SC Administrative Law Court Decisions

This matter is before the Administrative Law Judge Division (Division) pursuant to S.C. Code Ann. §§ 1-23-310 et seq. (Supp. 1998) and S.C. Code Ann. § 12-4-30(D) (Supp. 1998) on alleged administrative violations. The South Carolina Department of Revenue (Department) alleges that Respondents violated S.C. Code Ann. § 12-22-740 (Supp. 1999) ⁽¹⁾ by allowing Class III machines, which were not in operation on or before May 31, 1999, to be operated at a casino. The alleged violations occurred on October 6, 1999, at the Stop Zone located in Little River, South Carolina.

The Department seeks fines in the amount of Twelve Thousand Five Hundred ($12,500.00) Dollars against Respondent Eugene E. Amick, d/b/a Stop Zone (Amick), as the location operator, and Twelve Thousand Five Hundred ($12,500.00) Dollars against Respondents Richard B. Amick and Bobby T. Gann, d/b/a York Amusement Company (York Amusement), as the machine owners. The Department also seeks revocation of all the retail sales licenses, video game establishment licenses and individual machine licenses for the locations and machines involved in this violation.

The hearing in this matter was held before me at the Division on June 8, 2000. At the hearing, the parties submitted Stipulated Facts, which are incorporated herein below.

Having observed the witnesses and exhibits presented at the hearing and closely passed upon their credibility, taking into consideration the burden of persuasion by the parties, I make the following Findings of Fact by a preponderance of evidence:

1. Notice of the time, date, place and subject matter of the hearing was given to the Department and the Respondents.

2. The Stop Zone was located at 787-B Highway 17 North, Little River, South Carolina. The following Class III video game machine licenses were located in the respective game rooms:

Location Machine License #

Little River Room 1 3011706

Little River Room 1 3011707

Little River Room 1 3011708

Little River Room 1 3011709

Calabash Room 2 3011740

Calabash Room 2 3011741

Calabash Room 2 3011742

Calabash Room 2 3011743

Calabash Room 2 3011744

Sunset Room 3 3011705

Sunset Room 3 3011721

Sunset Room 3 3011722

Sunset Room 3 3011730

Ocean Isle Room 4 3011732

Ocean Isle Room 4 3011739

Ocean Isle Room 4 3011746

Ocean Isle Room 4 3011747

Holden Beach Room 5 3011758

Holden Beach Room 5 3011759

Holden Beach Room 5 3011763

Holden Beach Room 5 3011764

Shallotte Room 6 3011767

Shallotte Room 6 3011768

Shallotte Room 6 3011769

Shallotte Room 6 3023104

At the hearing on this matter, the parties entered the following written stipulations into the record:

1. On October 6, 1999, the Respondents held the following South Carolina retail sales tax licenses for the video poker premises located at 787-B Highway 17 North, Little River, South Carolina, and noted below:

d/b/a Retail/Sales Tax License No.

Little River Room 1 026-47008-8

Calabash Room 2 026-47009-7

Sunset Room 3 026-47010-4

Ocean Isle Room 4 026-47011-3

Holden Beach Room 5 026-47012-2

Shallotte Room 6 026-47013-1

2. On October 6, 1999, York Amusement held the Class III machines (acquired pursuant to S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1998) listed above in Findings of Fact No. 2 for video poker machines at each of the premises noted above.

3. On October 6, 1999, Respondent Eugene E. Amick held the following video game establishment licenses:

Location Establishment Lic. No.

Little River Room 1 85507621-1

Calabash Room 2 85507622-0

Sunset Room 3 85507623-9

Ocean Isle Room 4 85507625-7

Holden Beach Room 5 85507626-6

Shallotte Room 6 85507627-5

4. On October 6, 1999, the structure containing multiple premises with video poker machines located at 787-B Highway 17 North, Little River, South Carolina, was a "casino" as defined in S.C. Code Ann. § 12-22-740 (Supp. 1999).

