United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 11-1735

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United States of America, *

*

Appellee, *

* Appeal from the United States

v. * District Court for the

* Southern District of Iowa.

J & K Market Centerville, LLC, *

*

Appellant. *

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Submitted: December 14, 2011

Filed: May 10, 2012

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Before LOKEN, BRIGHT, and SHEPHERD, Circuit Judges.

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SHEPHERD, Circuit Judge.

The Department of Agriculture’s Food and Nutrition Service (“FNS”)

permanently denied an application from J & K Market Centerville, LLC (“J & K

Market”) to participate in the government’s food stamp program, officially known as

the Supplemental Nutrition Assistance Program (“SNAP”). J & K Market’s

ineligibility to participate in SNAP was based on its owner’s involvement in a prior

food stamp trafficking violation. After reviewing the FNS’s decision to disqualify
J & K Market, the district court affirmed the permanent denial of participation,

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finding that it was the appropriate sanction. J & K Market appeals, arguing that the

FNS’s determination was arbitrary and capricious and that the FNS should have

assessed a monetary penalty instead of permanently disqualifying the store from

participating in SNAP. J & K Market also argues that the court erred in finding that

J & K Market failed to show that a transfer in the store’s ownership was not intended

to avoid penalties. We affirm.

I.

J & K Market is a small grocery store that was previously a sole proprietorship

enrolled in SNAP. On March 3, 2008, two government informants used a SNAP

Electronic Benefit Transfer (“EBT”) card to purchase grocery and non-food items,

including tobacco products; pay a prior debt; obtain cash; and establish credit for

future purchases. This transfer violated a number of SNAP rules. The informants

initially requested that the store’s owner, Kris Koestner (“Kris”), process the

transaction. However, Kris was not present, and Chad Koestner (“Chad”), the store’s

manager and the owner’s son, conducted the unlawful transaction.

Two months later, before the FNS had made a final agency decision regarding

J & K Market’s continued participation in SNAP under Kris’s ownership, Kris sold

the store to Chad. Shortly thereafter, Chad incorporated the business asJ & K Market

Centerville, LLC and filed an application for the new entity to participate in SNAP. 

A field office of the FNS denied the application, citing 7 C.F.R. § 278.1(b)(3)(iv) &

(k)(3)(iv), which require the FNS to consider prior food stamp violations that have

not yet been punished and to deny participation in SNAP for a period of time if those

The Honorable John A. Jarvey, United States District Judge for the Southern 1

District of Iowa.

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violations were committed by an owner or manager. The field office also determined

that the denial was permanent under 7 C.F.R. § 278.6(e)(1)(i), which provides that

“[t]he FNS regional office shall . . . [d]isqualify a firm permanently if . . . [p]ersonnel

of the firm have trafficked as defined in § 271.2.” In its denial of authorization, the

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field office made reference to a charge letter it sent to Kris that outlined a series of

SNAP violations committed by J & K Market, including the March 3, 2008

transaction conducted by Chad. J & K Market appealed the denial, and an

administrative review officer upheld the field office’s actions in a final agency

decision.

J & K Market filed a complaint in federal court seeking review of the agency

determination, arguing that permanent denial from participation in SNAP was

unwarranted under the federal regulations. J & K Market argued that Chad’s

violation of SNAP rules only warranted a civil penalty. After a bench trial, the

district court concluded that J & K Market violated SNAP rules through Chad’s

actions, that the violation constituted trafficking as defined in 7 C.F.R. § 271.2, and

that permanent ineligibility to participate in SNAP was the appropriate penalty. The

district court rejected J & K Market’s argument that the sale of the businesssomehow

cleansed the store of prior offenses. The court noted that Chad’s involvement in the

SNAP violation “clearly impacts the business integrity and reputation of J & K

Market.” The court also observed that “the requirements for a civil penalty . . . were

not satisfied.” Finally, the court held that an alternate reason to uphold the denial of

participation was J & K Market’s failure to show that the transfer from Kris to Chad

was not performed in order to circumvent the assessment of penalties. This timely

appeal followed.

The definition of trafficking includes “the buying orselling of coupons, ATP 2

card or other benefit instruments for cash or consideration other than eligible food .” 

7 C.F.R. § 271.2.

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II.

