South Carolina              
Administrative Law Court
Edgar A. Brown building 1205 Pendleton St., Suite 224 Columbia, SC 29201 Voice: (803) 734-0550

SC Administrative Law Court Decisions

CAPTION:
SCDOR vs. McDonald Amusements, Inc., et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
McDonald Amusements, Inc., James R. McDonald, Jr., d/b/a Stateline Castle Casino, Unit 1, d/b/a/ Stateline Castle Casino Unit 14
 
DOCKET NUMBER:
00-ALJ-17-0511-CC

APPEARANCES:
Petitioner & Representative: South Carolina Department of Revenue, Carol I. McMahan, Esquire

Respondents & Representative: McDonald Amusements, Inc., James R. McDonald, Jr., d/b/a Stateline Castle Casino, Unit 1, d/b/a Stateline Castle Casino Unit 14, Robert G. Rikard, Esquire

Parties Present: All parties
 

ORDERS:

FINAL ORDER AND DECISION

I. Statement of the Case



The South Carolina Department of Revenue (DOR) seeks to revoke ten video poker licenses and two retail licenses and impose penalties of $5,000 on James R. McDonald, Jr. (McDonald) as the machine owner and $5,000 on McDonald Amusements, Inc. as the location operator for alleged violations of S.C. Code Ann. § 12-22-740 (Rev. 2000). Respondents 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 (Rev. 2000) and S.C. Code Ann. § 1-23-600 (Supp. 2000). After a hearing of this matter held on December 11, 2000 at the Edgar Brown Building, Columbia, South Carolina, I conclude that the revocation is proper. I further conclude that a fine of $2,500 is imposed on McDonald and a fine of $2,500 is imposed on McDonald Amusements, Inc.

II. Issue



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



III. Analysis



1. Positions of Parties



DOR seeks to revoke the Class III machine licenses of McDonald and the two retail licenses of McDonald Amusements, Inc. based on the operation of a "casino" in violation of S.C. Code Ann. § 12-22-740 (Rev. 2000). (1) Further, DOR seeks penalties for these violations totaling $10,000.



Respondents argue that the statute is invalid and cannot be enforced. In particular, their challenge is that S.C. Code Ann. § 12-22-740 (Rev. 2000) 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. 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 July 12, 1999, McDonald Amusements, Inc. held the following South Carolina retail/sales tax licenses for the video poker premises located at 104 Crossover Drive, Blacksburg, South Carolina as noted below:


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

Stateline Castle Casino Unit # 1 011093719

Stateline Castle Casino Unit # 14 011093844



  • On July 12, 1999, James R. McDonald, Jr. held the following video poker licenses (acquired pursuant to S.C. Code Ann. § 12-21-2720(A)(3) (Rev. 2000), commonly referred to as "Class III" machines and licenses) that were on video poker machines at each of the premises located at 104 Crossover Drive, Blacksburg, South Carolina, as noted below:


MACHINE LICENSE # PREMISES

3010051 Stateline Castle Casino Unit 1

3019502 Stateline Castle Casino Unit 1

3019503 Stateline Castle Casino Unit 1

3019504 Stateline Castle Casino Unit 1

3019505 Stateline Castle Casino Unit 1



3010065 Stateline Castle Casino Unit 14

3010066 Stateline Castle Casino Unit 14

3019553 Stateline Castle Casino Unit 14

3019554 Stateline Castle Casino Unit 14

3019555 Stateline Castle Casino Unit 14



  • On July 12, 1999, the structure containing multiple premises with video poker machines located at 104 Crossover Drive, Blacksburg, South Carolina was a "casino" as that term is used in S.C. Code Ann. § 12-22-740 (Rev. 2000).


  • On July 12, 1999, the casino contained the video poker premises, retail licenses, and video poker machines noted in "1" and "2" above.


  • The casino did not initially open for business until after June 28, 1999.


  • There were no Class III video poker machines in operation in the casino on or before May 31, 1999.


  • The casino and each premises within it, to include the rooms noted in "1" and "2" above, did not comply with the requirements of 27 S.C. Code Ann. Regs. 117-190 (Supp. 2000) on or before May 31, 1999.


  • On July 12, 1999, agents of the South Carolina Law Enforcement Division ("SLED") conducted an investigation of the casino.


  • Duke Power Company records show that the casino located at 104 Crossover Drive, Blacksburg, South Carolina, first received power on June 28, 1999.


  • J. Wesley Foster, a deputy with the Cherokee County Sheriff's Office, inspected the building under construction located at 104 Crossover Drive, Blacksburg, South Carolina several times during the first two weeks of June, 1999. He attempted, but was unable, to contact any people associated with the business.


  • During the first two weeks of June, 1999, Deputy Foster further observed the building was under construction. During these inspections he also observed construction workers in the progress of installing drywall. At that time he also observed that there were no Class III video poker machines on the premises.


  • On July 12, 1999, at the time of the SLED agents' inspection, the rooms noted in "1" above located in the casino were open for business and the Class III video poker machines were available for play.


  • 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 the Section 12-22-740 violations that are the subject of this action.


