01-000274 J &Amp; L Baby Food Center vs. Department Of Health Status: Closed Recommended Order on Tuesday, October 30, 2001.

Summary: Department`s unimpeached evidence was legally insufficient to establish a prima facie case of patterned overcharging against WIC vendor and, alternatively, was insufficiently persuasive to meet Department`s burden of proof.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

J & L BABY FOOD CENTER, )

)

Petitioner, )

)

vs. ) Case No. 01 - 0274

)

DEPARTMENT OF HEALTH, )

)

Respondent. )

)

RECOMMENDED ORDER

The parties having agreed mutually to submit this case for

a determination based on stipulated facts and evidence according

to an agreed - upon procedure in lieu of a formal evidentiary

proceeding, and Administrative Law Judge John G. Van Laningham

of the Division of Administr ative Hearings having convened a

telephone conference on July 11, 2001, to hear the parties'

arguments on the so - called "Phase 1" issues, which will be

described below, this matter is now ripe for adjudication.

APPEARANCES

For Petitioner: Steven J. Tornberg, Esquire

Dean R. Halper, P.A.

15200 Jog Road, Suite B - 7

Delray Beach, Florida 33446

For Respondent: Michael E. Cover, Esquire

Department of Health

1350 Northwest 14th Street

Miami, Florida 33125

STATEMENT OF THE ISSUES

In their joint stipulation, the parties framed the

issues for determination in Phase 1 of this proce eding as

follows:

a. Whether a reasonable trier of fact can

infer from the "Phase 1 Evidence" that

Petitioner committed the infraction of a

pattern of overcharging.

b. Whether the "Phase 1 Evidence," which is

assumed to be admissible, true, and

accurate , for purposes of Phase 1, is

sufficient for the trier of fact to find

that the Department has met its burden of

proving by clear and convincing evidence

that Petitioner engaged in a pattern of

overcharging.

PRELIMINARY STATEMENT

In a certified letter d ated November 20, 2000, the

Department of Health ("Department") notified J & L Baby Food

Center ("J&L") that it intended to disqualify J&L from

participating as an authorized vendor in the Special

Supplemental Nutrition Program for Women, Infants and Child ren

for a three - year period because, the Department contended, J&L

consistently had been overcharging program participants.

On January 8, 2001, J&L filed with the Department its

Amended Petition for Formal Administrative Hearing. Ten days

later, the Dep artment referred the matter to the Division of

Administrative Hearings, whereupon it was assigned to the

undersigned Administrative Law Judge.

After the case was set for final hearing, the parties

contacted the undersigned and, over the course of two tele phone

conferences on June 4 and 5, 2001, developed a mutual proposal

to postpone the planned evidentiary hearing in favor of a "Phase

1" proceeding, limited to the Department's case - in - chief, which

would be presented on stipulated facts and evidence. The idea

was that if the Department's unimpeached evidence were either

legally insufficient to establish a prima facie case or,

alternatively, insufficiently persuasive to meet the

Department's burden of proof, then an order could be entered

recommending dismi ssal of the charge against J&L, obviating the

need for an evidentiary hearing. If, however, in the judgement

of the Administrative Law Judge, as the ultimate trier of fact,

the Department's unchallenged evidence would warrant a decision

in the Department' s favor, then the matter would proceed to

final hearing ( i.e. Phase 2) as if Phase 1 had not taken place.

On June 8, 2001, an order was entered that provided, in

relevant part:

2. No later than June 15, 2001, [the

Department] shall file its evidence rela ting

to the alleged pattern of overcharging (e.g.

the matrices, list of checks, and

affidavits, if any). In addition, no later

than June 15, 2001, the parties shall file

their joint statement of undisputed facts,

together with a stipulation setting forth

their agreement as to the scope of review

and issues to be decided based on [the

Department's] evidence and the undisputed

facts.

The parties complied, timely filing a Stipulation of the

Parties that set forth the undisputed facts and framed the

issues f or Phase 1 (as quoted above). In addition to the

stipulated facts requiring no proof at Phase 1, 11 joint

exhibits were offered into the evidentiary record without

objection and accordingly received. These exhibits were

identified alphabetically, from "a " to "k."

A hearing was held on July 11, 2001, via telephone

conference call, to allow the parties to argue the Phase 1

issues. At the conclusion of this hearing the case was

submitted for determination.

FINDINGS OF FACT

The evidence presented in Phase 1, which, as stipulated by

the parties, has been deemed to be competent and admissible for

purposes of Phase 1, together with the parties' joint statement

of undisputed facts, established the facts that follow.

The Dispute

1. As a food vendor under contr act with the Department,

J&L is authorized to accept food checks from participants in the

Special Supplemental Nutrition Program for Women, Infants and

Children ("WIC") 1 and to receive payment on these checks from the

Department, which administers the prog ram in Florida.

2. In this case, the Department seeks to disqualify J&L

from participating in the WIC program for a period of three

years as a mandatory sanction for allegedly having committed a

serious violation of the federal regulations, namely, engagi ng

in a "pattern of overcharging." J&L denies the charge.

Background

3. On May 24, 2000, Jean H. Cesaire, as the owner and

authorized representative of J&L, executed a written agreement

with the Department (the "WIC Vendor Agreement") which, by its

terms , took effect on May 18, 2000.

4. Under the WIC Vendor Agreement, J&L agreed broadly to

comply with all state and federal WIC program rules,

regulations, policies, and applicable law, and generally, among

other things, to accept WIC food checks from pro gram

participants, to "[c]harge WIC customers the same price or less

than the price charged to other customers in the quantities

specified on the food checks and to not charge the WIC program

for food not received by the customer."

5. For its part, the Department agreed, among other

things, to pay J&L "the amounts on properly redeemed food checks

upon compliance by the vendor with the conditions contained [in

the WIC Vendor Agreement]."

6. Participants in the WIC program purchase groceries with

food che cks (sometimes also called "food vouchers," "food

instruments," or "WIC checks") that they are provided based on

individual nutritional needs. Each food check —— and there are a

number of different types, numerically identified —— describes the

kind and quant ity of items that my be bought with that

particular check.

