SC Administrative Law Court Decisions

This matter comes before me pursuant to S.C. Code Ann. §§ 1-23-310, et seq. (1986 and Supp. 1996) and 1-23-600 (E) (Supp. 1996), upon request for a contested case hearing by William Blaylock, d/b/a Northridge Driftwood, AAA Entertainment Corporation, d/b/a AAA Amusements, Tropics, Inc., d/b/a Mickey's Pub ("Respondents"). The South Carolina Department of Revenue ("Department") cited Respondents with an administrative violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) of the Video Game Machines Act ("Act") and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996), for allegedly failing to have an employee on the premises and firewalls at businesses located at Northridge Plaza, Hilton Head, South Carolina. Specifically, the Department alleges that Respondents have violated the provisions of the Act by locating and maintaining video poker machines licensed pursuant to S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1996) (commonly referred to as "Class III" licenses) in a location which did not have a separate employee within each of two of the four "game rooms" at the location during business hours, and two of the four game rooms failed to have firewalls on March 26, 1996.

The Department seeks revocation of fifteen Class III licenses at the location, a $5,000 fine against each Respondent and an Order prohibiting the licensing, usage, and placement of any Class III licenses in the three rooms which, at the time of the violation, conducted business under the names "Northridge Driftwood," "AAA Amusements," and "Mickey's Pub."

Respondents advance several arguments. First, they argue the Department failed to comply with the Administrative Procedures Act and the Revenue Procedures Act which requires dismissal of the violation. Second, they argue they had "employee" arrangements with customers which satisfied the requirements of 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996), requiring dismissal of the violation at issue. Third, they argue the Regulation is beyond the Department's authority to promulgate regulations and is therefore invalid and unenforceable.

After timely notice to the parties, a contested case hearing was held at the Administrative Law Judge Division ("Division") offices, Columbia, South Carolina.

Based upon a thorough review of the record, and proposed orders from all parties, the relevant and probative evidence and applicable law as set forth hereafter, I conclude that the Respondents, William Blaylock, d/b/a Northridge Driftwood and AAA Entertainment Corp., d/b/a AAA Amusements, have violated S.C. Code Ann. § 12-21-2804(A) and 27 S.C. Code Ann. Regs. 117-190 on March 26, 1996 and that the licenses on the machines located in the game rooms in question must be revoked. I also find that a fine is warranted in this case and impose a $3,000.00 monetary penalty against the Respondents William Blaylock, d/b/a Northridge Driftwood and AAA Entertainment Corp., d/b/a AAA Amusements. Finally, I find that the violations against AAA Entertainment Corp, d/b/a AAA Amusements, and Tropics, Inc., d/b/a Mickey's Pub, for failure to have required firewalls, must be dismissed. Accordingly, no penalty shall be imposed against Tropics, Inc., d/b/a Mickey's Pub.

Without objection, Petitioner placed into evidence the following exhibits:

Exhibit 1: Department's Amended Final Determination dated July 23, 1997.

Exhibit 2: Respondent's Request for a contested case hearing dated July 18, 1997.

Exhibit 3: Diagram Depicting the Location as of March 26, 1997.

Exhibit 4: Photographs Taken at the Location on March 26, 1997.

Exhibit 5: Coin Operated Device Applications for the Class III licenses at issue.

Exhibit 6: Retail License Applications for the Game Rooms at Issue.

Exhibit 7: Proposed Assessment Report and Revenue Officer Worksheet.

Exhibit 8: S.C. Revenue Procedure 97-2.

Having carefully considered all testimony and arguments presented at the hearing and taking into account the credibility of the witnesses, accuracy of the evidence and reviewing all of the exhibits carefully, I make the following findings by a preponderance of the evidence:

1. This Division has personal and subject matter jurisdiction.

2. Notice of the date, time, place and nature of the hearing was timely given to all parties.

3. On March 26, 1996, each Respondent operated a video game business within one building structure located at 13 Northridge Plaza, Hilton Head, South Carolina. This structure contained four open video gaming rooms licensed to William Blaylock, d/b/a Northridge Driftwood, Tropics, Inc., d/b/a Mickey's Pub, AAA Entertainment Corp., d/b/a AAA Amusements, and McNickel's Inc., d/b/a McNickel's Sales and Service, respectively (See Petitioner's Exhibits 6-1 through 6-7 and 7-2, 7-4).

4. Respondent AAA Entertainment Corp. was also the owner/operator and licensee of the fifteen Class III machines and licenses in the game rooms doing business as Northridge Driftwood, Mickey's Pub, and AAA Amusements. Each of these three rooms contained five Class III machines with licenses located on those machines.

