In a decision of profound importance for SNAP retailers, the United States Court of Appeals for the Eighth Circuit in Euclid Market Inc. v. United States Through United States Department of Agriculture, 2023 WL 2028707 (C.A.8 (Mo.), 2023), issued an opinion vacating a judgment for the United States in a case concerning the permanent disqualification of a St. Louis small grocery. The Eighth Circuit held that the District Court applied the incorrect evidentiary standard during a two-day bench trial, finding that it improperly required the store to produce transaction-specific evidence for each transaction set forth in USDA's Food & Nutrition Service's ("FNS") letter charging it with trafficking in SNAP benefits.
A bit of background regarding SNAP and FNS enforcement of its regulations against SNAP retailers is necessary to appreciate the steep burdens that FNS saddles convenience stores and small groceries for when charging them trafficking in SNAP benefits in cases triggered by the agency's Anti-Fraud using EBT Retailer Transactions ("ALERT") system. ALERT is a tool used by FNS that scans every SNAP transaction at each of the quarter-million SNAP-authorized retail food stores across the country. Based on FNS's retailer data reports, nearly all trafficking charges are brought against convenience stores and groceries. FNS permanently disqualifies nearly all of the small retailers it charges with trafficking based on the ALERT system. This is not surprising considering that FNS makes disqualification determinations based on ALERT reports and other information that are never provided to SNAP retailers or their counsel.
Prior to 2020, FNS permitted SNAP retailers to use the Freedom of Information Act ("FOIA") to attempt to obtain some of the information that FNS program specialists and section chiefs will use to determine whether to permanently disqualify them from SNAP. Apparently unsatisfied with the agency's 95% disqualification rate in SNAP trafficking cases and its policy of withholding many of the records requested in FOIA requests pursuant to allegedly applicable exemptions, FNS made it even harder for SNAP retailers by promulgating a regulation during 2020 that prohibited agency officials from holding administrative cases in abeyance if retailers made FOIA requests. Of note, the agency also continues to assert the law enforcement privilege, even though FNS officials do not carry guns, do not have arrest powers, and despite admissions by the Department of Justice in SNAP judicial review litigation, FNS is not a law enforcement agency.
While the playing field is leveled somewhat during judicial review proceedings, few retailers can pay the costs of litigating against the federal government, especially since their stores have had decreased revenues for months due to the immediate suspension of a store's SNAP permit following a determination that it trafficked in SNAP benefits. That said, most courts have held that SNAP retailers bear the burden of proof during judicial review proceedings to demonstrate by a preponderance of the evidence that trafficking did not take place, even though FNS made its administrative decisions on information and records not shared with SNAP retailers or their attorneys. Most attorneys with experience in food stamp law describe FNS's Kafkaesque administrative tribunal as a de facto Star Chamber.
Fortunately, the tide appears to be turning. During judicial review proceedings, Department of Justice attorneys frequently assert that SNAP retailers "must provide transaction-specific evidence, like receipts or eye-witness testimony, to meet its burden of proof." Id. at 9. In Euclid¸ the 8th Circuit concluded that the district court improperly saddled the SNAP retailer by requiring it to rebut FNS's trafficking determination with "transaction-specific evidence" for each transaction set forth on FNS's letter charging the Store with trafficking. The Court of Appeals also rejected the district court's conclusion that "general explanations do not suffice to demonstrate every transaction was legitimate." Id. at 11. The Euclid court implicitly recognized that FNS does not require SNAP retailers to utilize sophisticated point-of-sale ("POS") systems that generate, and store itemized receipts like those found at superstores and supermarkets. As a result, very few convenience stores and smaller groceries do, primarily for cost-based reasons.
The Court of Appeals rejected the government's argument that permitting stores to provide non-transaction-specific evidence would provide retailers with a "loophole that allows stores to traffick [sic] to participate in SNAP so long as they can explain the categories of suspicious transactions without legitimizing the transactions within the categories." Id. at 10. This "doom and gloom" prediction did not sway the Eighth Circuit which recognized that "[t]rial courts are skilled at weighing the probative value of the evidence, making credibility determinations, and assessing whether or not a party has met its burden of proof." Id.
Euclid was not a complete victory for SNAP retailers. The Eighth Circuit rejected the store's argument that the de novo review standard placed the burden of proof on the federal government. It is unclear whether the Court of Appeals was aware that FNS's failure to provide it with records and other materials that the agency will use to determine whether to permanently disqualify a store from SNAP or that FNS improperly places the burden of proof on the retailer to rebut the allegations in a Charge Letter and during administrative review proceedings. However, given the near uniformity of opinions by appellate and district courts that have considered this issue, it is incumbent on Congress to address these and other inequities during FNS SNAP administrative proceedings when enacting the 2023 Farm Bill. FNS's policies, which have clear discriminatory impacts on immigrant and minority retailers, are in urgent need of reform. Neither FNS nor USDA's Equity Commission, which just issued an Interim Report that is nearly silent to SNAP retailer concerns despite the food stamp program comprising more than 75% of USDA's annual budget, appear to be inclined to make substantive changes to how it enforces SNAP. As a result, statutory changes appear to be the only way to effect change at FNS. Upcoming Farm Bill hearings will hopefully shed light on these issues of extreme importance to SNAP retailers and beneficiaries.
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