U.S. Department of Agriculture Food and Nutrition Service Administrative Review Alexandria, VA 22302

Transcription

1 U.S. Department of Agriculture Food and Nutrition Service Administrative Review Alexandria, VA M&M One Stop Seafood, Appellant, v. Case Number: C Retailer Operations Division, Respondent. FINAL AGENCY DETERMINATION It is the decision of the U.S. Department of Agriculture (USDA, Food and Nutrition Service (FNS, that there is sufficient evidence that the Retailer Operations Division properly denied the application of M&M One Stop Seafood to participate as an authorized retailer in the Supplemental Nutrition Assistance Program (SNAP. As a result, the firm may not reapply for SNAP authorization for a period of six months from the date of denial. ISSUE The issue accepted for review is whether or not the Retailer Operations Division took appropriate action, consistent with Title 7 Code of Federal Regulations (CFR Part 278, in its administration of SNAP when it denied the retailer application of M&M One Stop Seafood. AUTHORITY 7 U.S.C and its implementing regulations at 7 CFR 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 M&M One Stop Seafood originally submitted an application to participate in SNAP as a retailer on May 5, According to the application, the store was opened for business under the current ownership on May 9, On June 2, 2016, a store visit was conducted by an FNS contractor to determine whether or not the firm met eligibility requirements to be authorized in SNAP. After reviewing the store visit report, the Retailer Operations Division determined that it was not able to establish the firm s eligibility without additional information from the firm. Specifically, the store seemed 1

2 to market itself not only as a retail store where fresh, raw seafood could be purchased by the pound, but also as a take-out restaurant where customers could order freshly prepared hot seafood to go. In accordance with SNAP regulations, in order for a firm to be eligible to participate in SNAP, it must demonstrate that less than 50 percent of its total sales are in the sale of hot and/or cold prepared foods not intended for home preparation and consumption. In a letter dated June 6, 2016, the Retailer Operations Division sent the firm a letter requesting additional information so that it could determine the exact nature of the business. The letter asked for business tax returns, sales receipts, inventory records, copies of menus, and price listings for retail sales. In response to this request, the Appellant submitted a large number of documents, including a sales tax summary from the South Carolina Department of Revenue; 35 pages of inventory records from Georgetown Seafood Co., Inc. and US Foods (most of which are dated prior to the time the current ownership took over the business; a one-page handwritten listing of seafood prices by the pound; 25 pages of daily sales receipts from May to July 2016; and four pages of menus for hot food. A few other documents, such as bank statements and a Certificate of Existence from the South Carolina Secretary of State s office, were also provided, but did not prove to be relevant to the firm s SNAP eligibility. After reviewing the documentation and evidence in the case, the Retailer Operations Division determined that the firm s hot food sales comprised 53 percent of the firm s total sales, making it ineligible for participation as a SNAP retailer pursuant to 7 CFR 278.1(b(1(iv. In a letter dated September 13, 2016 and sent on September 20, 2016, the Retailer Operations Division informed the Appellant that its SNAP application was denied because the firm did not meet the definition and requirements of a retail food store as set forth in Sections and 278.1(b(1 of the SNAP regulations. Specifically, the letter stated that the Retailer Operations Division had determined that M&M One Stop Seafood was primarily a restaurant in which more than 50 percent of the firm s total sales were in the sale of hot and/or cold prepared, ready-to-eat foods intended for immediate consumption and requiring no additional preparation. Finally, the letter of denial informed the firm that in accordance with regulation at 7 CFR 278.1(k(2, the firm shall not be eligible to reapply for SNAP participation for a minimum period of six months from the effective date of denial. In a letter postmarked September 26, 2016, the Appellant requested an administrative review of the Retailer Operations Division s decision to deny the firm s SNAP application. The appeal was considered timely and was therefore granted. STANDARD OF REVIEW In an appeal of adverse action, such as an application denial, an appellant bears the burden of proving by a preponderance of the evidence that the administrative action should be reversed. This means an appellant has the burden of providing relevant evidence which a reasonable mind, considering the record as a whole, would accept as sufficient to support a conclusion that the matter asserted is more likely to be true than not true. 2