5. On October 6, 1999, York Amusement held owner/operator's license number #32770.

6. On October 6, 1999, the Stop Zone located at 787-B Highway 17 North, Little River, South Carolina, contained the licenses listed in Stipulations of Fact No. 3.

7. The Stop Zone did not initially open for business until after May 31, 1999.

8. On October 6, 1999, agents of the South Carolina Law Enforcement Division (SLED) conducted an investigation of the Stop Zone. During that inspection, SLED agents observed video poker machines that were operational and available for play. The SLED agents were told that the location had not opened prior to May 31, 1999.

9. On October 6, 1999, the six rooms containing machines were each "single places or premises," as defined, applied and interpreted by 27 S.C. Code Ann. Regs. 117-190 (Supp. 1998), on or before May 31, 1999. The six rooms were all located within a single structure.

10. None of the single places or premises in the structure at 787-B Highway 17 North, Little River, South Carolina met the qualifications of Regulation 117-190 on May 31, 1999.

11. H. 3834, 113^th General Assembly Spec. Sess. (S.C. 1999), Section 12-22-740, was signed by the Governor on July 2, 1999.

12. Respondents were notified by a Preliminary Findings Report and Final Agency Determination of Section 12-22-740 violations that are the subject of this action, in which, inter alia, the Respondents were notified of the Department's intent to revoke all the machine licenses, establishment licenses, retail sales licenses, and owner/operator licenses forth above, and the Department's intent to invoke penalties in the amount of Twelve-Thousand Five Hundred ($12,500.00) Dollars.

13. The single structure building in issue, located at 787-B Highway 17 North, Little River, South Carolina, had previously been operated as a casino by the Respondents in 1994 and 1995 under the name "The Golden Horseshoe." The business was shut down and laid dormant for a number of years until March 1999, when the Respondents decided to re-open the business and operate it as a casino. At that time, the Respondents remodeled the building. From March 23, 1999 until April 8, 1999, the Respondents used their own employees to do remodeling work.

14. On April 1, 1999, the Respondents contracted with Jim Kidd to bring the firewalls up to date, take out the existing bar, put in new ceiling tiles, paint the wall and trim, and to bring the electrical systems up to code. Mr. Kidd commenced the work on the Stop Zone on April 1, 1999, and invoiced the Respondents in the amount of Ten Thousand Six Hundred Fifty-Six and 78/hundredths ($10,656.78) Dollars on September 3, 1999.

15. On March 28, 1998, the Respondents bought seventy-six Class III licenses which were used at other locations prior to the opening of the Stop Zone. On November 18, 1998, the Respondents bought three more Class III licenses which were also used at other locations prior to the opening of the Stop Zone. On May 26, 1999, the Respondents applied for sixty-five six month Class III licenses. These licenses were approved by the Department, but not used by the Respondents. The Horry County licenses were bought on August 18, 1999.

16. The property and building which is the subject of this violation have been owned by Respondent York Amusement Company since at least 1994.

17. The casino officially opened on September 8, 1999.

18. Respondent expended substantial time and money in this project prior to May 31, 1999.

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

1. S.C. Code Ann. §§ 1-23-310 and 1-23-600 (Supp. 1998) grant jurisdiction to the Administrative Law Judge Division to hear contested cases under the Administrative Procedures Act. Jurisdiction specifically over Department of Revenue contested cases is supplied by S.C. Code Ann. § 12-4-30(D) (1998).

2. S.C. Code Ann. § 12-22-740 (Supp. 1999) prohibits casinos, as defined in the statute, unless the casino meets certain conditions allowing it to be "grandfathered" in as an existing casino:

(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.