7. All of the check types at issue in this case afford the

participant a menu of selections from which to choose, some

offering a wider variety of options than others. For example,

check type 0 29 permits the participant to purchase as many as

five separate foodstuffs (some being available in alternative

forms, e.g. frozen or liquid) in amounts up to a stated maximum,

as follows:

(1) milk (1.5 gallons or six cans evaporated or 6

quarts dr y);

(2) cheese (up to one pound);

(3) juice (12 ounces frozen or one 46 - ounce

can/bottle);

(4) cereal (up to 36 ounces); and

(5) eggs (one dozen).

Because, as the WIC Vendor Agreement directs, "[t]he vendor

sh all not require WIC customers to purchase all of the items

prescribed on the WIC check," a participant is free to tender a

check type 029 in payment for, say, three cans of evaporated

milk and a half pound of cheese. Doing so, of course, would

unwisely "l eave money on the table," needlessly relinquishing

available benefits, but this sort of "under - consuming" is

theoretically possible. Consequently, check type 029 permits a

large number of potential purchase combinations.

8. Other check types offer f ewer choices. Check type 301,

for instance, authorizes the purchase of up to seven, one - ounce

cans of concentrated liquid infant formula, the WIC customer's

only choice (in addition to quantity) being that between the

brands Good Start and Alsoy. The lim ited menu on this check

will produce (at least in most instances, presumably) one of two

purchase combinations: either seven cans of Good Start or seven

cans of Alsoy. The possibility that a participant might buy,

e.g. , three cans of Good Start and four of Alsoy, however,

together with the potential for under - consuming ( i.e. buying

fewer than seven cans), increase the number of purchase

combinations.

9. Under the WIC Vendor Agreement, J&L is required to

"submit an accurately completed WIC Food Price L ist to the

department or local WIC office upon request." On July 20, 2000,

J&L provided such a list to the Department. The Florida WIC

Program Food Price List that J&L furnished the Department (the

"Price List") constituted a representation by J&L that i t would

charge WIC customers (and hence the WIC program) the prices

stated therein.

10. Although a maximum price is not printed on the food

checks used in Florida, it is possible, using J&L's Price List,

to determine the costliest purchase combination av ailable under

a particular check type when presented in J&L's store. Simply

put, the most expensive possible purchase for a given check type

comprises the largest allowable amount of the priciest form of

each foodstuff prescribed on the check. The sum to tal of the

respective prices of these items (as set forth in the Price

List) equals the check's dollar - limit in J&L's store.

The Charge and the Department's Theory

11. By a letter addressed to Mr. Cesaire and dated

November 20, 2000, the Department notified J&L of its intent to

disqualify the vendor from participating in the WIC Program for

a period of three years, based on J&L's allegedly having engaged

in a pattern of overcharging. 2 In pertinent part, the Department

alleged:

During a visit to your store on July 20,

2000, [an inspection of WIC checks] showed:

(1) You were systematically charging a fixed

price —— i.e. the highest amount allowed for

reimbursement by the Department —— regardless

of what customers actually purchased, and

(2) You were syste matically charging amounts

that were higher than your shelf prices for

WIC food items, as set forth in the [Price

List]. . . . .

Since that visit, an audit of WIC

checks submitted for payment by your store

revealed that you continued to overcharge

the W IC Program by routinely charging a

fixed price and by claiming reimbursement

for WIC checks in amounts that exceed your

stated food item prices.

12. Although these allegations imply that the Department

has direct proof that J&L both (a) systematically c harged a

"fixed price" and (b) routinely charged WIC participants amounts

that exceeded the current contract prices, in fact it is

undisputed that statement (b) is the ultimate factual

determination that the Department draws from basic premise (a).

That i s, the Department has no direct evidence that J&L

routinely charged WIC participants prices in excess of those

stated in the Price List; rather, it possesses proof that J&L

systematically charged the dollar - limit on purchases paid for

with the various food check types at issue, and the Department

considers this to be circumstantial evidence of the violation

charged.

13. Underscoring the foregoing point is this from the

parties' statement of facts not requiring proof at trial:

26. The parties stipulate th at there

is no particular WIC check that can be

identified as having been utilized in the

commission of an "overcharge" in that there

is no way to tell what a customer actually

purchased during a particular WIC

transaction.[ 3 ] (However, this should not be

construed as an admission by [the

Department] that [J&L] did not commit a

pattern of overcharging by maximum pricing,

which is a theory that views the checks [in

question] as a whole and not individually.)

14. At the core of the Department's case is a c hart

containing data derived from hundreds of individual WIC checks

that the Department contends collectively demonstrate a pattern

of overcharging. The parties call this chart the "Matrix," and

it is reproduced in full below.

