Court Opinion

ID: 2998837
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:47:49.494562+00
Date Added: 2024-06-11T12:50:04.324178
License: Public Domain

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 Milwau-
kee. One of the clerks in her store violated Food Stamp
Program regulations by selling ineligible items to cus-
tomers. The Department of Agriculture, Food and Nutrition
Services (“FNS” or “Agency”) permanently disquali-
fied 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 regula-
tion 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, unbe-
knownst 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 ex-
plained 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 Admin-
istrative Review Branch of FNS affirmed the disqualifica-
tion 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., requir-
ing 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 govern-
ment 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 Invest-
ment 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 argu-
ments.

A. Sale of Pago Poco, Inc.
  According to Estremera, summary judgment was inappro-
priate 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 Invest-
ment 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 Proce-
dure 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 circum-
stances” or “compelling reasons,” an attorney who partici-
pates 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 princi-
ples.” 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 main-
tains, 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 Admin-
istrative 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 regula-
tions.

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 regula-
tions. 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 deter-
mine, 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 bound-
aries” 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 redemp-
     tions 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 proceed-
ing is upon the aggrieved store to establish the invalidity of
the administrative action by a preponderance of the evi-
dence.”). 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