3. The structure at issue in this case contained six video poker rooms which each housed at least four machines. Therefore, the Stop Zone meets the structural definition of casino as defined in S.C. Code Ann. § 12-22-740 (Supp. 1999). Furthermore, there were no Class III machines operating in the casino on or before May 31, 1999. Pursuant to the parties' stipulated facts, the Respondents did not begin operating machines until September 8, 1999. Therefore, under these circumstances, the casino did not meet the requirements of Section 12-22-740(B). Consequently, the Respondents were operating twenty-five machines at a casino on October 6, 1999, in violation of Section 12-22-740.

4. The Respondents argue that Section 12-22-740 is unconstitutional as retroactive land-

use legislation affecting vested property rights. The Administrative Law Judge Division, however, may not rule upon the constitutionality of a statute. See Great Games, Inc. V. S.C. Dept. of Revenue, Op. No. 25081 (S.C. filed March 6, 2000) (Shearouse Adv. Sh. 9 at 36). Therefore, this tribunal declines to address the Respondents' arguments concerning the constitutionality of a statute.

5. The Respondents also argue that they had a vested property right because of their substantial investment in the casino. Furthermore, the Respondents argue that the Department's actions are an unconstitutional deprivation of property rights. However, 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 a forum having jurisdiction to award monetary damages. See Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992).

6. The Administrative Law Judge Division has the authority to establish the imposition of a penalty for a violation. Inherent in and fundamental to the quasi-judicial powers of an Administrative Law Judge, as the trier of fact in contested cases under the Administrative Procedures Act, is the authority to decide the appropriate sanction when such is disputed. Walker v. South Carolina ABC Comm'n, 305 S.C. 209, 407 S.E. 2d 633 (1991).

To that end, the Administrative Law Judge must consider relevant evidence presented in mitigation. Mitigation is defined as a lessening to any extent, great or small. It may be anything between the limits of complete remission on the one hand and a denial of any relief on the other. In a legal sense, it necessarily implies the exercise of the judgment of the court as to what is proper under the facts of the particular case. 58 C.J.S. Mitigation p. 834-835 (1948). A legitimate as well as a significant consideration is whether the alleged mitigating factor demonstrates reasonable cause to reduce the penalty. Kroger Co. v. Department of Revenue, 673 N.E. 2d 710 (Ill. 1996). 7. The Department seeks a total fine of Twenty-five Thousand ($25,000.00) Dollars against the Respondents. The general penalty provision of S.C. Code Ann. § 12-54-43(H) (Supp. 1999) (effective for taxable year after 1998) applies to this violation:

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.

(Emphasis added.)

In the present case, the Respondents failed to comply with the statutory provisions governing casinos. Therefore, I find that the imposition of a monetary penalty is proper. However, I find that the facts in this case warrant a penalty less than the maximum of Five Hundred ($500.00) Dollars per violation. The Respondents carried out their preparations for opening the casino in good faith reliance on the law as it existed prior to the enactment of S.C. Code Ann. § 12-22-740 on July 2, 1999. In fact, the stipulated facts indicate that the Respondents began construction on this building in March 1999. As noted above, H. 3834 was signed by the Governor on July 2, 1999 but was made retroactively effective to May 31, 1999. Accordingly, since the Governor holds the power to veto a bill and could have exercised his veto authority with H.3834, I find the retroactive application of this bill to be a mitigating factor in this case.

Based upon the foregoing Findings of Fact and Conclusions of Law,

IT IS HEREBY ORDERED that Respondent Amick shall pay a fine to the Department in the amount of Ten Thousand ($10,000.00) Dollars and Respondent York Amusement shall pay a fine to the Department in the amount of Ten Thousand ($10,000.00) Dollars for the violations of S.C. Code Ann. § 12-22-740 (Supp. 1999).

AND IT IS SO ORDERED.

Ralph King Anderson, III

Administrative Law Judge

November 20, 2000

Columbia, South Carolina

1. Throughout this Final Order and Decision, Section 12-22-740 is cited to the 1999 Supplement to accurately reflect the relevant law on the dates of the violations.