SC Administrative Law Court Decisions

I. Statement of the Case

The South Carolina Department of Revenue (DOR) seeks to revoke fifteen video poker licenses and three retail licenses and impose penalties of $7,500 on James R. McDonald, III (McDonald) as the machine owner and $7,500 on Maxine Norman Bush (Bush) as the location owner. Both Bush and McDonald oppose DOR's position.

The disagreement by the parties places jurisdiction in the Administrative Law Judge Division (ALJD) under S.C. Code Ann. §§ 12-60-1310, 12-60-1320, 1-23-600 (Supp. 1999). After a hearing of this matter held on March 8, 2000 at the Edgar Brown Building, Columbia, South Carolina, I conclude that the revocation is proper. I further conclude that a fine of $3,750 is imposed on McDonald and a fine of $3,750 is imposed on Bush.

II. Issue

Did Bush and McDonald allow Class III machines to be operated at a casino in violation of S.C. Code Ann. § 12-22-740 (Supp. 1999) and if so what is the appropriate penalty?

III. Analysis

Casino Violation

1. Positions of Parties

DOR seeks to revoke the Class III machine licenses and the retail licenses of Bush and McDonald based on the operation of a "casino" in violation of S.C. Code Ann. § 12-22-740 (Supp. 1999). Further, DOR seeks penalties totaling $15,000.

Bush and McDonald first argue that the statute is invalid and cannot be enforced.⁽¹⁾ Next, if the statute is valid, they argue their casino is "grandfathered" and is therefore a proper casino. Finally, they assert that if a violation is found, the violation is only a technical one and does not warrant the maximum penalty allowed by law.

2. Findings of Fact

The parties placed in evidence a series of stipulated facts. Since those facts are sufficient to decide the legal issues raised, the Findings of Fact in this case consist of the stipulated facts as set out here:

• On August 3, 1999, Maxine Norman Bush held the following South Carolina retail/sales tax licenses for the video poker premises noted below:

D/B/A LOCATION RETAIL/SALES TAX LIC. #

Stormin' Norman's Rm 2 122 Lakeshore Dr. 03710450-1

Fairplay, S.C.

Stormin' Norman's Rm 8 122 Lakeshore Dr. 03710956-5

Fairplay, S.C.

Stormin' Norman's Rm 9 122 Lakeshore Dr. 03710957-4

Fairplay, S.C.

• On August 3, 1999, James R. McDonald, III, held the following video poker licenses (acquired pursuant to S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1999), commonly referred to as "Class III" machines and licenses) that were on McDonald Amusement Company's video poker machines at each of the premises noted below:

MACHINE LICENSE # PREMISES

3161856 Stormin' Norman's Room 2

3161857 Stormin' Norman's Room 2

3161858 Stormin' Norman's Room 2

3161859 Stormin' Norman's Room 2

3161860 Stormin' Norman's Room 2

3161757 Stormin' Norman's Room 8

3161758 Stormin' Norman's Room 8

3161759 Stormin' Norman's Room 8

3161760 Stormin' Norman's Room 8

3161756 Stormin' Norman's Room 8

3019999 Stormin' Norman's Room 9

3020000 Stormin' Norman's Room 9

3019997 Stormin' Norman's Room 9

3019996 Stormin' Norman's Room 9

3019998 Stormin' Norman's Room 9

• On August 3, 1999, the structure containing multiple premises with video poker machines located at 122 Lakeshore Drive, Fairplay, South Carolina was a "casino" as that term is used in S.C. Code Ann. § 12-22-740 (Supp. 1999).



• On August 3, 1999, the casino located at 122 Lakeshore Drive, Fairplay, South Carolina contained the video poker premises and retail licenses noted in Stipulation # 1.



• The casino did not initially open for business until after May 31, 1999. It was not open for business on or before May 31, 1999.



• There were no Class III video poker machines in operation in the casino, to include Rooms 2, 8 and 9, located at 122 Lakeshore Drive, Fairplay, South Carolina, on or before May 31, 1999.



• The casino and each premises within it, to include Rooms 2, 8 and 9, did not comply with the requirements of 27 S.C. Code Ann. Regs. 117-190 (Supp. 1999) on or before May 31, 1999.



