ORDERS:
FINAL DECISION
STATEMENT OF THE CASE
This matter is before me upon request for a hearing by the Respondent after being cited for
violating S.C. Code Ann. § 12-21-2791 (Supp. 1995). The South Carolina Department of
Revenue ("Department") contends that the Respondent violated this section by paying more than
five cents per credit for free games earned on video poker machines licensed pursuant to S.C.
Code Ann. § 12-21-2720 (A)(3) (Supp. 1995).
A hearing was held before the Administrative Law Judge Division in Columbia, South Carolina,
on June 18, 1996. I find the Respondent violated Section 12-21-2791 and impose the appropriate
penalty.
FINDINGS OF FACT
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 timely given to the
Petitioner and the Respondent.
2. A.M.F. Bowling Centers, Inc. operates a bowling alley known as A.M.F. Ribaut Lanes, located
at 200 South Ribaut Road in Beaufort, South Carolina. A.M.F. Ribaut Lanes contains a number
of Class III video poker machines which are licensed pursuant to S.C. Code Ann. § 12-21-2720
(A)(3).
3. On September 20, 1995, Revenue Officer Ricky Kennedy visited the location to conduct a
routine inspection. At that time he presented the manager, Ms. Ann Edwards, with a copy of a
Department publication entitled "A Guide to Conducting Video Gaming Establishments in South
Carolina." He informed Ms. Edwards that his purpose for conducting the inspection was to
investigate payouts of more than $125.00, and he directed Ms. Edwards' attention to page 6 of
the publication, which contains the heading "Cash Payouts (S.C. Code Ann. § 12-21-2791)."
4. On October 10, 1995, Revenue Officers Rodney Muckenfuss and Bruce Owens and Collections
Supervisor Norman Davis visited the location. Officers Muckenfuss and Owens placed money in
several of the Class III video poker machines at the location, and received five separate cash
payout tickets for free game credits. The amount per credit shown on the five tickets was
twenty-five cents for each game credit.
5. When the officers turned in the tickets for cash payouts, they were given twenty-five cents per
credit.
6. On October 13, 1995, Revenue Officers Muckenfuss and Kennedy returned to A.M.F. and
requested all the cash payout records from October 6 through 13, 1995. After Bud Neetman
supplied those records, the Revenue Officers returned to their offices and examined them. The
records indicated that from October 6 through 13, 1995, A.M.F. made 162 cash payouts which
exceeded five cents per credit. None of the payouts in question was in a total amount greater
than $125.00.
7. The requirement that each credit and therefore each bet is for no more than five cents slows
down the playing of the video poker machines.
8. As a result of the inspections at the location and the information contained in the payout
records, the Department issued a citation against the Respondent for 125 violations of S.C. Code
Ann. §12-21-2791, for making cash payouts in excess of five cents per credit. The Department
seeks to impose fines in the amount of $31,250.00 or $250.00 per violation. Based on the above
facts I find that the appropriate fine for the Respondent's knowing video poker violations in this
case is $9,500.00.
DISCUSSION
S.C. Code Ann. §12-21-2791(Supp. 1995) provides:
Any location which operates or allows the operation of coin-operated machines pursuant to
Section 12-21-2720(A)(3) which provides payouts authorized pursuant to Section 16-19-60
shall limit the cash payout for credits earned for free games to two thousand five hundred
credits per player per location during any twenty-four-hour period.
The cash value of credits for each free game shall be limited to five cents.
The Respondent contends that this statute is ambiguous, both on its face and when construed in
conjunction with other sections of the Video Game Machines Act, and that it should be construed
to limit the amount of cash which may be paid to any given player to $125.00 during any
twenty-four-hour period, rather than to prohibit the issuance of free game credits in
denominations greater than five cents. The Respondent further states that the statute is
unconstitutionally vague as applied and that it is not rationally related to the legislative purpose of
limiting the winnings of video poker players. The Department, on the other hand, argues that the
statute is clear and unambiguous on its face and therefore must be applied according to its literal
meaning.
