In the
United States Court of Appeals
For the Seventh Circuit
No. 10-1537
S TEPHEN C. FELLS, doing
business as S TEPHEN SNACK
F OODS C ANDY & V ARIETY,
Plaintiff-Appellant,
v.
U NITED STATES OF A MERICA,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 2:08-cv-00782-AEG—Aaron E. Goodstein, Magistrate Judge.
S UBMITTED O CTOBER 14, 2010—D ECIDED D ECEMBER 23, 2010
Before R IPPLE, M ANION and SYKES, Circuit Judges.
R IPPLE, Circuit Judge. Stephen Fells, owner and operator
of a small convenience store in Milwaukee, Wisconsin,
seeks review of a district court order upholding the
final decision of the Food and Nutrition Service of the
United States Department of Agriculture (“USDA”).
The USDA decision permanently disqualified Mr. Fells’s
2 No. 10-1537
store, Stephen Snack Foods Candy & Variety, from par-
ticipating in the Food Stamp Program, now referred to
as the Supplemental Nutrition Assistance Program
(“SNAP” or “Program”), for engaging in the trafficking
of food stamps. See 7 C.F.R. § 271.2.1 Finding that
Mr. Fells failed to satisfy his burden of proving by a
preponderance of the evidence that the disqualification
from SNAP was invalid, the district court upheld the
agency’s final determination of disqualification. On
appeal, Mr. Fells continues to deny that he engaged
in the trafficking of food stamps. For the reasons set
forth in this opinion, we affirm the judgment of the
district court.
I
BACKGROUND
In 2008, the USDA conducted an investigation of
Mr. Fells’s store for activity suspected to be in violation
of the federal food stamp laws and regulations. The
store’s questionable transactions had been brought to
the agency’s attention through its automated monitoring
program. An investigation by an USDA field officer
revealed an unusually high number of “large” food
stamp transactions between August 2007 and Jan-
uary 2008. During this time, the agency tracked seventy-
1
7 C.F.R. § 271.2 defines “trafficking” as “the buying or
selling of coupons, ATP cards or other benefit instruments
for cash or consideration other than eligible food.”
No. 10-1537 3
one transactions, each exceeding thirty dollars—a volume
it considered suspiciously high given the store’s small
size and inventory. In addition, the field officer also
uncovered an unusually high number of transactions
made in even dollar amounts. Relying upon the field
officer’s recommendation, the USDA ultimately deter-
mined that Mr. Fells had exchanged benefits for some-
thing other than eligible food in violation of agency
regulations. See 7 C.F.R. §§ 271.2, 278.6(e)(1)(i).
On March 27, 2008, the agency sent Mr. Fells a letter,
informing him that it had decided to disqualify his
store permanently from participating in the Program
under 7 U.S.C. § 2021(b)(3)(B). Mr. Fells appealed this
decision within the agency, and, on August 7, 2008, the
USDA affirmed its original determination of disqualifica-
tion. In the district court, Mr. Fells, proceeding pro se,
sought judicial review of the USDA disqualification under
7 U.S.C. § 2023(a)(13). The court appointed an attorney to
represent Mr. Fells at trial. In its pre-trial order, the
district court ruled that Mr. Fells bore the burden of
proof to establish the invalidity of the agency’s action.
At trial, Mr. Fells provided several explanations for
the irregular SNAP transactions. He stated that, rather
than making change, he offered his customers addi-
tional merchandise or candy bars to round out uneven
dollar transactions. He further explained that some
benefit redemptions exceeded thirty dollars because
they covered higher-priced items, such as baby formula
or deliveries of wholesale surplus meats.
4 No. 10-1537
Although the court acknowledged that the evidence
against Mr. Fells was circumstantial, it ultimately found
that his explanations were neither persuasive nor sup-
ported by the evidentiary record. The court agreed with
the Government that it would be unusual for clients to
regularly make large purchases of baby formula using
food stamps, rather than the more specific benefits for
women, infants and children under the WIC Program.
