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. Evangelism Outreach, Inc., and Pat Thomason, Promoter

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Evangelism Outreach, Inc., and Pat Thomason, Promoter
 
DOCKET NUMBER:
95-ALJ-17-0180-CC

APPEARANCES:
Nicholas P. Sipe, Attorney for Petitioner

David E. Belding, Attorney for Respondents
 

ORDERS:

ORDER DENYING MOTION FOR RECONSIDERATION

This matter comes before me upon a Motion For Reconsideration filed by Petitioner South Carolina Department of Revenue and Taxation (hereinafter referred to as "DOR") for reconsideration of the Order rendered by this administrative law judge (hereinafter referred to as "ALJ") in the above-captioned matter dated December 6, 1995. The Order followed a contested case hearing conducted pursuant to S.C. Code Ann. §§ 1-23-310, et seq. (1986 and Supp. 1995) involving four alleged administrative violations of the Bingo Act. Respondents were found to have committed two violations and assessed fines totalling $1,300. DOR now moves for reconsideration of the dismissal of one of the charges and for reconsideration of the penalty assessed. A hearing on the Motion For Reconsideration was conducted January 16, 1996. Upon review of the applicable law, and for the reasons expressed below, the Motion is denied.

FACTUAL BACKGROUND

Pat Thomason, as Promoter for Class B bingo licensee Evangelism Outreach, Inc., conducts a bingo operation known as Bingo City, in Greer, South Carolina. On January 13, 1995, two DOR revenue officers entered Bingo City undercover as customers and participated in the bingo session. As a result of their visit, the officers issued a two-page Violation Report to Thomason (Respondent's Exhibit #1). On the first page of the Violation Report, DOR cites Respondents with the following violations of the Bingo Act:

Violation

(Description and/or Type)

Number of Violation Penalty
Exceeding $8,000 Payout 12-21-3440(2) 1 $1,000
Manner of Playing Game 12-21-3410(1) 1 500
Manner of Playing Game 12-21-3410(4) 1 500
Free Bingo Prizes 12-21-3410(3) 1 1,000
Total Amount Due $3,000,


At the bottom of the second page of the Violation Report, the revenue officers typed in the following:

- Total payout of $9,675.00, exceeding $8,000 payout
- Two instances of runners selling cards after game began
- One "Speedball" game played, no displaying of numbers on game board
- "Free bingo" prizes given

Respondents subsequently requested a contested case hearing, and by Agency Transmittal Form dated March 28, 1995, DOR transmitted the case to the Administrative Law Judge Division ("ALJD") for disposition. Respondents received a copy of the Agency Transmittal Form, which stated the statutory provisions giving rise to the controversy as: S.C. Code Ann. §§12-21-3440(2); 12-21-3420(4); 12-21-3410(4); and 12-21-3410(A)(1). The Transmittal Form stated the nature of the request for the hearing as follows:

[O]n or about January 13, 1995...[Respondents] exceeded the $8,000 payout authorized by its license; accepted payments while a game was in progress; failed to indicate on the master board the numbers announced; and failed to charge an amount certain for bingo cards. In addition, on or about January 15, 1995, [Respondents] exceeded the $8,000 payout authorized by its license and failed to charge an amount certain for bingo cards.(1) For these offenses, the Department is seeking revocation of the bingo licenses...and fines totalling $5,000.

The parties' Prehearing Statements, filed with the ALJD and served on each other, offer slightly different positions on which code sections are applicable and what issues are in controversy in the case. The respective Prehearing Statements of DOR and Respondents provide, inter alia, as follows:

DOR's Prehearing Statement

2. Statutory provisions conferring subject matter jurisdiction to the agency and other applicable statutes and regulations:

S.C. Code Ann. § 1-23-600
S.C. Code Ann. § 12-21-3440(A)(2)
S.C. Code Ann. § 12-21-3420(4)
S.C. Code Ann. § 12-21-3410(4)
S.C. Code Ann. § 12-21-3410(A)(1)

3. The issues presented for determination:

(a) Did [Respondents] violate S.C. Code Ann. §§ 12-21-3440(A)(2), 3420(4), 3410(4); and 3410(A)(1) (Supp. 1993) on January 13, 1995?
(b) If there were violations, what is the appropriate penalty?

