”). The store accepted food stamps. In September

2002, FNS sent Estremera a letter notifying her that

there was evidence that the store violated Food Stamp

Program regulations by exchanging food stamp benefits for

cash and ineligible items. According to Estremera, unbeknownst to her, a former employee had sold illegal items to

undercover USDA officers on six occasions.

On October 15, 2002, FNS notified Estremera by letter

that she was immediately and permanently disqualified

from accepting food stamps at the store. The letter explained that, in the event Estremera sold the store, she

would be subject to a civil monetary penalty pursuant to

7 C.F.R. § 278.6(f)(2).

Estremera filed an administrative appeal challenging her

disqualification from the Food Stamp Program. The Administrative Review Branch of FNS affirmed the disqualification decision. Estremera did not appeal from that decision.

In February 2003, Estremera may have sold the store

to Sousa Investment. (Estremera claims she did not sell

it; the government claims she did). On February 20, 2003,

Estremera signed a consent action agreement to sell the

store to Sousa Investment, a bill of sale for the store, a real

estate closing statement confirming the sale to Sousa

Investment, and an affidavit attesting to the sale of the
No. 05-2278 3

store. Also on February 20, 2003, Sousa Investment

signed a mortgage note payable to Pago Poco, Inc., requiring Sousa Investment to pay Pago Poco the principal sum

of $44,000 and 5% interest per year on the unpaid balance.

Additionally, on that date Estremera and Sousa Investment

signed a 5-year “lease” (March 1, 2003 to February 28,

2008), requiring Sousa Investment to pay plaintiff $4500

per month.

In a letter dated March 6, 2003, Joao C. DeSousa of Sousa

Investment informed FNS that Estremera does not have a

financial interest in the store, except that she receives rent

for the space and operates and retains control of the liquor

department.

On April 3, 2003, FNS sent Estremera a letter notifying

her that, due to her sale of the store, she was required

to pay $66,000 as a civil monetary penalty for her past

violations of Food Stamp Program regulations. The penalty

was based on six counts of food stamp fraud. FNS assessed

the maximum fine available for each violation, $11,000. See

7 C.F.R. §§ 3.91(b)(3)(i) and 278.6(g). Estremera appealed

the fine to the Administrative Review Branch of the FNS,

which upheld the imposition of the $66,000 penalty.

Estremera brought suit in federal district court under

7 U.S.C. § 2023(a)(13) challenging the penalty. The government filed a motion for summary judgment. The district

court granted the motion and dismissed Estremera’s

complaint. Estremera then filed a Rule 59(e) motion to alter

or amend the judgment, which the district court denied. The

district court found that Estremera used the motion

improperly to advance a new legal theory, i.e., that the

agency’s imposition of the civil penalty was arbitrary and

capricious, and to rehash arguments already decided on the

motion to dismiss. Estremera appeals.
4 No. 05-2278

II. Discussion

Estremera raises three errors on appeal. First, she

maintains that she never sold the store to Sousa Investment and that the district court erred by determining that a

sale occurred. Second, she argues that the district court

applied the wrong standard of review to several aspects of

the Agency’s decision to fine her in the amount of $66,000.

Third, Estremera asserts that the district court erred by

determining that the Agency calculated her fine correctly.

As explained below, we are not persuaded by these arguments.

A. Sale of Pago Poco, Inc.

According to Estremera, summary judgment was inappropriate in this case because substantial facts remain in

dispute regarding whether Estremera actually sold the

store to Sousa Investment. Estremera maintains that

she did not. According to her, the parties agreed that

she would retain ownership of the store until Sousa Investment paid the $44,000 remaining on the mortgage note.

Sousa Investment made only five payments on the note

beyond its $1000 down payment. Thus, according to

Estremera, the sale was never completed.

Estremera also argues that the sale was a “sham” or

“aborted” transaction, because Sousa Investment never

intended to pay off the mortgage note. She maintains that

Sousa Investment’s “bad faith” is evidenced by the fact that

it made only five payments on the note beyond the $1000

down payment. Sousa Investment’s actions, Estremera

implies, rendered the sale void or voidable. Estremera

further argues that even if Sousa Investment did not act in

bad faith, the sale was a “legal nullity,” because the sale

was not completed and the business was “turned back over

to Ms. Estremera.”
No. 05-2278 5

Additionally, Estremera argues that there was no

sale because she did not make an informed consent to

the sale. She claims that her attorney in the real estate

transaction failed to inform her of the likelihood that she

would be required to pay a monetary penalty if she sold the

store. Estremera’s attorney in this action (who had nothing

to do with the real estate transaction) signed an affidavit

stating that he had knowledge—based on a review and

analysis of the documents involved in the sale of the

store—that Estremera’s former attorney did not warn

Estremera of the “looming ‘transfer of ownership penalty.’”

