Court Opinion

ID: 2967288
Source: CourtListenerOpinion
Date Created: 2015-09-22 02:15:41.598841+00
Date Added: 2024-06-11T12:28:33.788368
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

LEONARD TRAFICANTI, d/b/a LT's
Gas/Snaks,
Plaintiff-Appellant,
                                                                       No. 99-1478
v.

UNITED STATES OF AMERICA,
Defendant-Appellee.

Appeal from the United States District Court
for the Eastern District of North Carolina, at Wilmington.
James C. Fox, District Judge.
(CA-98-95-7-F)

Argued: June 8, 2000

Decided: September 8, 2000

Before WILKINSON, Chief Judge, and WIDENER
and TRAXLER, Circuit Judges.

_________________________________________________________________

Affirmed and remanded by published opinion. Chief Judge Wilkinson
wrote the majority opinion, in which Judge Traxler joined. Judge
Widener wrote a concurring opinion.

_________________________________________________________________

COUNSEL

ARGUED: Marcus W. Trathen, David Kushner, BROOKS, PIERCE,
MCLENDON, HUMPHREY & LEONARD, L.L.P., Raleigh, North
Carolina, for Appellant. Neal Irving Fowler, Assistant United States
Attorney, Raleigh, North Carolina, for Appellee. ON BRIEF: Janice
McKenzie Cole, United States Attorney, Anne M. Hayes, Assistant
United States Attorney, Raleigh, North Carolina, for Appellee.

_________________________________________________________________

OPINION

WILKINSON, Chief Judge:

This case involves statutory and constitutional issues arising from
LT's Gas/Snaks' permanent disqualification from the federal food
stamp program. Leonard Traficanti, d.b.a. LT's Gas/Snaks, seeks to
overturn the district court's grant of summary judgment in favor of
the United States. The district court affirmed an agency decision dis-
qualifying LT's from participating in the food stamp program. The
agency also imposed a civil penalty of $40,000 should Traficanti ever
sell or transfer his business. Traficanti appeals these rulings on a vari-
ety of grounds. Finding no merit in his claims, we affirm the dismissal
of his suit.

I.

Leonard Traficanti is the owner and operator of LT's Gas/Snaks,
a convenience store in Wilmington, North Carolina. Traficanti partici-
pates in the food stamp program, run by the Food and Nutrition Ser-
vice (FNS) of the United States Department of Agriculture. In July of
1996, the Department of Agriculture launched an undercover opera-
tion to determine whether either the owner or the employees of LT's
were trafficking in food stamps. The investigation determined that on
four separate occasions, an employee of LT's, Rachel White, illegally
trafficked in food stamps by exchanging cash for food coupons.

White admitted to a friend of Traficanti's that she had engaged in
illegal food stamp transactions. Allegedly, White was upset with Tra-
ficanti because he made her take a polygraph test to determine if she
was stealing from the store. White bought food stamps illegally in
order "to have something over" Traficanti if she ever had to "get
even" with him. Traficanti fired White soon after his friend informed
him of these allegations. Traficanti also telephoned the FNS on Octo-
ber 29, 1997, "as soon as" he learned about White's comments.

                     2
On October 27, 1997, the Agriculture Department issued a Charge
Letter against Traficanti. The letter stated that the government was
contemplating disqualifying LT's from the food stamp program due
to the four instances of unlawful trafficking. The letter also informed
Traficanti that he was eligible for a civil money fine in lieu of perma-
nent disqualification if he could show by substantial evidence that
LT's had an effective policy and program to prevent such violations.
The letter referred Traficanti to the applicable federal regulations, and
stated that he must provide the required documentation in order to
avoid disqualification and qualify for the civil fine.

Traficanti responded that White was not acting within the scope of
her employment, that she was intentionally trying to sabotage Trafi-
canti, and that LT's in no way sanctioned, encouraged, or benefitted
from the fraud. One week later, the FNS permanently disqualified
LT's from participating in the food stamp program. The FNS also
rejected Traficanti's request to convert the permanent disqualification
into a fine. It determined that Traficanti did not show by substantial
evidence that an effective fraud prevention program was in effect. See
7 C.F.R. § 278.6(i) (2000). The FNS also imposed a $40,000 civil
money penalty should Traficanti transfer or sell his business. See 7
C.F.R. §§ 278.6(f)(2), 278.6(g). Traficanti appealed his disqualifica-
tion to an FNS administrative review officer. The officer denied Tra-
ficanti's appeal.