5. Each room was divided by interior walls.

.

6. Each game room had a separate State sales tax license and a separate utility meter.

7. Video game rooms Northridge Driftwood, AAA Amusements, and Mickey's Pub contained video game machines with the following assigned biennial license numbers (see Petitioner's Exhibits 1-4 and 7-4):

a. Northridge Driftwood (depicted as Area #2 on Petitioner's Exhibit #3)--026074, 026079, 026073, 026077, 026076

b. AAA Amusements (depicted as Area #3 on Petitioner's Exhibit #3)--026078, 026238, 026075, 026080, 026237

c. Mickey's Pub (depicted as Area #4 on Petitioner's Exhibit #3)-- 40504, 40609, 026081, 40509, 40608

8. On March 26, 1996, at approximately 1:30 P.M., Revenue Officers Rodney Muckenfuss and Robert Sanders went to the location at 13 Northridge Plaza, Hilton Head Island, South Carolina. They went into and inspected each room separately.

9. Upon entering the location, the Revenue Officers found themselves in a common area. A door to the front right of the common area led into McNickel's Sales and Service (depicted as Area No. 1 on Petitioner's Exhibit No. 3). A door to the front left of the common area opened into Northridge Driftwood (depicted as Area No.2 on Petitioner's Exhibit No. 3). At the back left of the common area, a door opened into AAA Amusements (depicted as Area No. 3 on Petitioner's Exhibit No. 3). A door at the back right of the common area opened into an empty room. On the other side of this empty room was another door, which opened into Mickey's Pub (depicted as Area No. 4 on Petitioner's Exhibit No. 3).

10. The doors to all of these rooms, except the door into the empty room and the door into Mickey's Pub, were open. The lights were on in all these rooms and all the machines were turned on in each room (Areas 1,2 & 3 on Petitioner's Exhibit #3).

11. Each of the doors that led from the common area into McNickel's Sales and Service and into Northridge Driftwood were manual pull down doors. Each of these doors had a metal plate attached to it that indicated a 3 hour class A fire rating. Each of the doors that led from the common area into the empty room and into AAA Amusements were swing type doors. Each of these doors had a paper sticker on the hinge that indicated a fire rating of 20 minutes. The door that led from the empty room into Mickey's Pub was a swing type door. It did not have a fire rating identification sticker on it.

12. When the Officers entered the location, there was an employee present within McNickel's Sales and Service (Area No. 1), although no one was playing the machines in this area. Individuals were playing machines in Northridge Driftwood (Area No. 2) and in AAA Amusements (Area No. 3). The Revenue Officers were greeted by an employee and Nick Santeramo, the manager of the location.

13. Respondent's sole witness, Nick Santeramo, an employee and officer of AAA Entertainment Corporation, testified that he was on duty on March 26, 1996 at the time the Revenue Officer conducted the inspection. He testified that the customer in AAA Amusements was, by his terms, an employee. He stated it was management's policy that, if a customer wanted to play in a room and no employee was available, management would "hire" the customer by allowing him or her to play in the room if the customer agreed to become an "employee." This individual was not paid any compensation for services rendered or required to sign a W-4 (Wage Withholding Certificate). The individual was, however, given an opportunity to enter a raffle at the end of the month whereby he might receive $50.00. Mr. Santeramo testified no records were kept as to the "employee/individual's" name, hours of "duty" or address. Mr. Santeramo further testified that he and AAA Entertainment Corp. were found in violation of S.C. Code Ann. § 12-21-2804(A)(Supp. 1996) and the one employee requirement of 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996) in the case of South Carolina Department of Revenue v. AAA Entertainment Corp., et al, Docket No. 96-ALJ-17-0122-CC (September 19, 1996).

14. On July 23, 1997, the Department amended its citation to include Tropics Inc. and William Blaylock (see Petitioner's Exhibit 1-1 through 1-9, Department's Final Determination). This determination also included, as a basis for the violation, the failure of Respondents to have the required firewalls in the video game rooms, AAA Amusements and Mickey's Pub (see Petitioner's Exhibit 1-4 and 1-5).

15. The testimony of Revenue Officers Muckenfuss and Sanders is unrefuted that the three rooms AAA Amusements, Northridge Driftwood, and Mickey's Pub were open for business on March 26, 1996 when the Revenue Officers conducted their inspection at the location. I find that there were no employees in or assigned to the rooms titled Northridge Driftwood and AAA Amusement at the time of the inspection. I further find that the rooms AAA Amusements and Mickey's Pub met the building code of Hilton Head Island.

