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Grocery Town Market Inc. v. United States

argued: March 8, 1988.

GROCERY TOWN MARKET, INC. AND DORFMAN, EARL,
v.
UNITED STATES OF AMERICA, APPELLANT



On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil No. 86-7590.

Sloviter, Becker and Cowen, Circuit Judges

Author: Cowen

Opinion OF THE COURT

COWEN, Circuit Judge.

This appeal arises from an order of the district court which reversed the decision of the Secretary of Agriculture ("Secretary") to permanently disqualify Grocery Town Market, Inc. and its owner, Earl Dorfman (collectively "Grocery Town"), from future participation in the Food Stamp Program based on a trafficking violation.*fn1 The disqualification was based on the Secretary's regulation set forth at 7 C.F.R. § 278.6(f). The district court granted judgment in favor of Grocery Town since it determined that the regulation violated 7 U.S.C. § 2021. Because we hold that Congress intended to disqualify permanently participating stores for any trafficking violation, we will uphold the Secretary's regulation and reverse the district court.

I.

Grocery Town participated in the Food Stamp Program since the program's inception in 1964. In 1984, the Food and Nutrition Service ("FNS"), the agency charged with administering the program, determined that Grocery Town's rate of coupon redemption was unusually high as compared to other area stores. Because high rates of redemption indicate that a store may be violating program guidelines, FNS decided to look into Grocery Town's operation. A FNS investigator visited the store on October 17, 1984, and spoke to Dorfman. When the investigator mentioned the high rate of redemption, Dorfman attributed it to the large number of patrons who used food stamps.

On February 8, 1985, acting on an anonymous tip that the store was allowing patrons to purchase ineligible items with food stamps and was buying food stamps at a discount from drug addicts, a second FNS official visited the store. Dorfman again denied any program violations and discounted the tip as that of a competitor or a disgruntled customer. Lingering doubts about the store's compliance, however, prompted FNS to send an undercover agent to the store on several occasions during late 1985 and early 1986. On October 22, October 24, and October 29, 1985 and January 16, 1986, an agent was able to purchase ineligible items with coupons. And on February 5, 1986, an agent was again able to purchase several non-food items with food coupons, and was also able to sell $35 in food stamps for $22.50 in cash.

As a result of the investigation, FNS charged the store and its owner with both trafficking and accepting food coupons for ineligible items. After offering Dorfman the opportunity to present his case, the Secretary disqualified Grocery Town on the basis of 7 C.F.R. § 278.6(e)(1)(i), which mandates automatic disqualification for any trafficking offense.*fn2 Grocery Town appealed the decision through administrative channels, arguing that the disqualification was "drastically harsh and disproportionate punishment under the circumstances," App. at 39, and would put the store out of business and thereby impose a hardship on employees and area patrons. When the appeal was denied, Grocery Town filed an action in the United States District Court for the Eastern District of Pennsylvania, alleging that the regulation violated 7 U.S.C. § 2021(a) because it did not allow the Secretary to consider a monetary penalty in lieu of disqualification.

The district court agreed that the regulation's mandatory disqualification provision violated section 2021(a) because, in its view, that section did not mandate automatic disqualification for a trafficking offense. Rather, the court determined that section 2021(a) allowed the Secretary to impose an alternative monetary penalty in lieu of disqualification where a hardship situation exists. The court concluded that the regulation violated section 2021 because its inflexible mandate impermissibly removed the Secretary's discretion under the statute to impose an alternative statutory penalty. The government appeals to this Court.

II.

The question before this Court is whether the blanket permanent disqualification required by the Secretary's regulation violates section 2021.*fn3 The scope of our review of the district court's interpretation of the statute is plenary. Creque v. Luis, 803 F.2d 92, 93-94 (3d Cir. 1986).

A.

When presented with a challenge to an administrative agency's construction of a statute that the agency is charged with administering, the Supreme Court has stated ...


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