3 CONTROLLING LAW AND REGULATIONS The controlling law in this matter is found in the Food and Nutrition Act of 2008, as amended (7 U.S.C. 2018, and promulgated through regulation under Title 7 CFR Part 278. In particular, 7 CFR 278.1(k establishes the authority upon which FNS shall deny the authorization of any firm applying for participation in SNAP if it fails to meet established eligibility requirements. 7 CFR 278.1(k(2 reads, in relevant part: FNS shall deny the application of any firm if it determines that: (2 The firm has failed to meet the eligibility requirements for authorization under Criterion A or Criterion B, as specified in paragraph (b(1(i of this section... 7 CFR defines a retail food store as: (1 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 as set forth in 278.1(b(1 of this chapter, or has more than 50 percent of its total gross retail sales in staple foods (Criterion B as set forth in 278.1(b(1 of this chapter as determined by visual inspection, marketing structure, business licenses, accessibility of food items offered for sale, purchase and sales records, counting of stockkeeping units, or other inventory or accounting recordkeeping methods that are customary or reasonable in the retail food industry as set forth in 278.1(b(1 of this chapter 7 CFR defines staple food, in part, as:... food items intended for home preparation and consumption in each of the following food categories: meat, poultry, or fish; bread or cereals; vegetables or fruits; and dairy products... 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 eligibility of any firm. 7 CFR 278.1(b(1(i states, in part: An establishment shall effectuate the purposes of the program if it sells food for home preparation and consumption and meets one of the following criteria: Offer for sale, on a continuous basis, a variety of qualifying foods in each of the four categories of staple foods including perishable foods in at least two of the categories (Criterion A; or have more than 50 percent of the total gross retail sales of the establishment in staple foods (Criterion B. 3

4 7 CFR 278.1(b(1(ii states, in part: In order to qualify under [Criterion A] firms shall: (A Offer for sale... qualifying staple food items on a continuous basis... on any given day of operation, no fewer than three different varieties of food items in each of the four staple food categories...[emphasis added] (B Offer for sale perishable staple food items in at least two staple food items. 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; and (C Offer a variety of staple foods which means different types of foods, such as apples, cabbage, tomatoes, and squash in the fruit or vegetable staple food category, or milk, cheese, butter and yogurt in the dairy category. Variety of foods is not to be interpreted as different brands, different nutrient values, different varieties of packaging, or different package sizes. Similar processed food items with varying ingredients such as, but not limited to, sausages, breakfast cereals, milk, sliced breads, and cheeses...shall not each be considered as more than one staple food variety for the purpose of determining variety 7 CFR 278.1(b(1(iii states, in part: In order to qualify under [Criterion B] 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 CFR 278.1(b(1(iv states, in part: 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. In addition, 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 [Emphasis added.] 7 CFR 278.1(k(2 states, in part: 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. 4

5 APPELLANT S CONTENTIONS The Appellant made the following summarized contentions in its request for administrative review, in relevant part: The Appellant owner bought the business which was operating as a raw seafood store. The previous owner and the owner before that had both participated in SNAP. The main part of the business is to sell raw seafood to customers. The other part of the business is to cook seafood for cash-paying customers who request it. Records from the previous owner show that this was a very minor part of the business. A large portion of the firm s customers ask to use their EBT card for their purchases. Due to the delay in authorization, the firm is losing customers. As a result, the owner has had to offer specials on the cooked foods to try to make up for the losses on the sale of raw seafood and to cover the firm s overhead expenses. All of the firm s competitors have the same type of business and accept EBT. The firm is willing to provide a separate cash register for customers who request cooked seafood. There was an unreasonable delay on processing the application. The Appellant had to send the Retailer Operations Division the same materials several times. All records requested were provided four times, including by mail and fax. All of the materials were lost several times. The delay has caused the Appellant to lose more customers, which has caused a financial hardship on the firm. Considering the firm a restaurant is a wrong assumption. The firm is a seafood retail store. The Appellant is running the business in the same manner as previous owners. In support of these contentions, the Appellant submitted on October 18, 2016, 21 color photographs showing a much larger inventory and variety of staple foods than what was in the store at the time of the contractor s store visit. Included in these photographs were photos of receipts from the postal service, apparently as evidence that the firm had to submit application supporting materials to the Retailer Operations Division on multiple occasions. The preceding may represent only a brief summary of the Appellant s contentions presented in this matter. However, in reaching a final agency decision, full attention was given to all contentions presented, including any not specifically summarized or specifically referenced herein. ANALYSIS AND FINDINGS It is important to clarify for the record that the purpose of this review is to either validate or invalidate the earlier determination of the Retailer Operations Division. Thus, this review is limited to consideration of the relevant facts and circumstances as they existed at the time of the store visit and at the time the Retailer Operations Division rendered its decision. On May 5, 2016, the Appellant submitted an online form FNS-252, Supplemental Nutrition Assistance Program Application for Stores, in which it indicated that the firm carried at least three varieties of food in each of the four staple food categories. The 5

