SC Administrative Law Court Decisions

STATEMENT OF THE CASE

This matter is before this tribunal for a contested case hearing pursuant to S.C. Code Ann. §§ 1-23-310et seq. (2000) and S.C. Code Ann. § 12-4-30(D) (2000) on alleged administrative violations. The South Carolina Department of Revenue (Department) alleges that Respondents violated S.C. Code Ann. § 12-22-740 (2000) by allowing Class III machines, which were not in operation on or before May 31, 1999, to be operated at a casino.

For the alleged violations of section 12-22-740 (2000), the Department seeks total fines of $22,500 against Respondent James R. McDonald, III (McDonald), as the machine owner, and $22,500 against Respondent McDonald's Amusements, Inc. (McDonald's Amusements), as the location operator. The Department also seeks the revocation of the forty-five (45) machine licenses and the revocation of McDonald's operator license.

The hearing of this matter was held on November 2, 2000 at the Administrative Law Judge Division. The issues before this tribunal are (1) whether S.C. Code Ann. § 12-22-740 has been rendered invalid by the South Carolina Supreme Court's opinion in Joytime Distributors v. State of South Carolina, 338 S.C. 634, 528 S.E.2d 647 (1999); (2) whether section 12-22-740 (2000) is unconstitutional on its face; (3) whether Respondents obtained a vested property right for which there was an unconstitutional deprivation; and (4) whether the Department imposed the appropriate penalties for the violations.

STIPULATED FACTS

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

1. On July 13, 1999, at 5:45 p.m., the South Carolina Law Enforcement Division (SLED) issued James R. McDonald, III and McDonald's Amusements, Inc. preliminary findings reports for operating forty-five (45) machines at a casino as prohibited by S.C. Code Ann. § 12-22-740(A) (2000).

1. On July 27, 1999, the Department issued violations to McDonald and McDonald's Amusements for the offenses listed in paragraph 1. The Department informed McDonald's Amusements that it intended to revoke its retail sales and machine licenses in use on the premises, and it intended to assess penalties totaling $22,500. The Department informed James McDonald that it intended to revoke his owner-operator's license and the machine licenses in use on the premises. On December 14, 1999, the Department issued its Final Determination holding that James McDonald and McDonald's Amusements violated S.C. Code Ann. § 12-22-740(A) (2000) on July 13, 1999, and assessed $22,500 in penalties against McDonald's Amusement and $22,500 in penalties against James McDonald. The Department also informed the parties that it intended to revoke the retail sales tax licenses, establishment licenses, and machine licenses that were in use at 107 Crossover Drive, Blacksburg, South Carolina on July 13, 1999.

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

1. The construction contract for the structure at 107 Crossover Drive, Blacksburg, South Carolina was executed on or about March 3, 1999, and construction began on February 22, 1999.

1. The structure at 107 Crossover Drive, Blacksburg, South Carolina is owned by Coastal Real Estate of South Carolina.

1. The structure at 107 Crossover Drive, Blacksburg, South Carolina contains nine rooms each containing five machines licensed under the provisions of S.C. Code Ann. § 12-21-2720(A)(3) (2000).

1. On July 13, 1999, at the time of the inspection by SLED, the machines were in operation and were accessible for the public to play.

1. On July 13, 1999, the nine rooms containing machines were each "single places or premises," as that term was defined, applied and interpreted by Regulation 117-190, on or before May 31, 1999. The nine rooms were all located within a single structure.

1. The machine owner delivered machines to the nine "single places or premises" at 107 Crossover Drive, Blacksburg, South Carolina on or about June 25, 1999. Prior to that date, there were no machines licensed or in operation in the structure.

1. None of the single places or premises in the structure at 107 Crossover Drive, Blacksburg, South Carolina met the qualifications of Regulation 117-190 on May 31, 1999.

1. The building permit for McDonald's Amusements, Inc., d/b/a Broadway 85 was issued on February 26, 1999, along with the inspection card.

1. The septic permit was issued on February 16, 1999.

1. The order for the building was placed on February 22, 1999, and the contract was executed on March 3, 1999.

1. A final payment was made on the building on May 4, 1999, with the total purchase price being $108,722.25.

CONCLUSIONS OF LAW AND ANALYSIS

1. Jurisdiction

Pursuant to S.C. Code Ann. § 12-4-30(D) (2000) and S.C. Code Ann. § 1-23-320 (2000), the Administrative Law Judge Division has jurisdiction to hear this matter.

