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. 1999) and S.C. Code Ann. § 12-4-30(D) (Supp. 1999). The South Carolina Department of Revenue (Department) alleges that the Respondents violated S.C. Code Ann. § 12-22-740 (Supp. 1999) 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 August 13, 1999 and August 25, 1999.

The Department seeks fines in the amount of $20,000.00: $10,000.00 against the location operator, Cynthia McDonald, d/b/a The Sports Bar, The Sports Bar Unit 1, The Sports Bar Unit 2, and The Sports Bar Unit 3; and $10,000.00 against the machine owner, James R. McDonald, Jr., d/b/a McDonald's Amusements. Prior to the hearing, the parties agreed that these two cases would be consolidated for hearing purposes. The hearing on these matters was held before me on February 8, 2001, at the offices of the Division in Columbia, South Carolina. 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 the evidence:

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

Department and the Respondents.

2. The Department set forth that it is seeking fines in the amount of $10,000.00 against each Respondent, as opposed to fines in the amount of $20,000.00 against each Respondent originally sought by the Department when these actions were more bifurcated.

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

1. Respondent Cynthia McDonald owned and operated four places of business

licensed as The Sports Bar, The Sports Bar Unit 1, The Sports Bar Unit 2, and The Sports Bar Unit 3, all of which are, or were, located within a single structure doing business as "Overtime" at 1409 Highway 17 South in North Myrtle Beach, South Carolina, on August 13, 1999 and August 25, 1999.

2. Respondent James R. McDonald, Jr., doing business as McDonald's

Amusements, owned, and was the licensee for, the twenty Class III video game machines located in The Sports Bar, The Sports Bar Unit 1, The Sports Bar Unit 2, and The Sports Bar Unit 3 on August 13, 1999 and August 25, 1999. The twenty machines were licensed by the Department of Revenue and on the dates mentioned bore Class III licenses numbered:

3010031 3010032 3010033 3010034

3010035 3010036 3010037 3010038

3010039 3010040 3010041 3010042

3010043 3010044 3010045 3010046

3010047 3010048 3010049 3010050

3. The Sports Bar, The Sports Bar Unit 1, The Sports Bar Unit 2, and The Sports Bar Unit 3, located within a single structure doing business as "Overtime," first opened for business on August 13, 1999.

4. Based on the physical layout of the structure doing business as "Overtime," and the twenty Class III video game machines being operated in the four businesses contained therein, the location was being operated as a "casino" as that term is defined in S. C. Code Ann. § 12-22-740 (Supp. 1999).

5. The Class III machines being operated in "Overtime" on August 13, 1999 and August 25, 1999, the license numbers of which are set forth in paragraph two above, were not in operation within that structure, or the four separate businesses known as The Sports Bar, The Sports Bar Unit 1, The Sports Bar Unit 2, and The Sports Bar Unit 3, until after May 31, 1999.

6. The casino operating as "Overtime" opened on August 13, 1999.

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

1. S.C. Code Ann. §§ 1-23-310 and 1-23-600 (Supp. 1999) grant jurisdiction to the Administrative Law Judge Division to hear contested cases under the Administrative Procedures Act. Jurisdiction over Department of Revenue contested cases is specifically supplied by S.C. Code Ann. § 12-4-30(D) (Supp. 1999).

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. Section 12-22-740 sets forth, in relevant part:

(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 four video poker rooms which collectively housed twenty machines. Therefore, "Overtime" 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 August 13, 1999. Therefore, under these circumstances, the casino did not meet the requirements of Section 12-22-740(B)(1). Consequently, the Respondents were operating twenty machines at a casino on August 13, 1999 and August 25, 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, 339 S.C. 79, 529 S.E.2d 6 (2000). 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 Thousand ($20,000) 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 and continued to do so even after being previously cited by the Department for the same violation. Therefore, I find that the imposition of the monetary penalty sought by the Department in this case is proper.

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

IT IS HEREBY ORDERED that Respondent Cynthia McDonald shall pay a fine to the Department in the amount of $10,000.00 and that Respondent James R. McDonald, Jr. shall pay a fine to the Department in the amount of $10,000.00 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

May 4, 2001

Columbia, South Carolina