Based on the foregoing Findings of Fact, I conclude, as a matter of law, the following:

1. This matter is properly before the Administrative Law Judge Division pursuant to the provisions of Chapter 23, Title 1 and S.C. Code Ann. § 12-4-30 (D) (Supp. 1996)

2. The Video Game Machines Act, which regulates video poker machine activity in South Carolina, was enacted in 1993 and became effective on July 1, 1993. This Act is codified at S.C. Code Ann. § 12-21-2770 et seq. (Supp. 1996).

3. S.C. Code Ann. § 12-21-2804(A) provides:

No person shall apply for, maintain, or permit to be used, and the commission shall not allow to be maintained, permits or licenses for the operation of more than eight machines authorized under Section 12-21-2720(A)(3) at a single place or premises for the period beginning July 1, 1993, and ending July 1, 1994. After July 1, 1994, the commission may not issue nor authorize to be maintained any licenses or permits for more than five machines authorized under S.C. Code Ann. Section 12-21-2720(A)(3) at a single place or premises.

4. Machines licensed pursuant to the provisions of S.C. Code Ann. § 12-21-2720(A)(3) include video games with a free play feature operated by a slot in which a coin or thing of value is deposited. S.C. Code Ann. § 12-21-2720 (Supp. 1996).

5. Pursuant to S.C. Code Ann. § 12-21-2798 (Supp. 1996), the Department is authorized to promulgate regulations to assist in the administration and enforcement of the Video Game Machines Act.

6. 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996) defines "single place" or "premises" as set forth at S.C. Code Ann. § 12-21-2804(A):

The Video Game Machines Act, found in Article 20, Chapter 21 of Title 12 limits the number of machines that may be located at a "single place or premises."

A single place or premises must be a fixed location. It does not include moving property such as a boat or a train, unless such property is permanently affixed to a specific location.

A "single place" or "premises" means a structure surrounded by exterior walls or fire walls consistent with the requirements of the applicable building code (or where no building code is applicable, a one hour rated firewall), provided such exterior walls and fire walls may not have any windows, doors or other openings leading to another area where video game machines are located.

If a structure surrounded by exterior walls has two or more areas where video game machines are located, each surrounded by exterior walls or fire walls as defined and required above, the Department must review all the facts and circumstances to determine if each area in reality constitutes a single place or premise for video game machines. In determining whether each entity is in fact a single place or premises, the Department of Revenue will consider the following factors: (1) Does each entity or business have a separate electric utility meter? (2) Does each entity or business have at least one separate employee on the premises during business hours? (3) Does each entity or business have a separate local business license where required? (4) Does each entity or business have a separate state sales tax license? A positive answer to these four questions is required for each area to be considered a "single place or premise" for purposes of The Video Game Machines Act. (Emphasis added.)

7. The primary issue before this tribunal is whether any person "applied for, received, maintained, or permitted" the use of the permits or licenses for the operation of more than five Class III video game machines at a single place or premises, in violation of S. C. Code Ann. § 12-21-2804(A) and 27 S.C. Code Ann. Regs. 117-190.

8. It is well established that in interpreting a statute, the court's primary function is to ascertain the intention of the legislature. State v. Blackmon, 304 S.C. 270, 403 S.E.2d 660 (1991); First Savings Bank, Inc. v. Gold Coast Assoc., 301 S.C. 158, 390 S.E.2d 486 (Ct. App. 1990); State v. Harris, 268 S.C. 117, 232 S.E.2d 231 (1977). In ascertaining the intent of the legislature, a court should not focus on any single section or provision but should consider the language of the statute as a whole. Creeck v. S.C. Public Service Authority, 200 S.C. 127, 20 S.E.2d 645 (1942). Furthermore, in construing statutes, the language used should be given its plain and ordinary meaning without resort to subtle or forced construction to limit or expand the statute's operation. Bryant v. City of Charleston, 295 S.C. 408, 368 S.E.2d 899 (1988); Home Health Service v. S.C. Tax Comm'n., 312 S.C. 324, 440 S.E.2d 375 (1994). Where terms of a statute are clear and unambiguous, they must be applied according to their literal meaning. Medlock v. Ford F-150 Pick Up, et al., 308 S.C. 68, 417 S.E.2d 85 (1992); Green v. Zimmerman, 269 S.C. 535, 238 S.E.2d 323 (1977).