Traficanti sought review of this decision in district court. See 7
U.S.C. § 2023(a)(13) (1994). The district court granted summary
judgment for the United States, holding that Traficanti was strictly
liable for his employee's actions. The court also rejected Traficanti's
procedural and substantive due process claims with regard to LT's
permanent disqualification. The district court then dismissed the con-
stitutional claims stemming from the $40,000 transfer penalty because
they were not ripe. Traficanti now appeals.

II.

The food stamp program allows qualified stores to accept food
stamps instead of cash for certain food items. The store can then
redeem the stamps for their cash value. See 7 U.S.C. §§ 2011 et seq.
An approved store may be disqualified from participation or be sub-

                     3
ject to fines if it violates the governing regulations. See 7 U.S.C.
§ 2021(a). In 1988, Congress amended the Food Stamp Act to provide
guidelines to determine the appropriate punishment when an owner
violates the program. Disqualification is permanent upon the first
instance of purchasing or trafficking in food stamps unless the Agri-
culture Department determines by "substantial evidence" that the
store had "an effective policy and program in effect to prevent viola-
tions." 7 U.S.C. § 2021(b)(3)(B). If the store can show such a policy,
as well as its non-involvement in the trafficking, the Secretary may
impose a fine in lieu of disqualification. See id.

The Agriculture Department promulgated four criteria to determine
whether a store qualifies for the fine. First, a store must show that it
had an effective compliance policy; second, its compliance program
must have been in effect prior to the violations; third, a store must
have developed and instituted an effective personnel training pro-
gram; and fourth, the store's ownership or management must not have
been involved in the fraud. See 7 C.F.R.§ 278.6(i). A store must pro-
vide written documentation proving that it had such a policy and pro-
gram before the violations. See id. at § 278.6(i)(1) & (2).

If the store is permanently disqualified, a civil money penalty
"shall" be imposed if the store's ownership sells or transfers its busi-
ness. Id. at § 278.6(f)(2). The amount of the penalty is based upon the
store's average monthly redemptions of food stamps, with a maxi-
mum penalty of $10,000 for each violation. See id. at 278.6(g).

III.

A.

Traficanti contends that he committed no violation of the statute
because he is merely an innocent owner. He thus argues that he
should be subject to no penalty. Traficanti further maintains that strict
liability should not apply in this instance, where the employee's spe-
cific intent in committing the fraud was to harm the unwitting
employer.

We disagree. Traficanti concedes that his employee, White, vio-
lated the Act by exchanging food stamps for cash. Congress

                     4
addressed the subject of unknowing owners in the 1988 amendments
to the Food Stamp Act. These amendments allow the FNS to consider
the owner's knowledge in deciding whether to impose disqualification
or a monetary fine. See 7 U.S.C. § 2021(b)(3)(B); 7 C.F.R. § 278.6(i).

Consequently, Congress specifically intended that all owners be
subject at least to some penalty, regardless of fault. The circuit courts
that have examined the question agree that penalties attach to the
owner, regardless of fault. See Kim v. United States, 121 F.3d 1269,
1273 (9th Cir. 1997) (listing cases). Congress chose such a strict lia-
bility regime in order to ensure that the person in the best position to
prevent fraud -- the owner -- had sufficient incentive to stop way-
ward employees from stealing from the government. It is not the place
of the judiciary to disregard the guidelines set by Congress. Even
assuming Traficanti's ignorance of the violations, the statutory
scheme dictates that he face the consequences for his employee's
criminal behavior.

Traficanti maintains that the failure to consider evidence of fault
violates his Fifth Amendment right to procedural and substantive due
process. Even assuming arguendo that a procedural due process viola-
tion existed at the administrative level, the de novo hearing in the dis-
trict court cured the violation. See Kim, 121 F.3d at 1274; TRM, Inc.
v. United States, 52 F.3d 941, 944 (11th Cir. 1995).