I. Statutory Construction
The Respondent argues that the only reasonable construction of Section 12-21-2791 is to limit the
total amount of cash payouts to any individual to $125.00 in a twenty-four hour period. It
contends that there is nothing in the section which prohibits the issuance of credits in
denominations greater than five cents. Furthermore, Respondent states that Section 12-21-2791
must be read together and reconciled with other sections of the Video Game Machines Act. See
Powell v. Red Carpet Lounge, 280 S.C. 142, 311 S.E.2d 719 (1984). The Respondent contends
that S.C. Code Ann. §§ 12-21-2774(2) and 2776(B)(2) (Supp. 1995) allow games to be played in
denominations greater than a nickel. Section 2774(2) provides that the video poker machines shall
accept "only coins or cash in the form of bills." In other words, the machine operator may not
allow a person to play the machines on credit. Section 2776(B)(2) requires that each video poker
machine operator must file a quarterly report reflecting the "denomination, whether five cents,
twenty-five cents, etc., of [each] game." The Respondent argues that the only way to reconcile the
statutes is to construe Section 12-21-2791 as allowing cash payout credits in denominations
greater than a nickel. The Respondent further argues that since Sections 12-21-2776 and
12-21-2774(2) and Section 12-21-2791 are in conflict with each other, and since the sections
allowing games to be played in denominations greater than a nickel were enacted after Section
12-21-2791, those sections are controlling. See Duke Power Co. v. S. C. Public Service Comm'n,
284 S.C. 81, 326 S.E.2d 395 (1985) (when conflicting statutory provisions exist, the last statute
enacted controls).
The Respondent's argument, however, overlooks the fact that in order to apply the rules of
statutory construction, a court must first find an ambiguity within the statute itself. A cardinal rule
of statutory construction is that the words used in a statute should be given their plain and
ordinary meaning. Multimedia, Inc. v. Greenville Airport Commission, 287 S.C. 521, 339 S.E.2d
884 (Ct. App. 1986); Hughes v. Edwards, 265 S.C. 529, 220 S.E.2d 231 (1975). When the terms
of a statute are plain and unambiguous, the courts must apply those terms according to their literal
meaning, without resort to subtle or forced construction in an attempt to limit or expand the
scope of the statute. Holley v. Mount Vernon Mills, Inc., 312 S.C. 320, 440 S.E.2d 373 (1994);
First Baptist Church of Mauldin v. City of Mauldin, 308 S.C. 226, 417 S.E.2d 592 (1992). If a
statute's language is plain and unambiguous and conveys clear and definite meaning, there is no
occasion for employing rules of statutory interpretation, and the court has no right to look for or
impose another meaning. Miller v. Doe, 312 S.C. 444, 441 S.E.2d 319 (1994). I find no
ambiguity in Section 12-21-2791. The statute states in plain language that locations shall limit
cash payouts to 2,500 credits per player per twenty-four hour period, and that the value of credits
for free games is limited to five cents. The word "limited" is ordinarily defined as being restricted
in extent, number, or duration. See Webster's Third New International Dictionary at 1312 (1993).
Therefore, Section 12-21-2791 prescribes the maximum number of free game credits which may
be redeemed, and the maximum amount of cash which may be paid for each redeemed free game
credit. See 1994 Op. S.C. Att'y Gen. No. 56 at 123. The section states clearly and
unambiguously that the value of each credit redeemed cannot exceed five cents. Since there is no
ambiguity in the statute, there is no reason to apply the rules of statutory construction, and
Respondent's argument that the statute should be read merely to prohibit payouts in excess of
$125.00 is without merit.