9. The Respondents William Blaylock, d/b/a Northridge Driftwood, and AAA Entertainment Corp., d/b/a AAA Amusements, clearly applied for, received, maintained or permitted licenses to be used for the operation of more than five Class III video game machines in a single place or premises, by operating their respective businesses without an employee present. As stated above, whether an establishment is being operated as a "single place or premises" is determined by evaluating the facts against the factors set forth in the Regulation. Here all Respondents were location operators. Respondent AAA Entertainment Corp. is both the machine licensee for all the game rooms in question and the location licensee for the game room, AAA Amusements.

With respect to the "employee" requirement, the regulation requires that each business entity have a separate employee at the location who is available to perform job functions with respect to that business entity during business hours in order to comply with the "single place or premises" requirements of § 12-21-2804(A). See Great Games, Inc., 96-ALJ-17-0204-CC (March 18, 1997). In this case, I find Respondents' policy of "hiring" customers ludicrous in its attempt to circumvent the requirements of the statute and Regs. 117-190. First, it is unquestionable that Respondents' characterization of an "employee" fails to meet the definition of "employee" as recognized by South Carolina Courts. See, e.g., Felts v. Richland County, 299 S.C. 214, 383 S.E. 2d 261 (Ct. App. 1989); aff'd, 303 S.C. 354, 400 S.E. 2d 781 (1991). That opinion sets forth the pivotal tests to be met when evaluating the relationship of master and servant.

The decisive test in determining whether the relation of master and servant exists is whether the purported master has the right or power to direct and control the servant in the performance of his work and in the manner in which the work is to be done. Young v. Warr, 252 S.C. 179, 165 S.E.2d 797 (1969); Watkins v. Mobil Oil Corp., 291 S.C. 62, 352 S.E.2d 284 (Ct. App. 1986). Specifically, the proper test to be applied is not the actual control exercised by the alleged master, but whether there exists the right and authority to control and direct the particular work or undertakings to the manner or means of its accomplishment. Anderson v. West, 270 S.C. 184, 241 S.E.2d 551 (1978); DeBerry v. Coker Freight Lines, 234 S.C. 304, 108 S.E.2d 114 (1959); Todd's Ice Cream Inc., v. South Carolina Employment Security Comm'n., 281 S.C. 254, 315 S.E.2d 373 (Ct. App. 1984). The principle [sic] factors showing right of control are: (1) direct evidence of right or exercise of control, (2) method of payment, (3) furnishing of equipment, and (4) right to fire. Chavis v. Watkins, 256 S.,C. 30, 180 S.E.2d 648 (1971); South Carolina Industrial Comm'n. v. Progressive Life Ins. Co., 248 S.C. 547, 131 S.E.2d 694 (1963); Todd's Ice Cream v. South Carolina Employment Security Comm'n., supra.

299 S.C. at 217, 383 S.E. 2d at 263.

Here, the evidence indicates that an individual walks in off the street and is hired as an "employee." That individual is not paid, is not given any duties, comes and leaves at will, is not supervised, and no records are kept concerning the individual. The evidence is totally devoid of any indication or proof whatsoever that these Respondents' purported policy of "hiring" customers rises to the level of a master/servant, employer/employee relationship.

Similarly, the policy advanced by Respondents not only fails to qualify as an employer/employee relationship but also violates the inducement provisions of S.C. Code Ann. § 12-21-2804(B) (Supp. 1996) and the regulations thereunder, in that it provides an inducement for one to play Class III video poker machines in a particular room by offering participation in a monthly raffle for prospective "customers/employees". Accordingly, I conclude that the Respondents William Blaylock, d/b/a Northridge Driftwood, and AAA Entertainment Corp., d/b/a AAA Amusements, violated S.C. Code Ann. § 12-21-2804(A) and 27 S.C. Code Ann. Regs. 117-190 by failing to have an employee on the premises on March 26, 1996.

10. The fire door allegations against AAA Entertainment Corp. and Tropics Inc., d/b/a Mickey's Pub, must be dismissed. The requirement of Regs. 117-190 regarding the presence of a one hour rated fire door expressly applies "where no building code is applicable." This business is located in the Town of Hilton Head Island, which has a building code. Where there is a building code, the Regulation requires only that the structure comply with the applicable building code. Id.. In this case, the Department did not present any evidence that the building does not comply with the Town's building code.

11. The one employee requirement of Regs. 117-190 is well within the Department's authority to promulgate regulations pursuant to § 12-21-2798. See South Carolina Department of Revenue v. Great Games, Inc. et al, Docket No. 96-ALJ-17-0204-CC (March 18, 1997). I find this requirement is also reasonably related to and is designed to further the purpose of the Video Game Machines Act, in that it is a factor which distinguishes a truly separate place or premises. See Great Games, supra.

