SC Administrative Law Court Decisions

STATEMENT OF THE CASE

This matter comes before me pursuant to S.C. Code Ann. § 12-4-30(D)(Supp. 1998) and S.C. Code Ann. § 1-23-320, et seq. (Supp. 1998) pursuant to a request for a contested case hearing by Collins Entertainment, Inc., owner/licensee ("Collins"), and Eastside Sports Cafe, d/b/a Eastside Sports Cafe A, Eastside Sports Cafe B, and Eastside Sports Cafe D ("Eastside Sports" or "Eastside Sports Cafe"). The South Carolina Department of Revenue ("Petitioner" or "Department") issued a citation against both Respondents for administrative violations of S.C. Code Ann. § 12-21-2804(A)(Supp. 1998) of the Video Game Machines Act ("Act") and S.C. Code Regs. 117-190 (Supp. 1998) ("Regulation") at the business located at 3715 East North Street, Greenville, Greenville County, South Carolina ("location"). Specifically, the Department alleges that Respondents did not have a separate employee within each of three single places or premises ("game rooms A, B and D") at the location during business hours on Saturday, October 24, 1998. Collins denies any violation of the Act and/or the Regulation.

The Petitioner seeks revocation of the twenty (20) Class III video poker licenses at the location, a $5,000.00 fine and an Order prohibiting the licensing, usage and placement of any Class III video poker licenses at the location for a period of six months from the date of the license revocation.

After timely notice to the parties, a contested case hearing was held at the offices of the Administrative Law Judge Division ("Division"), Columbia, South Carolina on November 1, 1999.

At the call of the case, Rene Rott, a partner and 50 % part owner of Eastside Sports, admitted the violation as charged and alleged by the Department and agreed to pay to the Department a fine in the amount of One Thousand Five Hundred and no/100 ($1,500.00) Dollars, with the Department agreeing to waive any other fine or penalty. It appears to the court that the agreement by these parties was voluntarily made, is reasonable, and thus it is approved.

Based upon a thorough review of the record, post-hearing legal briefs, the relevant and probative evidence and applicable law as set forth hereafter, I conclude that Collins did not violate S.C. Code Ann. §12-21-2804(A) or S.C. Code Regs. 117-190 on October 24, 1998 and that the citation and charges alleged therein against this Respondent is dismissed.

ISSUES

1. Did Respondent/Collins violate the "single place" or "premises" provisions of S.C. Code Regs. 117-190 (Supp. 1998) and S. C. Code Ann. Section 12-21-2804(A) (Supp. 1998) when no employee(s) of Respondent/Eastside Sports was within each of three game rooms on October 24, 1998 when agents of the South Carolina Law Enforcement Division ("SLED") visited the location?

2. If Collins is found to have violated the statute and regulation, what is the appropriate penalty or fine?

EVIDENCE

Without objection, Petitioner placed into evidence a copy of the violation report, preliminary findings reports, video gaming establishment compliance checklist, sketch of the inside of the location, photographs of the exterior and inside of the location, biennial coin-operated device applications (Form L-2801) and business tax applications for the separate gaming rooms ("A", "B" and "D") at the location.

Revenue Officers Bennie L. Moore and Stacey Snow testified for the Petitioner. Respondent/Collins presented no testimony nor documentary evidence.

FINDINGS OF FACT

Having carefully considered all testimony and arguments presented at the hearing, taking into account the credibility of the witnesses, the accuracy of the evidence and having reviewed all 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 both parties.

3. Eastside Sports, a partnership of which Rene Rott is a 50 % owner and partner, owned and operated a mall type arrangement containing three separate video game businesses at 3715 East North Street, Greenville, Greenville County, South Carolina on October 24, 1998. They were known as and operated as Eastside Sports Cafe A, Eastside Sports Cafe B and Eastside Sports Cafe D. Each business operated within a separate room inside the building. Becky Holloway was the active manager of the business. As part of her job function, she hired and fired employees.

4. Each of the three game rooms contained five Class III video game machines. The owner/licensee of the video game machines was Collins.

5. Each of the three game rooms was surrounded by interior walls within the building which constitute exterior walls for purposes of each individual business. The only means of entry and exit to and from each game room was through a restaurant area.

