## United States Court of App eals

F O R T H E E I G H T H

C I R C U I T

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No. 1 1- 17 35

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Uni te d S ta te s o f Am eri ca, *

* App el le e, *

* App eal fro m

th e Uni te d S ta te s

v. * Dis tri ct Co ur t fo r th e

* So ut he rn Dis tri ct of I owa

. J & K Mark et Cen te rv il le , LLC, *

* App el la nt

. *

__ __ __ __ __ _

Su bm it te d: Decem

be r 14 , 20 11

Fi le d: May 10, 2 01 2

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Befo re LOKEN, BRIGHT, and SHEPHERD, Circ ui t J ud ge s.

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SHEPHERD, Cir cu it Ju dg e.

The Dep art m en t of Agr ic ul tu re’s Fo od an d Nut rit io n Serv ic e (“ FNS”)

pe rm an en tl y de ni ed an ap pl ic at io n fro m J & K Mar ke t Cen te rv il le

, LL C (“ J & K

Mar ke t” ) to pa rti ci pa te in th e go ve rn m en t’s fo od st am p pr og ram , of

fic ia ll y kn own as

th e Su pp le m en ta l Nut rit io n Ass is ta nc e Pr o g ram (“ SNAP”). J & K Mar ke t’s

in el ig ib il it y to pa rti ci pa te in SNAP was ba se d on it s own er’s in vo lv em en t in a pr io r

fo od st am p tra f f i c ki ng vi ol at io n. Afte r rev ie win g th e FNS’s de ci si on to di sq ua li fyJ & K Mar ke t, t h e d i st ric t co ur t affi rm ed th e pe rm an en t de ni al of pa rti ci pa ti on , 1

fin di ng th at it was th e ap pr op ria te sa nc ti on

. J & K Mar ke t ap pe al s, arg ui ng th at th e

FNS’s de te rm in at io n was arb it rary a n d c a p ric io us an d th at th e FNS sh ou ld ha ve

as se ss e d a mo ne ta ry pe na lt y in st ead of pe rm an en tl y di sq ua li fy in g th e st or e fro m

pa rti ci pa ti ng in SNAP. J & K Mar ke t al so arg ue s th at th e co ur t erre d in fin di ng th at

J & K Mar ke t fai le d to sh ow th at a tra ns fer in th e st or e’s own ers hi p was no t in te nd ed

to av oi d p en al ti es . W e aff irm.

I.

J & K Mar ke t is a sm al l gr oc ery st or e th at was pr ev io us ly a so le pr op rie to rs hi p

en ro ll ed i n SNAP. On Mar ch 3, 20 08

, two go ve rn m en t in fo rm an ts us ed a SNAP

El ect ro ni c Ben efi t Tran sf er (“ EBT”) card to pu rch as e gr oc ery an d no n- fo od it em s,

in cl ud in g to ba cco pr od uc ts ; pa y a pr io r de bt ; o b t a i n cas h; an d es ta bl is h cred it fo r

fu tu re pu rch as es

. Thi s tra ns fer vi ol at ed a nu m be r of SNAP r u l e s

. The in fo rm an ts

in it i a ll y req ue st ed th at th e st or e’s own er, Kris Koe st ne r (“ Kris ”), pr oc es s th e

tra ns act io n. Howev er, Kris was no t pr es en t, an d Ch ad Koe st ne r (“ Ch ad ”), th e st or e’s

m an ag er an d t he own er’s s on , con du ct ed th e u nl awfu l t ran sa ct io n.

Two m on th s la te r, be fo re th e FNS ha d m ad e a fin al ag en cy de ci si on reg ard in g

J & K Mar ke t’s co nt in ue d par ti ci pa ti on in SNAP un de r Kris ’s own ers hi p, Kris so ld

th e st or e to Ch ad

. Sh or tl y th erea fte r, Ch ad in co rp or at ed th e bu si ne ss as J & K Mar ke t

Cen te rv il le

, LLC an d fil ed an ap pl ic at io n fo r th e ne w en ti ty to pa rti ci pa te in SNAP.