4. Relief requested:

The Department requests revocation of the bingo and promoter license and fines of $3,000.

5. A summary of the facts and reasons supporting the Department's position:

On January 13, 1995, Revenue Officers... observed payouts in prizes totalling $9,675.00 even though the Class B license only allowed payouts of $8,000.00. The officers also observed runners selling cards for the game after the game had begun. The officers observed a "speedball" game where the numbers were not indicated on the master-board by the caller after they were announced. Finally, the officers observed bingo cards being given as prizes so as the players were not paying an amount certain for each bingo card played.

Respondents' Prehearing Statement

1. Nature of this proceeding:

... This proceeding involves alleged violations of South Carolina bingo game laws, to-wit: 1) "Exceeding $8,000 payout", S.C. Code Ann. § 12-21-3440(2); 2) "Manner of playing game", S.C. Code Ann. § 12-21-3410(1); 3) "Manner of playing game", S.C. Code Ann. § 12-21-3410(4); and, 4) "Free bingo prizes", S.C. Code Ann. § 12-21-3410(3).

2. The issues presented for determination:

a. Whether the Petitioner has improperly cited the Respondents for allegedly violating the provisions of Title 12 Chapter 21 Article 23 of the South Carolina Code of Laws, 1976 (as amended).
b. Whether the relief sought by Petitioner (license revocation) is disproportionate to the gravity of the alleged violations.

3. Relief requested:

The Respondent requests the ALJD to dismiss with prejudice the alleged violations or, in the alternative, order a penalty which is proportionate to the severity of the alleged violations.

4. A summary of the facts and reasons supporting the Department's position:

[DOR] previously cited Respondents for a similar violation, which [settled]. [Respon-dents were] advised that paying a small monetary penalty would: a) cost less than hiring an attorney to present a defense; b) prevent having the case become aggravated vis-a-vis [DOR] and its field agents; and c) that settlement would not count against Respondents in the way a finding of guilty would. For these reasons, Respondents chose to settle.... It is improper...for offers of settlement and compromise to be admitted in a subsequent hearing.
At the contested case hearing, held on September 5, and November 8, 1995, DOR sought revocation of the bingo license and promoter's license and imposition of fines totalling Three Thousand Dollars ($3,000). Respondents denied all allegations, and specifically moved for dismissal of the § 12-21-3410(3) charge cited in the DOR Violation Report. DOR admitted that § 12-21-3410(3) was mistakenly cited in the Violation Report, but asserted that the charge for selling cards after the commencement of a game was properly cited as a violation of § 12-21-3420(4) in the Agency Transmittal Form filed with the ALJD. DOR did allege a violation of § 12-21-3420(4) in the Agency Transmittal Form and Prehearing Statement filed with the Administrative Law Judge. Respondents moved for dismissal of the § 12-21-3420(4) charge on the basis it was not included in the Violation Report and that DOR can not create a new charge in the Agency Transmittal Form. The Violation Report was never amended nor was an additional Violation Report ever issued charging Respondents with a violation of § 12-21-3420(4).
In an Order dated December 6, 1995, this ALJ found and concluded that Respondents violated S.C. Code Ann. § 12-21-3440(2) (Supp. 1994), by exceeding the allowable total payout, and S.C. Code Ann. § 12-21-3410(4) (Supp. 1994), by conducting the bingo game of "speedball." Fines of $1,000 and $300, respectively, were assessed for the violations. DOR failed to prove Respondents violated S.C. Code Ann. § 12-21-3410(1) (Supp. 1994), (allowing free bingo games or purchases of a bingo game card for an uncertain amount), as charged in the DOR Violation Report. The §12-21-3410(A)(3) violation charge was dismissed, since DOR admitted that the code section was mistakenly cited in the Violation Report and no evidence of such a violation was presented. Pursuant to Respondents' Motion to Dismiss, the § 12-21-3420(4) (Supp. 1994 ) violation charge was also dismissed because DOR failed to include that charge in the Violation Report (Respondent's Exhibit #1) issued to Respondents. Further, DOR failed to amend the Violation Report or issue an additional Violation Report, and therefore never officially cited Respondents with the violation. DOR now moves for reconsideration of the dismissal of the charge of a violation of § 12-21-3420(4) (Supp. 1994) and for reconsideration of the penalty assessed.