6 Appellant also indicated on the application that 90 percent of its gross retail sales were in the sale of staple foods, with 10 percent in the sale of other foods such as snack foods, soft drinks, and condiments. The application indicated that the firm did not sell any nonfood items and also stated that the sale of hot and/or cold prepared, ready-to-eat foods did not exceed 50 percent of the firm s total sales. On June 6, 2016, an FNS contractor conducted a store visit at the firm to verify the information contained in the Appellant s application. Based on the store visit results, the Retailer Operations Division determined that the firm s SNAP application was not accurate. For example, the store visit revealed that the firm did not stock at least three different items in each of the four staple food categories as it claimed it did. In fact, the firm had no dairy products for sale at all. It also had only canned, boiled peanuts in the fruits/vegetables category, and had a very limited variety of foods in the breads/grains category (primarily snack foods such as cookies and chips. The bulk of the firm s revenues very clearly came from the sale of seafood. Because the firm did not carry a sufficient variety of foods in each of the four staple food groups, the firm is not eligible for participation under Criterion A, which is fully defined on pages 3-4 of this document. It is possible that the firm would be eligible for participation under Criterion B, which is that at least 50 percent of a firm s total sales come from the sale of staple foods. It appears very obvious that more than 50 percent of the Appellant s revenues come from the sale of seafood, which is considered a staple food. The question then is, what percentage of that seafood is sold hot compared to that which is sold raw? Hot foods are not eligible for purchase with SNAP benefits and are not considered staple foods for the purposes of determining a store s SNAP eligibility. Because M&M One Stop Seafood sells hot food at the point of sale, it must be determined whether or not hot food sales exceed 50 percent of the firm s total sales. In evaluating the documentation submitted by the Appellant to the Retailer Operations Division, this review has determined that the key evidence is the daily sales receipts. 7 USC 2018 (b(7(e This was determined in part on a telephone conversation that occurred between the Retailer Operations Division and the Appellant owner s spouse, who is also the manager of the store. According to agency records, during that conversation the store manager explained what the codes listed on the receipts meant. For example, Dept011 on the receipt represents groceries, or non-taxed foods, such as raw seafood. 7 USC 2018 (b(7(e. (It should be noted that most groceries in South Carolina are not taxed, but prepared foods are subject to a sales tax. During this same conversation, the store manager acknowledged that the store s hot food sales were more than its sales of raw food, primarily because the store was not accepting EBT benefits at the time. Based on this information, it is the conclusion of this review that the firm s sales of hot prepared food exceed 50 percent of its total retail sales. In accordance with regulation at 7 CFR 278.1(b(1(iv, such firms are considered to be restaurants and are not eligible for SNAP participation under Criterions A or B. 6

7 The Appellant contends that raw seafood sales are the main part of its business and that the prior firm s records show that the sale of hot prepared foods was only a minor portion of sales. This review acknowledges the possibility that if the firm was authorized to accept SNAP benefits, the raw food sales might exceed hot food sales and the firm could be eligible for participation under Criterion B. But a firm s application is not evaluated based on what its sales might be if were authorized. Rather a firm s eligibility is based on existing data at the time of the store visit and at the time of the Retailer Operations Division s determination. Previous Owner Authorized The Appellant has argued that the previous store owners at the same location and using the same business model were authorized to accept SNAP benefits. While it may be true that prior ownership was once authorized to accept SNAP benefits, a location s prior authorization does not provide a valid basis for reversing the Retailer Operations Division s decision, as it has no bearing on whether or not the firm as presently constituted meets eligibility criteria as established in 7 CFR 278.1(b(1. Competitors are SNAP-Authorized The Appellant has argued that its competitors have the same type of business and have been authorized to accept SNAP benefits at their stores. This contention unfortunately does not provide a valid basis to reverse the determination made by the Retailer Operations Division. The purpose of this review is not to determine whether other firms were properly authorized, but to either validate or invalidate the earlier determination relating to M&M One Stop Seafood. The authorization status of other local firms has no bearing on whether or not M&M One Stop Seafood meets eligibility requirements as outlined in SNAP regulations. Separate Cash Register for Hot Food The Appellant has argued that it is willing to provide a separate cash register for those customers who want cooked seafood. Unfortunately, a separate cash register does not mean that it is a separate business. In any application, a firm is evaluated based on its inventory and total sales, not just those sales that take place at one particular cash register. Therefore, this contention does not provide a valid basis to reverse the determination made by the Retailer Operations Division. Application Delay The Appellant has argued that there was an unreasonable delay on processing the application. The Appellant claims that it had to send the same materials to the Retailer Operations Division four times because all of the materials were lost each time. The Appellant provided photographs of receipts from the postal service (dated July 1, 2016 and September 1, 2016 as evidence of this. The Appellant claims that the delay has caused the Appellant to lose customers, which has caused a financial hardship on the firm. 7

