R Ranch Market Corporation, Doing Business as R Ranch Market 2 Omar O. Shalabi Jose Shalabi and Farid Shalabi v. United States

R Ranch Market Corp. (“R Ranch”) appeals from the district court’s judgment affirming the Food and Nutrition Service’s decision to permanently disqualify R Ranch Market #2 from participation in the food stamp program. The sole issue on appeal is whether a retail food store may be permanently disqualified without a showing that the owner either had knowledge of or participated in the predicate violation. We hold that the government must show that the predicate acts were taken for the benefit of the employer, and we therefore reverse the decision of the district court.

FACTS AND PROCEEDINGS BELOW

R Ranch Market # 2 is a retail grocery store doing business in Santa Ana, California. The R Ranch Market Corp. is owned by three shareholders: Omar, Jose and Farid Shalabi. Only Farid manages and takes an active part in the operation of R Ranch # 2. R Ranch # 2 was authorized to participate in the food stamp program beginning in 1982. Program authorization required R Ranch to acknowledge that authorization could be revoked based on program violations committed “by any of the firm’s employees.”

In 1985, the Department of Agriculture’s Food and Nutrition Service (FNS), which administers…