TRM, Inc. v. United States

United States Court of Appeals,

Eleventh Circuit.

No. 94-6684.

TRM, INC. d/b/a Food Circle, Plaintiff-Appellee,

v.

UNITED STATES of America, Department of Agriculture, Food and
Nutrition Service Food Stamp Program, Defendants-Appellants.

May 19, 1995.

Appeal from the United States District Court for the Northern
District of Alabama. (No. CV-93-G-2563-S) J. Foy Guin, Jr., Judge.

Before KRAVITCH, ANDERSON and EDMONDSON, Circuit Judges.

KRAVITCH, Circuit Judge:

This case arises out of the permanent disqualification of a

grocery store from participation in the federal food stamp program

because two of the store's employees allegedly accepted food stamps

in exchange for cash. In a suit challenging the action, the

district court granted summary judgment in favor of TRM, Inc.,

d/b/a Food Circle ("TRM"), and set aside the U.S. Department of

Agriculture, Food and Nutrition Service's disqualification of the

store, holding that TRM's due process rights had been violated. We

REVERSE and REMAND.

I. Facts

By letter dated July 14, 1993, the U.S. Department of

Agriculture, Food and Nutrition Service ("the FNS"), notified TRM,

which operated a grocery store in Birmingham, Alabama, that its

employees had violated 7 C.F.R. § 278.2(a) by exchanging food
stamps for cash.1 This is known as "trafficking." See 7 C.F.R. §

271.2. The letter advised TRM that it was subject to either

permanent disqualification from the food stamp program, or if

certain criteria were met, the imposition of a civil monetary

penalty ("CMP").2 The letter explained that to qualify for a CMP,

TRM had to send a request and supporting documentation to the FNS

within 10 days. Further, TRM was informed that it could reply to

the charges and present any relevant information to the FNS.

TRM responded, through counsel, and neither disputed that the

trafficking incidents took place, nor requested a CMP. Instead,

TRM explained that it had not properly supervised its employees

because one of the store's owners was recovering from gunshot

wounds, stated that the two employees involved had been terminated,

and detailed actions taken by the store to prevent future abuses,

such as the installation of surveillance cameras.

After considering TRM's submissions, the Officer-in-Charge of

the FNS Montgomery Field Office notified TRM, by letter dated

August 13, 1993, that it was upholding the charges, and that TRM

1
7 C.F.R. § 278.2(a) provides in part:

Coupons may be accepted by an authorized retail food
store only from eligible households or the households'
authorized representative, and only in exchange for
eligible food. Coupons may not be accepted in exchange
for cash, except when cash is returned as change in a
transaction in which coupons were accepted in payment
for eligible food....
2
The letter stated that to qualify for a CMP there must be
substantial evidence that the store had an effective policy and
program in place to prevent such violations, and that the
specific criteria for establishing such a program could be found
in 7 C.F.R. § 278.6(i), a copy of which purportedly was enclosed.
would be permanently disqualified from the food stamp program; the

letter also stated that TRM had the right to further administrative

review.3 TRM availed itself of such review and met with an FNS

Administrative Review Officer ("ARO"). The ARO upheld TRM's

permanent disqualification.4

TRM filed suit in federal district court, seeking reversal of

the permanent disqualification penalty. Following an evidentiary

hearing, the district court stayed TRM's disqualification, pending

resolution on the merits, relying on language from the stay order

in Holmes v. United States, 815 F.Supp. 429, 432 (M.D.Ala.1993),

judgment entered and stay dissolved, 868 F.Supp. 1348

(M.D.Ala.1994),5 to the effect that the permanent disqualification

penalty might violate a store owner's due process rights. In the

stay order, the district court also stated that if TRM moved for

summary judgment, the district court intended to grant the motion.

TRM made such a motion, which the district court granted on May 26,

1994. This appeal followed.

II. The District Court Decision

In its order granting summary judgment, the court quoted

3
This letter is not part of the record on appeal; the
parties, however, do not dispute its existence or content, and
other portions of the record support this characterization.
4
The ARO relied, in part, on the following facts: (1) the
store's owners had signed various applications accepting
responsibility for compliance with the regulations and providing
that the store could be held responsible for its employees'
actions, and (2) there had been prior reported violations at the
store, resulting in an official warning.
5
Holmes is currently on appeal before this court (Case No.
94-7025). The stay order in Holmes, 815 F.Supp. 429, will be
referred to herein as Holmes I, while the final disposition on
the merits, 868 F.Supp. 1348, will be referred to as Holmes II.
Holmes I:

It is elemental in constitutional law that:

Due process of law implies the right of the person
affected thereby to be present before the tribunal which
pronounces judgment upon the question of life, liberty,
or property, in its most comprehensive sense; to be
heard, by testimony or otherwise, and to have the right
of controverting, by proof, every material fact which
bears on the question of right in the matter involved.
If any question of fact or liability be conclusively
presumed against him, this is not due process of law.
Black's Law Dictionary 500 (6th ed. 1990); accord, U.S.
Department of Agriculture v. Murry, 413 U.S. 508 [93
S.Ct. 2832, 37 L.Ed.2d 767] (1973); Stanley v. Illinois,
405 U.S. 645 [92 S.Ct. 1208, 31 L.Ed.2d 551] (1972).

Because the court has serious concern as to whether a statute
which imposes strict liability on a store owner with no
recourse to him or her to prove his or her innocence violates
the due process clause of the Fifth Amendment of the
Constitution, the court grants the stay pending resolution of
this constitutional issue.

Mem.Op. at 2 (quoting Holmes I, 815 F.Supp. at 432). The district

court then stated: "This court also believes that disqualifying

the plaintiff from participating in the food stamp program is a

deprivation of its property rights. Furthermore, the court

believes that withholding the means by which the plaintiff store

owners earn a livelihood is a violation of due process of law."

Id.

The district court did not elaborate further on the rationale

for its decision. The government contends that the district court

erred because: (1) the administrative process and the district

court's de novo review satisfy the minimum requirements of

procedural due process; and (2) the imposition of the permanent

disqualification penalty upon an "innocent" store owner does not
 6
violate the owner's substantive due process rights. We address

each contention in turn.7
III. Standard of Review

"We review the district court's grant of summary judgment de

novo, applying the same legal standards used by the district

court." Parks v. City of Warner Robins, 43 F.3d 609, 612 (11th

Cir.1995). Summary judgment shall be granted "if the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no genuine

issue as to any material fact and that the moving party is entitled

to judgment as a matter of law." Fed.R.Civ.P. 56(c).

IV. Procedural Due Process

"Procedural due process requires notice and an opportunity to

be heard before any governmental deprivation of a property

interest." Zipperer v. City of Fort Myers, 41 F.3d 619, 623 (11th

Cir.1995).8

FNS regulations provide for multiple levels of informal agency

review of alleged trafficking violations. First, the appropriate

6
Although the portion of Holmes I quoted by the district
court could fairly be read as expressing concern only with
procedural due process, Holmes II makes clear that the court was
concerned about the substantive fairness of imposing strict
liability on a store owner as well. See Holmes II, 868 F.Supp.
at 1350.
7
We reject TRM's suggestion that the district court's
opinion should be read as holding that there was insufficient
proof of trafficking. The opinion does not support this
interpretation.
8
For the purposes of this appeal, the government accepted,
arguendo, the existence of a protected property right. Because
we hold that TRM's procedural due process rights were not
violated, we need not decide whether continued participation in
the food stamp program is a cognizable property right.
FNS office sends a charge letter to the firm specifying the

violations or actions which the FNS believes constitute a basis for

sanctions. See 7 C.F.R. § 278.6(b)(1).9 The charge letter informs

the firm that it has ten days to respond, either orally or in

writing, to the charge, id.,10 and in the case of a trafficking

violation, the letter explains that a request for a CMP must be

made within 10 days, or else it is deemed waived. See 7 C.F.R. §

278.6(b)(2). The appropriate FNS office then reviews the relevant

information, including the store's submissions, if any, and

determines the appropriate penalty. See 7 C.F.R. § 278.6(c)-(e).

If the store is dissatisfied with the decision, it may appeal the

determination to an ARO. See 7 C.F.R. §§ 278.8, 279.5, 279.6,

279.7. Such review may include an appearance in front of the ARO,

as well as the submission of any information in support of the

store's position. See 7 C.F.R. §§ 279.6(b), 279.7(b)-(d),

279.8(a). The ARO renders the final agency decision on the matter,

notifying the firm by certified mail. 7 C.F.R. § 279.8(e).

As noted above, TRM fully availed itself of this

administrative review process. Nevertheless, we need not decide

whether the administrative review process alone sufficiently

safeguarded TRM's right to be heard, because the statute provides

TRM with a full hearing de novo in the district court. See 7

9
The text reflects technical changes made to the FNS
regulations since the 1994 C.F.R. was released. See 59 Fed.Reg.
29,711 (1994). Although these changes do not alter our analysis,
we have adjusted the terminology where necessary.
10
"The firm's response shall set forth a statement of the
evidence, information, or explanation concerning the specified
violations or acts." Id.
U.S.C. § 2023(a) ("The suit in the United States district court ...

shall be a trial de novo by the court in which the court shall

determine the validity of the questioned administrative action in

issue....").11

This court's predecessor and other courts have held that the

provision of a de novo hearing in the district court adequately

protects an aggrieved store owner's procedural due process rights.