RECONSIDERATION OF DISMISSAL

DOR's first two grounds for reconsideration concern Conclusions of Law 16 and 17 of the December 6, 1995 Order, relating to the dismissal of the § 12-21-3410(3) and § 12-21-3420(4) violation charges. DOR asserts that § 12-21-3410(3) was not an issue in the case, as it was not cited in the Agency Transmittal Form filed with the ALJD by DOR. DOR submits that the reference to "Free Bingo Prizes 12-21-3410(3)" in the Violation Report was a scrivener's error, replaced by "§ 12-21-3420(4)" in the Agency Transmittal Form filed by the Department. DOR argues that the Violation Report is an "informal form" used by the Department to initiate the administrative process, without legal significance. It claims that the only issues before the ALJ at the contested case hearing were those included by DOR in its Agency Transmittal Form and Prehearing Statement.

In the interim between the issuance of a Violation Report and the transfer of a matter from DOR to the ALJD, DOR, unilaterally or upon agreement with a party, may dismiss charges contained in a Violation Report and narrow the issues in controversy. It may not, however, add new charges in that same interval unless an amended or new Violation Report is issued. This tribunal takes administrative notice of the fact that DOR has re-issued violation citations in other matters where it has discovered an error in the citation initially issued.

While the revenue officers who issued the Violation Report may have made an error in drafting the citation, this tribunal is not persuaded to treat the flaw as an inconsequential scrivener's error. See Feldman v. S.C. Tax Commission, 203 S.C. 49, 26 S.E.2d 22 (1943). The Violation Report is confusing, to say the least. It is possible, however, to read the Violation Report in its entirety and conclude that all intended code sections have been cited, although not necessarily in the correct order or with the proper description. Of the violations charged on Page One, the statutes cited do not necessarily match their corresponding parenthetical descriptions. The slightly more detailed descriptions of the alleged violations on Page Two do not cite any code sections, but can arguably be attributed to one or more of the statutory citations on the first page. The Agency Transmittal Form, rather than clearing up the ambiguity of the Violation Report, actually further clouds the issues. The Agency Transmittal Form not only fails to explain why it contains code sections different than the sections cited in the Violation Report, it even fails to note that there is a difference in sections cited.

DOR acknowledges that there must be some agency action to initiate the administrative violation process. At the Motion hearing, DOR conceded that the department action which gave rise to Respondents' request for a contested case hearing was the issuance of the Violation Report. Upon receipt of the hearing request, DOR is required to transmit the matter to the ALJD for adjudication. The Transmittal Form should clearly identify the issues in controversy. Fundamental fairness dictates that the agency can not unilaterally frame the issues. Any dispute as to which issues have been settled and/or which issues remain for resolution at the contested case stage must be decided by the ALJ. The parties are entitled to contest which issues are rightfully before the ALJ.

DOR also asserts in its Motion that it "was unfairly surprised that an [sic] scribing error in an informal violation report was an issue as the Respondents did not raise this error in its prehearing statement, nor was the Department given notice of Respondent's [sic] motion to dismiss the charge." In light of the record, DOR's argument is groundless. Respondents' Prehearing Statement clearly enumerates the code sections it asserts are applicable in this matter, specifically citing § 12-21-3410(3) (as referenced in the Violation Report), but not § 12-21-3420(4) (as referenced in DOR's Prehearing Statement). Further, Respondents state as the issues presented for determination: "Whether the Petitioner has improperly cited the Respondents for allegedly violating the provisions of Title 12 Chapter 21 Article 23 of the South Carolina Code of Laws, 1976 (as amended)." Without even addressing whether Respondents were obligated to give notice of their desire to move for dismissal of the charges, it is obvious that the ALJ and opposing counsel were adequately informed of that intention prior to the hearing.(2)





RECONSIDERATION OF PENALTY ASSESSED

DOR's third and fourth grounds for reconsideration relate to the penalties imposed by the ALJ in this case. DOR sought specific monetary fines for each Bingo Act violation charged, and license revocation for the collective charges. In finding two violations, I imposed monetary fines for each, but did not order license revocation.

