U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Alexandria, VA FINAL AGENCY DECISION ISSUE

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1 U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Alexandria, VA Howard City Liquor, Appellant, v. Case Number: C Retailer Operations Division, Respondent. FINAL AGENCY DECISION It is the decision of the U.S. Department of Agriculture, Food and Nutrition Service (FNS), that there is sufficient evidence to support a finding that Howard City Liquor (hereinafter Appellant ) was properly denied authorization to participate in the Supplemental Nutrition Assistance Program (SNAP) by the Retailer Operations Division, Retailer Operations Branch, hereinafter ROD Office. ISSUE The issue accepted for review is whether the ROD Office took appropriate action, consistent with 7 C.F.R , 278.1(b)(1) and 278.1(k)(2) when it made the decision to deny the application by Appellant for authorization to participate in the SNAP. AUTHORITY 7 U.S.C and the implementing regulations at 7 C.F.R provide that A food retailer or wholesale food concern aggrieved by administrative action under 278.1, or may file a written request for review of the administrative action with FNS. CASE CHRONOLOGY The record reflects that on April 18, U.S.C. 552 (b)(6) & (b)(7)(c) signed as Owner of Howard City Liquor an application for authorization to 1

2 participate in the SNAP. A store visit was conducted on April 29, Documentation obtained as a result of that visit reflected that the firm maintained an insufficient inventory of staple food items in the meat/poultry/fish category. The ROD Office requested via a letter dated May 10, 2017 that Appellant provide documentation showing the firm normally stocked an adequate amount of staple food items in the meat/poultry/fish category. Appellant provided copies of four receipts/invoices in response thereof. Appellant was subsequently advised in a letter dated June 7, 2017 of the Department's decision to deny the application. The regulatory bases given for that denial were 7 C.F.R (b)(1) and 278.1(k)(2). In a letter dated June 8, 2017, Appellant requested an administrative review of this action. The request was granted. STANDARD OF REVIEW In appeals of adverse actions an appellant bears the burden of proving by a preponderance of the evidence that the administrative actions should be reversed. That means an appellant has the burden of providing relevant evidence which a reasonable mind, considering the record as a whole, might accept as sufficient to support a conclusion that the matter asserted is more likely to be true than not true. CONTROLLING LAW The controlling statute in this matter is contained in the Food & Nutrition Act of 2008, as amended, at 7 U.S.C and in Part 278 of Title 7 of the Code of Federal Regulations (CFR). 7 U.S.C. 2018, 7 C.F.R , 278.1(b)(1) and 278.1(k)(2) establish the authority upon which a retail food store or wholesale food concern may be denied authorization to participate in the SNAP. 5 U.S.C. 552 (b)(7)(e). 7 C.F.R states, inter alia: Retail Food Store means: An establishment or house-to-house trade route that sells food for home preparation and consumption normally displayed in a public area, and either offers for sale, on a continuous basis, a variety of foods in sufficient quantities in each of the four categories of staple foods including perishable foods in at least two such categories (Criterion A) or has more than 50 percent of its total gross retail sales in staple foods (Criterion B) Entities that have more than 50 percent of their total gross sales in hot and/or cold prepared, ready-to-eat foods that are intended for immediate consumption, and require no additional preparation, are not eligible for SNAP participation as retail 2

3 food stores And Accessory food items including, but not limited to, coffee, tea, cocoa, carbonated and uncarbonated drinks, candy, condiments and spices shall not be considered staple foods for the purpose of determining the eligibility of any firm. 7 C.F.R (a) states: FNS shall approve or deny the application within 45 days of receipt of a completed application. A completed application means that all information (other than an on-site visit) that FNS deems necessary in order to make a determination on the firm s application has been received. 7 C.F.R (b)(1) states, inter alia, that in order to meet Criterion A a firm must: Offer for sale, on a continuous basis, a variety of qualifying foods in each of the four categories of staple foods, including perishables in at least two of the categories. 7 C.F.R (b)(1) states, inter alia, that in order to meet Criterion A a firm must: Offer for sale, on a continuous basis, a variety of qualifying foods in each of the four categories of staple foods, including perishables in at least two of the categories. 7 C.F.R (b)(1)(ii) further stipulates, inter alia: Application of Criterion A: In order to qualify under this criterion, firms shall: Offer for sale and normally display in a public area, qualifying staple food items on a continuous basis, evidenced by having, on any given day of operation, no fewer than three different varieties of food items in each of the four staple food categories.offer for sale perishable staple food items in at least two staple food categories. Perishable foods are items which are either frozen staple food items or fresh unrefrigerated or refrigerated staple food items that will spoil or suffer significant deterioration in quality within 2-3 weeks.multiple ingredient food items intended for home preparation and consumption, such as, but not limited to, cold pizza, macaroni and cheese, soup or frozen dinners, shall only be counted as one staple food variety each and will normally be included in the staple food category of the main ingredient as determined by FNS. 7 C.F.R (b)(1)(iii) states, inter alia: 3