“The Food Stamp Act provides that issues of fact are to be tried de novo in the

district court,” and “we will not overturn the trial court’s ultimate factual finding

unless we find it clearly erroneous.” Sims v. U.S. Dep’t of Agric. Food & Nutrition

Serv., 860 F.2d 858, 862-63 (8th Cir. 1988). To the extent that we must review the

FNS’s interpretation of the statutes and regulations governing SNAP, we will defer

to an agency’s interpretations of the statute it is charged with enforcing and the

attendant regulations unless we find that a “regulation is contrary to unambiguous

statutory language, that the agency’s interpretation of its own regulation is plainly

erroneous or inconsistent with the regulation, or that application of the regulation in

th[e] case was arbitrary or capricious.” Ballanger v. Johanns, 495 F.3d 866, 872 (8th

Cir. 2007).

On appeal, J & K Market argues that the district court erred in upholding the

final determination of the FNS. J & K Market first contends that the agency erred by

not applying a civil penalty and argues that permanent denial from SNAP for J & K

Market’s offense is an arbitrary and capricioussanction. J & K Market also contends

that the district court erred in finding that J & K Market failed to show that the

transfer from Kris to Chad was unrelated to circumventing likely disqualification

from SNAP. We address each of these arguments in turn.

A.

When deciding whether a store is eligible to participate in SNAP, the FNS is

governed by 7 U.S.C. § 2018, which provides that the FNS shall consider “the

business integrity and reputation of the applicant.” 7 U.S.C. § 2018(a)(1). The

factors for admission to SNAP are set out in greater detail by section 2018’s

implementing regulations, which are found in 7 C.F.R. § 278.1. The regulationsstate

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that the FNS shall consider any “[p]revious Food Stamp Program violations

administratively and/or judicially established as having been committed by owners,

officers, or managers of the firm for which a sanction had not been previously

imposed and satisfied.” 7 C.F.R. § 278.1(b)(3)(iv). The regulations mandate that if

there is evidence of prior, unpunished SNAP violations committed by a store’s owner,

officer, or manager, those stores “shall be denied [participation in SNAP] for a period

of time equivalent to the appropriate disqualification period for such previous

violations.” 7 C.F.R. § 278.1(k)(3)(iv).

In order to determine the “appropriate disqualification period” for a prior

SNAP violation, one must look to 7 U.S.C. § 2021, which sets up a separate

regulatory scheme of penalties for stores that are already enrolled in SNAP. Under

section 2021, disqualification from participation in SNAP shall be permanent upon

“the first occasion or any subsequent occasion of a disqualification based on the

purchase of coupons or trafficking in coupons or authorization cards by a retail food

store . . . or a finding of the unauthorized redemption, use, transfer, acquisition,

alteration, or possession of EBT cards.” 7 U.S.C. § 2021(b)(3)(B). Section 2021’s

implementing regulations reiterate that the penalty for trafficking is permanent

disqualification from SNAP. See 7 C.F.R. § 278.6(e)(1)(i).

Here, J & K Market does not dispute the district court’s findings of fact

concerning the SNAP violations that occurred on March 3, 2008. J & K Market also

does not dispute the agency’s and the district court’s conclusion that the transaction

constituted trafficking because it involved “the buying or selling of coupons, ATP

cards or other benefit instruments for cash or consideration other than eligible food.” 

7 C.F.R. § 271.2. Instead, J & K Market directs the court to a provision in 7 U.S.C.

§ 2021, which states that “the Secretary [of Agriculture] shall have the discretion to

impose a civil penalty of up to $20,000 for each violation . . . if the Secretary

determines that there is substantial evidence that such store . . . had an effective

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policy and program in effect to prevent violations of the chapter and the regulations.” 

7 U.S.C. § 2021(b)(3)(B). Likewise, the regulations promulgated under section 2021

expressly allow for “a civil money penalty in lieu of permanent disqualification for

trafficking” when the conditions enumerated in section 2021 are met. See 7 C.F.R.

§ 278.6(i).