It is uncontroverted that a violation of the Bingo Act is punishable under S.C. Code Ann. § 12-21-3550 (Supp. 1995) by imposition of a fine of twenty dollars to one thousand dollars for each offense. Respondents' arguments to the contrary notwithstanding, the DOR catch-all license revocation provision, S.C. Code Ann. § 12-54-90(A), may also be applied to bingo violations. Since revocation was not ordered, however, reference to § 12-54-90(A) was not included in the December 6, 1995 Order.

DOR takes the position that the discretion to impose revocation as a penalty, pursuant to § 12-54-90(A), is solely within the dominion of DOR, not the ALJ. As the agency charged with the administration of the Bingo Act, DOR claims absolute authority to determine the appropriate penalty for a violation of the Act and asserts the ALJ erred in not assessing the exact penalty requested by DOR. For the reasons set forth below, DOR's argument is rejected and the Motion to Reconsider the penalty assessed in this matter is denied.

Combined-Function Agency Model (Pre-Restructuring Act)

Agencies are executive entities created and empowered by the General Assembly to function in matters of public concern involving the lives and property of the people of the State. S.C. Const.art. XII, § 1. Agencies perform a vast array of duties, some concurrently. In addition to performing expressly executive duties associated with administering and enforcing law, agencies also operate quasi-legislatively through the promulgation of regulations and quasi-judicially through the adjudication of contested cases. Aman and Mayton, Administrative Law,

§ 8.5.4 (West 1993). South Carolina operated exclusively under such a "combined-function" model of agency administration until passage of Act No. 181 of 1993, commonly known as the "Restructuring Act," with most agencies exercising combined legislative, prosecutorial, investigative, and adjudicatory functions.

Under the combined-function agency model, the governing board or commission of an agency exercises the broad authority to make all administrative decisions within the agency's legislatively defined purview. The same board which promulgates regulations, also interprets those regulations and adjudicates disputes involving the enforcement and application of its regulations. Additionally, the board employs, supervises, and directs the staff of the agency, some of whom are involved in the prosecution of violation cases brought before the board for adjudication.

Internal separation of conflicting functions is necessary to assure fairness. The purely executive functions of an agency are limited by an agency's enabling legislation, while the quasi-legislative and quasi-judicial functions are generally delineated and restricted by Articles 1 and 3, respectively, of the Administrative Procedures Act ("APA"). Article 3 of the APA provides the statutory framework for hearing and deciding contested cases involving State agencies and is based upon the foundation set forth in Article I, § 22, of the South Carolina Constitution:

No person shall be finally bound by a judicial or quasi-judicial decision of an administrative agency affecting private rights except on due notice and an opportunity to be heard; nor shall he be subject to the same person for both prosecution and adjudication; nor shall he be deprived of liberty or property unless by a mode of procedure prescribed by the General Assembly, and he shall have in all such instances the right to judicial review.

Adjudicatory decisions of an agency's board incorporating the agency's expertise, interpretation, or policy, are not subject to outside review unless appealed to the judiciary. Judicial review of a final administrative decision is similar in scope and standard to the appellate review of a de novocivil trial, with the substantial evidence standard of review. See S.C. Code Ann. § 1-23-380 (Supp. 1995). Whether acting in the role of regulatory entity or role of adjudicatory tribunal, courts have generally given respectful consideration to an agency's technical and scientific expertise, statutory interpretation of its enabling legislation and regulations, and operating policy. See, e.g., Emerson Electric v. Wasson, 287 S.C. 394, 339 S.E.2d 118 (1986). In granting an agency that deference, however, courts usually do not distinguish between the two roles, since, under the combined-function model, the same agency performs both roles.

Because of the perceived conflict of interest, appearance of impropriety, and perception of bias, critics claim agencies' adjudicatory functions should be removed. In at least twenty states, that view has led to the formal separation of adjudicatory powers from regulatory agencies, with the establishment of an independent corps of administrative law judges to hear and decide contested cases. Edwin Felter, Jr., Administrative Law Adjudication for the Twenty-first Century, 24 The Colorado Law., 993 (1995).