Additionally, the court noted that Mr. Fells had failed
to produce inventory receipts to support his explana-
tion regarding the high-priced meat sales. Although
the court expressed concern over the fact that it was
requiring Mr. Fells to prove his innocence, it explained
that such a burden is placed upon any retailer that
has been disqualified from the Program. Because the
district court determined that Mr. Fells had failed to
prove the invalidity of the agency’s actions, it upheld
the agency’s final determination of disqualification.2
II
DISCUSSION
Proceeding pro se on appeal, Mr. Fells challenges the
district court’s determination that he did not meet his
burden of proving by a preponderance of the evidence
2
In addition, as the sole proprietor and employee of
Stephen Snack Foods Candy & Variety, Mr. Fells is disqualified
permanently from participating in SNAP. See 7 U.S.C.
§ 2021(e)(1).
No. 10-1537 5
that he did not traffic in food stamps. He maintains that
the agency provided no evidence or witnesses to sub-
stantiate any wrongdoing on his part and seems to sug-
gest that, in a trial de novo, the agency has the burden
of justifying its disqualification determination.
A.
In 1964, Congress permanently established what was
then called the Food Stamp Program. The Food Stamp
Act of 1964, Pub. L. No. 88-525, 78 Stat. 703 (1964). It
aims both to feed low-income individuals and to
strengthen the nation’s agricultural economy, see 7 U.S.C.
§ 2011, and authorizes the Secretary of Agriculture to
promulgate regulations to implement the program, id.
§§ 2013(c), 2021(a)(2). Food stamps originally took the
form of paper coupons. In 1996, Congress set a deadline
for states to replace the coupons with electronic benefit
transfer (“EBT”) systems, which use debit-type cards to
deduct benefits from a central location. See id. § 2016(h).
Upon the completion of this change in 2008, Congress
renamed the program the Supplemental Nutrition Assis-
tance Program. See Food, Conservation, and Energy Act of
2008, Pub. L. No. 110-234, § 4001(b), 122 Stat. 923, 1092
(2008). Funding for the program is currently authorized
through 2012. 7 U.S.C. § 2027(a)(1). Just as individuals
must satisfy certain eligibility requirements in order to
participate in SNAP, retail food store owners also must
comply with applicable provisions and regulations. See
id. § 2018. Fraud or improper use of benefits can
6 No. 10-1537
disqualify 3 stores from SNAP. Id. § 2021(a)(1). The USDA
may disqualify, “for a specified period of time,” a retail
store from further participating in the Program for
certain offenses, such as the “trafficking” in food stamps:
buying or selling “benefit instruments for cash or con-
sideration other than eligible food.” 7 U.S.C. §§ 2021(a)(1),
2021(b)(3)(B); 7 C.F.R. § 271.2. Section 2021(b)(3)(B) pro-
vides that a store shall be disqualified permanently for
its first trafficking offense. Although the Secretary has
discretion to impose a civil monetary penalty in lieu of
disqualification if he or she “determines that there is
substantial evidence that such a store . . . had an effec-
tive policy and program in effect to prevent violations,”
in this case, the Secretary’s discretion is limited because
Mr. Fells, as the sole owner and employee, was directly
involved in the trafficking violations. See 7 U.S.C.
§ 2021(b)(3)(B). Due to the nature of Mr. Fells’s involve-
ment in the offenses, his store is subject to permanent
disqualification as authorized under § 2021(b)(3)(B).
When determining whether a store owner has traf-
ficked in food stamps, the agency may rely on “facts
established through on-site investigations, inconsistent
redemption data, or evidence obtained through a trans-
action report under an electronic benefit transfer system.”
Id. § 2021(a)(2). If the USDA decides to disqualify a
store, the Secretary must notify its owner, and the
3
Only authorized food retailers can participate in the Pro-
gram. See 7 C.F.R. § 278.2.
No. 10-1537 7
owner then may file a written request for review within
ten days. Id. § 2023(a)(1), (3).
B.
We turn now to the statutory sections providing for
judicial review.
The applicable statute, 7 U.S.C. § 2023, provides an
aggrieved store with the opportunity to obtain judicial
review of the final USDA determination by filing a com-
plaint against the United States in district court. Id.
§ 2023(a)(13). The plaintiff then receives a trial de novo
“in which the court shall determine the validity of the
questioned administrative action.” Id. § 2023(a)(15).4
The statute provides no further guidance regarding
how the trial should proceed or which party bears the
burden of proof.