Estremera admits that she signed an Admission stating

that she “sold” the store to Sousa Investment. She argues,

however, that she was confused over the meaning of the

word “sold” when she made that statement. Estremera

subsequently amended the Admission to state that a

sale “did not legally occur.”

The government argues that Estremera has failed to offer

any evidence or legal authority in support of her argument

that there was not a sale. The government also emphasizes

that there is ample evidence that there was a sale: a signed

consent agreement to sell the store; a signed bill of sale; a

signed real estate closing confirming the sale; a signed

affidavit from Estremera attesting to the sale; a signed

mortgage note and lease; a signed personal guarantee of the

mortgage note and lease; and a signed letter from the

purchaser stating that Estremera did not have a financial

interest in the store except for the rent she receives.

The district court considered these arguments and found

that Estremera sold the store to Sousa Investment. We

agree. All of the documents offered by the parties, including

the bill of sale, consent action agreement, real estate closing

statement, and Estremera’s affidavit attesting to the sale,

demonstrate that there was a sale. For instance, the real

estate closing statement records “Pago Poco, Inc.” as the
6 No. 05-2278

“seller” and “Sousa Investment, LLC” as the “buyer.” The

real estate closing statement also records the balance owed

to Estremera, the seller, as “$-O-” as of the February 20,

2003, closing date. Additionally, there is nothing in the

mortgage note to indicate that the sale was not final until

the note was fully paid. The mortgage note shows simply

that Estremera provided a mortgage to Sousa Investment.

Under the terms of the mortgage note, if Sousa Investment

defaulted on its payments, Estremera could require Sousa

Investment immediately to pay off the entire balance owed

to her.

Estremera’s other arguments fail as well. Estremera

asserts that the sale was void or voidable because Sousa

Investment never intended to pay for the store. However,

she offers no legal or factual support for this argument. The

documents provided by the parties indicate that the sale

was complete on February 20. Although Sousa Investment

still owed payments to Estremera under the mortgage note,

Sousa Investment was not required to pay off the mortgage

in order to finalize the sale. Additionally, Estremera does

not support her argument that the sale was a “legal nullity”

because Sousa Investment never made all the payments due

on the mortgage note. Nor does she ever explain how the

store was “turned back over” to her after Sousa Investment

stopped making payments on the mortgage note.

Moreover, the evidence shows that Estremera was, in

fact, on notice that selling the business would result in

the imposition of a penalty. The FNS warned Estremera

of the penalty in its letter dated October 15, 2002. Even

assuming Estremera was not warned by FNS, Estremera

has submitted insufficient evidence to show that her former

attorney failed to warn her of the penalty at the time she

sold the store. Estremera’s attorney in the present action

submitted his own affidavit in support of her “failure to

warn” argument. The affidavit was based on the attorney’s

review of the relevant documents and his interviews with
No. 05-2278 7

witnesses who had personal knowledge of the circumstances

surrounding the “sale” of the store. Second-hand knowledge

acquired in this way cannot, without more, establish that

material facts are in dispute. Federal Rule of Civil Procedure 56(e) requires that supporting affidavits be based on

personal knowledge, which Estremera’s attorney did not

possess. Moreover, “ ‘[w]here evidence is easily available

from other sources and absent “extraordinary circumstances” or “compelling reasons,” an attorney who participates in the case’ ” should not serve as a witness. United

States v. Britton, 289 F.3d 976, 982 (7th Cir. 2002) (quoting

United States v. Dack, 747 F.2d 1172, 1176 n.5 (7th Cir.

1984)). Such extraordinary circumstances were not present

here. Estremera’s attorney could have introduced into the

record the documents he relied on in his affidavit, and he

could have obtained affidavits from the witnesses he

interviewed in creating his own affidavit. Finally, even if we

accepted that Estremera’s former attorney failed to warn

her of the penalty, Estremera has not explained why such

negligence would make the sale a “legal nullity.”

B. Standard of Review in the District Court

According to Estremera, the district court should have

reviewed the Agency’s decision de novo, taking “into account

the innocence of the store owner and other equitable principles.” Specifically, she argues that the district court should

have reviewed three questions de novo: 1) whether

Estremera sold the store; 2) whether the penalty was

appropriate; and 3) whether Estremera’s store violated Food

Stamp Program regulations. Estremera maintains that the

district court gave undue deference to the Agency’s opinion

in answering these questions.