J & L #4626

Chec k Date Number of Amount Highest Lowest

Type Cleared Checks Price Price

29 7/11/00 1 $ 25.99 $ 25.98 $ 18.32

7/18/00 1 $ 25.99

7/25/00 1 $ 22.82

8/29/00 1 $ 22.82

10/10/00 2 $ 22.82

31 6/28/00 52 $ 16.93 $ 16.23 $ 15.03

7/11/00 16 $ 16.93

7/18/00 30 $ 16.93

7/25/00 37 $ 13.53

8/1/00 34 $ 16.23

8/8/00 47 $ 16.23

8/15/00 40 $ 16.23

8/22/00 42 $ 16.23

8/29/00 57 $ 16.23

9/12/00 1 $ 16.23

9/19/00 12 $ 16.23

9/26/00 1 $ 16.03

9/26/00 22 $ 16.23

10/2/00 59 $ 16.23

10/10/00 45 $ 16.23

10/17/00 1 $ 11.10

10/17/00 8 $ 16.23

10/23/00 64 $ 16.23

10/30/00 1 $ 12.72

10/30/00 47 $ 16.23

11/7/00 1 $ 12.23

11/7/00 76 $ 16.23

11/10/00 1 $ 14.23

11/10/00 3 $ 16.23

11/14/00 56 $ 16.23

11/15/00 1 $ 16.23

11/20/00 40 $ 16.23

11/28/00 31 $ 16.23

33 6/25/00 12 $ 10.49 $ 10.34 $ 9.45

7/11/00 5 $ 10.49

7/18/00 12 $ 10.49

7/25/00 15 $ 9.64

8/1/00 9 $ 10.34

8/8/00 13 $ 10.34

8/15/00 10 $ 10.34

8/22/00 16 $ 10.34

8/29/00 7 $ 10.34

9/12/00 5 $ 10.34

9/19/00 4 $ 10.34

9/26/00 1 $ 9.16

9/26/00 6 $ 10.34

10/2/00 15 $ 10.34

10/10/00 1 3 $ 10.34

10/17/00 13 $ 9.64

10/30/00 1 $ 6.64

10/30/00 1 $ 7.25

10/30/00 20 $ 9.64

11/7/00 12 $ 10.34

11/10/00 11 $ 10.34

11/14/00 17 $ 10.34

11/17/00 1 $ 7.47

11/20/00 21 $ 10.34

11/24/00 1 $ 7.16

11/28/00 1 $ 10.34

86 8/29/00 1 $ 13.95 $ 13.87 $ 13.27

9/19/00 1 $ 13.17

159 6/28/00 50 $ 7.96 $ 7.51 $ 6.75

7/11/00 18 $ 7.96

7/18/00 32 $ 7.96

7/25/00 39 $ 6.74

8/1/00 35 $ 7.51

8/8/00 50 $ 7.51

8/15/00 40 $ 7.51

8/22/00 44 $ 7.51

8/29/00 66 $ 7.51

9/12/00 9 $ 7.51

9/19/00 15 $ 7.51

9/26/00 26 $ 7.51

10/2/00 62 $ 7.51

10/10/00 49 $ 7.51

10/17/00 59 $ 7.51

10/18/00 1 $ 7.51

10/23/00 64 $ 7.51

10/30/00 1 $ 4.46

10/30/00 50 $ 7.51

11/7/0 0 48 $ 7.51

11/10/00 1 $ 7.47

11/14/00 59 $ 7.51

11/15/00 1 $ 7.51

11/20/00 45 $ 7.51

11/28/00 41 $ 7.51

160 7/18/00 1 $ 27.49 $ 30.16 $ 21.67

7/25/00 1 $ 24.20

8/1/00 3 $ 24.20

8/8/00 3 $ 24.20

8/15/00 1 $ 24.20

8/22/00 4 $ 24.20

8/29/00 4 $ 24.20

9/12/00 1 $ 24.20

9/19/00 1 $ 24.20

9/26/00 5 $ 24.20

10/2/00 5 $ 24.20

10 /10/00 5 $ 24.20

10/17/00 2 $ 24.20

10/30/00 8 $ 24.20

11/7/00 4 $ 24.20

11/10/00 3 $ 24.20

11/14/00 6 $ 24.20

11/20/00 8 $ 24.20

11/28/00 1 $ 24.20

162 6/28/00 26 $ 30.49 $ 33.05 $ 27.77

7/11/00 11 $ 30.49

7/18/00 26 $ 30.49

7/25/00 26 $ 30.40

8/1/00 20 $ 30.40

8/8/00 28 $ 30.40

8/15/00 31 $ 30.40

8/22/00 19 $ 30.40

8/29/00 24 $ 30 .40

9/12/00 6 $ 30.40

9/19/00 7 $ 30.40

9/26/00 14 $ 30.40

10/2/00 36 $ 30.40

10/10/00 23 $ 30.40

10/17/00 27 $ 30.40

10/23/00 38 $ 30.40

10/30/00 20 $ 30.40

11/7/00 18 $ 30.40

11/10/00 1 $ 30.40

11/14/00 38 $ 30.40

11/20/00 27 $ 30.40

11/28/00 16 $ 30.40

201 7/11/00 1 $ 23.90 $ 21.00 $ 20.30

7/18/00 2 $ 23.90

7/25/00 2 $ 21.00

8/1/ 00 8 $ 21.00

8/8/00 5 $ 21.00

8/15/00 3 $ 21.00

8/22/00 11 $ 21.00

8/29/00 1 $ 21.00

9/19/00 1 $ 21.00

9/26/00 3 $ 21.00

10/2/00 6 $ 21.00

10/10/00 4 $ 21.00

10/17/00 7 $ 21.00

10/23/00 5 $ 21.00

11/7/00 9 $ 21.00

11/10/00 5 $ 21.00

11/14/00 3 $ 21.00

11/15/00 1 $ 21.00

11/20/00 10 $ 21.00

11/28/00 5 $ 21.00

202 7/18/00 2 $ 50.80 $ 45.00 $ 43.50

8/1/00 3 $ 45.00

8/8/00 5 $ 45.00

8/15/00 7 $ 45.00

8/22/00 6 $ 45.00

8/29/00 5 $ 45.00

9/12/00 1 $ 45.00

9/26/00 3 $ 45.00

10/2/00 4 $ 45.00

10/10 /00 5 $ 45.00

10/17/00 5 $ 45.00

10/23/00 6 $ 45.00

11/7/00 6 $ 45.00

11/10/00 7 $ 45.00

11/14/00 5 $ 45.00

11/20/11 4 $ 45.00

11/28/00 8 $ 45.00

203 7/11/00 3 $ 54. 80 $ 48.89 $ 47.19

7/18/00 5 $ 54.80

7/25/00 1 $ 48.89

8/1/00 5 $ 48.89

8/8/00 8 $ 48.89

8/15/00 10 $ 48.89

8/22/00 10 $ 48.89

8/29/00 7 $ 48.89

9/12/00 3 $ 48.89

9 /19/00 2 $ 48.89

9/26/00 7 $ 48.89

10/2/00 7 $ 48.89

10/10/00 7 $ 48.89

10/17/00 9 $ 48.89

10/23/00 7 $ 48.98

10/30/00 8 $ 48.89

11/7/00 8 $ 48.89

11/10/00 3 $ 48.89

11/14/00 6 $ 48.89

11/20/00 6 $ 48.89

11/28/00 14 $ 48.89

204 7/11/00 1 $ 53.80 $ 48.00 $ 46.40

7/18/00 5 $ 53.80

7/25/00 3 $ 48.00

8/1/00 9 $ 48.00

8/8/00 11 $ 48.00

8/15/00 9 $ 48.00

8/22/00 17 $ 48.00

8/29/00 6 $ 48.00

9/12/00 1 $ 48.00

9/19/00 1 $ 48.00

9/26/00 5 $ 48.00

10/10/00 18 $ 48.00

10/17/00 15 $ 48.00

10/23/00 10 $ 48.0 0

10/30/00 3 $ 48.00

11/7/00 15 $ 48.00

11/10/00 11 $ 48.00

11/14/00 9 $ 48.00

11/20/00 13 $ 48.00

11/28/00 15 $ 48.00

205 7/11/00 3 $ 59.71 $ 53.58 $ 51.78

7/18/00 4 $ 59.71

7/25/00 2 $ 53.58

8/1/00 4 $ 53.58

8/8/00 8 $ 53.58

8/15/00 11 $ 53.58

8/22/00 6 $ 53.58

8/29/00 7 $ 53.58

9/12/00 2 $ 53.58

9/19/00 2 $ 53.58

9/26/00 7 $ 53.58

10/2/00 10 $ 53.58

10/10/00 3 $ 53.58

10/17/00 8 $ 53.58

10/23/00 8 $ 53.58

10/30/00 8 $ 53.58

11/7/00 7 $ 53.58

11/10/00 2 $ 53.58

11/14/00 6 $ 53.58

11/15/00 1 $ 53.58

11/20/00 7 $ 53.58

11/28/00 15 $ 53.58

15. The Matrix shows that for about a four month period,

from August through November 2000, a high percentage of the WIC

check types 029, 031, 033, 086, 159, 160, 162, 201, 202, 20 3,

204, and 205 that J&L submitted for payment were written at the

particular check's dollar - limit. Two explanations for this

phenomenon come readily to mind: Either, in these hundreds of

transactions, the individual WIC consumers, presumably making

thei r respective purchases largely unknown to (and independent

of) one another, just happened consistently to select the most