1. Burden of Proof

In civil cases, generally, the burden of proof rests upon the party who asserts the affirmative of an issue. 2 Am. Jur. 2d Administrative Law § 360 (1994); Alex Sanders, et al., South Carolina Trial Handbook § 9:3 Party With Burden, Civil Cases (1999). The Department is the party asserting the affirmative in this case; therefore, the Department must prove by a preponderance of the evidence that Respondents violated section 12-22-740 by allowing Class III machines to be operated at a casino. See Anonymous v. State Bd. of Medical Examiners, 329 S.C. 371, 796 S.E.2d 17 (1998) (standard of proof in an administrative proceeding is the preponderance of the evidence). ⁽¹⁾ The weight and credibility assigned to evidence presented at the hearing of a matter is within the province of the trier of fact. See S.C. Cable Television Ass'n v. Southern Bell Telephone and Telegraph Co., 308 S.C. 216, 417 S.E.2d 586 (1992).

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

• Introduction

S.C. Code Ann. § 12-22-740 (2000) 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.

S.C. Code Ann. § 12-22-740(A)(1) & (B)(1) (2000).

In this case, the facts show that (1) the structure at issue met the definition of "casino" as defined in section 12-22-740 (2000); (2) the nine game rooms in the casino were open for business and their machines were available for play at the date and time of SLED's inspection, which was after May 31, 1999; (3) there were no Class III machines operating in 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 did not meet the statutory requirements necessary for it to be grandfathered in under subsection (B) of the statute.

Further, McDonald allowed forty-five (45) Class III machines to be operated at a casino without meeting the exception set forth in subsection (B) of the statute. McDonald's Amusements, which held the retail licenses for the nine game rooms, allowed forty-five (45) Class III machines to be operated in these game rooms at the casino, thereby committing forty-five (45) violations of section 12-22-740 (2000).

2. Effect of Joytime

Respondents argue that section 12-22-740 was rendered invalid by the South Carolina Supreme Court's recent opinion in Joytime Distributors v. State of South Carolina, 338 S.C. 634, 528 S.E.2d 647 (1999). Therefore, Respondents contend there was no authority on which to base the violations. I disagree.

Section 12-22-740 was enacted on July 2, 1999 as part of Act 125 of the General Assembly. Act 125 provided for a referendum to determine whether video game machine payouts in this State would remain legal. In the event that such payouts remained legal, Act 125 provided for extensive new regulation of the video gaming industry.

Before the scheduled date for the referendum, the South Carolina Supreme Court, inJoytime, declared Part II of Act 125, which provided for the referendum, invalid. Joytime, 338 S.C. 634, 528 S.E.2d 647. The Court also declared those portions of the Act which were contingent upon the referendum, such as those portions providing for new regulation of the industry, invalid. Id. The Court, however, did not expressly declare section 12-22-740 invalid. Instead, the Court stated that:

[As for the provisions in Act 125 that became effective on June 1 and July 1, 1999,] those provisions relate, in the interim, to registering machines, to the number of video machines, which are located on any one premise, and to casinos. The provisions are not inconsistent with the intent of the legislature to ban video gaming on July 1, 2000.

Id. at 22. Accordingly, the ban of video gaming to begin on July 1, 2000, as well as the provisions of Act 125 that became effective on June 1 and July 1, 1999, remain in effect. Section 12-22-740 became effective on June 1, 1999. Consequently, section 12-22-740 (2000) remains valid. ⁽²⁾

Further, section 12-22-740 has not yet been repealed. Act 125 provides for the repeal of section 12-22-740 only in the event of a "no" vote in the referendum. As stated above, only Part II of Act 125 and those provisions contingent upon the outcome of the referendum were invalidated by the Supreme Court's decision in Joytime. Since section 12-22-740 became effective in 1999 without being contingent on the referendum, section 12-22-740 has not been invalidated by the decision in Joytime.

3. Constitutionality of Section 12-22-740

Respondents also argue that section 12-22-740 (2000) is unconstitutional as retroactive land-use legislation affecting vested property rights. The Department asserts that this tribunal does not have the authority to address the constitutionality of a statute. The Department is correct in its assertion.