See Redmond v. United States, 507 F.2d 1007, 1012 (5th Cir.1975)12

("By providing the aggrieved food store with a new trial where the

store may introduce evidence outside the administrative record, the

statute also protects the rights and interests of the store against

final adverse action without the opportunity for an adversary

hearing."); see also Haskell v. United States Dep't of

Agriculture, 930 F.2d 816, 820 (10th Cir.1991) (when opportunity

for de novo judicial review exists, lack of evidentiary hearing at

the administrative level is not a denial of due process); Ibrahim

v. United States, 834 F.2d 52, 54 (2d Cir.1987) ("trial de novo

provision clearly afforded full procedural due process"); McGlory

v. United States, 763 F.2d 309, 312 (7th Cir.1985) (per curiam)

("The due process argument fails because, once a participant seeks

review de novo, the adequacy of the administrative process as an

11
This is in contrast with the more deferential standards of
review provided for in the Administrative Procedure Act, 5 U.S.C.
§ 706, which govern most agency findings. See 2 Kenneth C. Davis
& Richard J. Pierce, Jr., Administrative Law Treatise § 11.2
(1994).
12
The Eleventh Circuit, in the en banc decision Bonner v.
City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981), adopted as
precedent decisions of the former Fifth Circuit rendered prior to
October 1, 1981.
abstract matter is no longer important.").13 Accordingly, we hold

that TRM's procedural due process rights were not violated in this

case.

V. Substantive Due Process

The next issue is the whether the disqualification penalty can

properly be imposed upon an "innocent" store owner, who neither

knows of nor benefits from a store employee's trafficking.

A.

In 1982, Congress amended the Food Stamp Act to provide for

permanent disqualification upon the first trafficking offense.14

See Omnibus Budget Reconciliation Act of 1982, Pub.L. No. 97-253,

§ 175, 1982 U.S.C.C.A.N. (96 Stat.) 763, 781. In response to this

harsh remedy, other circuits split over whether disqualification

could be imposed against an innocent store owner. See Ghattas v.

United States, 40 F.3d 281, 283 (8th Cir.1994) (describing split).

In 1988, however, Congress amended the Act to allow for the

imposition of a civil monetary penalty, in lieu of the

disqualification penalty, for trafficking violations

if the Secretary determines that there is substantial evidence
(including evidence that neither the ownership nor management
of the store or food concern was aware of, approved, benefited
from, or was involved in the conduct or approval of the
violation) that such store or food concern had an effective
policy and program in effect to prevent violations of the
chapter and the regulations....

13
As the trial in the district court is de novo, there is no
need to apply the test set forth in Mathews v. Eldridge, 424 U.S.
319, 335, 96 S.Ct. 893, 903, 47 L.Ed.2d 18 (1976), to measure the
adequacy of the procedures.
14
For the sake of simplicity, we refer to 7 U.S.C. §§ 2011-
2031 collectively as the Food Stamp Act.
7 U.S.C. § 2021(b)(3)(B).15

The fact that the statute was amended to provide for a more

lenient penalty for certain innocent store owners leads to the

conclusion that innocent store owners who fail to meet the

requirements for the imposition of a CMP may be permanently

disqualified. See Ghattas, 40 F.3d at 283 n. 3 ("[U]nder the 1988

amendments ... a store may be sanctioned despite its owner's

innocence."); Goldstein v. United States, 9 F.3d 521, 523-24 (6th

Cir.1993) (FNS acted within its authority under the regulations by

permanently disqualifying an allegedly innocent owner from food

stamp program); see also Freedman v. United States Dep't of

Agriculture, 926 F.2d 252, 258-60, 261 n. 13 (3d Cir.1991) (holding

that a CMP can be imposed upon an innocent store owner and

suggesting in dicta that an innocent store owner could be

disqualified as well).

We conclude that Congress would not have provided a CMP as an

alternative to permanent disqualification for innocent owners had

it not felt that innocent owners could be disqualified under the

Food Stamp Act.16

B.