Moreover, Section 12-21-2791 is not ambiguous when compared to other sections of the Video
Game Machines Act. Section 12-21-2776(B)(2), which requires quarterly reports to the
Department of the "denomination, whether five cents, twenty-five cents, etc., of game," does not
deal with cash payouts at all. It simply recognizes that machines may be set up so that players pay
different amounts to play a video poker machine. The fact that a machine may cost more than five
cents to play is reconcilable with the requirement that, when free game credits are translated into
cash, the value of each credit may not exceed five cents. Section 12-21-2791 does not in any way
limit the amount of money a player may pay to play a machine. Therefore, there is no conflict
between the two sections, and no ambiguity results.
Furthermore, the Department's "guidelines" set forth in "A Guide to Conducting Video Gaming
Establishments in South Carolina" do not create ambiguity. The guidelines clearly state on page 6
that "the cash value of each of these [free game] credits is limited to five cents," and that there is
no limit on the amount a player may pay to play a game. The Department's position, as stated in
the Guide, is consistent with the text of Section 12-21-2791, which specifically limits the cash
value of free game credits to five cents, but does not prohibit a player from paying more than five
cents to play a game.
Section 12-21-2791 is clear and unambiguous on its face and when read together with other
sections of the Video Game Machines Act. It specifically prohibits cash payouts for free game
credits which are in excess of five cents per credit. In this case, the Respondent made cash
payouts in the amount of twenty-five cents per credit. Accordingly, the Respondent violated
Section 12-21-2791.
II. Constitutional Issues
The Respondent contends that Section 12-21-2791 violates due process because it fails to give
fair notice of the conduct it prescribes, and that it is not rationally related to the legislative
purpose of limiting winnings on Class III video poker machines. In order to meet constitutional
due process standards, a statute must give sufficient notice to enable a reasonable person to
comprehend what is prohibited. State v. Crenshaw, 274 S.C. 475, 266 S.E.2d 61, cert. denied,
449 U.S. 883, 101 S.Ct. 236, 66 L.Ed. 2d 108 (1980). A reading of Section 12-21-2791
indicates that it contains two specific prohibitions. First, it prohibits the redemption of credits for
cash payouts in excess of 2,500 credits per player per twenty-four hour period. Second, it
prohibits cash payouts in amounts greater than five cents per credit. These prohibitions are clearly
defined and provide sufficient notice of the proscribed conduct. Therefore, Section 12-21-2791 is
not unconstitutionally vague.
Furthermore, the five-cent maximum on the value of free game credits in Section 12-21-2791 is
not an arbitrary requirement, but instead is rationally related to the goal of limiting winnings of
video poker players, and, therefore, discouraging excessive play. When a player knows that he
can only receive five cents for a free game credit, regardless of the amount he pays to play a
game, this would tend to discourage the player from risking large amounts of money on a game.
Furthermore, the Respondent's own witness testified that setting up games so that credits are
valued at five cents tends to slow down the initial play of the game. I conclude that the language
of Section 12-21-2791 is not violative of due process.
III. Penalty
The Department seeks to impose a fine of $31,250.00 on the Respondent, pursuant to S.C. Code
Ann. §12-54-40(b)(3) (Supp. 1995), which provides:
(3) A person who is liable to obtain a license or purchase stamps for identification purposes,
who fails to obtain or display the license properly, or who fails to affix the stamps properly,
or fails 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. . . .
The Respondent argues that this fine is excessive in light of the fact that in none of the instances in
question did the payout exceed $125.00. It contends that it should only be fined for one violation,
if at all. The Department arrived at the fine of $31,250.00 by first selecting October 6 through 13,
1995, as the time period during which it would investigate cash payout violations. Although the
Department's investigation revealed that 162 violations had been committed during that time, the
Department arbitrarily chose to fine the Respondent for only 125 violations. The Department
then selected a fine of $250.00 for each violation from the statutory range of $50.00 - $500.00 set
forth in S.C. Code Ann. §12-54-40(b)(3). Therefore, imposition of a fine for each violation is
appropriate.
Section 12-21-2791 on its face clearly limits the cash value of free game credits to five cents each.