4 Application of Criterion B: In order to qualify under this criterion, firms must have more than 50 percent of their total gross retail sales in staple food sales. Total gross retail sales must include all retail sales of a firm, including food and non-food merchandise, as well as services, such as rental fees, professional fees and entertainment/sports/games income. 7 C.F.R (b)(1)(ii)(C) states, inter alia: Variety of foods is not to be interpreted as different brands, different nutrient values, different varieties of packaging, or different package sizes. 7 C.F.R (b)(1)(iv) states, inter alia: Ineligible firms under this paragraph include, but are not limited to, stores selling only accessory foods, including spices, candy, soft drinks, tea or coffee; ice cream vendors selling solely ice cream; and specialty doughnut shops or bakeries not selling bread... And firms that are considered to be restaurants, that is, firms that have more than 50 percent of their total gross retail sales in hot and/or cold prepared foods not intended for home preparation and consumption, shall not qualify for participation as retail food stores under Criterion A or B. This includes firms that primarily sell prepared foods that are consumed on the premises or sold for carryout. 7 C.F.R (k)(1) and (2) state, inter alia: FNS shall deny the application of any firm if it determines that: The firm does not qualify for participation in the program as specified in paragraph (b), (c), (d), (e), (f), (g), (h) or (i) of this section; or The firm has failed to meet the eligibility requirements under Criterion A or Criterion B.Any firm that has been denied authorization on these bases shall not be eligible to submit a new application for authorization in the program for a minimum period of six months from the effective date of the denial APPELLANT S CONTENTIONS In its written request for review dated June 8 th, 2017, Appellant provided information in which it was argued that: 1. The store applied to accept SNAP benefits in The ROD Office requested copies of receipts/invoices documenting Appellant s purchases of staple food inventory. Appellant used the same vendor for beef jerky 4

5 products as the prior owner. The ROD Office requested receipts. Appellant provided receipts including purchases of nuts, grains, meat products, etc. Apparently a background check was performed on the beef jerky invoice and was found to involve an illegitimate business. Appellant stopped doing business with the company immediately but it was still denied participation in the SNAP. A six-month suspension before reapplying was imposed on Appellant. 2. Appellant reapplied in April Between 2016 and June 2017 the beef jerky issue was corrected. During the most recent visit the firm has all necessary inventory except meat products; the firm had only jerky and eggs in the meat category. The firm normally carries tuna, pickled sausage and pickled eggs, but the firm was sold out and receipts for purchases of these products were not accepted; Appellant was told the receipts were too old, dating back to November, February and April The pickled eggs and sausage have a long shelf life, however. Receipts for February and April were not accepted because they were said to look like grocery store receipts. 3. On May 15 th, 2017 the ROD Office said Appellant s application was going to be denied but the firm could withdraw the application, obtain the required staple food inventory and reapply. The firm reapplied and then added meat inventory in order to qualify. In response to the new application, Appellant received a letter from the ROD Office requesting all business licenses, which Appellant provided. The ROD Office informed Appellant via a letter dated June 7, 2017 that its application was denied. In a phone conversation with the ROD Office, Appellant was told that the April 29 th, 2017 store visit was still in effect; a new store visit to accompany the new application was not conducted. Thus the ROD Office instructed Appellant that its April 2017 application would be denied, but that it could withdraw the old application, obtain adequate inventory and submit a new application. ANALYSIS AND FINDINGS The record reflects that a contracted store visit of Appellant s firm was conducted on April 29, Documentation generated as a result of that visit includes photographs of the firm s interior and exterior, a store layout diagram and a store inventory survey reflecting that the firm had ample varieties of staple food stock in the dairy category, in the breads and cereals category and in the fruits and vegetables category, but had an inadequate stock of staple food in the in the meats/poultry/fish category, thus failing to qualify under Criterion A. The SNAP Office duly requested additional information in order to determine if the firm normally maintained an adequate variety of staple foods in the meat/poultry/fish category; information provided in response by Appellant failed to demonstrate same, thus failing to qualify under Criterion A. Appellant s application to participate in the SNAP indicated that the firm s staple food sales 5