expensive combination of items available on these many checks,

or the checks do not accurately and truthfully reflect the

actual purch ases made. The Department argues that the former,

innocent explanation is incredible, leaving the latter,

inculpatory explanation as the lone reasonable inference.

Weighing the Department's Proof

16. The strength of the Department's theory depends, in

pa rt, on the number of purchase combinations arising under each

of the food checks in question: the more combinations the less

likely the observed pattern of uniformity in check prices can

credibly be explained as innocent coincidence. In this regard,

the Department implicitly has conceded that under - consuming

( i.e. foregoing the purchase of some authorized foodstuff(s) or

buying less than the maximum allowed quantities thereof) is so

infrequent as to have a negligible effect on the analysis. 4 This

is so b ecause the Department has calculated a "lowest price" for

each check type, that being (presumably) the least costliest

combination of available items, assuming that the participant

purchases the maximum amount of all the listed foodstuffs. 5

Accepting the Department's assumptions in arriving at the

"lowest price" figures reduces the number of potential purchase

combinations, somewhat to the detriment of the Department's

position.

17. As mentioned above, some check types offer more food

items than others. Check type 029, which already has been

examined, allows the participant to buy five separate foods

(milk, cheese, juice, cereal, and eggs), as does check type 160

(milk, cheese, juice, cereal, and eggs). Check type 162 lists

six products (milk, cheese, juice, cereal, eggs, and peanut

butter). Check type 086 authorizes the purchase of four items

(milk, cheese, eggs, and peanut butter). Several checks permit

the purchase of three food items: 031 (milk, cheese, juice);

159 (milk, juice, eggs); 203 (formu la, juice, cereal); and 205

(formula, juice, cereal). One check type, 033, lists two items:

milk and cheese. A few (check types 201, 202, and 204) allow

the purchase of only one food item: infant formula. Obviously,

the greater the number of food item s (and attendant alternative

forms or brands), the greater the number of purchase

combinations, making the Department's argument facially more

persuasive in connection with check types 029, 160, and 162, for

example, than with respect to check types 201, 2 02, and 204.

18. There are other factors to consider in evaluating the

probative value of the Department's Matrix. One is the number

of transactions associated with each check type, and the

statistical significance of these numbers. For some check

types , especially 029, 086, and, to a lesser extent, 160, the

number of transactions during the pertinent period is seemingly

too small to demonstrate a pattern, which casts doubt on the

validity of the Department's desired inference of wrongdoing

concerning th ese particular checks. Further, no expert

testimony providing a comprehensive statistical analysis of the

Matrix was (or would be) offered, 6 and that also adversely

affects the overall weight of this evidence.

19. A related consideration involves the nu mber of

customers that the subject transactions comprehend. Assume, as

a thought experiment, that every transaction identified in the

Matrix involved a separate WIC participant. If true, that fact

would bolster the Department's theory, because the probab ility

that the observed uniformity in purchase prices occurred

randomly presumably diminishes as the number of customers

increases. On the other hand, it seems likely that, over the

course of the months in question, some WIC participants used

more than on e food check to make multiple purchases in J&L's

store; hence, the total number of such participants should be

less than the total number of transactions reflected in the

Matrix. The fewer the participants, the less persuasive the

Department's theory, sin ce price - uniformity presumably becomes

more likely (and thus less suspicious) as the number of buyers

decreases. The evidence in the record does not reveal the

actual number of customers involved, which negatively affects

the evidential weight of the Matr ix.

20. Moreover, there is (and would be) no evidence, such as

expert opinion testimony on buying habits in the relevant

market, bearing on whether, for any given check type, a

particular purchase combination was more or less likely than any

other. 7 Th is deficiency undermines the probative value of the

Matrix, because it is unreasonable to assume that all purchase

combinations are equally likely or, more to the point, that the

most expensive combinations are not likely to be seen with

greater frequency than others. Indeed, it might reasonably be

supposed that the most costly purchase combinations would be the

most popular (and thus most often occurring) ones, not only

because high - demand items tend to command higher prices than

less desired products, bu t also because WIC participants, as

rational economic actors, presumably would want to maximize

their benefits. If this supposition were true, then the

uniformity in purchase prices shown in the Matrix might not be

as anomalous as the Department would hav e it.