Separation Of Agencies Functions (Post-Restructuring Act)

The nature of an agency's field of operation and scope of authority is dependent upon the agency's legislatively delegated power. Terry v. Pratt, 258 S.C. 177, 187 S.E.2d 884 (1972); See § 1-23-500 (Supp. 1995). South Carolina created the ALJD as part of the 1993 Restructuring Act, when many governing boards and commissions were abolished in favor of a more cabinet-style form of government. The ALJD is an independent, autonomous agency existing within the executive branch. S.C. Code Ann. §§ 1-23-310 and 1-23-500 (Supp. 1995). Its sole function is to conduct and decide hearings for other co-equal agencies. The ALJD is an "agency," as defined by the APA and is bound by the procedural and jurisdictional mandates of the APA. Its purpose is to "preside over all hearings of contested cases ... involving the executive branch of government ...." § 1-23-600(B) (Supp. 1995). Section 1-23-320(e)(Supp. 1995) provides that during the contested case hearing, "opportunity shall be afforded all parties to respond and present evidence and arguments on all issues involved" (emphasis added).

The primary advantage of the ALJ system over the former system is the institutional guarantee of an objective and neutral adjudication of conflicts between agencies and the public by an impartial tribunal, with a decision based solely upon the record of a fair hearing. The ALJD's enabling legislation and the ALJD Rules of Procedure prescribe a due process framework for the resolution of contested cases. "Where adjudication is separated from the agency policy maker, the citizen is fully protected by the non-negotiable mandate of due process and by the overall requirement of uncompromising conformity by the agency to the law. Separation does not threaten policy. The key to due process is that citizens affected by agency action must know the rules of the game before the game is played; they must know the policies which will affect their conduct before those policies are brought to bear." John W. Hardwicke, The Central Hearing Agency: Theory and Implementation in Maryland, XIV J. of the Nat'l Ass'n of Admin. Law Judges 5 (1994).

The ALJ is the practical equivalent of a non-jury trial court judge, performing the very essence of the judicial function and exercising judicial-type discretion and judgment. The ALJ holds conferences, disposes of procedural matters, receives evidence pursuant to the Rules of Evidence, rules on motions and objections, regulates the course of the hearing, and renders findings of fact, conclusions of law, and final orders. See Morrell E. Mullins, Manual For Administrative Law Judges, Administrative Conferences of the United States (3rd ed. 1993), p. 6. In South Carolina, administrative law judges are also vested with the same equitable, subpoena, and contempt powers possessed by circuit court judges. S.C. Code Ann. § 1-23-500 et seq.(Supp. 1995), particularly §§ 1-23-600 and 1-23-630.

In addition to those powers enumerated in the ALJD's enabling legislation, the ALJD inherited powers from its predecessor administrative tribunals. The Restructuring Act inserted "administrative law judge" in many code sections to reflect that assumption of authority; however, because of the enormity of the legislative undertaking, many references to "administrative law judge" are implicit rather than explicit. For instance, some references to "commission" were not changed, even though an agency's commission was abolished by the Act. In those situations, depending upon the particular function in question, either "department" or "administrative law judge" must be implicitly substituted for "commission." If the function at issue relates to powers of the former commission exercised during adjudication of contested cases, "commission" must necessarily mean the ALJD. Any other reference to "commission," by default, refers to the former agency's successor department and/or director.

It is also noteworthy that since creation of an independent ALJD is a relatively modern phenomenon, most relevant case law predates the separation of the adjudicatory function from regulatory agencies. Accordingly, in interpreting case law, a reader must substitute "administrative law judge" or "department" for "agency" in many applicable decisions.



Agency Policy and Expertise

Executive agencies are charged with the responsibility of creating policy and establishing binding norms through the promulgation of rules and regulations in compliance with the APA. Home Health Service, Inc. v. South Carolina Tax Commission, 312 S.C. 324, 440 S.E.2d 375 (1994); See §§ 1-23-10(4), 1-23-40(1), and 1-23-140 (Supp. 1995). While creation of policy is effected by regulation promulgation, an agency actually implements policy in a number of ways. On a fundamental level, staffing and funding priorities are shaped by agency policy. In a regulatory setting, an agency's regulation, investigation, enforcement, and prosecution methods result from policy decisions. Those functions may also be influenced by the agency's internal interpretation of statutory or regulatory terms and the application of those terms within the department's specific areas of technical or scientific expertise.