In addition, the Department furnished the Respondent with its guidelines, which reiterate in plain
language that cash payouts in excess of five cents per credit are prohibited. Despite this prior
notice, the Respondent ignored the requirements of the statute. However, the Department failed
to establish facts which sufficiently provide a basis for the imposition of the penalties in this case,
such as testimony concerning a customary fine for violations of this nature. Instead, the
Department merely established that violations occurred and that it assigned a penalty of
$31,250.00 based on the assertion that the video poker industry can obtain large profits from
violations of the Video Game Machines Act. In fact, in this case, the Department arbitrarily
reduced the number of violations in order to arrive at what it thought to be the appropriate
penalty. I find that the Department's method of determining the number of violations and
assigning a penalty was arbitrary. See Deese v. State Board of Dentistry, 286 S.C. 182, 332
S.E.2d 539 (Ct. App. 1985).
CONCLUSIONS OF LAW
Based upon the above Findings of Fact and Discussion, I conclude, as a matter of law, the
following:
1. The Administrative Law Judge Division has jurisdiction to hear this matter pursuant to S.C.
Code Ann. § 12-4-30(D) (Supp. 1995) and S.C. Code Ann. § 1-23-320 (Supp. 1995).
2. The Department contends that the Respondent violated S.C. Code Ann. § 12-21-2791 (Supp.
1995). That section provides:
Any location which operates or allows the operation of coin-operated machines pursuant to
Section 12-21-2720(A)(3) which provides payouts authorized pursuant to Section 16-19-60
shall limit the cash payout for credits earned for free games to two thousand five hundred
credits per player per location during any twenty-four-hour period. The cash value of
credits for each free game shall be limited to five cents.
3. The Department provided a publication entitled "A Guide to Conducting Video Gaming
Establishments in South Carolina" ("Guide") to video poker operators. Among other things, this
publication contained a page with the heading "Cash Payouts (S.C. Code Ann. § 12-21-2791)."
That page provides in pertinent part:
1. Limits on Cash Payouts: Cash payouts are limited to 2,500 credits per player per
location during any 24-hour period. The cash value of each of these credits is limited to 5
cents. The statute does not limit the amount a player may pay to play a game.
Therefore, once a player wishes to cash in his or her credits, the licensed establishment must
verify the number of credits remaining on the machine. The credits remaining on the
machine are then multiplied by the cash value assigned to a credit to determine the cash
payout.
For example, if a customer has 2,000 credits remaining on the machine, then the cash
payout is $20 if the cash value of a credit is 1 cent; $40 if the cash value of a credit is 2
cents; $60 if the cash value of a credit is 3 cents; $80 if the cash value of a credit is 4 cents;
and $100 if the cash value of a credit is 5 cents. The cash value of each credit for a cash
payout may not exceed five (5) cents.
Guide, page 6 (emphasis added).
4. Words used in a statute should be given their plain and ordinary meaning. Multimedia, Inc. v.
Greenville Airport Commission, 287 S.C. 521, 339 S.E.2d 884 (Ct. App. 1986); Hughes v.
Edwards, 265 S.C. 529, 220 S.E.2d 231 (1975). When the terms of a statute are plain and
unambiguous, the courts must apply those terms according to their literal meaning, without resort
to subtle or forced construction in an attempt to limit or expand the scope of the statute. Holley
v. Mount Vernon Mills, Inc., 312 S.C. 320, 440 S.E.2d 373 (1994); First Baptist Church of
Mauldin v. City of Mauldin, 308 S.C. 226, 417 S.E.2d 592 (1992). If a statute's language is plain
and unambiguous and conveys clear and definite meaning, there is no occasion for employing
rules of statutory interpretation, and the court has no right to look for or impose another meaning.
Miller v. Doe, 312 S.C. 444, 441 S.E.2d 319 (1994).
5. The terms of S.C. Code Ann. §12-21-2791 are plain and unambiguous. The clear meaning and
intent of the section is to prohibit cash payouts in excess of five cents per free game credit, and to
prohibit the redemption of more than 2,500 credits per player per twenty-four hour period.