A fie ld of fic e of th e FNS de ni ed th e ap pl ic at io n, ci ti ng 7 C.F.R. § 27 8.1 (b )(3 )(i v) &
(k )(3 )(i v) , wh ic h r e q u i r e t he FNS to co ns id er pr io r fo od st am p vi ol at io ns th at ha ve

no t y et be en pu ni sh ed an d to de ny pa rti ci pa ti on in SNAP fo r a pe rio d of ti m e if th os e

The Hon or ab le Jo hn A. Ja rv ey , Uni te d St at es Dis tri ct Ju dg e fo r th e So ut he rn 1

Dis tri ct of I owa

.

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-vi ol at io ns were co m m it te d by an own er or m an ag er. The fie ld of fic e al so de te rm in ed

th at t h e d e ni al was pe rm an en t un de r 7 C.F.R. § 27 8.6 (e)( 1) (i)

, whi ch pr ov id es th at

“ [t]he FNS reg io na l of

fic e sh al l

. . . [d ]isq ua li fy a fir m pe rm an en tl y if

. . . [p ]erso nn el

of th e fir m ha ve tra ffi ck ed as de fin ed in § 27 1.2 .” In it s de ni al of au th or iz at io n, th e 2

fie ld of fic e m ad e refe ren ce to a ch arg e le tt er it se nt to K r i s t h a t ou tl in ed a se rie s of

SNAP vi ol at io ns co m

m it te d by J & K Mar ke t, in cl ud in g th e Mar ch 3, 2 0 08

tra ns act io n co nd uc te d by Ch ad

. J & K Mar ke t ap pe al ed th e de ni al

, an d an

ad m in is tra ti ve rev ie w of fic er up he ld th e fie ld of fic e’s act io ns in a fin al ag e n c y

de ci si on

.

J & K Mar ke t fil ed a co m pl ai nt in fed eral co ur t se ek in g rev ie w of th e ag en cy

de te rm in at io n, arg ui ng th at pe rm an en t de n i al fro m pa rti ci pa ti on in SNAP was

un warra nt ed un de r th e fed eral reg ul at io ns

. J & K Mar ke t arg ue d t h a t C ha d’s

vi ol at io n of SNAP ru le s on ly warra nt ed a ci vi l pe n a l t y. A f t er a be nc h tri al

, th e

di st ric t c o u r t c o n cl ud ed th at J & K Mar ke t vi ol at ed SNAP ru le s th ro ug h Ch ad ’s

act io ns , th at th e vi ol at io n co ns ti tu te d tra ffi ck in g as de fin ed in 7 C.F.R. § 27 1.2

, an d

th at pe rm an en t in el ig ib il it y to pa rti ci pa te in SNAP was th e ap pr op ria te pe na lt y

. The

di st ric t co ur t reject ed J & K Mar ke t’s arg um en t th at th e sa le of th e bu si ne ss so m eh ow

cl ean se d th e st or e of pr io r of fen se s. The co ur t no te d th at Ch ad ’s in vo lv em en t in th e

SNAP vi ol at io n “ cl earl y im pa ct s th e bu si ne ss in te gr it y an d rep ut at io n of J & K

Mar ke t.” The co ur t al so ob se rv ed th at “ th e req ui rem en ts fo r a ci vi l pe na lt y

. . . were

no t sa ti sf ie d.” Fi na ll y , th e co ur t he ld th at an al te rn at e reas on to up ho ld th e de ni al of

pa rti ci pa ti on was J & K Mar ke t’s fai lu re to sh ow th at th e tra ns fer fro m Kris to Ch ad

was no t pe rfo rm ed in or de r to ci rcu m ve nt th e as se ss m en t of pe na lt ie s. Thi s t im el y

ap pe al fol lo wed

.

