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. A.M.F. Bowling Centers, Inc.

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
A.M.F. Bowling Centers, Inc.
 
DOCKET NUMBER:
96-ALJ-17-0061-CC

APPEARANCES:
For the Petitioner: Nicholas P. Sipe, Esquire

For the Respondent: Dwight F. Drake, Esquire, and

Zoe Sanders Nettles, Esquire
 

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


Brown Bldg.

 

 

 

 

 

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