In light of our determination that the statute allows for the

permanent disqualification of innocent store owners, we next must

15
The parenthetical directing the Secretary to consider
certain evidence was added in 1990. See Food, Agriculture,
Conservation, and Trade Act of 1990, Pub.L. No. 101-624, § 1743,
1990 U.S.S.C.A.N. (104 Stat.) 3359, 3795.
16
The applicable regulation clearly provides that a firm can
be permanently disqualified for an employee's actions. See 7
C.F.R. § 278.6(e)(1)(i). We need not decide whether this
reflected a proper interpretation of the statute prior to 1988.
decide whether this provision violates such an owner's substantive

due process rights.

Substantive due process claims not involving a fundamental

right are reviewed under the rational basis test. See, e.g., Parks

v. City of Warner Robins, 43 F.3d 609, 614-15 (11th Cir.1995)

(reviewing under rational basis test anti-nepotism policy that did

not directly and substantially interfere with the fundamental right

to marry); see also In re Wood, 866 F.2d 1367, 1371 (11th

Cir.1989) ("The standard for evaluating substantive due process

challenges to social and economic legislation is virtually

identical to the "rational relationship' test for evaluating equal

protection claims.... [A]ny plausible reason supporting Congress'

action in enacting the suspect legislation satisfies the "rational

basis' test."); Silver v. Baggiano, 804 F.2d 1211, 1218 (11th

Cir.1986) ("[I]n order to satisfy substantive due process

requirements, the legislation must be rationally related to its

purpose and must not be arbitrary or discriminatory.").17

The rational basis test is not a rigorous standard. As this

court has explained:

This test is generally easily met. A searching inquiry into
the validity of legislative judgments concerning economic
regulation is not required.... The task is to determine if
"any set of facts may be reasonably conceived to justify' the
legislation.... To put it another way, the legislation must
be sustained if there is any conceivable basis for the
legislature to believe that the means they have selected will
tend to accomplish the desired end. Even if the court is
convinced that the political branch has made an improvident,

17
This standard is not affected by our decision in McKinney
v. Pate, 20 F.3d 1550 (11th Cir.1994) (en banc), cert. denied, --
- U.S. ----, 115 S.Ct. 898, 130 L.Ed.2d 783 (1995). The holding
of that case was specifically limited to substantive due process
challenges to non-legislative acts. Id. at 1557 n. 9, 1560.
 ill-advised or unnecessary decision, it must uphold the act if
it bears a rational relation to a legitimate governmental
purpose.

Cash Inn of Dade, Inc. v. Metropolitan Dade County, 938 F.2d 1239,

1241 (11th Cir.1991) (reviewing local ordinance requiring pawn shop

owners to close at 5:00 p.m.) (citations omitted). Moreover, this

court will consider "any rationale Congress "could' have had for

enacting the statute ... regardless of whether Congress actually

considered that rationale at the time the bill was passed." United

States v. Osburn, 955 F.2d 1500, 1505 (11th Cir.), cert. denied, --

- U.S. ----, ----, 113 S.Ct. 223, 290, 121 L.Ed.2d 160, 215 (1992).

Congress explained the general policy underlying the food

stamp program:

It is the declared policy of Congress, in order to promote the
general welfare, to safeguard the health and well-being of the
Nation's population by raising levels of nutrition among
low-income households. Congress finds that the limited food
purchasing power of low-income households contributes to
hunger and malnutrition among members of such households....
To alleviate such hunger and malnutrition, a food stamp
program is ... authorized which will permit low-income
households to obtain a more nutritious diet through normal
channels of trade by increasing food purchasing power for all
eligible households who apply for participation.

7 U.S.C. § 2011.

As discussed above, Congress has prescribed harsh penalties

for trafficking in food stamps. See 7 U.S.C. § 2021. It is beyond

dispute that the prevention of illegal trade in food stamps is a

legitimate government purpose,18 which itself serves the overarching
purposes of the food stamp program. Even as Congress considered

18
The Holmes II court explained: "The widespread sale of
food coupons for cash was seen as undermining the goals of the
program. The purpose of the penalty was to deter and prevent
trafficking activity and, thus, maintain the integrity of the
food stamp program." Holmes II, 868 F.Supp. at 1354.
mitigating the harshness of the disqualification penalty in 1988,

the House Report acknowledged: "This is a strict policy. Sale of

food stamps at a discount price or trading food stamps for non-food

items is a serious offense. It violates the purpose of the food

stamp program and harms needy families." H.R.Rep. No. 828, 100th

Cong., 2d Sess., pt. 1, at 27 (1988). See also S.Rep. No. 504,

97th Cong., 2d Sess. 63-64 (1982), reprinted in 1982 U.S.C.C.A.N.