The de fin it io n of tra ffi ck in g in cl ud es “ th e bu y in g or se ll in g of co up on s, ATP 2

card or ot he r be ne fit in st ru m en ts fo r cas h or co ns id erat io n ot he r th an el ig ib le fo od .”

7 C .F.R. § 2 71 .2.

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-II.

“ The Fo od St am

p Act pr ov id es th at is su es of fact are to be tri ed de no vo in th e

di st ric t co ur t,” an d “ we wil l no t ov er t u r n t h e t ria l co ur t’s ul ti m at e fact ua l fin di ng

un le ss we fin d it cl earl y erro ne ou s.” Si m s v. U.S. Dep ’t of Agr ic

. Fo od & Nut rit io n

Serv ., 86 0 F .2d 85 8, 8 62 -6 3 (8t h Cir. 19 88 ). To t he ex te nt th at we m us t re vi ew th e

FNS’s in te rp ret at io n o f th e st at ut es an d reg ul at io ns go ve rn in g SNAP, we wil l d efer

to an ag en cy ’s in te rp ret at io ns of th e st at ut e i t is ch arg ed wit h en fo rci ng an d th e

at te nd an t reg ul at io ns un le ss we fin d th at a “ reg ul at io n i s c o n tra ry to un am bi gu ou s

st at ut or y la ng ua ge , th at th e ag en cy ’s in te rp r e t a t io n of it s own reg ul at io n is pl ai nl y

erro ne ou s or in co ns is te nt wit h th e reg ul at io n, or th at ap pl ic at io n of th e reg ul at io n in

th [e] cas e was arb it rary or cap ric io us .” Bal la ng er v. Jo ha nn s, 49 5 F.3 d 86 6, 87 2 (8 th

Ci r. 20 07 ).

On ap pe al , J & K Ma rk et arg ue s t ha t th e d is tri ct co ur t er red in up ho ld in g t he

fin al de te rm in at io n of th e FNS. J & K Mar ke t fir st co nt en ds th at th e ag en cy erre d by

no t ap pl y in g a ci vi l pen al ty an d arg ue s th at pe rm an en t den ia l from SNAP fo r J & K

Mar ke t’s of

fen se is an arb it rary an d cap ric io us sa nc ti on

. J & K Mar ke t al so co nt en ds

th at th e di st ric t co ur t erre d in fin di ng t h a t J & K M a rk et fai le d to sh ow th at th e

tra ns fer fro m Kris to C h ad was un rel at ed to ci rcu m ve nt in g li ke ly di sq ua li fic at io n

fro m SNAP. W e ad dr es s ea ch of t he se arg um en ts in tu rn

.

A.

W he n d eci di ng whet he r a s to re i s el ig ib le to pa rti ci pa te in SNAP, th e FNS i s

go ve rn ed by 7 U.S.C. § 20 18

, whi ch pr o v i d e s th at th e FNS sh al l co ns id er “ th e

bu si n e s s i n te gr it y an d rep ut at io n of th e ap pl ic an t.” 7 U.S.C. § 20 18 (a)( 1)

. The

fact or s fo r ad m is si on to SNAP are se t ou t in gr eat er de ta il by se ct io n 20 18 ’s

im pl em en ti ng reg ul at io ns , whi ch are fo un d in 7 C.F.R. § 27 8.1

. The reg ul at io ns st at e

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-th at th e FNS sh al l co ns id er an y “ [p ]revi ou s Fo od St am p Pro gr am vi ol at i o n s

ad m in is tra ti ve ly an d/ or jud ic ia ll y es ta bl is he d as ha vi ng be en co m m it te d by own ers , of fic ers , or man a g ers of th e fir m fo r whi ch a sa nc ti on ha d no t be en pr ev io us ly

im po se d an d sa ti sf

ie d.” 7 C.F.R. § 27 8.1 (b )(3 )(i v)

. The reg ul at io ns m an da te th at if

th ere is ev id en ce of pr io r, un pu ni sh ed SNAP vi ol at io ns co m m it te d by a st or e’s own er,

of fic er, or m an ag er, th os e st or es “ sh al l be de ni ed [p art ic ip at io n in SNAP] fo r a pe rio d

of ti m e eq ui va le nt to th e ap pr op ria te di sq ua l i f i c a t i on pe rio d fo r su ch pr ev io us

vi ol at io ns .” 7 C.F .R. § 2 78 .1(k )(3 )(i v)

.