6 did not exceed 50 percent of gross retail sales (Appellant had indicated staple foods comprised 25% of total gross sales). As staple food sales must comprise more than 50 percent of a firm s gross retail sales, the store was ineligible for authorization under Criterion B. It was additionally noted that the Appellant firm maintained a large inventory of alcohol, tobacco and tobacco-related products. Store visit documentation reflects that the firm operated primarily as a liquor store/smoke shop; thus the store visit further corroborated that staple food sales could not have reasonably exceeded 50% of gross sales. In regard to contention 1 above, the denial of the firm s 2016 application is beyond the scope of this review, which is limited to the facts and evidence pertaining to the firm s eligibility in connection with its April 18, 2017 application to participate in the SNAP. Accordingly, no further findings are rendered in regard to the 2016 denial of the firm s application to participate in the SNAP. Regarding contention 2 above, Appellant was found lacking in staple food inventory in the meat/poultry/fish category, having two varieties while the regulations require three. The ROD Office, via a letter dated May 10, 2017, provided Appellant the opportunity to demonstrate that it normally carried an adequate variety of staple food items in said category. Appellant provided four receipts/invoices, summarized as follows: o A receipt from a wholesale snack food vendor dated November 1, 2016 reflecting that Appellant purchased 5 U.S.C. 552 (b)(6) & (b)(7)(c) snack foods, chips, etc. Appellant notes that the receipt reflects the purchase of pickled eggs and sausage, though it is difficult to verify this as the items listed are abbreviated. The ROD Office did not find the firm s inventory of snack items contributing to the bread/cereal category insufficient; likewise the ROD Office noted the presence of eggs during the store visit. Thus a receipt reflecting the presence of these items does not further contribute to the firm s eligibility. None of the items on the receipt exceeded 5 U.S.C. 552 (b)(6) & (b)(7)(c); a small amount of inventory purchased seven months prior to the store visit does not present compelling evidence that the firm maintained such inventory at the time of the store visit. o A receipt from a wholesale grocery and snack food vendor dated December 8, 2016 reflecting that Appellant purchased 5 U.S.C. 552 (b)(6) & (b)(7)(c) in meat jerky products, pickled sausage, snack foods, drink mixes, nuts and non- food items. The ROD Office notes that the firm did stock meat jerky at the time of the store visit, so documentation of these items does not further contribute to Appellant s eligibility. Moreover, the invoice is dated five months prior to the store visit; and while pickled sausage may well have a long shelf life, the purchase of two 8-6

7 ounce containers of same cannot be expected to be maintained in inventory for several months. o A receipt from a local supermarket dated April 6, 2017 reflecting that Appellant purchased 5 U.S.C. 552 (b)(6) & (b)(7)(c) in food items including 1.64 pounds of chicken breast meat for $6.98. The ROD Office discussed this purchase with the firm on or about May 15, 2017 and was told that the firm was selling marinated chicken but that state authorities told the firm it did not have the proper license to sell raw chicken. Thus that the firm claims to have offered raw chicken for sale is dubious; moreover, most of the items contained on this receipt (onions, asparagus, peppers, limes, lemons, cilantro, tomatoes) were not present in the store on the day of the store visit), further calling into question the reliability of the document as a reflection of food purchased for resale at the store. o A receipt from a supermarket located 24 miles from the Appellant firm dated April 29, 2017 and reflecting that Appellant purchased 5 U.S.C. 552 (b)(6) & (b)(7)(c) in food items including ham steak priced at $4.39. Like the April 6 receipt, this receipt includes many items not seen in the store on the day of the store visit such as eight gallons of water, blueberries, tomatoes, broccoli, cucumbers, lettuce, kiwi, avocados, limes, lemons, garlic bread or wheat bread. The receipt is time stamped 5 U.S.C. 552 (b)(6) & (b)(7)(c) and reflected the purchase of perishable items such as four units of whole milk priced at $1.69 each and sliced cheese priced at $2.99; the store visit was conducted 5 U.S.C. 552 (b)(6) & (b)(7)(c), over four hours following the purchase of the items purported to be intended for resale in the store, and none of these products are seen on display, further calling into question the reliability of the document as a reflection of food purchased for resale at the store. o There is no receipt in the record dated in February of o Appellant provides four receipts in support of its request for review. However, all of these receipts are dated after the store visit conducted on April 29, 2017; two of the four receipts are dated May 18, 2017 and the remaining two are dated May 26, The receipts cannot constitute reliable evidence of inventory held at an earlier time. With regard to contention 3 above, Appellant s contention centers on its understanding that cancelling the application 5 U.S.C. 552 (b)(6) & (b)(7)(c) (it s April 18, 2017 application to participate in the SNAP) and reapplying would precipitate another store visit, giving the firm a second opportunity to obtain the required inventory. Appellant alleges that the ROD Office led the firm to believe that this is what would occur since the application process related to FNS application 5 U.S.C. 552 (b)(6) & (b)(7)(c) was going to be denied. Appellant further contends that when speaking to the ROD Office in June following its 7

