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Alabama Department of Public Health v. Lee

Alabama Court of Civil Appeals

April 7, 2017

Alabama Department of Public Health
v.
Su Won Lee d/b/a First Avenue Meat and Fish Market

         Appeal from Montgomery Circuit Court (CV-14-379)

          DONALDSON, Judge.

         The Alabama Department of Public Health ("the Department") appeals from a judgment of the Montgomery Circuit Court reversing the decision of the State Health Officer to disqualify First Avenue Meat and Fish Market ("First Avenue"), a grocery store owned by Su Won Lee ("Mr. Lee"), from participating for three years as an authorized vendor in the Alabama Women, Infants, and Children program ("the WIC program"). We reverse the judgment of the circuit court.

         Factual Background and Procedural History

         We have previously provided an explanation of the WIC program in a related case.[1]

"The United States Congress created the WIC program in 1966 primarily to provide supplemental dietary and nutritional aid to low-income pregnant, breast-feeding, and non-breast-feeding postpartum women and to infants and children up to age five who are found to be at nutritional risk. See 42 U.S.C. § 1786(a). The United States Department of Agriculture ('USDA') issues cash grants to the various states to administer the WIC program. See generally 42 U.S.C. § 1786(c)(2); 7 C.F.R. § 246.1. The USDA requires appropriate state agencies to use a portion of those cash grants to deliver approved supplemental foods and nutritional aid to eligible participants. 42 U.S.C. § 1786(f)(11).
"The Department administers the WIC program for the State of Alabama. See Ala. Code 1975, § 22-12C-1 et seq. The Department has adopted a food-delivery system by which it issues 'food instruments' to eligible participants that can be redeemed at authorized retail vendors for approved supplemental foods. See Ala. Admin. Code (Dep't of Public Health), Rule 420-10-2-.05(1). The food instruments designate specific types and quantities of food items that the participant may purchase, i.e., 'one gallon of whole milk.' The participant obtains the described food items at retail stores operated by an authorized WIC vendor and tenders the food instrument as a form of payment for the food items. To accept the food instrument, the vendor stamps the food instrument with the vendor's identification number and fills in the total purchase price of the food items. The participant then signs the food instrument. The vendor deposits the food instrument into its bank account, and the vendor's bank then presents the food instrument for payment at the Department's 'contract bank.' Id.
"The Department assures that its authorized vendors are properly complying with the WIC program and redeeming the food instruments for the purchase of approved supplemental foods through a variety of measures, including monitoring, 'compliance buys, ' and inventory audits. See Ala. Admin. Code (Dep't of Public Health), Rule 420-10-2-.05(5).
"'An inventory audit is the official examination and documentation of a WIC vendor's inventory, accounts, and records to determine whether the vendor has purchased sufficient quantities of supplemental foods to provide participants the quantities specified on the food instruments redeemed by the vendor during a given time period.'

"Rule 420-10-2-.05(5)(c)."

         Alabama Dep't of Pub. Health v. Bessemer Meat/Se. Meat, [Ms. 2141063, April 22, 2016] ___So. 3d___, ___(Ala. Civ. App. 2016).

         First Avenue had been approved to participate as a vendor in the WIC program since at least 2011. From July 17, 2013, until September 17, 2013, the Department conducted an inventory audit on First Avenue. In September 2013, at the conclusion of the audit, the Department mailed a letter to Mr. Lee requesting all original records that would show First Avenue's purchases of infant formula and milk between July 17, 2013, and September 17, 2013. In October 2013, the Department sent an additional request to Mr. Lee for receipts and invoices of First Avenue for the same period.

         On November 25, 2013, the State Health Officer sent a letter notifying Mr. Lee that, during the inventory audit, the Department had discovered a difference of $7, 790.02 between the total retail value of infant formula available for sale at First Avenue and the amount of redeemed WIC-program food instruments for formula. The letter also noted a difference of $3, 086.52 between the retail value of First Avenue's available milk inventory and the amount of redeemed WIC-program food instruments for milk. The letter instructed First Avenue to reimburse the Department for the $10, 876.54 difference.

         In December 2013, the Department sent a letter notifying Mr. Lee of its intent to disqualify First Avenue from participation as an authorized vendor in the WIC program for three years. The Department held an administrative-review hearing regarding the intended action at Mr. Lee's request in March 2014. At the hearing, Amanda Martin, the Alabama WIC-program director, testified that, in order to become an authorized WIC vendor, a vendor must comply with specified program requirements. Martin testified that the Department conducts monitoring visits, compliance buys, and inventory audits in which it reviews the vendor's redemptions and compares them to the vendor's documented inventory to ensure compliance with the WIC-program requirements.

         Martin explained that, during an inventory audit, the Department physically counts the initial inventory of a product at the store and then reviews the redemption of food instruments for that product during a specified period. Martin stated that the Department requests inventory receipts for the period for which it audits the vendor.

         Stacey Neumann is the director of vendor management for the WIC program. Neumann testified that First Avenue was selected for the inventory audit based on "the amount of redemptions and high risk indicators." Neumann explained that First Avenue had zero variance between the two most highly redeemed food-instrument types, which, she said, is an indicator of price fixing. Neumann also testified that First Avenue had a high redemption rate in comparison to other vendors in its peer group. Specifically, Neumann explained that "First Avenue has one cash register, and their redemptions were comparable to [a] store that has twenty to thirty cash registers, " which, she said, "could be indicative of program fraud and abuse."

         Neumann participated in the initial physical inventory audit, and she testified that Mi Kyung Lee ("Mrs. Lee") was present during that audit. Neumann testified that Mrs. Lee was asked to obtain the formula receipts and that she retrieved them without any apparent difficulty. Neumann testified that Mrs. Lee appeared to understand the interactions that occurred with Neumann and Don Bird, the investigator.