I n o r d e r to de te rm in e th e “ ap pr op ria te di sq ua li fic at io n pe rio d” fo r a pr io r

SNAP vi ol at io n, on e m

us t lo ok to 7 U.S.C. § 20 21

, whi ch se ts u p a s e p arat e

reg ul at or y

sch em e o f pe na lt ie s fo r st or es th at are al read y en ro ll ed in SNAP. Und er

se ct io n 2 02 1, di sq ua li fic at io n fr om pa rti ci pa ti on in SNAP sh al l b e p erm an en t u po n

“ th e fir st oc cas io n or an y su bs eq ue nt oc cas io n of a d i s q u al ifi cat io n ba se d on th e

pu rch as e of co up on s or tra ffi ck in g in co up on s or au th or iz at io n card s by a ret ai l fo od

st or e

. . . o r a fin di ng of th e un au th or iz ed red em pt io n, us e, tra ns fer, acq ui si ti on , al te rat io n, o r po ss es si on of EBT card s.” 7 U.S.C. § 2 02 1( b) (3 )(B) . Sect io n 2 02 1’s

im pl em en ti ng reg ul at io ns rei te rat e th at th e pe na lt y fo r tra ffi ck in g is pe rm an en t

di sq ua li fic at io n fr om

SNAP. See 7 C.F.R. § 27 8.6 (e)( 1) (i)

.

Here, J & K Mar ke t do es no t di sp ut e th e di st ric t co ur t’s f i n d i n gs of fact

co nc ern in g th e SNAP vi ol at io ns th at oc cu rred on Mar ch 3, 20 08

. J & K Mar ke t al so

do es no t di sp ut e th e ag en cy ’s an d th e di st ric t co ur t’s co nc lu si on th at th e tra ns act io n

c o n s ti tu te d tra ffi ck in g be cau se it in vo lv ed “ th e bu y in g or se ll in g of co up on s , A TP

card s or ot he r be ne fit in st ru m en ts fo r cas h or co ns id erat io n ot he r th an el ig ib le fo od .”

7 C.F.R. § 27 1.2

. In st ead

, J & K Mar ke t di rect s th e co ur t to a pr ov is io n in 7 U.S.C.

§ 20 21

, whi ch st at es th at “ th e Secr et ary [o f Agr ic ul tu re] sh al l ha ve th e di sc ret io n to

im po se a ci vi l p e n a l t y o f up to $2 0,0 00 fo r each vi ol at io n

. . . if th e Secr et ary

de te rm in es th at th ere is su bs ta nt ia l ev id en ce th at s u c h s t o r e

. . . ha d an effe ct iv e

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-po li cy an d pr og ram in effe ct to pr ev en t vi ol at io ns of th e ch ap te r an d th e reg ul at io ns .”

7 U.S.C. § 20 21 (b )(3 )(B)

. Lik ewis e, th e reg ul at io ns pr om ul ga te d un de r se ct io n 20 21

ex pr es sl y al lo w for “ a ci vi l m on ey pe na lt y in li eu of pe rm an en t di sq ua li fic at io n fo r

tra ffi ck in g” when th e co nd it io ns en um erat ed in se ct io n 20 21 are m et . See 7 C.F.R.

§ 2 78 .6(i ).