8 receipt of the Denial Letter that the ROD Office appeared to admit that it erroneously led Appellant to believe that it could cancel the first application and begin a second application process. The ROD Office documentation, and documentation available in the agency s data and information tracking system, indicates that the ROD Office spoke via telephone with the Appellant on May 15, 2017; the documentation states that Appellant requested that the application be cancelled. This information does not state that the ROD Office told the Appellant that it could reapply and start the process over again. ROD Office records contain no mention of a June conversation in which it purportedly told the Appellant that it didn t realize the April 29, 2017 store visit was still in force (implying that a second visit would not take place and a decision therefore would be made on the basis of the original visit). Assuming, arguendo, that Appellant s rendition of conversations and events is accurate (although the record is far from conclusive that events occurred as described by Appellant), the ROD Office s denial decision must nonetheless be sustained. If the ROD Office did indeed create the expectation that Appellant could simply cancel its application and reapply, while such may have been error and misleading, it does not alter the fact that the Appellant firm did not qualify at the time of the store visit dated April 29, 2017 and, upon being provided an opportunity to demonstrate that it was in fact eligible on that date, failed to do so. The ROD Office is not required/allowed to perpetuate errors, if actually made and even if misleading, but is required to base its actions upon the statute and regulations. Moreover, if any retail firm, which is able to obtain knowledge that it s application will be denied due to failure to qualify, were able to simply reapply as many times as it needed in order to eventually gain authorization, the application process would increase in duration and complexity to a substantial extent and, moreover, the process currently in place and in accord with the statute and regulations would be essentially circumvented. This consideration notwithstanding, regulations do not provide for repetitive application attempts in short periods of time but provide an applicant ample opportunity to qualify for participation; if found ineligible such regulations preclude immediate reapplication and, in accordance with 7 C.F.R (k)(2), require a sixmonth waiting period. CONCLUSION In view of the above, it is my determination that the ROD Office s denial of Appellant s application for authorization to participate in the SNAP is in accord with the law and regulatory provisions at 7 U.S.C. 2018, 7 C.F.R , 278.1(b)(1) and 278.1(k). The denial, therefore, is sustained. However, it is noted that the six-month waiting period following denial stipulated by the Food 8

9 and Nutrition Act of 2008 (Sec. 9(d)) and the regulations at 278.1(k)(2) will elapse on December 7, 2017; accordingly, Appellant may reapply for participation in the SNAP up to 10 days prior to that date. RIGHTS AND REMEDIES Applicable rights to a judicial review of this decision are set forth in 7 U.S.C and 7 CFR If a judicial review is desired, the complaint must be filed in the U.S. District Court for the district in which Appellant s owner resides, is engaged in business, or in any court of record of the State having competent jurisdiction. This complaint, naming the United States as the defendant, must be filed within thirty (30) days of receipt of this decision. Under the provisions of the Freedom of Information Act (FOIA), FNS is releasing this information in a redacted format as appropriate and will protect, to the extent provided by law, personal information that could constitute an unwarranted invasion of privacy. DANIEL S. LAY August 11, 2017 ADMINISTRATIVE REVIEW OFFICER 9