No violation of substantive due process occurred either. The pen-
alty need only serve a rational legislative basis in this instance, since
no fundamental right is implicated. See Kim, 121 F.3d at 1273. A
strict liability regime places ultimate economic responsibility for
fraud on the owner, who is in the best position to deter deception ex
ante. Moreover, the statute allows leniency if owners can show that
they took certain affirmative measures to stop the fraud before it hap-
pened. Given these factors, we hold that the statute's strict liability
regime is rationally related to the government's interest in preventing
fraud. See also Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 14
(1991) ("Imposing liability without independent fault deters fraud
more than a less stringent rule. It therefore rationally advances the
State's goal.").

                     5
B.

Traficanti argues in the alternative that even if the store is strictly
liable, the correct penalty is a fine instead of permanent disqualifica-
tion.

Again, we disagree. Traficanti's permanent disqualification from
the food stamp program is well within the bounds of agency discre-
tion. Indeed, his permanent disqualification is mandated by the statute
itself. Congress specifically required innocent owners to show that an
effective anti-fraud program existed in order to qualify for the mone-
tary fine in lieu of disqualification. See 7 U.S.C. § 2021(b)(3)(B) (the
Secretary can impose a fine only if "there is substantial evidence that
such store or food concern had an effective policy and program in
effect to prevent violations" of the food stamp program). As the Ninth
Circuit noted, the FNS is not at liberty to "impose a civil money pen-
alty in lieu of permanent disqualification for a trafficking violation
where the store [does] not have in effect an effective policy and pro-
gram to prevent violations . . . . Such a result would violate the
express language of section 2021(b)(3)(B)." Kim, 121 F.3d at 1276.

Traficanti had the opportunity to present evidence that he con-
ducted an effective training program to combat food stamp fraud. He
submitted no documentation to show that he met the four criteria
mandated by the regulations. See 7 C.F.R.§ 278.6(i). Store owners
cannot simply attest to having effective anti-fraud programs; rather,
they must prove it. Traficanti fell well short of meeting the standards
of the statute or the regulations. The FNS decision not to convert the
permanent disqualification into a fine was mandated by statute.1
_________________________________________________________________
1 Our concurring colleague urges that we reconsider the standard of
review adopted by this court in Cross v. United States, 512 F.2d 1212
(4th Cir. 1975) (en banc). There is no need to debate the standard of
review here because it makes no difference in this case. The underlying
violation of the statute is uncontested, and thus a de novo review of the
facts unnecessary, since Traficanti concedes that Rachel White, his
employee, trafficked in food stamps while employed at LT's.

The application of a de novo standard of review with respect to the
imposition of a sanction also makes no difference here. The agency's

                     6
C.

Traficanti next argues that the $40,000 transfer penalty is unconsti-
tutional because it violates substantive due process, the Takings
Clause, the Double Jeopardy Clause, and the Excessive Fines Clause.
These arguments are without merit.2
_________________________________________________________________
mandate from Congress is not discretionary. The FNS must find that
store owners are permanently disqualified if owners cannot prove by sub-
stantial evidence that they had an effective program to prevent future
violations. See id. at §§ 2021(b); 2021(b)(3); 2021(b)(3)(B) ("[D]isqual-
ification . . . shall be . . . permanent upon . . . the first occasion . . . of
a disqualification based on the purchase of coupons or trafficking in cou-
pons . . . except that the Secretary shall have the discretion to impose a
civil money penalty . . . if the Secretary determines that there is substan-
tial evidence that such store or food concern had an effective policy and
program in effect to prevent violations of the chapter and the regula-
tions."); see also id. at § 2021(e)(1) (transfer penalty "shall be" imposed
on disqualified stores). It is undisputed that Traficanti did not submit any
documentation that he had a compliance policy or training program in
place. Thus, he failed to prove by "substantial evidence" that the store
had "an effective policy and program in effect to prevent violations." 7
U.S.C. § 2021(b)(3)(B). Notwithstanding the concurrence's invitation to
obviate the result here, see Post at 12 and n.4, neither the agency nor this
court is at liberty to disregard the clear congressional judgment embodied
in the statute.