21. It could be, of course, that the high degree of price -

uniformity (nearly 100% with some check types) seen here is

telling; one can imagine an expert testifying, to make up an

example, that while 75% of purchases are expected to be at the

dolla r - limit, 95% price - uniformity is suspiciously outside the

normal distribution. These hypothetical numbers underscore the

point, however, that absent such evidence the factfinder is left

without a benchmark against which to measure the probative value

of t he Matrix. The buying patterns it reflects may be highly

suspicious, somewhat suspicious —— or completely innocent.

22. In addition, to enlarge the foregoing point, because

it is reasonable to assume that some percentage —— perhaps a

significant number —— of "regular" purchases ( i.e. those untainted

by any misconduct) will be at the dollar - limit, it follows that

not all of the transactions identified on the Matrix can

reasonably be considered suspect. The lack of evidence

concerning the percentage of dollar - l imit purchases made in

similarly - situated, law - abiding stores makes it impossible to

calculate, for any given check type, how many of the

transactions identified on the Matrix might reasonably be

regarded as suspicious —— and hence impossible to determine

wh ether, assuming the Matrix is circumstantial evidence of

wrongdoing, the violations occurred in a “pattern.”

23. The Department has attempted to shore up its proof

with the testimony of John Harrison, a longtime employee of the

Department who has extens ive experience in conducting compliance

investigations of WIC vendors. In an affidavit, Mr. Harrison

avers, in pertinent part, as follows:

3. I was instrumental in the

development of a retailer profiling system

that is used to identify suspect WIC check

redemption activities. I continue to

provide training and guidance to the Florida

WIC Program's investigators in the use of

this system. During the past year, data

from the system was used to identify [J&L]

in Miami for investigation, along with

several similar stores in Dade and Broward

County that cater to clients of the WIC

Program.

4. The investigation of [J&L]

confirmed for the Department what had been

suggested by the computerized profile of the

store and led to the allegations set forth

in the No vember 20, 2000, disqualification

letter: that the store was charging a fixed

price that was unrelated to the shelf price

of foods actually purchased by WIC

customers. That is to say, [J&L] has

systematically and methodically overcharged

the WIC Program for approved WIC foods.

5. The allegations of fixed pricing by

[J&L] were substantiated to the Department's

satisfaction through comparison with other

independently owned stores in Miami - Dade

County that appear to be charging fair and

honest prices. T he computer profile in

these stores shows that a wide variety of

prices are charged on WIC checks, which

reflects the fact that WIC customers make

different selections among the types and

brands of foods that are approved for

purchase.

6. In my years o f experience in

investigating fraud by retailers in the WIC

Program, I have not seen fixed pricing of

the kind committed by [J&L], excepting

several recent examples in Miami - Dade

County.

24. Even if Mr. Harrison's affidavit testimony were

believed, thi s proof has little probative value because all the

witness has said, at bottom, is that a computer - generated

profile, which is not in evidence, together with other data not

in the record, were sufficiently persuasive to convince the

Department that J&L is guilty of the instant charge. The

Department's burden, however, is to prove J&L's guilt to the

factfinder's satisfaction —— not merely to tell him that it truly

believes the accused store is guilty. On its face, therefore,

Mr. Harrison's testimony is not p ersuasive evidence of the facts

that the Department must prove to prevail.

25. Further, without the profile and other information

underlying Mr. Harrison's conclusory assertions of guilt, the

factfinder cannot independently assess the credibility of his

assertions, which consequently are entitled to no more weight

than allegations.

26. The Department's proof suffers from another serious

shortcoming. Assume, for argument's sake, that the high

percentage of dollar - limit checks shown in the Matrix

persu asively establishes, inferentially, that the checks which

J&L submitted for payment do not accurately and truthfully

reflect the actual purchases its WIC customers made. This would

mean that J&L has done something wrong. But, the question then

would aris e, must that "something" be patterned overcharging?

27. Upon reflection, it becomes apparent that the practice

of "fixed pricing" or "maximum pricing" (as the Department has

called it) could be used to cover up a number of different

transgressions. One o f them, certainly, is patterned

overcharging. If, for example, J&L charged a purchaser of

frozen orange juice the (higher) contract price for canned

orange juice, that would be a form of overcharging. If this

unsavory practice were consistently followed for all food items

on all check types, a pattern of "maximum pricing" such as that

seen in the Matrix would be produced. 8

28. Imagine another scenario in which a vendor charges

every user of check type 029 for a dozen eggs —— even those

purchasers who choos e not to buy eggs. Charging WIC customers

for food not received is a separate violation, distinct from

overcharging. Yet, if this particular form of fraud were

repeated consistently with regard to all check types, a pattern

of "maximum pricing" also migh t emerge —— even if no customers (or

too few to constitute a "pattern") were "overcharged." 9

29. Providing unauthorized food items is another serious

violation. Imagine that a vendor were selling WIC customers ice

cream and cookies and other unauthorized foods, and charging

them for cheese and eggs and cereal. That, too, might result in

a pattern of "maximum pricing," but the violation would not be

overcharging. The same can be said about the provision of non -

food items, and about the sale of alcoholic beverages and

tobacco products as well. These also are separate violations

that do not involve overcharging (as that offense is defined in

the regulations) but could as readily as overcharging produce a

pattern of "maximum pricing."

30. The bottom line i s, even if the factfinder were

inclined to infer from the pattern of "maximum pricing" shown in

the Matrix that J&L committed WIC program violations, for the

Department to prevail he would need to infer from that first

inference the conclusion that J&L was overcharging its customers

and not engaging in some distinguishable wrongdoing (or

combination of separate wrongs) with which a pattern of "maximum

pricing" would be consistent. He would need further to infer

that the overcharging had occurred with such frequency as to

constitute a pattern of overcharging (because, remember, a

dollar - limit check is not necessarily the product of an

overcharge). In other words, to determine that J&L is guilty of

the offence charged would require a pyramiding of inference upon

inference.

Ultimate Factual Determinations

31. From August through November 2000, a high percentage

of the WIC checks that J&L submitted for reimbursement were

written at their respective dollar - limits. To be sure, this

pattern of "maximum prici ng" is fishy when considered in the

abstract; the evidence, however, fails generally to put this

seemingly suspicious pattern into a real - world context, and it

fails in particular to establish, as a benchmark, the percentage

of checks that would be written at the dollar - limit in the

absence of wrongdoing. Thus, being unwilling to infer that the

Matrix pattern is per se indicative of wrongdoing, the

factfinder is not persuaded that J&L more likely than not

engaged in misconduct.