         Bird testified that he did not perceive any problems with Mrs. Lee's understanding of the activities and that there was "good communication." Bird testified that he asked Mrs. Lee the questions contained on the various audit forms and that he input the answers that she gave to him. Upon concluding the audit, Bird found that "there was a huge shortage of the inventory compared to what [First Avenue] had redeemed" and that First Avenue had a shortfall of $7, 790.02 in regard to infant formula. Bird further testified that, with regard to its milk inventory versus redemptions, First Avenue had a shortfall of $3, 086.52. Bird testified that he asked Mrs. Lee whether there was additional inventory located in the back of the store and that she responded that there was not.

         Mrs. Lee testified that she manages First Avenue and that Mr. Lee owns the store. At the time of the administrative-review hearing, she had been in the United States for 14 years, but she is originally from Korea. Mrs. Lee testified that she routinely kept infant formula in the back of the store, that she had around $10, 000 worth of infant formula in the back room during the first physical inventory audit, and that she would have informed the investigators of that fact if she had she known an audit was being conducted. Mrs. Lee testified that, at the end of the audit period, she probably had about $5, 000 worth of infant formula in the back room. Mrs. Lee testified that she was never asked whether there was formula in the back room.

         When asked about her signature on the inventory worksheet that certified that the inventory amount was correct, Mrs. Lee testified that she did not read the inventory worksheet but that she signed it because she thought it was routine monitoring. However, Mrs. Lee also testified that she is not required to sign anything during routine monitoring.

         With regard to the undocumented milk products, Mrs. Lee initially testified that a storm caused damage to the store and that, as a result, the milk receipts became wet and were ruined. Mrs. Lee also testified that a computer was located on the desk on which the receipts were located but that the computer was not damaged. Mrs. Lee then testified that she had placed the receipts in a box and that the box was misplaced when contractors were making repairs to the storm damage. At the conclusion of Mrs. Lee's testimony, the hearing officer asked Mrs. Lee how she responds to questions that she does not understand. Mrs. Lee stated: "If I don't understand, I want to make sure I understand .... And then I will ask."

         In April 2014, after the administrative-review hearing, the hearing officer submitted a detailed opinion recommending that the Department's decision be upheld and determining that First Avenue had engaged in a pattern of claiming reimbursement for the sale of infant formula and milk products in excess of the store's documented inventory for those products. As part of that recommendation, the hearing officer found, in part, that Mrs. Lee's interactions with the Department were not "hampered by a language barrier." The hearing officer also recommended rejecting Mr. Lee's argument that the storm damage referenced by Mrs. Lee prevented him from maintaining the documents as required by the WIC-vendor contract because of a "force majeure." In May 2014, the State Health Officer adopted the hearing officer's recommendation and entered an order disqualifying First Avenue from participating as a vendor in the WIC program for three years.

         On June 16, 2014, Mr. Lee filed a petition for judicial review in the circuit court, pursuant to § 41-22-20, Ala. Code 1975. The record does not contain a transcript of any proceedings before the circuit court. On May 13, 2015, the circuit court entered an order reversing the State Health Officer's decision, finding, in part, that the hearing officer had committed an error of law by failing to interpret Mr. Lee's compliance with the WIC contract in light of contract- law principles and defenses, that the hearing officer's finding that Mrs. Lee's execution of the inventory worksheet was not hampered by a language barrier was not supported by the evidence in the administrative record, and that the hearing officer improperly refused to consider Mr. Lee's force majeure defense; the circuit court remanded the matter for further proceedings.

         On remand, the hearing officer submitted additional findings of fact and conclusions of law to the State Health Officer, in compliance with the circuit court's remand order, finding, in part:

"The Vendor Contract signed by Ms. Lee outlines the vendor's and the Department's responsibilities (Sections I and II), including compliance with all applicable regulations found in Ala. Admin. Code r. 420-10-2 (2014) and unannounced monitoring visits, which 'may include compliance purchases and/or inventory audits to collect evidence of improper VENDOR practices'; termination (Section III); clauses governing debarment, suspension, financial necessity, emergency cancellation, amendment, standard of practice, assignment and severability; and a sanction schedule. The contract also includes an acknowledgment by the vendor that he/she has read the entire contract and fully understands and accepts its requirements.
"...[T]he undersigned finds no defense available to Ms. Lee--whether under a theory of mistake, lack of assent, or unconscionability--regarding her claims that a language barrier, either oral or written, precluded her from understanding the inventory worksheets that she signed following the Department's July 17, 2013 and September 17, 2013 inventory audits at First Avenue. Both Alabama and federal contract law are clear that signatories to contracts are responsible to know and understand the provisions of the documents they sign; in particular, Alabama law does not excuse a party from the enforcement of a contract provision because he states that he could not read the document or understand it. Mason [v. Acceptance Loan Co.], 850 So.2d [289] at 296 [(Ala. 2002)]; Mitchell Nissan, Inc. [v. Foster], 775 So.2d [138] at 140 [(Ala. 2000)]. These holdings were extended in Alabama under Scurtu [v. International Student Exch., 523 F.Supp.2d [1313] at 1320-21 [(S.D. Ala. 2007)], to an inability to read or understand a document due to a language barrier; courts in other jurisdictions, including the cited cases from New York and New Jersey, have made similar findings.
"There was no evidence presented that Ms. Lee could not read the inventory worksheets, that she could not understand them, that she was not given the opportunity to ask anyone what they meant, that she ever asked anyone to read or explain them to her before she signed them or that she ever asked what they were. See Scurtu, 523 F.Supp.2d at 1321. Ms. Lee's clear and consistent testimony was that she did not read the inventory worksheets--she simply signed them because the Department's investigator asked her to do so and because she thought it was routine monitoring, although she ...

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