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. S.C. Dep't of Revenue, 339 S.C. 79, 529 S.E.2d 6 (2000). 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, 335 S.C. 230, 516 S.E.2d 655 (1999). Therefore, this tribunal declines to address Respondents' argument that section 12-22-740 is unconstitutional.

4. Vested Property Rights

Respondents also argue that they had a vested property right because they had purchased the land, built the building, purchased the video gaming machines, obtained the machine licenses, and employed persons working in the building prior to July 2, 1999, when the Governor signed into law Act 125. Respondents further argue that the Department's enforcement action to revoke their licenses is an unconstitutional deprivation of their property rights, resulting in an unconstitutional taking.

This tribunal, however, cannot dismiss an administrative enforcement action on the basis that it may result in an unconstitutional taking of property. Instead, the appropriate redress of a takings claim is in another forum which has jurisdiction to award money damages. See Lucas v. S.C. Coastal Council, 505 U.S. 1003 (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, 447 U.S. 255 (1980) (inverse condemnation occurs where a landowner recovers just compensation for a taking of his property when condemnation proceedings have not been instituted). Therefore, this tribunal declines to address Respondents' argument that an unconstitutional taking has occurred by the Department's application of section 12-22-740 (2000) in this case.

1. Penalty

1. Monetary Penalty

It is a generally recognized principle of administrative law that the fact-finder has the authority to impose an administrative penalty, as established by the legislature, after the parties have had an opportunity for a hearing on the issues. See, e.g., Walker v. S.C. ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633 (1991).

The Department seeks the imposition of total monetary penalties of $22,500 against McDonald and $22,500 against McDonald's Amusements. I find that a monetary penalty of only $11,250 against McDonald and $11,250 against McDonald's Amusements is warranted under the facts of this case.

The general penalty provision of S.C. Code Ann. § 12-54-43(H) (2000) applies to the Respondents' violations. ⁽³⁾ 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, the facts warrant a monetary penalty less than the maximum allowed. Machines were delivered to the casino prior to the July 2, 1999 passage of Act 125. Further, the construction of the casino was carried out in good faith reliance on the status of the law as it existed prior to July 2, 1999. Under such circumstances, a $250 fine, rather than a $500 fine, for each violation of section 12-22-740 (2000) is appropriate.

In this case, McDonald and McDonald's Amusements each committed forty-five (45) violations. Therefore, the Department shall impose fines totaling $11,250 against McDonald and $11,250 against McDonald's Amusements.

2. Revocation

The issue of revocation of the licenses is moot as all have been revoked by James R. McDonald, III, and McDonald's Amusements, Inc., d/b/a Broadway 85, 107 Crossover Road, Blacksburg, South Carolina, 99-ALJ-17-0584-CC (May 9, 1999) and S.C. Code Ann. §12-21-2710 (2000).

Pursuant to ALJD Rule 29(C), issues raised in the proceedings but not addressed in this Order are deemed denied.

ORDER

Based upon the foregoing Stipulated Facts and Conclusions of Law,

IT IS HEREBY ORDERED that the Department shall impose total fines of $11,250 against James R. McDonald, III and $11,250 against McDonald's Amusements, Inc.

AND IT IS SO ORDERED.

______________________________

C. DUKES SCOTT

Administrative Law Judge

April 10, 2001

Columbia, South Carolina

1. The preponderance of the evidence is "[t]he greater weight of the evidence" or "superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other." BLACK'S LAW DICTIONARY 1201 (7th ed. 1999). "The preponderance of the evidence means such evidence as, when considered and compared with that opposed to it, has more convincing force and produces in the mind the belief that what is sought to be proved is more likely true than not true." Sanders, supra, § 9:5Quantum of Evidence in Civil Cases (1999) (citing Frazier v. Frazier, 228 S.C. 149, 89 S.E.2d 225 (1955)).

2. The Supreme Court in Joytime suggested that Part III of the Act is contingent upon the outcome of the referendum provided for in Part II. Joytime, 338 S.C. 634, 528 S.E.2d 647. It is clear, however, from section 23(B) of Act 125 that the effective date of section 12-22-740, which was included in Part III of the Act, was June 1, 1999. The effectiveness of section 12-22-740 was never contingent upon the referendum.

3. The penalty provisions in Part III of Act 125 were invalidated by the Supreme Court's decision inJoytime, 338 S.C. 634, 528 S.E.2d 647.