In it s br ie f, J & K Mar ke t arg ue s th at se ct io n 20 21 ’s pr ov is io n al lo win g a ci vi l

pe na lt y as an al te rn at e pu ni sh m en t de m on st rat es th at Co ng res s wis he d to dim ini sh th e

se ve rit y of th e pu ni sh m en t for sin gl e in ci de nt s of traff ic ki ng an d th at th is pr ov is io n

sh ou ld be ap pl ic ab le to ne w ap pl ic an ts to SNAP as well . J & K Ma rk et ass ert s t ha t

7 C.F.R. § 27 8.1 ’s cro ss -ref eren ce to th e “ ap pr op ria te di sq ua li fic at io n pe rio d” fo un d

in se ct io n 20 21 an d 7 C.F.R. § 27 8.6 sh ou ld be read as in co rp or at in g th e al te rn at iv e

op t i o n of a ci vi l pe na lt y

. Ess en ti al ly, J & K Mar ke t arg ue s th at if a ci vi l pe na lt y

co ul d be as se ss ed ag ai ns t a st or e th at is al read y en ro ll ed in SNAP, it is un reas on ab le

to rem ov e th at op ti on si m pl y be cau se th e st or e’s le ga l st at us ha s ch an ge d an d it m us t

reap pl y for en ro ll m en t.

Howev er, th is cas e do es no t req ui re th at we reac h th e is su e of whe th er 7 C.F.R.

§ 27 8.1 pr ov id e s fo r an al te rn at iv e ci vi l pe na lt y fo r ne w ap pl ic an ts to SNAP. W e

ag ree wit h th e di st ric t co ur t’s fin di ng th at ev en if th e al te rn at iv e sa nc ti on pr ov is io ns

o f se ct io n 20 21 an d 7 C.F.R. § 27 8.6 (i) ou gh t to ha ve be en co ns id ered f o r J & K

Mar ke t’s ne w a pp li cat io n, J & K M ark et fa i l e d to sh ow (1 ) an y ab us e of di sc ret io n by th e FNS in fo reg oi ng th e ci vi l pe na lt y an d ch oo si ng to ap pl y th e p e r manen t

in el ig ib il it y , an d (2 ) an y ev id en ce th at th e qu al ifi cat io ns fo r a ci vi l pe na lt y ha d ev en

be en m et

. In or de r to be el ig ib le fo r a ci vi l pe na lt y un de r se ct io n 20 21

, a st or e m us t

ha ve an effe ct iv e po li cy in pl ace to pr ev en t SNAP vi ol at io ns

. 7 U.S.C.

§ 20 2 1 (b )(3 )(B)

. The st or e m us t th en pr es en t ev id en ce th at “ th e own ers hi p of th e

st or e or fo od co nc ern was no t aware of

, di d no t ap pr ov e of

, di d no t be ne fit fro m , an d

was no t in vo lv ed in th e co nd uc t of th e vi ol at io n.” 7 U.S.C. § 20 21 (b )(3 )(B) (i)

. The

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-st or e m

us t al so sh ow th at it s m an ag em en t was si m il arl y un in vo lv ed or t h at

m an ag em en t “ was in vo lv ed in th e co nd uc t of no m or e th an 1 pr ev io us vi ol at io n.” 7

U.S.C. § 20 21 (b )(3 )(B) (ii )(I) & (II). Here, as an in it ia l m at te r, th e di st ric t co ur t fo un d

“ a la ck of ‘sub st an ti al ev id en ce’ sh owi ng th at J & K Mar ke t ha d ‘an effe ct iv e po li cy

an d pr og ram in effe ct to pr ev en t vi ol at io ns .’ ” The di st ric t co ur t al so no te d th at J & K

Mar ke t fail ed to sh ow th at Kris , th e p rev io us own er, w as no t in vo lv ed in th e il le ga l

tra ns act io n, an d t ha t t he ev id en ce actu al ly su gg es te d h is in vo lv em en t. In res po ns e,

J & K Mar ke t arg ue s th at Kris ’s pa st act io ns are irr el ev an t be cau se th e en ti ty is no w

“ who ll y own ed by Ch ad .” Howev er, th is arg um en t on ly w e a k e n s J & K Mar ke t’s

po si ti on be cau se th e un co nt ro ve rte d ev id en ce sh ows th at Ch ad pe rfo rm ed th e il le ga l

tra ns act io n, m ean in g th at J & K Mar ke t’s cu rren t own er an d fo rm er m an ag er was

“ in vo lv ed in th e co nd uc t o f th e v io la ti on .” 7 U.S.C. § 20 21 (b )(3 )(B) (i) & (i i).