Whatever force our fine concurring brother's argument might have in
another context, it is unnecessary to a resolution of this case. Here, the
facts are uncontested and the legal principles that follow are statutorily
mandated. This is not a matter of a standard of review but rather of giv-
ing effect to plain statutory text.
2 The district court did not consider the claims regarding the transfer
penalty because it found that they were not ripe. We believe, however,
that the claims are ripe. In Arch Mineral Corp. v. Babbitt, 104 F.3d 660,
665 (4th Cir. 1997), this court relied upon a two-part test to determine
ripeness: 1) are the issues fit for judicial review, and 2) will hardship fall
upon the parties by withholding court consideration?

With regard to the first prong, an issue is fit for judicial review if the
agency rule is final and not dependent on future uncertainties. In Arch
Mineral the court held that a claim was ripe even though the agency

                     7
The penalty does not violate Traficanti's right to substantive due
process because it has a rational basis: preventing illicit transfer of
ownership in order to evade the sanctions of the statute. If no transfer
penalty were imposed, Traficanti could nominally sell his business
while retaining de facto control over the enterprise. Since the transfer
fee is not clearly arbitrary or irrational, it satisfies the strictures of
substantive due process. See Hodel v. Indiana , 452 U.S. 314, 331
(1981).

The penalty is not an unconstitutional taking either. Traficanti
argues that the regulation wipes away "all economically beneficial or
productive use" of his store. Lucas v. South Carolina Coastal Coun-
cil, 505 U.S. 1003, 1015 (1992). Traficanti has not presented evidence
as to why his assertion is true. The regulation does not prevent Trafi-
canti from selling his land to any person; Traficanti must pay the
transfer penalty, not the prospective purchaser. A post-sale penalty
assessed against Traficanti simply does not negate all economically
beneficial use of LT's.

The penalty does not violate the Double Jeopardy Clause. The dis-
qualification and the transfer penalty are not criminal sanctions, and
therefore the Double Jeopardy Clause is inapplicable. Permanent dis-
_________________________________________________________________

decision was not officially final. It was final in actuality, however,
because no "`further administrative action'" was required "`other than the
possible imposition of sanctions.'" Id. at 668 (citing Northeast Airlines,
Inc. v. CAB, 345 F.2d 662, 664 (1st Cir. 1965)). In this case, the agency
retains no discretion once Traficanti attempts to sell his business. See 7
C.F.R. § 278.6(f)(2) (the person selling the retail store "shall be sub-
jected to and liable for a civil money penalty") (emphasis added). No
future uncertainty exists as to the imposition of the penalty.

The second prong asks whether hardship will fall upon the parties by
withholding court consideration. In this case, the potential sanction is not
some far-removed event, barely noticed on the horizon. On the contrary,
Traficanti has alleged that he has attempted to sell his store on three dif-
ferent occasions. All possible sales collapsed due to the looming transfer
penalty. The subsequent owner of LT's cannot participate in the food
stamp program until Traficanti pays the fine. See 7 C.F.R. § 278.6(f)(4).
The combination of the agency's lack of discretion to enforce the civil
money penalty combined with Traficanti's unrefuted allegation that he is
trying to sell the store makes this case ripe for adjudication.

                     8
qualification is a prophylactic measure, not a criminal penalty. See
Cross v. United States, 512 F.2d 1212, 1217 (4th Cir. 1975)
("[D]isqualification from the food stamp program is not a criminal
sanction."). Moreover, since Congress labeled the transfer fee a civil
penalty, "only the clearest proof" that the sanction's effect is punitive
can transform the penalty into a criminal one. See Hudson v. United
States, 522 U.S. 93, 99-100 (1997) (internal quotation marks omitted).
No such proof exists in this case. Since neither the disqualification
nor the transfer penalty is a criminal sanction, both are outside the
scope of the Double Jeopardy Clause.