6. Eastside Sports Cafe A game room contained five Class III video game machines with the following license numbers: 3925747, 3926901, 3926902, 396903 and 3926904. Eastside Sports Cafe B game room contained five Class II video game machines with the following license numbers: 3925681, 3925682, 3925683, 3925684 and 3925685. There were also five Class III video game machines in Eastside Sports Cafe D game room which had the following license numbers: 3925686, 3925687, 3925688, 3925689 and 3925690.

7. Each of the three game rooms or businesses had a separate state retail sales tax license, a separate local business license and a separate electric utility meter which was in working order. Also, the walls in each of the three game rooms were consistent with the county or city building code requirements and none of the exterior walls and/or firewalls had any windows, doors or other openings leading to another area where video game machines were located.

8. On Saturday, October 24, 1998, at approximately 12:00 a.m., SLED agents Stacey Snow and Bennie L. Moore conducted an investigation of the Eastside Sports at 3715 East North Street, Greenville, Greenville County, South Carolina. Agent Snow entered one game room and Agent Moore entered the other. Each agent inserted money and played a video game machine in the room he went into for approximately ten minutes. No employee or any other person was inside either room during the time the SLED agent was playing the machine. The lights were on inside the rooms, the video game machines were turned on and their lights were on. The doors to each game room were open.

9. Subsequently, Agent Snow went into game room "A" and began playing a video game machine. Later, Agent Moore came in. They played machines for approximately ten minutes. No one else was in the room during this period. The lights were on, the video game machines were operable and the lights inside them were on. The door to the room was open.

10. As a result of the inspection on October 24, 1998, SLED agent Stacey Snow issued

a preliminary findings report on all three game rooms at Eastside Sports Cafe, alleging that both Respondents were in violation of the "single place or premise" provision of S.C. Code Ann. § 12-21-2804 (Supp. 1998) by not having an employee in each of the game rooms while they were open and available for play. A copy of the reports was given to Rebecca J. Lamb, manager at the location who was an employee of Respondent/Eastside Cafe.

11. All three of the game rooms were open for business on October 24, 1998 when the inspection was conducted by SLED agents. Eastside Sports Cafe is now closed for business and all of the video game machines were picked up by Collins within several days after the preliminary findings reports were made by the SLED agents.

12. Collins was the licensee of the machines located in all three game rooms to which were affixed the licenses described in Finding # 6. Owner/identification stickers were on the machines at the time of the inspection.

13. Neither Collins nor any of its employees or agents had any ownership interest, or participated in the management or operation of Eastside Cafe or any of the three game rooms.

14. Collins owned the machines and placed them in the business location operated by Eastside Sports Cafe. Both Collins and Eastside Sports Cafe shared equally in the monies profited from the machines.

14. The Department seeks a $5,000.00 fine against Eastside Sports Cafe A, Eastside Sports Cafe B and Eastside Sports Cafe D, a fine of $15,000.00 ($5,000.00 for each game room) against Collins, together with revocation of the Class III machine licenses as delineated in Finding # 6 and the preclusion of the licensing, usage and placement of any Class III video game machines at 3715 East North Street, Greenville, Greenville County, South Carolina for a period of six months from the date of the license revocation.

15. It was the testimony of both SLED agents that Collins had not violated any statute or regulation under the Video Game Machines Act.

CONCLUSIONS OF LAW

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

1. Pursuant to S.C. Code Ann. § 12-4-30 (D) (Supp. 1998) and Chapter 23 of the Title 1 of the 1976 Code, as amended, the South Carolina Administrative Law Judge Division has jurisdiction in this matter.

2. The Video Game Machines Act ("Act"), which regulates video game 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. 1998). The purpose of the Act is to regulate the video game machines industry to prevent large-scale casino type gambling operations in the State of South Carolina. See Reyelt v. South Carolina Tax Comm'n, Nos. 6:93-1491-3 and 6:93-1493-3 (D.S.C. Nov. 15, 1993); see also Op. S.C. Att'y. Gen. 94-21 at 51 (1994).

3. S.C. Code Ann. § 12-21-2804(A) (Supp. 1998) prohibits the operation of more than five video game machines authorized under S.C. Code Ann. § 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 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. 1998).

5. Pursuant to S.C. Code Ann. § 12-21-2798 (Supp. 1998), the Department is authorized to promulgate regulations to assist in the administration and enforcement of the Video Game Machines Act.