12. I further find the Department complied with the Revenue Procedures Act ("RPA") and the Administrative Procedures Act ("APA") in this matter. S.C. Code Ann. §§ 12-60-10 through 12-60-3390 (Supp. 1996) were enacted in 1995 as the Revenue Procedures Act. These provisions, as well as the APA, provide the basis for notification, assessment, and appeal of any taxes administered by the Department to include any penalties or interest. § 12-60-30 (27), (29). With regard to the revocation of licenses and the imposition of penalties, §§ 12-60-460 and 12-60-1310 provide the basis for the administrative notification and appeal process. Both provisions require a "Final Determination" to be issued by the Department setting forth the specific basis for the revocation or, in this case, revocation of licenses and assessment of penalties. § 12-60-30(10) specifically states the Final Department Determination is the basis for a contested case hearing.

Here, all Respondents were sent a Final Department Determination (see Petitioner's Exhibit #1). The facts giving rise to the violation at issue here are specifically set forth in that determination. Respondents had full notice of the violation and its underlying factual basis as required by the APA and the RPA.

Respondents further argue that they were entitled to a proposed assessment or some other document prior to the issuance of the Final Department Determination. This argument is contrary to the RPA. § 12-60-30(10) of that Act specifically provides that the Final Determination is the basis for a contested case hearing, not the initial document that may have been issued during the course of the violation. The only mandated requirement is that set forth in § 12-60-1310 which provides the Department "shall" issue a final determination setting forth the specific basis for the revocation of licenses and assessment of penalties. The Respondents were in fact issued a Final Department Determination as mandated by the RPA.

13. S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) provides that the penalty for exceeding the maximum number of video gaming machines permitted in a single place or premises is the mandatory revocation of the licenses of machines located in the establishment. Additionally, no license may be issued for a machine in an establishment in which a license has been revoked for a period of six months from the date of revocation.

14. Acting as fact-finder, it is the administrative law judge's prerogative "to impose the appropriate penalty based on the facts presented." Walker v. South Carolina ABC Comm'n 305 S.C. 209, 407 S.E.2d 633, 634 (1991). If an administrative law judge finds and concludes that a violation has occurred, then he has the authority to establish the monetary fine within the allowable range provided for by § 12-21-2804(A) (Supp. 1995). S.C. Code Ann. § 12-4-30(D) (Supp. 1996).

15. S.C. Code Ann. § 12-21-2804(F) (Supp. 1996) provides that a person who violates § 12-21-2804(A) is subject to a fine of up to $5,000. In this case, the machine owner and licensee, Respondent AAA Entertainment Corp. is also the location operator of the game room "AAA Amusements." The Respondent William Blaylock is the location operator of "Northridge Driftwood." As such, I find and impose a $3,000 monetary penalty as to each of these Respondents.

16. Those who engage in a particular business bear the responsibility of familiarizing themselves with the applicable statutes and regulations governing the industry. Cf. S.C. Wildlife & Marine Resources Dep't v. Kunkle, 287 S.C. 177 at 179, 336 S.E.2d 468 at 469 (1985) ("[I]t is a well-settled maxim that ignorance of the law is no excuse.").

17. An administrative law judge possesses the same powers at chambers or in open court as do circuit court judges and may issue such remedial writs as are necessary to give effect to its jurisdiction. S.C. Code Ann. § 1-23-630 (Supp. 1996).

Based upon the foregoing Findings of Fact and Conclusions of Law, IT IS HEREBY ORDERED that the Department shall revoke the video game machine licenses located at 13 Northridge Plaza, Hilton Head, South Carolina, on March 26, 1996, as set forth in Petitioner's Exhibit #7-4 and Findings of Fact #7(a) and (b) in the game rooms Northridge Driftwood and AAA Amusements; IT IS FURTHER ORDERED that no video game machine licenses shall be used for the operation of Class III machines in those rooms for a period of six months from the date of this Order.

IT IS FURTHER ORDERED that the Respondents William Blaylock and AAA Entertainment Corp. shall pay to the Department a monetary fine of $3,000 each within fifteen days of this Order. The revocation of the licenses cited above does not affect the machines to which those licenses are attached, and those machines may be re-licensed on other premises.

IT IS FURTHER ORDERED that the violations against the Respondents Tropics, Inc. d/b/a Mickey's Pub and AAA Entertainment Corp., d/b/a AAA Amusements, for failure to have the firewalls required pursuant to Regs. 117-190, are hereby dismissed.

AND IT IS SO ORDERED.

Marvin F. Kittrell

Chief Judge

February 10, 1998

Columbia, South Carolina