Finally, Traficanti alleges that the transfer penalty violates the
Excessive Fines Clause. This argument is without merit. The fine is
not "grossly disproportional to the gravity of the defendant's offense."
United States v. Bajakajian, 524 U.S. 321, 337 (1998); see also
Vasudeva v. United States, -- F.3d --, 2000 WL 744072 at *4 (9th
Cir. June 12, 2000) (rejecting argument that $40,000 fine by the FNS
violates the Excessive Fines Clause).3

IV.

We do not underestimate the seriousness of the sanction in this
case. However, Congress' foremost concern was to deter widespread
fraud in food stamp transactions. Congress determined that the store
owner is in the best position to prevent fraud in the food stamp pro-
gram. Therefore, it placed the financial onus on owners to prevent the
fraud before it occurs. Because Traficanti could not show that he
maintained an effective anti-fraud program, the statutory penalty is
_________________________________________________________________
3 Traficanti argues in the alternative that two of the violations cannot
be attributed to his store. Therefore he asks us to reduce the penalty from
$40,000 to $20,000. We decline to do so. With regard to Traficanti's
claim that White was not in the store during one violation, we believe
that it makes no difference in this situation. She was near the front door
of the store, and she was in the employ of LT's at that particular time.
We also reject Traficanti's claim that he should not be liable for one of
the violations because in that instance, White was just a broker. Trafi-
canti presented no evidence that this was the case. The record indicates
only that an undercover agent entered LT's with $460 in stamps, and left
LT's with $210 in cash. This evidence in itself is enough to establish that
an employee of LT's bought food stamps.

                    9
permanent disqualification. The transfer penalty is likewise constitu-
tional. For the foregoing reasons, we remand the case with instruc-
tions to the district court to dismiss it with prejudice.

AFFIRMED AND REMANDED

WIDENER, Circuit Judge, concurring:

Although I concur in the result because of circuit precedent, I write
separately to express my continuing doubt with the arbitrary and
capricious standard of review established by this court's divided deci-
sion in Cross v. United States, 512 F.2d 1212, 1217-19 (1975) (en
banc), and applied by the district court in this case. In Cross, this
court ignored the language of the Food Stamp Act, 7 U.S.C. §§ 2011
et seq. (1996), and held that "de novo " does not mean de novo. Rather,
in this circuit, de novo review by a district court of penalties imposed1
under the Food Stamp Act means a district court is limited to the arbi-
trary and capricious standard generally used in administrative review.
See Cross, 512 F.2d at 1218 ("To be `valid,' a sanction must not be
arbitrary and capricious, and a sanction is arbitrary and capricious if
it is unwarranted in law or without justification in fact."). With this
proposition, I do not agree.

The Food Stamp Act mandates de novo review by a district court.
The Act states that "[t]he suit in the United States district court . . .
shall be a trial de novo by the court in which the court shall determine
the validity2 of the questioned administrative action in issue, except
that judicial review of determinations . . . made pursuant to section
2025(c) . . . shall be a review on the administrative record." 7 U.S.C.
§ 2023(a)(15) (1996) (emphasis added). Thus, the plain language of
the Act requires de novo review. In addition, the § 2025(c) exception
indicates and emphasizes that Congress intended a de novo hearing in
_________________________________________________________________
1 Interestingly, a district court reviews the finding of liability according
to the plain language of the statute--under a de novo standard of review.
See Cross, 512 F.2d at 1218 ("[T]he scope of review of a sanction is not
as broad as the scope of review of the fact of violations.").
2 When the district court determines that the administrative action is
invalid, it is free to enter a judgment or order in accordance with the law
and the evidence. See 7 U.S.C. § 2023(a)(16) (1996).

                    10
all cases, except when specifically limited to a lesser standard of
review under the Act.3 Any judicially created limit on a district
court's power of review, like that created in Cross, thus defeats this
expressed intent of Congress. Moreover, because an"administrative
action" under 7 U.S.C. § 2023(a)(15) must consist both of the finding
of a violation and the punishment of that violation, I think, contrary
to the Cross decision, that the Act mandates de novo review on both
the finding of guilt and the sanction that is imposed. See Ghattas v.
United States, 40 F.3d 281, 287 (8th Cir. 1994) (conducting de novo
review on liability as well as sanction).