  • Prior to May, 1999 McDonald had expended time and money at 104 Crossover Drive.


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 McDonald and McDonald Amusements, Inc. violated S.C. Code Ann. § 12-22-740 (Rev. 2000). 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 (Rev. 2000) 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



Respondents argue that S.C. Code Ann. § 12-22-740 (Rev. 2000) 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 DOR cannot establish a violation since § 12-22-740 is invalid under Joytime Distributors v. State of South Carolina, 338 S.C. 634, 528 S.E.2d 647 (1999). 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. Joytime also declared invalid those portions of the Act which were contingent on the outcome of the referendum. Part III of the Act provided for specific regulation of the industry, and the enactment of several, but not all, portions of Part III was contingent upon the outcome of the referendum. However, the statute in dispute in this case, §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. (2)



Admittedly, a repeal of section 12-22-740 by implication occurred on July 1, 2000, the date on which a total ban on video poker went into effect pursuant to Part I of Act 125. See Joytime, 528 S.E.2d at 655 (1999) ("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."). (3) However, a savings clause in Part V, Section 21 of the Act allows for any laws repealed by the Act to be treated as remaining in full force and effect for the purpose of enforcement of rights, duties, forfeitures, and liabilities as they stood under the repealed laws. Accordingly, Respondents are subject to the requirements of § 12-22-740 and that statute is enforceable against them.



ii. Unconstitutionality of § 12-22-740



Respondents argue that the ten violations cannot result in revocations or penalties since § 12-22-740 is unconstitutional on its face. DOR argues that an ALJ may not address the issue since an ALJ does not have the authority to examine 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, 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, 35 S.C. 230, 516 S.E.2d 655 (1999). 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



Respondents also argue that because the location was substantially completed prior to the enactment of §12-22-740, they had a vested right to use the location for video poker. 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, a dismissal is not 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, the use of the building for video poker is entirely dependent upon regulatory licensing in this State, and such an interest is not a property interest compensable under the takings clause. Mibbs, Inc. v. South Carolina Department of Revenue, 337 S.C. 601, 524 S.E.2d 626 (1999).



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. Determination of Violation



The next determination is whether Respondents 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) (Rev. 2000). Here, ten violations have been proven.



Respondents stipulated that the facility in dispute is a "casino" within the meaning of § 12-22-740. Further, the evidence establishes that ten Class III machines were operated at the casino on July 12, 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.



The Respondents' casino is not within the grandfathering provision. The evidence establishes that none of McDonald's Class III machines were in operation within the location on or before May 31, 1999. Under these circumstances, the location does not meet the statutory requirements necessary for it to be grandfathered in under the statute. Therefore, Respondents committed ten violations of § 12-22-740 on July 12, 1999.



d. Applicable Penalties



For the violations of § 12-22-740, DOR seeks the imposition of a monetary penalty of $5,000 against McDonald and $5,000 against McDonald Amusements, Inc. DOR also seeks the revocation of all machine licenses and retail licenses involved in this case. I find that a monetary penalty of $2,500 against McDonald and $2,500 against McDonald Amusements, Inc. 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) (Rev. 2000) 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, Respondents 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 substantially completed prior to the July 2, 1999 passage of Act 125 and 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, DOR issued the machine licenses purportedly effective until May 31, 2000. Under such circumstances, the imposition of a $250 fine, rather than a $500 fine, for each violation of section 12-22-740 is appropriate. Therefore, a fine of $2,500 is imposed against each Respondent.







ii. Revocation



South Carolina Code Ann. § 12-54-90(A) (Rev. 2000) 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 Respondents violated § 12-22-740. Further, the evidence shows that DOR notified Respondents in writing of the violations. 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 ten machine licenses and McDonald Amusements, Inc.'s two retail licenses are revoked.



IV. Order



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



For the violations of S.C. Code Ann. § 12-22-740 (Rev. 2000), a fine of $2,500 is imposed upon McDonald and a fine of $2,500 is imposed upon McDonald Amusements, Inc. The ten Class III machine licenses held by McDonald and the two retail licenses held by McDonald Amusements, Inc. are revoked effective as of the date of this order.



AND IT IS SO ORDERED.

____________________________

RAY N. STEVENS

Administrative Law Judge



Dated: March 1, 2001

Columbia, South Carolina

1. As of July 1, 2000, Section 12-22-740 was repealed by Part I of Act No. 125, 1999 S.C. Acts by necessary implication. See Joytime Distributors v. State of South Carolina, 338 S.C. 634, 528 S.E.2d 647 (1999). Ordinarily, the repeal of a statute operates retrospectively, and has the effect of blotting the statute out completely as if it had never existed and of putting an end to all proceedings under it which have not been prosecuted to final judgment. Taylor v. Murphy, 293 S.C. 316, 318-319, 360 S.E.2d 314, 316 (1987). However, a savings clause in Part V, Section 21 of the Act allows for any laws repealed by the Act to be treated as remaining in full force and effect for the purpose of enforcement of rights, duties, forfeitures, and liabilities as they stood under the repealed laws.

2. 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, 528 S.E.2d at 655 (1999). 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.

3. 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).


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