DOR asserts in its brief (at p.6), that "[T]he amount of penalty imposed for a regulatory violation, as long as the penalty is within the agency's statutory authority, is a policy question." Citing Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984) and Emerson Electric v. Wasson, 287 S.C. 394, 339 S.E.2d 118 (1986), DOR argues that as the agency charged with administering the Bingo Act, its statutory construction of the Act is entitled to the most respectful consideration and entitles the department, in its discretion, to impose penalties in bingo violation cases as an exercise of its inherent policy making function.

In Chevron, the central issue was the definition and application of a statutory term used in the Federal Clean Air Act of 1977 and EPA regulations regarding air quality standards and permit requirements. The court deferred to the expertise of the EPA in determining the statutory construction of the term. In Emerson Electric, the court adopted the Tax Commission's method of calculating taxes in a state income tax case involving the filing of a consolidated tax return by a corporate subsidiary and its parent corporation. The present matter is clearly distinguishable from Chevron and Emerson Electric. The agency expertise or policy acknowledged and afforded deference in those cases is of a technical or scientific nature, however. No unique scientific knowledge or technical skill, such as is necessary in complex environmental or complicated taxation cases, is required to impose a penalty in a bingo violation case.

Furthermore, statutory interpretation and exercise of discretion are two different issues. The present case offers a perfect example of the dichotomy. The definition of the term "master board" was at issue at the hearing for determination of whether Respondents violated S.C. Code Ann. § 12-21-3410(4). "Master board" is a technical term referring to an apparatus used by operators in conducting the game of bingo. Bingo licensees and promoters need to know and understand the definition of the term to assure that the game of bingo is conducted in conformance with the law. Fairness dictates that government regulators consistently and uniformly apply the definition in enforcement of the Bingo Act. In the present case, deference to DOR's interpretation of the term "master board" in § 12-21-3320(15) was given in finding and concluding that a violation of that code section occurred. The department proved that the fair and rational interpretation of "master board" includes the electronic display seen by the bingo customers. No evidence was presented by Respondents to show that DOR inconsistently applied that definition in its enforcement practices.

Section 12-54-90(A), the general DOR license revocation statute now at issue, offers no such definitional dilemma. It provides:

When a person fails, neglects, violates, or refuses to comply with a provision of law or regulation administered by the commission, the commission, 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. The notification may be served by certified mail or personally.

In the present case, the only term at issue in § 12-54-90(A) is "commission." Prior to implementation of the Restructuring Act, "commission" clearly referred to the South Carolina Tax Commission. The Tax Commission was composed of three commissioners, who acted as administrative heads of the State's taxing agency. The commissioners exercised policy making powers as agency executives, and quasi-judicial powers as a contested case tribunal under the APA. Under the Restructuring Act, the Tax Commission was abolished. The policy and administrative duties of the three commissioners are now vested in a single director, while the adjudicatory functions of the former commissioners are vested in the ALJD. S.C. Code Ann. §1-23-30 (Supp. 1995). Even though S.C. Code Ann. § 12-54-10 (Supp. 1995) defines "commission" as DOR, Sections 12-4-30(C) and (D) make the division of responsibilities of the former tax commissioners crystal clear and grant the ALJD the exclusive power to decide contested cases involving the department:

(C) After February 1, 1995, the department will be governed in matters of policy and administration by a director appointed by the Governor with the advice and consent of the Senate. The director may be removed from office pursuant to the provisions of Section 1-3-240.
(D) After February 1, 1995, all contested cases, as defined by Section 1-23-310 and as previously considered by the three commissioners, shall be heard by the an administrative law judge under the provisions of Chapter 21 of Title 1 (emphasis added).

It is uncontroverted that the former tax commissioners possessed and exercised de novoauthority to impose all statutory penalties available, including license revocation and/or fines, when acting in their quasi-judicial capacity as a contested case tribunal. "Revocation ordinarily is not a legislative or ministerial act. Rather, determining whether to revoke or to suspend normally involves weighing evidence, using judgment and exercising discretion; a quasi-judicial function...." David E. Shipley, South Carolina Administrative Law, 6-18 (1989). Even if, for the sake of argument, an ALJ lacks the authority under the APA to exercise his or her discretion in applying the § 12-54-90 revocation penalty, § 12-4-30(D) (Supp. 1995) expands the ALJD's authority to include the imposition of penalties.