In its brief, J & K Market argues that section 2021’s provision allowing a civil

penalty as an alternate punishment demonstratesthatCongress wished to diminish the

severity of the punishment for single incidents of trafficking and that this provision

should be applicable to new applicants to SNAP as well. J & K Market asserts that

7 C.F.R. § 278.1’s cross-reference to the “appropriate disqualification period” found

in section 2021 and 7 C.F.R. § 278.6 should be read as incorporating the alternative

option of a civil penalty. Essentially, J & K Market argues that if a civil penalty

could be assessed against a store that is already enrolled in SNAP, it is unreasonable

to remove that option simply because the store’s legal status has changed and it must

reapply for enrollment.

However, this case does not require that we reach the issue of whether 7 C.F.R.

§ 278.1 provides for an alternative civil penalty for new applicants to SNAP. We

agree with the district court’s finding that even if the alternative sanction provisions

of section 2021 and 7 C.F.R. § 278.6(i) ought to have been considered for J & K

Market’s new application, J & K Market failed to show (1) any abuse of discretion

by the FNS in foregoing the civil penalty and choosing to apply the permanent

ineligibility, and (2) any evidence that the qualifications for a civil penalty had even

been met. In order to be eligible for a civil penalty under section 2021, a store must

have an effective policy in place to prevent SNAP violations. 7 U.S.C.

§ 2021(b)(3)(B). The store must then present evidence that “the ownership of the

store or food concern was not aware of, did not approve of, did not benefit from, and

was not involved in the conduct of the violation.” 7 U.S.C. § 2021(b)(3)(B)(i). The

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store must also show that its management was similarly uninvolved or that

management “was involved in the conduct of no more than 1 previous violation.” 7

U.S.C. § 2021(b)(3)(B)(ii)(I) & (II). Here, as an initial matter, the district court found

“a lack of ‘substantial evidence’ showing that J & K Market had ‘an effective policy

and program in effect to prevent violations.’” The district court also noted thatJ & K

Market failed to show that Kris, the previous owner, was not involved in the illegal

transaction, and that the evidence actually suggested his involvement. In response,

J & K Market argues that Kris’s past actions are irrelevant because the entity is now

“wholly owned by Chad.” However, this argument only weakens J & K Market’s

position because the uncontroverted evidence shows that Chad performed the illegal

transaction, meaning that J & K Market’s current owner and former manager was

“involved in the conduct of the violation.” 7 U.S.C. § 2021(b)(3)(B)(i) & (ii).

Finally, J & K Market relies on Ghattas v. United States, 40 F.3d 281 (8th Cir.

1994), and Corder v. United States, 107 F.3d 595 (8th Cir. 1997), to argue that

permanent disqualification is an arbitrary and capricious sanction under these facts. 

Ghattas involved a series of trafficking violations that were committed by a clerk

without the knowledge or involvement of the store’s owner. Ghattas, 40 F.3d at

282-83. The FNS permanently disqualified the store, and we held that the FNS’s

proceduralrules “frustrated congressional intent” by failing to even consider whether

a store was eligible for a monetary penalty as provided for in 7 U.S.C.

§ 2021(b)(3)(B). Id. at 283. In Corder, we found the FNS’s formula for calculating

civil penalties to be arbitrary and capricious because it “guarantee[d] that nearly every

unknowing first offender will incur the statutorymaximum$40,000 penalty.” Corder,

107 F.3d at 598 (emphasis in original). We also emphasized that the store in Corder

met all the criteria for an alternative civil penalty because the store had a compliance

policy in place and the trafficking offenses were committed by a store clerk who acted

alone. Id. at 597. We find that J & K Market’s reliance on these cases is misplaced. 

Both Corder and Ghattas involved “innocent owners” who were obviously

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uninvolved in the trafficking violations. As noted above, this case does not involve

an “innocent owner,” given that Chad performed the illegal transaction at issue. 

Accordingly, we cannot say that the imposition of permanent ineligibility to

participate in SNAP was arbitrary and capricious.

For the foregoing reasons, we find that the district court correctly upheld the

agency’s final determination.

B.

J & K Market also challenges the district court’s finding that 7 C.F.R

§ 278.1(k)(6) provided an alternate basis upon which to deny participation in SNAP.

Because we find that the agency action was authorized by 7 C.F.R. § 278.1(k)(3)(iv)

under the facts of this case, we need not address this issue.

III.

We affirm the judgment of the district court.

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