This full right of review would have allowed the district court to
make its own independent judgment as to the severity of Traficanti's
permanent disqualification in light of the factual findings. Signifi-
cantly, the district court noted that Traficanti did not have knowledge
of or benefit from the illegal acts of his employee, Rachel White, Tra-
ficanti fired White upon learning of the illegal acts, and White was
aware that food stamp trafficking was illegal. Most importantly, the
district court found that White vengefully committed the illegal acts
with the intent to cause harm to Traficanti. Cf. R Ranch Market Corp.
v. United States, 861 F.2d 236, 239 (9th Cir. 1988), superceded by
statute 7 U.S.C. 2021(b) (1988 amendment) (stating that "courts
should not abandon their traditional function of giving very close
scrutiny to situations involving the tortious or criminal actions of
employees" and not holding employer liable because employer did
not know of employee's trafficking). R Ranch Market for that princi-
ple followed Bodwin v. United States, 541 F.2d 1388 (10th Cir. 1976).

Moreover, de novo review would have given the district court
power to evaluate Traficanti's sanction and whether his failure to pro-
duce sufficient documentation of a compliance program must lead to
permanent disqualification. See 7 U.S.C. § 2021(b)(3)(B); 7 C.F.R.
§ 278.6(i). In this respect, because a compliance program will not
deter or stop a disgruntled employee from intentionally setting up her
employer, a district court could evaluate whether the compliance pro-
gram requirements are applicable at all when an employee violates the
law with the intent to sabotage her employer. The district court should
_________________________________________________________________
3 This exception applies to payment accuracy programs and is not
applicable in this case.

                    11
also determine how to treat these situations under the Act. In short,
de novo review, as intended under the Act, would have given the dis-
trict court flexibility to address this issue of first impression and to
avoid the harsh outcome that inevitably results from the application
of the Cross standard in a case such as this. Cf. Sims v. United States
Dep't of Agriculture Food & Nutrition Serv., 860 F.2d 858, 863 (8th
Cir. 1998) (holding district court should have reduced sanction under
Food Stamp Act); Ghattas v. United States, 40 F.3d 281, 287 (8th Cir.
1994) (conducting de novo review on liability as well as sanction
under Food Stamp Act); United States v. Acosta , 17 F.3d 538, 544 (2d
Cir. 1994) (illustrating harsh result under Federal Food, Drug, and
Cosmetic Act, 9 U.S.C. § 331, where liability attaches without proof
of intent).4

In sum, we continue to decline to give effect to the plain words
"trial de novo" as found in § 2023(a)(15) of the statute.

In United States v. First City Nat'l. Bank, 386 U.S. 361, 368
(1967), the Court defined the clause "shall review de novo the issues
presented." It reasoned that "The words `review' and `trial' might
conceivably be used interchangeably. The critical words seem to be
`de novo' and `issues presented.' They mean to us that the court
should make an independent determination of the issues." First City
Nat'l Bank, 386 U.S. at 368 (emphasis added). The words at issue in
the case at hand are that the suit in court to review penalties such as
those imposed in this case "shall be a trial de novo by the court in
which the court shall determine the validity of the questioned admin-
istrative action in issue." 7 U.S.C. § 2023(a)(15). The penalties are
certainly a part of "the administrative action in issue," yet we persist
in giving little or no effect to the words "the court shall determine"
_________________________________________________________________
4 The majority, fn. 1, finds undisputed that Traficanti did not submit
any documents that he had a compliance policy or training program in
place. It is equally undisputed, I suggest, that no policy or training pro-
gram can prevent such a disgruntled employee from setting up her
employer and in so doing, in all likelihood, committing a felony. See 7
U.S.C. § 2024(b)(1). If the courts in this circuit were not forbidden by
our own precedent from making a de novo determination of penalty they
could obviate the harsh and unjust result obtained here, as the cases I
have cited from other circuits demonstrate.

                    12
(emphasis added). Our continued insistence on not giving effect to
either the statute's words or the Supreme Court's definition is some-
thing I cannot justify. In my opinion, we should revisit Cross, follow
the principle of Ghattas v. United States, 40 F.3d 281, 287 (8th Cir.
1984), and remand this case to the district court.

                    13