• On July 8, 1999, agents of the South Carolina Law Enforcement Division ("SLED") conducted an investigation of the casino located at 122 Lakeshore Drive, Fairplay, South Carolina, 29643.

9. The agents observed the casino was newly constructed and the driveway had yet to be paved.

• Blue Ridge Electric Power Company business records show the casino first received power on June 28, 1999.

11. The building permit for the casino was issued on June 14, 1999 from Oconee County.

12. On July 8, 1999, agents conducted an inspection of the location and observed machines were operational and available for play. They were told that the location opened on June 29, 1999.

13. On August 3, 1999, at the time of the SLED agent's inspection, Rooms 2, 8 and 9, located in the casino, were open for business and the machines were available for play.

14. S.C. Code Ann. § 12-22-740 was signed by the Governor on July 2, 1999.

• Respondents were notified by an Initial letter of Violation and a Final Determination of Section 12-22-740 violations that are the subject of this action.



• A contract for sale was signed on April 8, 1999 and the deed for the location was dated April 16, 1999.

17. A septic permit was issued to the location on March 27, 1999.

• A Sales Order was entered into on April 19, 1999 for the building in the amount of $107,625.00.



• A building permit was issued to James E. Norman on June 14, 1999 for the location at 122 Lakeshore Drive, Fairplay, South Carolina.⁽²⁾



• An Electric Service Installation Agreement was signed by James E. Norman and a representative of Blue Ridge Electric Cooperative, Inc. on April 26, 1999 for service at the 122 Lakeshore Drive location.



• An Application for Encroachment Permit was signed by James Norman and South Carolina Department of Transportation approval was given by W.P. Nicholson on June 14, 1999. This encroachment was for two driveway entrances at the 122 Lakeshore Drive location.

• Machine licenses were issued and valid for the dates of May 31, 1999 to May 31, 2001.

23. The retail licenses for the location were issued on June 1, 1999.

24. Machines were placed in the business on June 29, 1999.

3. Conclusions of Law

Based upon the above Findings of Fact, I conclude as a matter of law, the following:

a. Introduction

DOR seeks to establish that Bush and McDonald violated S.C. Code Ann. 12-22-740 (Supp. 1999). The statute seeks to prohibit "casinos" as that term is defined in the statute. However, under certain conditions the statute allows casinos to be "grandfathered" and thus allows those casinos to operate. The specific language of S.C. Code Ann. 12-22-740 (Supp. 1999) is as follows:

(A)(1) Except as provided in subsection (B), machines shall not be operated or continue to operate at any casino. For purposes of this chapter, the term 'casino' shall mean both of the following:

(a) any two or more 'single place or premises', as that term was defined, applied, and interpreted in Regulation 117-190 on or before May 31, 1999, that are located within a single structure; and

(b) beginning December 1, 1999, any two or more establishments located within one hundred feet of each other that have establishment licenses issued to the same person or a person who has the same principals. . . .

(B)(1) A casino shall not operate or continue to operate except as provided in this subsection. No casino shall continue to operate as a casino unless on May 31, 1999:

(a) machines were both licensed and in operation within each 'single place or premises' as that term was defined, applied, and interpreted in Regulation 117-190 on or before May 31, 1999; and

(b) each single place or premises within the casino met the qualifications of Regulation 117-190 and a certificate of occupancy, if otherwise required by law, has been issued for the structure within which two or more single places or premises are located.

b. Validity and Enforcement of Section 12-22-740

Bush and McDonald argue that S.C. Code Ann. § 12-22-740 (Supp. 1999) cannot be enforced against them since the statute has been rendered invalid and unenforceable by a decision of the South Carolina Supreme Court, is unconstitutional on its face, and takes away a vested property right resulting in an unconstitutional taking.

i. Impact of Joytime, infra. on § 12-22-740.

The argument is that no violation can be established by DOR since §12-22-740 is invalid under the holdings of Joytime Distributors v. State of South Carolina, Op. No. 25007 (S.C.Sup.Ct. filed October 14, 1999) (Shearouse Adv. Sh. No. 32 at 10). I cannot agree.