32. Additionally, even if the factfinder were willing to

infer that the Matrix pattern would not have emerged but for

some wrongdoing on J&L’s part, it would yet be too much of a

stretch to infer further that the violation was overcharging as

opposed to something else. Because J& L was accused of

overcharging and nothing else, J&L cannot be found guilty of the

specific offense charged.

33. Finally, while it would be unreasonable to infer, from

the Matrix alone, that J&L likely had engaged in overcharging,

it would be irrational to infer that any suspected overcharging

occurred so regularly as to constitute a pattern, because no

demonstrated basis in fact or logic supports the proposition

that every dollar - limit check is evidence of a transaction

tainted with the fraud of overchargi ng, and the record reveals

no principled basis for distinguishing between innocent maximum

purchases and those resulting from misconduct.

CONCLUSIONS OF LAW

34. The Division of Administrative Hearings has personal

and subject matter jurisdiction in this proceeding pursuant to

Sections 120.569 and 120.57(1), Florida Statutes.

35. The wrongdoing with which J&L has been charged is

proscribed in Title 7, Code of Federal Regulations, Section

246.12(l), which provides in pertinent part:

(l) Retail food delive ry systems: Vendor

sanctions --

(1) Mandatory vendor sanctions --

* * *

(iii) Three - year disqualification. The

State agency must disqualify a vendor for

three years for :

(A) One incidence of the sale of alcohol or

alcoholic beverages or tobacco products in

exchange for food instruments;

(B) A pattern of claiming reimbursement for

the sale of an amount of a specific

supplemental food item which exceeds the

store's documented inventory of that

supplemental food item for a specific period

of time;

(C) A pattern of vendor overcharges ;

(D) A pattern of receiving, transacting

and/or redeeming food instruments outside of

authorized channels, including the use of an

unauthorized vendor and/or an unauthorized

person;

(E) A pattern of charging for suppl emental

food not received by the participant; or

(F) A pattern of providing credit or non -

food items, other than alcohol, alcoholic

beverages, tobacco products, cash, firearms,

ammunition, explosives, or controlled

substances as defined in 21 U.S.C. 802, in

exchange for food instruments.

7 C.F.R. Section 246.12(l)(1)(iii)(C)(emphasis added).

36. The unambiguous terms of the WIC Vendor Agreement

notified J&L that a pattern of overcharging (among other

grounds) would subject the violator to a three - year

di squalification from participation in the WIC program.

37. In a commentary published in the Federal Register, the

United States Department of Agriculture, Food and Nutrition

Service, shed light on the nature of this particular violation:

On the proposed vi olation for "charging

WIC customers more for food than non - WIC

customers or charging more than the current

shelf or contract price," commenters were

concerned about establishing a pattern for

this violation, distinguishing between

outright fraud and abuse and inadvertent

human error, and having a sanction that is

appropriate for the violation. As noted

above in this preamble, the Department has

modified this violation in the final rule to

establish that a pattern of incidences is

necessary to warrant a man datory sanction.

In addition, the Department has clarified

that the evidence necessary to establish a

pattern is influenced by both the severity

and number of the incidences of a violation.

The intent to commit a violation versus

inadvertent human error is not a distinction

that State agencies must establish in order

to impose sanctions, including sanctions for

overcharging. The vendor sanctions are not

criminal; they are imposed in order to

protect the integrity of the WIC Program.

If stores consistent ly overcharge customers

for purchases, customers take their business

elsewhere regardless of whether the

overcharges are intentional or inadvertent.

Likewise, when a pattern of overcharging is

established, the State agency will be

required to impose a man datory sanction on

the vendor regardless of whether the

violation is intentional or inadvertent.

Current regulations at §246.12(f)(2)(ix),

which cover the requirements for vendor

agreements, state: "The food vendor shall be

accountable for actions of empl oyees in the

utilization of food instruments or provision

of supplemental foods." The WIC Program has

limited resources and cannot tolerate

vendors whose employment practices

repeatedly result in direct losses to the

Program.

Six commenters questioned th e severity

of the sanction for this violation.

Overcharging is one of the most common

vendor violations. Funds lost through

overcharges could otherwise be used to serve

more participants. As such, the sanction

for this type of violation must be

sufficie nt to deter this type of fraud and

abuse. Consequently, the Department has

retained the three - year sanction for this

violation in the final rule.

One commenter suggested that vendors

should be granted the opportunity to correct

overcharging problems as o utlined in

§246.12(r)(5)(iii) in the current

regulations, which states: "When payment for

a food instrument is denied or delayed, or a

claim for reimbursement is assessed, the

affected food vendor shall have the

opportunity to correct or justify the

overch arge or error.* * *" Another

commenter noted that the regulations already

require vendors to refund the difference

between their reported price for the food

package and the actual redemption price.

The violation, as written in this final

rule, does not p rohibit the State agency

from pursuing claims for overcharging before

it rises to a level where it warrants a

mandatory sanction. The mandatory sanction

for this violation is only triggered when a

pattern of overcharging is established.

However, permitti ng vendors to just pay

claims when the State agency detects

overcharges provides vendors with no

incentive to ensure that overcharging does

not occur in the first place.

64 F.R. 13311, 13311 - 15.

38. As the party seeking relief, the Department owns the

bu rden of proof. See , e.g. , Florida Department of

Transportation v. J.W.C. Co., Inc. , 396 So. 2d 778, 788 (Fla.

1st DCA 1981). The parties have stipulated that the Department

must meet its burden with clear and convincing evidence,

presumably because disqu alification is, arguably, penal in

nature, threatening the vendor with loss of livelihood. If the

WIC Vendor Agreement were a "license" that conferred a property

interest on the vendor, then disqualification would be analogous

to revocation, and the parti es' stipulation as to the standard

of proof would be reasonable and probably legally correct. See

Department of Banking and Finance, Division of Securities and

Investor Protection v. Osborne Stern and Co. , 670 So. 2d 932,

933 - 34 (Fla. 1996). The parties, however, have cited no law in

support of the premise that the contract is a license.