8 The Retailer Operations Division acknowledged that on one occasion, materials that were submitted by the Appellant were misplaced and that the materials had to be requested again. While this is clearly unfortunate, it is not within the scope of this review to make an evaluation regarding such a delay or to assign blame for any delays that may have occurred during the application process. This review is limited to an evaluation of whether or not the Appellant firm is eligible for SNAP participation based on the eligibility criteria outlined in statute and regulations. Hardship on Appellant and SNAP Households The Appellant claims that because its SNAP application has been denied and due to the length of time it took for the Retailer Operations Division to process the application, the firm has had to turn away many would-be customers who want to use their SNAP benefits at the store. As a result, not only are SNAP households unable to spend their benefits on the foods that they want, but the firm is losing money. In regard to this contention, this review can neither confirm nor refute such an argument, as the Appellant has offered no evidence to substantiate the claim. However, this contention has no bearing on the Appellant s eligibility for SNAP authorization. A store may only accept SNAP benefits if it meets the required criteria for authorization. New Inventory On October 18, 2016, the Appellant submitted to the Administrative Review Officer via 21 undated color photographs, many of which show a much larger selection of staple foods than what was available in the store at the time of the June 6, 2016 contractor store visit. These photos were submitted with the following comment: We added grocery part to our business that actually was not part of the business before. With regard to these apparent changes in inventory, it should be noted once again that this review is limited to consideration of the relevant facts and circumstances as they existed at the time of the contractor s store visit and at the time the Retailer Operations Division rendered its decision. It is not the authority of this review to consider what subsequent remedial actions, such as the addition of new inventory, may have been taken so that a store may enhance, or begin to comply with program requirements. Additionally, the Appellant offered no evidence to show how this new inventory affected the percentage of hot food sales in relation to staple food sales. Therefore, these undated photographs are of little value in determining whether or not the firm was eligible for participation at the time the Retailer Operations Division made its decision. CONCLUSION The contentions presented by the Appellant are not sufficient to prove that the denial decision made by the Retailer Operations Division was inaccurate or that it should be reversed. The sales evidence from the months of May, June and July 2016 clearly shows that more than 50 percent of the firm s sales come from hot, prepared, ready-to-eat foods that require no additional preparation, making the firm ineligible for participation under Criterions A or B. 8

9 On the basis of the analysis above, the decision by the Retailer Operations Division to deny the application of M&M One Stop Seafood to participate as a retailer in SNAP is sustained. In accordance with 7 CFR 278.1(k(2, the Appellant shall not be eligible to reapply for participation as a retailer in SNAP for a minimum period of six months from September 20, 2016, which is the effective date of the denial. RIGHTS AND REMEDIES Applicable rights to a judicial review of this decision are set forth in Section 14 of the Food and Nutrition Act of 2008 (7 U.S.C and in Section of the SNAP regulations. If a judicial review is desired, the complaint, naming the United States as the defendant, must be filed in the U.S. District Court for the district in which the Appellant owner resides or is engaged in business, or in any court of record of the State having competent jurisdiction. If a complaint is filed, it must be filed within 30 days of receipt of this decision. Under the Freedom of Information Act (FOIA, it may be necessary to release this document and related correspondence and records upon request. If such a request is received, FNS will seek to protect, to the extent provided by law, personal information that if released could constitute an unwarranted invasion of privacy. December 13, 2016 JON YORGASON DATE ADMINISTRATIVE REVIEW OFFICER 9