Certainly, it is true that Joytime declared Part II of the Act invalid. Part II of the Act provided for a referendum on the legality of video game machine payouts and provided for specific regulation of the industry with the regulation contingent upon the outcome of the referendum. Joytime, Shearouse Adv. Sh. No. 32 at 20, 23, 25. However, the statute in dispute in this case is §12-22-740. That statute is not in Part II. Rather, § 12-22-740 is included in Part III of the Act and § 12-22-740 is not a section contingent upon the referendum. Indeed, § 12-22-740 became effective upon the signature of the Governor on July 2, 1999.⁽³⁾

Not only did § 12-22-740 became law upon the Governor's signature, but also no subsequent action has yet repealed § 12-22-740. In particular, while the Act contains language that could accomplish a repeal of § 12-22-740, that repeal language was never triggered. Rather, the trigger for repeal was the outcome of a referendum. No referendum was ever held.

Moreover, Joytime expressly invalidated any provision of Act 125 if that provision was contingent upon the outcome of the referendum. The provision of Act 125 which could have accomplished a repeal of § 12-22-740 was a provision contingent upon the outcome of the referendum. Thus, the provision of Act 125 expressly repealing § 12-22-740 could not and did not take effect. Therefore, no repeal of § 12-22-740 has occurred.

While no express repeal of § 12-22-740 has yet occurred, by operation of law a repeal by implication will occur, but that event will not become operative until July 1, 2000. On that date, Part I of Act 125 imposes a total ban on video poker. Such an absolute prohibition will by necessary implication repeal § 12-22-740 and its regulation of a "casino." Joytime, Shearouse Adv. Sh. 32 at 22, 1999 WL 969280, * 9 ("The provisions [that are only repealed in the case of a majority "no" vote on the referendum] are not inconsistent with the intent of the legislature to ban video gaming on July 1, 2000. Should the legislature fail to repeal those provisions when it reconvenes, they will be repealed by necessary implication.").⁽⁴⁾ Thus, from July 2, 1999 until July 1, 2000, § 12-22-740 was and will remain the operable law governing "casinos." Accordingly, Bush and McDonald are subject to the requirements of § 12-22-740 and that statute is enforceable against them.

ii. Unconstitutionality of § 12-22-740

Bush and McDonald argue that the fifteen violations cannot result in revocations or penalties since § 12-22-740 is unconstitutional on its face. DOR asserts the argument should not be addressed by the ALJ since an ALJ does not have the authority to address the constitutionality of a statute. DOR is correct.

The South Carolina Supreme Court has expressly stated that an administrative law judge has no authority to pass upon the constitutionality of a statute. See Great Games, Inc. v. South Carolina Department of Revenue, Op. No. 25081 (S.C.Sup.Ct. filed March 6, 2000) (Shearouse Adv. Sh. 9 at 36). The Administrative Law Judge Division is an agency of the executive branch of the government, and as such, it must follow the law as written until its constitutionality is judicially determined. Beaufort County Board of Education v. Lighthouse Charter School Committee, Op. No. 24950 (S.C.Sup.Ct. filed June 1, 1999) (Shearouse Adv. Sh. 19 at 32). Therefore, no decision is reached on whether § 12-22-740 is unconstitutional on its face.

iii. Vested Rights and Unconstitutional Taking By § 12-22-740

Bush and McDonald also argue that because the casino was completed prior to the enactment of §12-22-740, they had a vested right to use the location as a casino. Therefore, they argue, DOR's enforcement action to revoke their licenses is an unconstitutional deprivation of their property rights which results in an unconstitutional taking. Accordingly, they argue the violation should be dismissed. I cannot agree.

An administrative enforcement action cannot be dismissed on the basis that the action may result in an unconstitutional taking of property. Rather, the appropriate redress for a takings claim is in another forum having jurisdiction to award money damages. See Lucas v. South Carolina Coastal Council, 112 S.Ct. 2886 (1992) (State must pay compensation to landowner where it seeks to sustain regulation that deprives land of all economically beneficial use); Agins v. City of Tiburon, 100 S.Ct. 2138, 2143, n. 2 (1980) ("Inverse condemnation is 'a shorthand description of the manner in which a landowner recovers just compensation for a taking of his property when condemnation proceedings have not been instituted.'"). Thus, no dismissal of the violations is proper.