DOR retains the discretion to ministerially revoke a bingo license, and unless the licensee requests a contested case hearing, that revocation is final. Once a hearing is requested, however, the action is no longer a ministerial matter; it becomes a quasi-judicial concern. The ALJD assumes the adjudicatory role, and DOR assumes the prosecutorial role. The ALJ is charged with hearing the case, resolving all issues, and issuing a decision based upon its own findings and conclusions. If a contested case hearing is requested, DOR may seek revocation; however, the department has the burden of persuading the ALJ that the alleged violations occurred and that revocation is the appropriate penalty under the circumstances. Rather than the ALJ accepting the recommendation at face value, the agency must present the department's rationale for seeking a particular penally and how that punishment fits into a broader departmental strategy. The agency's requested penalty and supporting reasons are then factored into the ALJ's penalty decision.

Fact finder has Authority To Impose Penalty

It is a generally recognized principle of administrative law that the fact finder has the authority to impose an administrative penalty after the parties have had an opportunity to be heard on the issues. See Ohio Real Estate Comm'n v. Aqua Sun Investments, 655 N.E.2d 266 (Ohio App. 2 Dist. 1995); Shadow Lake of Noel, Inc. v. Supervisor of Liquor Control, 893 S.W.2d 835 (Mo.App. S.D. 1995); Matter of Henry Youth Hockey Ass'n, 511 N.W.2d 452 (Minn.App. 1994); Vermont Agency of Natural Resources v. Duranleau, 617 A.2d 143 (Vt. 1992); City of Louisville v. Milligan, 798 S.W.2d 454 (Ky. 1990); Com., Dept. of Transp. v. Slipp, 550 A.2d 838 (Pa.Cmwlth. 1988); Dept. of Transp. v. Miller, 528 A.2d 1030 (Pa.Cmwlth. 1987); State Police v. Cantina Gloria's, 639 A.2d 14 (Pa. 1994).

Prior to governmental restructuring, a commission sitting in its adjudicatory capacity imposed penalties for violations of statutory provisions its agency administered. Acting as fact-finder, it was the commission's prerogative "to impose the appropriate penalty based on the facts presented." Walker v. South Carolina ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633, 634 (1991). It is uncontroverted that the former Tax Commission exercised that authority in bingo cases. The ALJ, as the current fact-finder, must also impose a penalty based on the facts presented at the contested case hearing. As parties are entitled to present evidence on all issues arising out of the contested agency action, it follows logically that the tribunal responsible for conducting the proceedings must have the authority to decide those issues.

Due Process

Due process requires an adjudicatory proceeding be conducted when an administrative action affects a person specially, according to specific circumstances. Aman and Mayton, Administrative Law § 7.1, pp. 148-149. Imposition of a penalty upon an individual licensee undeniably affects the licensee specially.

An administrative agency's power to impose sanctions extends only to those parties before the agency who have been afforded the required procedural guarantees with respect to the agency's proceedings. These procedural guarantees have their roots in constitutional due process and those due process requirements are met only if a party 'was given adequate opportunity to prepare and present its position' to the agency involved.
Ammerman v. Dist. of Col. Rental Accom. Com'n, 375 A.2d 1060 (D.C. Ct. App. 1977).

License revocation is arguably the most severe penalty available for a regulatory violation. Due process requires notice and an opportunity to confront and question witnesses, and an examination of questions of fact by an impartial tribunal in license revocation cases. Brown v. S.C. State Bd. of Educ., 301 S.C. 326, 391 S.E.2d 866 (1990). Professor Shipley, in his treatise on South Carolina administrative law, summarizes the necessity for due process in license revocation cases as follows:

Revocation and suspensions.In view of the damage a licensee suffers because of the revocation or suspension of his license, it is well established that notice and opportunity for hearing should precede such action unless the public health, safety or welfare requires emergency measures. Principles of due process require theses safeguards and, as a
consequence, many of South Carolina's licensing statutes provide for notice and opportunity for a hearing prior to revocation or suspension of an existing license. An existing license is valuable and one should not be deprived of it without being afforded an opportunity to defend his or her interests regardless of whether or not the license is classified as a property interest. Revocation ordinarily is not a legislative or ministerial act. Rather, determining whether to revoke or to suspend normally involves weighing evidence, using judgment and exercising discretion; a quasi-judicial function for the licensing body. Absent an emergency, the licensee should be afforded due process protection as required by Article I, Section 22 of the Constitution. (footnotes omitted).
David E. Shipley, South Carolina Administrative Law, 6-18 (1989).