The government agrees with Estremera on the first point,

that the district court should review de novo the Agency’s

finding of whether a sale occurred. The government maintains, however, that the district court properly did so. As to
8 No. 05-2278

Estremera’s second argument, the government argues that

the Agency’s calculation of a penalty should be reviewed

under the arbitrary and capricious standard, rather than de

novo. As to her third argument, the government maintains

that the district court properly refused to review the

Agency’s October 2002 finding that Estremera’s store

violated Food Stamp Program regulations.

We find that the district court applied the appropriate

standard of review to all three questions identified by

Estremera. First, the district court properly reviewed

de novo the Agency’s finding that Estremera sold the

store in February 2002. The district court order states

explicitly that “this court must review [the Agency’s

findings] de novo.” It is clear from the order that the district

court did so. The order contains a thorough discussion of the

evidence and legal theories offered by both parties, and

contains no indication that the district court gave deference

to the findings of the Agency.

Second, the district court applied the correct standard

of review to the Agency’s calculation of Estremera’s penalty.

The district court explained that the “penalty imposed by

the FNS for violations of the Food Stamp Program may be

set aside only if it is arbitrary and capricious.” Brooks v.

United States, 64 F.3d 251, 256 (7th Cir. 1995).

Finally, the district court correctly refused to consider the

question whether Estremera violated Food Stamp Program

regulations. The Agency determined in October 2002 that

Estremera’s store violated Food Stamp Program regulations

and thus was disqualified from accepting food stamps.

Estremera challenged that decision, taking it to the Administrative Review Branch of FNS. The Administrative

Review Branch affirmed FNS’s disqualification decision.

Estremera could have challenged this decision in federal

district court, but she chose not to do so. The district court

properly decided that it was too late for Estremera to argue
No. 05-2278 9

that her store did not violate Food Stamp Program regulations.

C. Calculation of the Penalty

Estremera’s final argument is that the district court erred

by finding that the penalty assessed by FNS was

not arbitrary and capricious. Estremera’s argument consists

of three points: 1) the district court should have taken into

account her “innocence”; 2) the district court’s decision

failed to take into account the statutory purpose of the

statute that authorized imposition of the civil penalty

against Estremera; and 3) the district court should have

determined that the Agency did not comply with regulations

governing calculation of the penalty.

1. “Innocence”

Estremera argues that even under the arbitrary and

capricious standard, the district court erred by finding that

the agency’s imposition of the penalty was proper. She

emphasizes that the agency failed to take into account her

innocence, i.e., that she did not know that her former clerk

was violating Food Stamp Program regulations. There is no

evidence that Estremera had knowledge of these violations.

The district court rejected this argument, finding that the

transfer of ownership penalty does not require a finding of

personal wrongdoing. Additionally, the district court noted

that Estremera never contested the Agency’s October 2002

finding that she had violated Food Stamp Program regulations. The district court also found that even if Estremera

was “innocent,” she would still be liable for a monetary

penalty.

We agree with the district court. Estremera has offered no

legal support for her argument that the imposition or
10 No. 05-2278

amount of a penalty should depend on the actual knowledge

of the store owner. Most importantly, Estremera never

appealed the Administrative Review Branch’s decision that

the store violated Food Stamp Program regulations and

should be disqualified from participating in the Program. As

explained above, it is too late for Estremera to challenge

that decision now.

2. Statutory Purpose

Estremera also maintains that the imposition of the

penalty fails to “advance the purposes of the statute”

authorizing her penalty, which, according to her, is to “deter

abuses such as selling the store to friends and family or to

end the disqualification period.” The district court found

that its review did not extend to the question whether the

penalties imposed in this particular case furthered the

intent of Congress.

The district court was correct. Estremera offers

no support for her proposition that a penalty must be

tailored to “advance the purposes of the statute” in order to

survive the district court’s review under the arbitrary and

capricious standard. The district court’s job was to determine, under the arbitrary and capricious standard, whether

the Agency applied the appropriate statutes and regulations

in the appropriate manner. This is what the district court

did.

3. Calculation of the Penalty

Estremera argues that the Agency miscalculated her

penalty. She argues that the Agency’s regulations require

the Agency to base the transfer of ownership penalty on her

average monthly food stamp redemptions. See 7 C.F.R. §

278.6(g). Instead, Estremera maintains, the Agency
No. 05-2278 11

erred by assessing the maximum penalty allowed for each

violation, $11,000.

Estremera did not raise this issue before the district court

ruled on the government’s summary judgment motion. She

raised the argument for the first time in her Rule 59(e)

motion to alter or amend the judgment. See FED. R. CIV. P.

59(e). Estremera has sworn that her penalty would have

been lower than $66,000 if the Agency had considered her

monthly food stamp redemptions, although she has not

provided evidence as to the amount of those redemptions.