6. On June 23, 1995, regulations were promulgated which further clarified the provisions of the Video Game Machines Act, and, as such, these regulations have the force and effect of law. See Young v. South Carolina Dep't of Highways and Pub. Trans., 287 S.C. 108, 336 S.E.2d 879 (1985). Specifically, Regs. 117-190 was promulgated to clarify the meaning of the phrase "single place or premises." S.C. Code Regs. 117-190 (Supp. 1998) defines "single place" or "premises" for purposes of interpreting the Video Game Machines Act, including § 12-21-2804(A), as follows:

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 separate sales tax licenses? 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.

7. The second criterion of Regs. 117-190 only requires that each separate game room have an employee working on the premises during business hours. There is no requirement that the employee remain within the four walls of the premises every minute he is on duty. An individual employed to work in a specific game room from time to time may stand outside. If he continues to observe the game room operation and remains in control of its operation, standing ready to assist in the totality of its operation, this criterion is complied with. In interpreting this regulation, the court must look to the purpose of the legislature in enacting § 12-21-2804(A) as a part of the Video Game Machines Act. Our courts have held that "all rules of statutory construction are subservient to the one that legislative intent must prevail if it can be reasonably discovered in the language used, and that language must be construed in the light of the intended purpose." Lewis v. Gaddy, 254 S.C. 66, 71, 173 S.E.2d 376, 378 (1970). Further, the South Carolina Supreme Court has stated that "the language of a revenue statute must not be extended beyond its clear import, the taxpayer being entitled to favorable resolution of any substantial doubt arising therefrom." Deering Milliken, Inc. v. S.C. Tax Comm'n, 257 S.C. 185, 187-88, 184 S.E.2d 711 (1971). The Court has further stated the rule that "The legislature must have intended to mean what it has plainly expressed, and consequently there is no room for construction...." Beaty v. Richardson, 56 S.C. 173, 34 S.E. 73 (1899).

The purpose of the Video Game Machines Act is to prevent large-scale casino type gambling operations in the State of South Carolina. Its intent is to limit five machines to each single place or business. The Department has promulgated Regs. 117-190 to clarify the statute and to assist in its implementation. It has not and can not add to or alter the statute. Society of Professional Journalists v. Sexton, 283 S.C. 563, 324 S.E.2d 313 (1984). The interpretation of the statute by the Department that a business entity must have an employee within the four walls of the business premises at all times adds to and alters the statute. Criterion # (2) is reasonable in its interpretation and applicable only to the extent that it requires the employment of an individual at each place or business during working hours but not to the extent it requires the employee to remain with the confines of the business at all times.

8. In this case, the evidence was uncontroverted that there was a manager/employee of Eastside Sports Cafe on duty at the location at the time of the investigation. There is no evidence that there were any employees hired or on location to assist in the operation of the three game rooms at the time of the visit by the SLED agents. Further, there were no employees assigned to or physically located in the three game rooms during the investigation.

The game rooms were open for business, the video game machines were plugged in, the lights were on inside them, and they were available for play. In fact, the agents played one or more machines in each of the three game rooms and they were the only one(s) in the rooms during their play. All three rooms were open for customers.

I conclude that the Respondent/Eastside Sports Cafe violated the "single place" or "premises" requirements of S.C. Code Ann. § 12-21-2804(A) and Regs. 117-190 on the date in question by failing to have employees on location for each of the three game rooms.

9. A person found to have violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1998) is subject to a fine of up to Five Thousand and no/100 ($5,000.00) Dollars and automatic revocation of the licenses of the 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.

I find and conclude that a fine of One Thousand Five Hundred and no/100 ($1,500.00) Dollars against Eastside Sports, as agreed to by the Department and Eastside Sports at the hearing, is reasonable and proper under the circumstances.

10. The Department argues that Collins, as the licensee of the Class III machines, is statutorily liable and should be fined for the violation, also. Collins posits that it has no day to day responsibility for the management or operation of the Eastside Sports Cafe, and thus it is not in violation of the single place or premise provisions of the statute and regulation. The Department states that the lack of control by the licensee over the day to day control of the machines should not relieve Collins from their exposure to possible violations, but only should be considered in mitigation.

S. C. Code Ann. § 12-21-2804 (A) provides that "No person shall apply for, receive, 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...." The number of machines is limited to five after July 1, 1994.