Accordingly, there is no reason to apply the rules of statutory construction.
6. S.C. Code Ann. § 12-21-2791 is not in conflict with other sections of the Video Game
Machines Act which permit the playing of games in various denominations. S.C. Code Ann.
§12-21-2776(B)(2) (Supp. 1995), which requires quarterly reports to the Department of the
"denomination, whether five cents, twenty-five cents, etc., of game," merely recognizes that
machines may be set up so that players pay different amounts to play a video poker machine. The
fact that playing the machine may cost more than five cents to play is reconcilable with the
requirement that, when free game credits are translated into cash, the value of each credit may not
exceed five cents. Section 12-21-2791 does not in any way limit the amount of money a player
may pay to play a game. Therefore, no ambiguity is created when the two sections are read
together.
7. In order to meet constitutional due process standards, a statute must give sufficient notice to
enable a reasonable person to comprehend what is prohibited. State v. Crenshaw, 274 S.C. 475,
266 S.E.2d 61, cert. denied, 449 U.S. 883, 101 S.Ct. 236, 66 L.Ed. 2d 108 (1980); Toussaint v.
State Board of Medical Examiners, 303 S.C. 316, 400 S.E.2d 488 (1991) (the constitutional
standard for vagueness is the practical criterion of fair notice to those to whom the law applies).
The language of S.C. Code Ann. § 12-21-2791 is not unconstitutionally vague or violative of due
process. It contains a clear prohibition against cash payouts in excess of five cents per free game
credit. Moreover, the five-cent limit is rationally related to the legislative goal of limiting the
winnings of video poker players, since it tends to slow down the initial play of the game.
Furthermore, the Act regulates Video Poker gambling by providing a disincentive to risking large
amounts of money on a single game. In other words, the Act does not restrict how much money
may be deposited into a video poker machine, but limits the total cash payout for credits earned
from playing the machines at any one establishment within a 24-hour period to 2,500 credits or
$125.00. The implied deterrent established by the General Assembly, therefore, is that the public
would limit the amount of money deposited in the machines knowing that upon cashing in their
credits the most that could be paid by the video poker establishment is $125.00.
8. The Respondent violated S.C. Code Ann. § 12-21-2791 (Supp. 1995). The penalty for failure
to comply with S.C. Code Ann. § 12-21-2791 is a fine of not less than fifty dollars nor more than
five hundred dollars for each failure. S.C. Code Ann. § 12-54-40(b)(3) (Supp. 1995).
9. 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 have a hearing
and be heard on the issues. See Ohio Real Estate Comm'n v. Aqua Sun Investments, 655 N.E.2d
266 (Ohio A. 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. 1988); Dept. of Transp. v. Miller, 528 A.2d 1030 (Pa. 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. In its capacity as the
fact-finder, the Tax Commission would conduct an adjudicatory hearing in all contested cases
arising under Title 12 of the South Carolina Code, and would render an order containing findings
of fact and conclusions of law. As the 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). With the advent of restructuring and the abolition of
the Tax Commission, however, the Administrative Law Judge Division was given the authority to
hear "all contested cases, as defined by Section 1-23-310 and as previously considered by the
three [Tax] commissioners. . . ." S.C. Code Ann. §12-4-30(D) (Supp. 1996). The Administrative
Law Judge, 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 that the tribunal responsible for conducting the contested
case proceedings as mandated by the legislature must have the authority to decide the issues based
on the facts presented and make the final decisions on all the issues, including the appropriate
penalty.
ORDER
Based upon the Findings of Fact and Conclusions of Law, it is hereby:
ORDERED, that a fine of $9,500.00 is imposed upon the Respondent, A.M.F. Bowling Centers,
Inc.
AND IT IS SO ORDERED.
___________________________________
Ralph King Anderson, III
Administrative Law Judge
Columbia, South Carolina
January 28, 1997 |