Estremera claims that this is an issue of fact for a jury and

that additional discovery is required.

The government argues that the Agency calculated

Estremera’s penalty in accordance with 7 C.F.R. § 278.6(g).

According to the government, any sanction that “is within

the prescribed range of the regulatory and statutory boundaries” cannot be found to be arbitrary and capricious. The

government maintains that the applicable statute

and regulations allow a maximum penalty of $11,000

per violation, the Agency found six violations, and the

$66,000 penalty is therefore appropriate.

In ruling on the government’s summary judgment motion,

the district court concluded that the Agency correctly

calculated the penalty. The district court evaluated the

Agency’s calculation of the penalty even though Estremera

did not question whether the Agency applied its regulations

correctly. 7 C.F.R. § 278.6(g) provides that a penalty should

be calculated by using a formula based on the average

monthly food stamp redemptions of the disqualified firm,

but that the penalty “may not exceed an amount specified

in § 3.91(b)(3)(i) [($11,000)] for each violation.” The district

court found that because Estremera did not present any

evidence as to the store’s monthly food stamp redemptions

and did not argue that calculating the penalty based on that

amount would yield a result less than $66,000, it could
12 No. 05-2278

presume that such calculation would yield an amount

greater than $66,000.

In its subsequent ruling on Estremera’s Rule 59(e)

motion, the district court found that it was too late for

Estremera to argue that the Agency’s calculations were

incorrect. The district court rejected her argument that

it was the government’s burden to show that the agency’s

determination is valid. Because Estremera sought de

novo review of the decision of the Administrative Review

Branch, it was her burden to prove by a preponderance

of the evidence that the agency’s determination was invalid.

See Abdel v. United States, 670 F.2d 73, 77 (7th Cir. 1982).

We agree with the district court that Estremera waived

her right to challenge the Agency’s calculation of her

penalty by failing to object to it before the district court

ruled on the government’s summary judgment motion. It is

well settled that “arguments not raised in the district court

are waived on appeal.” Belom v. National Futures Ass’n, 284

F.3d 795, 799 (7th Cir. 2002). It is unclear whether

Estremera is attempting to challenge the district court’s

ruling denying her Rule 59(e) motion. Regardless, an

argument raised for the first time in a Rule 59(e) motion is

waived. See United States v. Rueth Devel. Co., 335 F.3d 598,

606 (7th Cir. 2003); Kruger Int’l, Inc. v. Blank, 225 F.3d

806, 811 (7th Cir. 2000).

We note for purposes of clarification, however, that the

Agency should not apply the $11,000 maximum penalty

without considering the disqualified store’s average

monthly food stamp redemptions. 7 C.F.R. § 278.6(g)

provides:

Amount of civil money penalties for hardship and

transfer of ownership. FNS shall determine the amount

of the civil money penalty as follows:

(1) Determine the firm’s average monthly redemptions of coupons for the 12-month period ending with
No. 05-2278 13

the month immediately preceding that month during

which the firm was charged with violations.

(2) Multiply the average monthly redemption figure

by 10 percent.

(3) Multiply the product arrived at in paragraph (g)(2)

by the number of months for which the firm would have

been disqualified under paragraph (e) of this section.

The civil money penalty may not exceed an amount

specified in § 3.91(b)(3)(i) of this title for each violation.

7 C.F.R. § 3.91(b)(3)(i) provides, in turn, that the maximum

penalty per violation is $11,000.

As the language of these regulation demonstrates, the

Agency was required to determine the store’s average

monthly redemptions for the 12-month period prior to

the store’s violations, and then perform the calculations

specified in 7 C.F.R. § 278.6(g). Although it is not entirely

clear from the record, it appears that the Agency simply

applied the maximum civil monetary penalty, $11,000 per

violation, for a total fine of $66,000. There is no language in

the statute indicating that Estremera had the burden

to show that the penalty calculated using the above formula

would be less than a penalty calculated using the maximum

per-violation amount. In the district court, however,

Estremera had the burden to prove by a preponderance of

the evidence that the Agency’s calculations were incorrect.

See Abdel v. United States, 670 F.2d 73, 76-77 (7th Cir.

1982); Warren v. United States, 932 F.2d 582, 586 (6th Cir.

1991) (“The burden of proof in the judicial review proceeding is upon the aggrieved store to establish the invalidity of

the administrative action by a preponderance of the evidence.”). Because Estremera did not challenge the Agency’s

calculation of her penalty until she moved to alter or amend

the district court’s judgment, we will not consider that

challenge now.
14 No. 05-2278

III. Conclusion

For the foregoing reasons, we AFFIRM the decision and

order of the district court granting summary judgment

for the government.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—3-27-06