At the time of the inspection, there were only five video poker machines within each of the single places or premises. Thus, there is no violation of the number of authorized machines. The sole issue is whether Collins, as the owner of the machines and of the license on each one is in violation of the provision of the regulation which requires an employee to be within the location during its operation.

The Department argues that Collins is liable either under an agency theory for the acts or inactions of Eastside Sports Cafe, which the Department alleges is an "agent" of Collins, or that Collins is in violation of the statute by its "maintaining" the machines located within the locations.

One may appoint an agent to do whatever one can lawfully do personally, except that some acts are so personal that their performance cannot be delegated, and delegation of others may be prohibited by statute. An attempt to delegate to another authority to do an act which, if done by the principal, would be illegal is void. One cannot be an agent in the commission of a crime. 2A C. J. S. Agency §§ 25-26, p. 591. Further, a principal cannot give an agent authority to do any act which the principal himself cannot lawfully do. 2A C. J. S. Agency § 144, p. 765.

It is noted that a licensee of a liquor permit may be held liable for violations of liquor statutes and regulations committed by his agent while pursuing the ordinary business entrusted to him. The licensee is liable even though the violations are committed in his absence and without his knowledge, consent or authority. 48 C. J. S. Intoxicating Liquors § 276 (1981). However, in these liquor violation cases, the agent is an employee of the principal and subject to his control. Such is not the case in this instance. I find and conclude that under agency laws, Collins can not be held liable for violations of video game machine statutory provisions attributed to Eastside Sports Cafe and its employees/agents. It would be stretching the agency theory too far to include Eastside Sports as an agent of Collins when Eastside acted independently of Collins through the operation of its businesses which included all incidents thereof, i.e., hiring, managing and firing employees, purchasing and selling goods, filing tax and business returns, etc.

The word "permit", as used in the video poker statute, is defined as follows: "to allow the doing of (something); consent to; to grant leave or consent to (someone); authorize." The American Heritage College Dictionary, 1018 (3rd ed. 1993). Further, Black's Law Dictionary 1140 (7th ed. 1999), defines permit as "to consent to formally [permit the inspection to be carried out]; to give opportunity for, [lax security permitted the escape]; to allow or admit of [if the law so permits]." "Consent" is defined as "an act of reason, accompanied with deliberation, the mind weighing as in a balance the good or evil on each side." Black's Law Dictionary 304 (6th ed. 1990). Accordingly, to "permit the use of," clearly requires knowledge.

The fact that Collins owns the licenses and the machines does not automatically lead to the conclusion that, whenever those licenses or machines are located in an establishment, not under the ownership or control of Collins, which violates the criteria of the "single place or premises" regulation, Collins is per se liable for a violation of Section 12-21-2804(A). To hold Collins liable for a violation, the Department must prove that Collins knew that the licenses were being used in violation of the statute and that it acquiesced in such use by failing to take steps to prevent or correct the offending use. The evidence in this case showed that Collins had no control over the hiring, managing or firing of the employees of Eastside Sports and thus had no knowledge of any violation Eastside Sports and/or its employees might be charged with or found guilty of. There has not been a showing of that requisite element of control which would impute to Collins any violation caused by an act or actions of Eastside Sports Cafe.

The sole issue remaining is whether the placement of the video poker machines at the location and the maintenance of the machines by Collins equates to "maintaining the licenses at a single place or premise" within the meaning of the statute. The Department argues that the emphasis should be on the maintenance of the machines, considering such criteria as who (1) repairs and ensures their working condition, (2) shares in the profits and losses from their play, (3) provides their housing, (4) provides seating and equipment for customers, (5) provides employees and (6) provides adequate parking. I cannot conclude that a showing that Collins kept the machines in working condition and that it shared in the profits from their play is the equivalent of "maintaining" more than five licenses at a "single place or premise." For all the other criteria listed above, Eastside Sports had the sole responsibility. A clear reading of the statute evinces the legislative intent that licenses cannot be allowed on machines which are located in an establishment or location where they are in excess of the number allowed by law or do not otherwise meet the other criteria of the single place or premise as outlined in Regs. 117-190. Had there been some showing by the Department that Collins knew that the machines would be used in violation of the statute at the time the machines were placed in the establishment, or that Collins somehow became aware that the machines were being so used at some later date, Collins could be held liable for a violation. However, there has not been such a showing in this case. I therefore find this argument of the Department is without merit.