DOR concedes that the ALJ has all fact finding authority in this contested case and that Respondents are entitled to due process protection during the adjudication of alleged violations. DOR's contention that the department's preferred penalty must be automatically imposed by the ALJ in deference to the department's discretion, though, offends due process. Respondents' sole opportunity to respond and present evidence and arguments on any issue in this case, including the appropriate penalty, if any, is the contested case hearing before the ALJD. There is no evidence that DOR afforded Respondents with any type of minimum due process prior to the contested case hearing.

Ironically, while DOR insists that the standard of proof to prove a violation is a mere preponderance of the evidence, it just as vigorously claims that the same fact finder must apply an appellate standard of review (abuse of discretion) in fashioning the appropriate penalty based upon those facts. That approach deprives a licensee of a due process proceeding to contest the imposition of revocation. To apply an appellate standard of review, there must necessarily be a decision from a de novo forum to review.

For the sake of argument, if DOR's position regarding the imposition of penalties were accepted, reconsideration of the penalties imposed in this case is still unwarranted. Revocation was sought for the cumulative violations alleged. DOR does not contest the dismissal of the charge for an alleged violation of § 12-21-3410(1) in the December 6, 1995 Order. Therefore, DOR can claim at most that only three of four violations have been proven. The revocation request was based on the totality of the charges. Lack of success in proving the charges which constitute the basis for the recommended penalty is a compelling reason within and of itself to alter the recommended punishment and to impose a different penalty.

BURDEN OF PROOF

The standard of proof applied in the present case was "clear and convincing evidence," pursuant to the Court of Appeals decision in Anonymous (M-156-90) v. State Board of Medical Examiners, South Carolina Court of Appeals Op. # 2417 (filed November 13, 1995). That opinion has subsequently been withdrawn by the Court of Appeals, with that case to be considered de novo at a future date. Anonymous (M-156-90) v. State Board of Medical Examiners, South Carolina Court of Appeals Order (filed January 25, 1996).

Until the burden of proof issue is resolved by the Court of Appeals, the proper standard of proof applicable to an administrative hearing conducted as a contested case is a preponderance of the evidence. National Health Corp. v. South Carolina Department of Health and Environmental Control, 298 S.C. 373, 380 S.E.2d 841 (Ct. App. 1989). The Findings of Fact stated in the December 6, 1995 Order in this case, found by clear and convincing evidence, are necessarily sound findings under the less stringent preponderance of the evidence burden. Upon review of the record of the contested case hearing, I find and conclude no additional relevant or probative facts under the preponderance of evidence standard. Therefore the Findings stated in the December 6, 1995 Order remain unchanged.

CONCLUSION

Revocation is a discretionary penalty for violation of the bingo act. Its imposition is a policy-driven prosecutorial decision at the department level. At the contested case stage, however, it is a quasi-judicial prerogative exercised by the fact finder. A penalty must be based upon the record of the adjudicatory proceedings conducted pursuant to due process protections. The ALJ does not substitute its judgment for DOR's, rather, to the contrary, the ALJ makes the initial findings of fact and conclusions of law upon which the issues in controversy are decided. The ALJD does not pretend to possess nor intend to exercise any policy-making function of an agency of the State. The ALJ is exercising only that discretion and authority which the predecessor Tax Commission formerly exercised as the contested case tribunal in similar cases.

ORDER

IT IS THEREFORE ORDERED that DOR's Motion For Reconsideration is hereby denied. This tribunal's December 6, 1995 Order in this matter remains in effect as the final administrative decision and order in this case.

______________________________

STEPHEN P. BATES

ADMINISTRATIVE LAW JUDGE



March 7, 1996

Columbia, South Carolina

________________

Fn. 1. DOR did not pursue any charges relating to activities on January 15, 1995.

Fn. 2. In reviewing the parties' Prehearing Statements prior to the hearing, the ALJ took note of the difference in the code sections cited and would have inquired as to the incongruity had Respondents not raised the issue by motion.


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