Fi na ll y , J & K Mar ke t rel ie s on Gha tt as v. Uni te d St at es , 40 F.3 d 28 1 (8 th Ci r.

1 9 94 ), an d Co rd er v. Uni te d St at es , 10 7 F.3 d 59 5 (8 th Ci r. 19 97 ), to a r g u e t h a t

pe rm an en t di sq ua li fic at io n is an arb it rary an d cap ric io us sa nc ti on un de r th es e fact s.

Gha tt as in vo lv ed a se rie s of t r a f f i c ki ng vi ol at io ns th at were co m m it te d by a cl erk

wit ho ut th e kn owl ed ge or in vo l v e men t of th e st or e’s own er. Gha tt as , 40 F.3 d at

28 2- 83

. The FNS pe rm an en tl y di sq ua li fie d t h e st or e, an d we he ld th at th e FNS’s

pr oc ed ur al ru le s “ fru st rat ed co ng res si on al in te nt ” by fai li ng to ev en co ns id er whe th er

a st or e was el ig ib le fo r a m on et ary pe na lt y a s pr ov id ed fo r in 7 U.S.C.

§ 20 21 (b )(3 )(B)

. Id

. at 28 3. In Co rd er, we fo un d th e FNS’s fo rm ul a fo r cal cu la ti ng

civi l pe na lt ie s to be arb it rary an d cap ric io us be cau se it “ gu aran te e[d ] th at ne arl y ev ery

un kn ow in g

fi rs t of fe nd er wil l in cu r the st at ut or y m ax im um $4 0,0 00 pe na lt y .” Co rd er,

10 7 F.3 d at 59 8 (em

ph as is in or ig in al ). W e al so em ph as iz ed th at th e st or e in Co rd er

m et al l th e cri te ria fo r an al te rn at iv e ci vi l pe na lt y be cau se th e st or e ha d a co m pl ia nc e

po li cy in pl ace an d th e tra ffi ck in g of fen se s were co m

m it te d by a st or e cl erk who act ed

al on e. Id

. at 59 7. W e fin d th at J & K Mar ke t’s rel ia nc e on th es e cas es is m is pl aced

. Bo th Co rd er an d Gha tt as in v o l v e d “ in no cen t own ers ” who were ob vi ou sl y

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-un in vo lv ed in th e tra ffi ck in g vi ol at io ns

. As no te d ab ov e, th is cas e do es no t in vo lv e

an “ in no cen t own er,” gi ve n th at Ch ad pe rf o r med th e il le ga l tra ns act io n at is su e.

Acco rd in gl y , we can no t sa y th at th e im po si ti on of pe rm an e nt in el ig ib il it y to

pa rti ci pa te in SNAP was a rb it rary and cap ric io us

.

Fo r th e fo reg oi ng reas on s, we fin d th at th e di st ric t co ur t co rrec tl y up he ld th e

ag en cy ’s fin al de te rm in at io n.

B.

J & K Mar k e t al so ch al le ng es th e di st ric t co ur t’s fin di ng th at 7 C.F.R

§ 27 8.1 (k )(6 ) pr ov id ed an al te rn at e ba si s up on whi ch to de ny pa rti ci pa ti on in SNAP.

Bec au se we fin d th at th e ag en cy act io n was au th or iz ed by 7 C.F.R. § 27 8.1 (k )(3 )(i v)

un de r th e fac ts of t hi s ca se , we nee d n ot ad dr es s t hi s i ss ue

.

III.

W e aff irm th e jud gm en t o f th e d is tri ct co ur t.

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