Accordingly, it is the finding and conclusion of this court that Collins is not in violation of S.C. Code Ann. 12-21-2804 (A) or the "single place or premise" requirements of Regs. 117-190.

11. 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 South Savings Bank, Inc. v. Gold Coast Assocs., 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. Creech v. South Carolina Pub. Serv. Auth., 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. Home Health Serv., Inc. v. South Carolina Tax Comm'n, 312 S.C. 324, 440 S.E.2d 375 (1994); Bryant v. City of Charleston, 295 S.C. 408, 368 S.E.2d 899 (1988). Where terms of a statute are clear and unambiguous, they must be applied according to their literal meaning. Medlock v. 1985 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). "A statute should be so construed that no word, clause, sentence, provision or part shall be rendered surplusage, or superfluous . . . ." 82 C.J.S. Statutes § 346; Savannah Bank & Trust Co. of Savannah v. Shuman, 250 S.C. 344, 157 S.E.2d 864 (1967). This tribunal has no legislative powers, and the justice or wisdom of statutes rests exclusively with the General Assembly. See Smith v. Wallace, 295 S.C. 448, 369 S.E.2d 657 (Ct. App. 1988).

It should be emphasized that S.C. Code Ann. § 12-21-2804(A) (Supp. 1998) clearly precludes any person, not just the licensees, from applying for, receiving, maintaining, or permitting to be used permits for the operation of more than five Class III video game machines in a single place or premises. The term "person" is not defined in the Act, but its common and ordinary meaning clearly encompasses an individual or a business entity as well as a licensee or machine owner. See Black's Law Dictionary 1142 (6th ed. 1995). Further, § 12-21-2804(A) mandates that the Department revoke the licenses of the machines located in an establishment which fails to meet the requirements of this section. Hence, § 12-21-2804(A) mandates revocation of the licenses so used, even if the licensee was not directly involved in applying for, receiving, maintaining, or permitting its licenses to be used in contravention of the statute. Such an interpretation is consistent with the plain language of the statute.

12. 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 the 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 S.C. Code Ann. § 12-21-2804(A) (Supp. 1998). S.C. Code Ann. § 12-4-30(D) (Supp. 1998).

13. The weight and credibility assigned to evidence presented at the hearing of a matter is within the province of the trier of fact. See South Carolina Cable Television Ass'n v. Southern Bell Tel. and Tel. Co., 308 S.C. 216, 417 S.E.2d 586 (1992). Furthermore, a trial judge, who observes a witness, is in the better position to judge the witness's demeanor and veracity and evaluate their testimony. See Mann v. Walker, 285 S.C. 194, 328 S.E.2d 659 (Ct. App. 1985); Marshall v. Marshall, 282 S.C. 534, 320 S.E.2d 44 (Ct. App. 1984); McAlister v. Patterson, 278 S.C. 481, 299 S.E.2d 322 (1982); Peay v. Peay, 260 S.C. 108, 194 S.E.2d 392 (1973).

14. 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. 1998).

15. S. C. Code Ann. § 12-21-2804(A) (Supp. 1998) states that the penalty for failing to comply with the maximum number of machines in a "single place or premise" is the revocation of the permits of machines located in the establishment, regardless of whether the violator is the licensee, machine owner, or lessee. However, a monetary fine under § 12-21-2804 (F) may only be imposed on the person directly involved in the violation of § 12-21-2804 (A). The Department failed to present sufficient evidence that Collins was directly involved in violating the Act.

16. S. C. Code Ann. § 12-21-2804 (F) (Supp. 1998) states that a person who violates Section 12-21-2804 (A) may be fined up to Five Thousand and no/100 ($5,000.00) Dollars.

ORDER

Based upon the foregoing Findings of Fact, Discussion and Conclusions of Law, it is hereby:

ORDERED that the agreement between the Department and Eastside Sports that Eastside Sports pay a fine to the Department in the amount of One Thousand Five Hundred and No/100 ($1,500.00) Dollars is found to be adequate and reasonable and is adopted by this court; and

IT IS FURTHER ORDERED that the citation and alleged violation against Collins is found to be without merit and is dismissed.

AND IT IS SO ORDERED.

_______________________________________

Marvin F. Kittrell

Chief Judge

Columbia, South Carolina

February 18, 2000