39. As it happens, the federal regulations explicitly

refute the contract - as - license theory. Title 7 of the Code of

Federal Regulations, Section 246.12(h)(3)(xxi), pro vides clearly

that "[t]he vendor agreement does not constitute a license or a

property interest." That being the case, the parties' agreement

regarding the applicable standard of proof is legally

untenable. 10 The Department need establish its allegations

merely by a preponderance of the evidence.

The Department Failed to Present a Prima Facie Case

40. The first of the two issues framed by the parties'

stipulation —— namely, whether, through the stipulated facts and

evidence, the Department has presented a prima facie case of

overcharging —— is a question of law. Conceptually, the parties

have requested a ruling that is indistinguishable from that

required when a defendant moves for involuntary dismissal

pursuant to Rule 1.420(b), Florida Rules of Civil Proc edure, at

the close of the plaintiff's case. Accordingly, the applicable

analytical framework is that which is attendant upon such

motions.

41. "A trial judge's function, when the defendant raises a

motion for involuntary dismissal . . . in a non - jury t rial, is

to determine whether the evidence, when viewed in a light most

favorable to the plaintiff, establishes a prima facie case for

relief." Barclays American Mortgage Corp. v. Bank of Central

Florida , 629 So. 2d 978, 979 (Fla. 5th DCA 1993). In makin g

this decision, "the trial judge, even though the ultimate trier

of fact, is precluded from weighing the evidence or adjudging

its credibility," Valdes v. Association I.N.E.D., H.M.O., Inc. ,

667 So. 2d 856, 857 (Fla. 3d DCA 1996), just as he or she would

be in ruling on a motion for directed verdict, Tillman v.

Baskin , 260 So. 2d 509, 511 (Fla. 1972); see also Palm Beach

Mall, Inc. v. Walker , 585 So. 2d 1149, 1150 (Fla. 4th DCA 1991).

If the plaintiff has presented some competent, substantial (even

thoug h conflicting) evidence, including reasonable inferences

therefrom, in support of each element of his case, then the

motion for involuntary dismissal must be denied, because a

reasonable factfinder could find in the plaintiff's favor.

Valdes , 667 So. 2d a t 857; Wygodny v. K - Site 600 Associates , 644

So. 2d 579, 581 (Fla. 3d DCA 1994); Wimbledon Townhouse

Condominium I, Association, Inc. v. Wolfson , 510 So. 2d 1106,

1109 (Fla. 4th DCA 1987); see also Houghton v. Bond , 680 So. 2d

514, 522 - 23 (Fla. 1st DCA), r ev. denied , 682 So. 2d 1099 (1996).

42. In this case, following the adage "where there's

smoke, there's a fire," it might be reasonable to infer, from

the fact that a high percentage of the WIC checks that J&L

presented for payment during the relevant pe riod were written at

the dollar - limit, that J&L was up to no good. Bear in mind,

however, that to reach that result would require an initial

inference that the pattern reflected in the Matrix is suspicion -

arousing "smoke" (to continue the metaphor), for t here is no

competent, direct proof of that fact.

43. Even if it were reasonable to infer some wrongdoing on

J&L's part, though, the Department's burden is not merely to

prove "some wrongdoing" generally but to establish the

particular wrongdoing with whi ch it has charged J&L. That

particular wrongdoing —— pattern of overcharging —— has two basic

elements: The vendor must, first, be charging WIC customers

more for authorized WIC foods than the vendor had agreed to

charge for those foods and, second, be overc harging so

frequently as to constitute a pattern.

44. There is no competent, direct proof supporting either

of these elements. Both would need to be inferred from J&L's

established pattern of presenting dollar - limit WIC checks for

payment (assuming, as a foundational inference, that that

undisputed pattern is evidence of wrongdoing). Neither

inference, however, is reasonable —— and not only because it is

improper to pile inference upon inference.

45. First, as discussed in the Findings of Fact, too many

forms of misconduct besides overcharging could produce the

pattern shown in the Matrix. As a matter of law, there is no

rational basis for inferring that, more likely than not,

overcharging occurred here, because the Matrix is equally

consistent with the also - forbidden practices of charging for

non - food items, selling unauthorized foods, and charging for

food not received, to name a few. 11

46. Second, even if wrongdoing were inferred from the

Matrix pattern, and even if the specific violation of

overchar ging were then inferred from the inference of

wrongdoing, the factfinder would be called upon to make yet

another inference: that the overcharging occurred in a pattern.

There simply is no rational basis in the evidence for doing

that.

47. It is conc luded that a reasonable factfinder, properly

instructed as to the applicable law, could not find in favor of

the Department in this case based solely on the Phase 1

evidence, even when this proof is viewed in the light most

favorable to the Department. Re asonable people might disagree

about where, exactly, the train of inferences required to

sustain the Department’s charge runs off the tracks, but all

reasonable people should agree that the inference train derails

short of its intended destination.

48. Accordingly, without weighing the evidence or

considering whether the Department has met its burden of proof,

it is concluded that the evidence in this record does not

establish a prima facie case of a patterned overcharging, as a

matter of law.

The Depart ment Failed to Carry Its Burden of Proof

49. The parties stipulated that the undersigned would not

be constrained, in this Phase 1, to decide only the narrow legal

question whether the Department’s proof makes out a prima facie

case. The parties agreed that if the Department’s evidence were

legally sufficient to survive a motion for involuntary

dismissal, then the Administrative Law Judge (“ALJ”), as the

trier of fact, could weigh the Department’s unimpeached evidence

(as though J&L had declined at final hearing to present any

evidence, with the result that the stipulated facts and proof

would comprise the entire record) and decide whether the

Department carried its burden of proof. If, in the ALJ’s

judgment, the evidence warranted a decision in the Depa rtment’s

favor as a matter of fact, then the case would proceed to final

hearing, where J&L would have an opportunity to rebut the

otherwise persuasive evidence against it. On the other hand, if

the ALJ found the stipulated proof to be wanting, then he co uld

find in favor of J&L, obviating the need for a formal

evidentiary hearing.