Further, and in all events, this administrative enforcement action cannot be successfully challenged under a takings argument since no fundamental right to gamble exists and no such alleged right is protected by the Federal Constitution. Army Navy Bingo, Garrison No. 2196 v. Plowden, 281 S.C. 226, 314 S.E.2d 339 (1984), citing Lewis v. United States, 75 S.Ct. 415 (1955). Here, Bush's and McDonald's use of the building as a casino is entirely dependent upon regulatory licensing in this State, and such an interest is not a property interest that is compensable under the takings clause. Mibbs, Inc. v. South Carolina Department of Revenue, Op. No. 25024 (S.C.Sup.Ct. filed December 6, 1999) (Shearouse Adv. Sh. 37 at 9).

Rather than a property interest, the licenses involved in this dispute are merely permits issued pursuant to the State's police power. See Army Navy Bingo, Garrison No. 2196 v. Plowden, 281 S.C. 226, 314 S.E.2d 339 (1984); Feldman v. South Carolina Tax Comm'n, 203 S.C. 49, 26 S.E.2d 22 (1943). A license is not a contract, but rather is a special privilege. Heslep v. State Hwy. Dep't, 171 S.C. 186, 171 S.E. 913 (1933). A license creates neither a vested nor a permanent right. Id. It is a creature of statute, and the rights of the licensee are only as the statute confers. See State ex rel. Pollard v. Superior Court of Marion County, 233 Ind. 667, 122 N.E.2d 612 (1954). The license is to be enjoyed only so long as the licensee complies with the restrictions and conditions governing its continuance. Feldman v. South Carolina Tax Comm'n, 203 S.C. 49, 26 S.E.2d 22 (1943).

No person can acquire a vested right to continue, when once licensed, in a business, trade or profession which is subject to legislative control and regulation under the police power, as regulations prescribed for such may be changed or modified by the legislature, in the public interest . . . .

Dantzler v. Callison, 230 S.C. 75, 94 S.E.2d 177 (1956). Thus, the takings argument must fail.

c. Grandfathering The Casino In This Dispute

Given that §12-22-740 is a valid and enforceable statute, Bush and McDonald argue no violation has occurred since their casino is a permitted casino "grandfathered" in as an existing casino allowed by the statute. Again, I cannot agree with Bush and McDonald.

The parties have stipulated that (1) the structure at issue met the definition of "casino" as defined in section 12-22-740; (2) three of the game rooms in the casino were open for business and their machines were available for play; (3) there were no Class III machines in operation within the casino on or before May 31, 1999; and (4) the casino and each premises within it did not comply with Regulation 117-190 on or before May 31, 1999. Under these circumstances, the casino does not meet the statutory requirements necessary for it to be grandfathered in under the statute.

d. Determination of Violation

Since the casino has not been grandfathered in under the statute, the next determination is whether Bush and McDonald have violated § 12-22-740. I find violations have been proven.

Section 12-22-740 is violated when a Class III machine is operated at any casino: "Except as provided in subsection (B), machines shall not be operated or continue to operate at any casino." S.C. Code Ann. § 12-22-740(A)(1) (Supp. 1999). Here, fifteen violations have been proven.

Bush and McDonald stipulated the facility in dispute is a "casino" within the meaning of § 12-22-740. Further, the evidence establishes that fifteen Class III machines were operated at the casino on August 3, 1999, well beyond the July 2, 1999 effective date of the statute. Thus, a violation is proven unless the casino is within the "grandfathering" provisions of subsection (B) of the statute. As discussed above, the Bush and McDonald casino is not within the grandfathering provision. Therefore, Bush and McDonald committed fifteen violations of § 12-22-740 on August 3, 1999.

e. Applicable Penalties

DOR seeks the imposition of a monetary penalty of $7,500 against Bush and $7,500 against McDonald and seeks the revocation of all machine licenses and retail licenses involved in this case. I find that a monetary penalty of $3,750 against Bush and $3,750 against McDonald is warranted under the facts of this case. Further, I find that revocation of the machine licenses and retail licenses is authorized by law and is appropriate.

i. Monetary Penalty

The penalty provisions in Part III of Act 125 were invalidated by the Supreme Court's decision in Joytime. Therefore, the general penalty provision of S.C. Code Ann. § 12-54-43(H) (Supp. 1999) applies to the violation. Section 12-54-43(H) provides:

A person who must obtain a license or purchase stamps for identification purposes, and who fails to obtain or display the license properly, or to affix the stamps properly, or to comply with statutory provisions, is subject to a penalty of not less than fifty dollars nor more than five hundred dollars for each failure.