1641, 1701-02 ("[T]he Committee adopted a stringent requirement

that a store would be permanently disqualified upon a

disqualification based on trafficking.... These increased

penalties are designed to provide the deterrence for those stores

that might be inclined to violate the law.").

The crucial inquiry is thus whether the imposition of strict

liability on store owners rationally serves this purpose. We hold

that it does.

The Supreme Court has recognized the logic and propriety of

imposing vicarious liability in other contexts. See Pac. Mut. Life

Ins. Co. v. Haslip, 499 U.S. 1, 13-15, 111 S.Ct. 1032, 1041, 113

L.Ed.2d 1 (1991) (company's due process rights not violated by

imposition of liability and exemplary damages under the doctrine

respondeat superior for fraud of company's employee); American

Soc. of Mechanical Eng'rs, Inc. v. Hydrolevel Corp., 456 U.S. 556,

102 S.Ct. 1935, 72 L.Ed.2d 330 (1982) (nonprofit association could

be held liable and subjected to treble damages for antitrust

violations committed by its agents acting within the scope of their

apparent authority).

Making employers liable for an employee's intentional fraud
"creates a strong incentive for vigilance by those in a position

"to guard substantially against the evil to be prevented.' "

Haslip, 499 U.S. at 14, 111 S.Ct. at 1041 (quoting Louis Pizitz Dry

Goods Co. v. Yeldell, 274 U.S. 112, 116, 47 S.Ct. 509, 510, 71

L.Ed. 952 (1927)). As the Haslip court explained, "[i]mposing

liability without independent fault deters fraud more than a less

stringent rule. It therefore rationally advances the State's

goal." Haslip, 499 U.S. at 14, 111 S.Ct. at 1041.19

This court likewise has upheld the imposition of liability

without proof of individual fault. See, e.g., Armenia v. Dugger,

867 F.2d 1370 (11th Cir.) (strict liability

driving-while-intoxicated manslaughter statute held

constitutional), cert. denied, 493 U.S. 829, 110 S.Ct. 96, 107

L.Ed.2d 60 (1989); United States v. Coastal States Crude Gathering

Co., 643 F.2d 1125 (5th Cir. Unit A April 1981) (imposition of

liability on discharging facility for third party's actions,

regardless of fault, under the Federal Water Pollution Control Act

Amendments of 1972, did not violate due process), cert. denied, 454

U.S. 835, 102 S.Ct. 136, 70 L.Ed.2d 114 (1981); United States v.

Ayo-Gonzalez, 536 F.2d 652, 658-62 (5th Cir.1976) ("proof of

culpability or fault was neither statutorily nor constitutionally

necessary" to sustain a conviction for illegally fishing in United

States contiguous fishing zone), cert. denied, 429 U.S. 1072, 97

19
Haslip was decided under the Fourteenth Amendment's due
process clause. Because the challenge here is to federal action,
the Fifth Amendment governs. This does not, however, affect our
analysis.
S.Ct. 808, 50 L.Ed.2d 789 (1977).20

The imposition of liability on innocent store owners for

their employees' trafficking violations is a rational method of

deterring illegal food stamp trade. Such a policy promotes the

prophylactic implementation of employee-training procedures and

encourages store owners to supervise their agents. Moreover, the

provision for an alternative civil monetary penalty in certain

instances is a further incentive for close supervision. Congress

could rationally have concluded that a store owner who risks losing

the ability to accept food stamps is more likely to be vigilant and

vigorous in the prevention of employee trafficking. In contrast,

limiting liability in these cases would have the perverse effect of

encouraging store owners' willful blindness of their employees'

transgressions, and would deprive owners of the incentive to invest

in precautionary anti-trafficking measures.

For the reasons set forth above, we hold that the imposition

of vicarious liability upon innocent store owners does not violate

a store owner's substantive due process rights.21

Accordingly, we REVERSE the district court's order granting

summary judgment in favor of TRM, and REMAND for the completion of

the trial de novo in the district court pursuant to 7 U.S.C. §

20
Although strict liability and vicarious liability are
distinct concepts, they are discussed together herein as they
both can involve the imposition of liability upon an "innocent"
actor.
21
In a footnote to its reply brief, the government notes
that TRM accepted responsibility for its employees' actions in a
food stamp program application. We do not address the issue of
whether TRM "waived" its right to argue against the imposition of
vicarious liability, as it was not considered by the district
court in the first instance.
2023.22

REVERSED and REMANDED.

22
Although it appears that the district court conducted an
evidentiary hearing as to whether to grant the stay order, it is
unclear from the record whether the court had completed the
necessary fact-finding to render a final judgment on the merits.