50. Having already concluded that the Department’s

evidence is legally insufficient, the undersigned is aware that

it is unnecessary to reach the second, factual issue whether the

Department carried its burden of proof. The undersigned is

certain, however, that the parties would prefer that findings of

fact nevertheless be made, the better to bring about an

efficient disposition of this dispute.

51. Therefore, to render an alternative determination, the

undersigned assumed for argument's sake that the Department had

presented sufficient evidence to establish a prima facie case

and, as the trier of fact, thereupon weighed the evidence and

found that the Department had failed to carry its burden. The

ALJ's specific findings, including the ultimate factual

determinations, are set forth above in the Findings of Fact.

CONCLUSION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Departmen t, having failed to

establish that J&L engaged in a pattern of overcharging, enter a

final order rescinding its preliminary determination that J&L be

disqualified from participating in the WIC program for a period

of three years.

DONE AND ENTERED this 30th day of October, 2001, in

Tallahassee, Leon County, Florida.

_____________________________________

JOHN G. VAN LANINGHAM

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 306 0

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 30th day of October, 2001.

ENDNOTES

1 / The WIC program, which was authorized by the Child Nutrition

Act of 1966, is designed to provide food to pregnant,

breastfeeding, and postpartum women and their infants and

chil dren (between the ages of one and five years). The federal

government provides cash grants to state agencies that

administer the program at the local level. In Florida, food is

distributed through a system of retail grocery stores, such as

J&L, that beco me authorized WIC vendors. To become a WIC

program vendor, a grocery store must submit a completed

application, pass a preliminary on - site screening, be trained in

WIC policies and procedures, and enter into a written vendor

contract with the Department.

2 / On February 1, 2001, the Department moved for leave to amend

the charge against J&L, as set forth in its November 20, 2000,

letter to Mr. Cesaire, to make clear that the violation of which

J&L had been accused was pattern of overcharging, not the

simi lar but distinct offense, pattern of charging the WIC

program for food not received by a participant. The

Department's motion was granted on February 6, 2001.

3 / At oral argument, the Department's counsel represented that

no compliance buys had been co nducted at J&L's store. A

compliance buy is a purchase made from a WIC vendor by an

undercover investigator. Such purchases must conform to certain

regulatory requirements. See 7 C.F.R. § 246.12(j)(6)(ii). It

is arguable that a compliance investigation is not complete

unless and until the responsible state agency has carried out a

sufficient number of compliance buys or performed an inventory

audit (which also was not done here, evidently). See 7 C.F.R.

§ 246.12(j)(4). J&L did not argue, however, tha t the

Department's failure to conduct a complete compliance

investigation pursuant to 7 C.F.R. § 246.12(j)(4) precluded it

from seeking J&L's disqualification; therefore, no opinion on

that issue is expressed herein.

4 / Under - consuming doubtless occurs , however. See endnote 9 and

accompanying text.

5 / Consider, for example, that the Department has stipulated the

"lowest price" for check type 029 to be $18.32. Nevertheless,

in theory at least, a WIC customer could use this type of check,

unwisely, t o buy one - half gallon of milk —— and nothing else. In

this apparently unlikely event, the purchase would cost $2.05.

Through its Matrix the Department has acknowledged that outcomes

such as this are so uncommon as to be safely ignored.

6 / The parties sti pulated that, if a formal hearing were held,

neither side would offer expert testimony involving a

statistical analysis of the Matrix.

7 / According to their stipulation, the parties agreed that, if a

formal hearing were held, neither side would present e xpert

testimony regarding the buying habits and purchasing trends

within the population of WIC program participants.

8 / It should be noted, however, that a pattern of "maximum

pricing" is not the inevitable (or even the intuitive) result of

consistent o vercharging. Indeed, one supposes that, to avoid

raising any predictable red flags, as a pattern of price -

uniformity might be regarded, a dishonest vendor would increase

prices a little bit here and there, in varying amounts, without

bringing the total pr ice of any (or at least not every) fraud -

tainted sale to the check's dollar - limit.

9 / That charging for food not received is a WIC program

violation separate and distinct from patterned overcharging and

similar offenses, such as selling non - WIC foods a nd non - food

items, suggests that some under - consuming takes place in routine

WIC transactions.

10 / If the Department were seeking to impose a civil money

penalty in lieu of disqualification, then the clear and

convincing standard would apply. Osborne Stern , 670 So. 2d at

935. Interestingly, the federal regulations require that before

a state agency may disqualify a vendor from participating in the

WIC program, it must determine if disqualification would result

in inadequate participant access. See 7 C.F.R.

§ 246.12(l)(1)(ix). If inadequate participant access would

follow from disqualification, then the state agency must impose

a fine instead of disqualifying the violator, except in certain

situations where the vendor is a repeat offender. Id. Her e,

the Department has made no showing regarding participant access.

J&L, however, did not argue that the Department's proof was

legally insufficient for this reason, and so the question need

not be decided.

11 / The legal insufficiency of the Department' s case could not

be cured simply by amending the charge to add additional grounds

for punishment, because, without more proof than has been

offered, none of the several violations that could have produced

the Matrix pattern is more likely than the others, and hence it

would be unreasonable to infer that any particular one had

occurred. Remember, regardless of the number of charges, the

Department still would need to make a prima facie showing for

each one individually, and the evidence here does not do tha t.

COPIES FURNISHED :

Michael E. Cover, Esquire

Department of Healt h

1350 Northwest 14th Street

Miami, Florida 33125

Steven J. Tornberg, Esquire

Dean R. Halper, P.A.

15200 Jog Road, Suite B - 7

Delray Beach, Florida 33446

Theodore M. Henderson, Agency Clerk

Department of Health

4052 Bald Cypress Way

Bin A02

Tallahassee , Florida 32399 - 1701

William W. Large, General Counsel

Department of Health

4052 Bald Cypress Way

Bin A02

Tallahassee, Florida 32399 - 1701

Dr. Robert G. Brooks, Secretary

Department of Health

4052 Bald Cypress Way

Bin A00

Tallahassee, Florida 32399 - 17 01

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this R ecommended O rder. Any exceptions

to this R ecommended O rder should be filed with the agency that

will issue the F inal O rder in this case.