Here, Bush and McDonald have failed to comply with the statutory provisions governing casinos. Accordingly, a penalty is proper.

Where the General Assembly authorizes a range for an administratively imposed penalty, the administrative adjudicator sitting as the fact-finder may set the amount of the penalty after a hearing on the dispute. Walker v. South Carolina ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633 (1991). When penalty disputes are part of the factual issues for decision, the fact-finder must receive evidence and make a determination on all such factual disputes arising from the contested case. S.C. Code Ann. § 1-23-350 (Rev. 1986).

Here, the facts warrant a penalty less than the maximum allowed. The casino was completed prior to the July 2, 1999 passage of Act 125. The evidence establishes the construction was carried out in a good faith reliance on the status of the law as it existed prior to July 2, 1999. Further, Bush and McDonald both sought and obtained machine licenses and retail licenses from DOR prior to July 2, 1999. Indeed, DOR issued the machine licenses purportedly effective from May 31, 1999 to May 31, 2001 and issued the retail licenses on June 1, 1999. Under such circumstances, the imposition of a $250 fine, rather than a $500 fine, for each violation of section 12-22-740 is appropriate.

Accordingly, Bush committed 15 violations of the statute and McDonald committed 15 violations. Therefore, a fine of $3,750 is imposed against Bush and a fine of $3,750 is imposed against McDonald.

ii. Revocation

South Carolina Code Ann. § 12-54-90(A) (Supp. 1999) provides as follows:

When a person fails, neglects, violates, or refuses to comply with a provision of law or regulation administered by the department, the department, in its discretion, may revoke one or more licenses held by the taxpayer within ten days of notification in writing of the taxpayer's failure to comply.

DOR has established that Bush and McDonald violated § 12-22-740. Further, the parties have stipulated that DOR notified Bush and McDonald in writing of the violations by its Final Agency Determination dated October 14, 1999. In addition, the penalty of a revocation of all machine licenses and retail licenses involved in the violation is appropriate given the illegality of their use on the date of the inspection. Therefore, McDonald's fifteen machine licenses and Bush's three retail licenses for Stormin' Norman's Rooms 2, 8 and 9 are revoked.

IV. Order

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

A fine of $3,750 is imposed upon Bush and a fine of $3,750 is imposed upon McDonald. The fifteen Class III machine licenses held by McDonald and the three retail licenses held by Bush are revoked effective as of the date of this order.

AND IT IS SO ORDERED.

____________________________

RAY N. STEVENS

Administrative Law Judge

Dated: April 17, 2000

Columbia, South Carolina

1. In particular, their challenge is that S.C. Code Ann. § 12-22-740 (Supp. 1999) has been rendered invalid by a decision of the South Carolina Supreme Court, is unconstitutional on its face, and takes away a vested property right resulting in an unconstitutional taking.

2. The parties' written stipulation indicates "121 Lakeshore Drive;" (emphasis added) however, this appears to be a typographical error.

3. The Supreme Court in Joytime implied in dicta that the effective date of all of Part III of the Act is contingent upon the outcome of the referendum contained in Part II. Joytime, Shearouse Adv. Sh. 32 at 22. It is clear, however, from a reading of Section 23(B) of the Act that section 12-22-740, which was included in Part III of the Act, was not made contingent upon the referendum and that it went into effect upon the signature of the Governor.

4. Citing Yahnis Coastal, Inc. v. Stroh Brewery Company, 295 S.C. 243, 368 S.E.2d 64 (1988). In Yahnis, the Court held that if statutes in apparent conflict are incapable of any reasonable reconcilement, the last statute passed will prevail, so as to impliedly repeal the earlier statute to the extent of the repugnancy. Yahnis, 368 S.E.2d at 66 (1988).