Although the statute itself is silent as to the issue of
which party bears the burden of proof in a trial de novo
under § 2023, other circuits have held consistently that,
given the nature of the statutory scheme, a store owner
who seeks to set aside an agency action bears the burden
of proof. See Kim v. United States, 121 F.3d 1269, 1272
(9th Cir. 1997); Warren v. United States, 932 F.2d 582, 586
(6th Cir. 1991); Redmond v. United States, 507 F.2d 1007,
1011-12 (5th Cir. 1975). In the watershed case, Redmond
4
“A trial de novo is a trial which is not limited to the admin-
istrative record.” Kim v. United States, 121 F.3d 1269, 1272
(9th Cir. 1997).
8 No. 10-1537
v. United States, 507 F.2d 1007 (5th Cir. 1975), the Fifth
Circuit recognized that the statute calls for the court to
“determine the validity of the questioned administrative
action,” not to revisit the issue as if the USDA decision
never had occurred. Id. at 1011-12 (quoting 7 U.S.C.
§ 2023(a)(15)). The Fifth Circuit interpreted this statu-
tory language to mean that Congress intended that the
agency action be entitled to a “presumption of validity.”
Id. at 1012. Therefore, the court concluded that it was
incumbent upon the store owner to present evidence
challenging the agency’s decision. Id.
Although we have not addressed directly the question
of which party bears the burden of proof when a plain-
tiff seeks to upset a USDA disqualification deter-
mination, we have applied consistently the standard
articulated by the court in Redmond when confronted
with similar questions invoked under the Program. In
Estremera v. United States, 442 F.3d 580, 587-88 (7th Cir.
2006), we upheld the district court’s determination that,
because the store owner sought judicial review of the
agency’s penalty calculation under § 2023(a)(13), she bore
the burden of proving the invalidity of the agency’s
determination by a preponderance of the evidence. Simi-
larly, in Abdel v. United States, 670 F.2d 73 (7th Cir. 1982),
we stated that “[b]ecause Supermarket failed to meet
its burden of proving by a preponderance of the evi-
dence that the agency action was invalid the admission
of the Transaction Reports was harmless error at worst.”
Id. at 76 n.8 (citation omitted). Therefore, based upon
prior decisions of this court, as well as the decisions
of other circuits, we now make explicit what has
No. 10-1537 9
been implicit in our earlier decisions. The district court
correctly determined that Mr. Fells bore the burden of
proving, by a preponderance of the evidence, that
the agency’s determination was invalid. Because the
judicial proceeding considers the issues de novo,
Mr. Fells could have proved the determination invalid
by demonstrating “that the factual determination was
wrong.” McGlory v. United States, 763 F.2d 309, 311 (7th
Cir. 1985) (per curiam) (“The district court must deter-
mine the validity of the agency’s factual determinations
anew, on a fresh record.”).
C.
Having determined that the district court properly
allocated the burden of proof to Mr. Fells under § 2023,
we turn now to Mr. Fells’s argument that the district
court erred in finding that he failed to satisfy this burden.
We shall not overturn the district court’s factual
findings unless they are clearly erroneous. See Abdel, 670
F.2d at 76–77. “A finding is ‘clearly erroneous’ when
although there is evidence to support it, the reviewing
court on the entire evidence is left with the definite and
firm conviction that a mistake has been committed.”
Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985)
(internal quotation marks omitted). Here, we cannot say
that the district court’s finding that Mr. Fells failed to
provide evidence to prove the invalidity of the agency’s
action was clearly erroneous. The district court carefully
examined all of the evidence—store photos, inventory
receipts and information about customer purchasing
10 No. 10-1537
patterns at surrounding stores—which amply supported
the agency’s finding that Mr. Fells trafficked in food
stamps. Mr. Fells was “free to rebut” that evidence.
Redmond, 507 F.2d at 1012 (quotation marks omitted).
Here on appeal, however, Mr. Fells has not demonstrated
that the district court’s conclusion that his explanations
were unpersuasive and unsupported by the record is
clearly erroneous. Accordingly, we must conclude that
the district court correctly found that Mr. Fells failed
to provide enough evidence at trial to invalidate the
agency’s determination.
Conclusion
Because the district court correctly determined that
Mr. Fells did not meet his burden of proving the
invalidity of the USDA disqualification determination,
the judgment of the district court is affirmed.
A FFIRMED
12-23-10