South Carolina              
Administrative Law Court
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SC Administrative Law Court Decisions

CAPTION:
SCDOR vs. Midnight Pass, L.P., et al.

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Midnight Pass, L.P., et al.
 
DOCKET NUMBER:
96-ALJ-17-0405-CC

APPEARANCES:
n/a
 

ORDERS:

ORDER OF DISMISSAL

This matter comes before me upon a Motion to Dismiss filed by Respondents Midnight Pass, L.P., et al., on the ground that Petitioner Department of Revenue ("Department") waited beyond the two year statute of limitations to pursue this case and subject Respondents to fines and license revocations. H. Buck Cutts and Thomas E. Dudley, III, appeared for Respondents and Carol I. McMahan appeared for the Department at the Motion Hearing held on January 13, 1997 at the Administrative Law Judge Division.

STATEMENT OF THE CASE

In April of 1994, agents of the Department visited the Gold Rush Saloon at 2701 South Kings Highway, Myrtle Beach, South Carolina. On June 3, 1994, agents returned to the location and issued a citation setting forth three violations of the Video Game Machines Act, S.C. Code Ann. §12-21-2770, et seq., against Midnight Pass only, the operator of the Gold Rush Saloon. Respondents contested this citation by a letter and form dated June 15, 1994 and requested a contested case hearing.

On October 10, 1994, agents again returned to the Gold Rush Saloon, took more pictures and made drawings, but issued no more citations. By letter dated October 12, 1994 from the Commissioner, Attorney Cutts was informed of a hearing date before the Tax Commission.

Notice was also given that Respondent Midnight Pass, L.P. was charged with a violation of the two-year residency requirement for ownership of machine licenses.

A hearing was conducted before the Tax Commission on November 23, 1994 and a Finding was issued May 4, 1995, upholding only the citation for a violation of the single place or premises charge. A $5,000 fine was levied and licenses of all Class III machines within the Gold Rush Saloon were revoked. Midnight Pass filed an appeal of this decision with the Circuit Court, and on June 23, 1995, the Circuit Court issued its Order setting aside the Tax Commission decision. The Circuit Court found that the Tax Commission lacked subject matter jurisdiction. The Circuit Court also found that Midnight Pass was entitled to a hearing de novo. The Department appealed this Order. On August 19, 1996, the South Carolina Court of Appeals affirmed the Circuit Court's Order, holding that the Tax Commission did not have jurisdiction to hear the case in November of 1994. Midnight Pass, L.P. v. South Carolina Department of Revenue, S.C. Ct. App. Unpub. Op. 96UP264 (Aug. 19, 1996).

The Department did not take any steps to pursue the June 3, 1994 citation against Midnight Pass until after the Court of Appeals affirmed the Circuit Court decision. On September 26, 1996, some two years and three months after the citation, the Department submitted an agency transmittal and a letter to Counsel for Respondents setting forth the Court of Appeals decision as the basis for "starting over again." This letter set forth a listing of the identical machine licenses but alleged the violation to have occurred "on or about October 11, 1994" for a single place or premises violation [S.C. Code Ann. §12-21-2804(A)] and for advertising violations that occurred on April 21, 1994. The Department also added Hugh Andrews, Elizabeth Robertson, and Gold Crown Management, Inc. as Respondents. These parties were not parties to the original proceeding resulting from the June 3, 1994 citation.

At the motion hearing on this matter, Elizabeth Robertson and Hugh Andrews were dismissed as parties to this proceeding. In addition, the Department abandoned the advertising and inducement issues alleged in the June 3, 1994 citation and the alleged residency requirement violation that it gave notice of in the October 10, 1994 letter. Therefore, the only violation in question before this tribunal is the alleged violation of S.C. Code Ann. 12-21-2804(A) (Supp. 1993), permitting to be used permits for the operation of more than eight machines authorized under S.C. Code Ann. § 12-21-2720 (A)(3) (Supp. 1993) on October 10, 1994. Furthermore, the Respondents in this matter are Midnight Pass, L.P. and Gold Crown Management, Inc.



DISCUSSION OF ISSUES

Respondents filed a Motion to Dismiss, pursuant to ALJD Rule l9(A). Respondents contend that the Department's allegations of a violation on October 10, 1994 are time barred by statutes of limitations, namely S.C. Code Ann. §§ 15-3-550 (Supp. 1995), 15-3-570 (1976), and 15-3-620 (1976). The Department filed a Return to the Motion in which it denied the applicability of any of the statutes of limitations set forth by Respondents and asserted a right to amend the June 3, 1994 citation to conform with the allegation of a violation on October 10, 1994.

It is well established that proceedings for disciplining a licensee generally must be commenced within the time period fixed by statute. 53 C.J.S. Licenses § 56 (1987). This is so both as to the time within which an accusation against the licensee must be made, and the time within which the proceeding itself must commence after the charges are made. Id. The failure to hold such a proceeding within the time mandated after the charges have been made will result in the charges being dismissed. Id.

A. Statute of Limitations

The first issue to address is whether a statute of limitations applies, and, if so, when it begins to run. Respondents argue that this tribunal should apply S.C. Code Ann. § 15-3-550 (2), et seq., which provides for a two-year statute of limitations on "an action upon a statute for a forfeiture or penalty to the State." At the Motion Hearing, the Department argued that the three year statute contained in S.C. Code Ann. § 12-54-85 (Supp. 1995) should apply.

This tribunal believes that there is no specific or general statutory provision setting forth a statute of limitations applicable to this type of administrative proceeding. In the absence of specific legislative authority, civil or criminal statutes of limitation are inapplicable to administrative license revocation proceedings. See Landes v. Department of Professional Regulation, 441 So.2d 687 (Fla. App. 5 Dist. 1983). There is not a specific statutory provision within the Video Game Machines Act which sets forth a statute of limitations.

Furthermore, the current matter is before the Administrative Law Judge Division pursuant to the Administrative Procedures Act as an administrative proceeding and not as an action. SeeS.C. Code Ann. § 1-23-600(B) (Supp. 1995). A statute of limitations on actions is generally inapplicable to administrative proceedings. 54 C.J.S. Limitations of Action § 77(a) (1987). Generally, an "action" is defined as ". . .a lawsuit brought in a court; a formal complaint within the jurisdiction of a court of law." Black's Law Dictionary 28 (6th ed. 1990). Within the context of the Administrative Procedures Act, an "action" arises only after the conclusion of a contested case and only when the aggrieved party seeks judicial review in the circuit court. S.C. Code Ann. §1-23-610(B) (Supp. 1995); McDowell v. Dep't of Social Services, 304 S.C. 539, 405 S.E.2d 830) (1991). Since this matter is an administrative proceeding rather than an "action," and since §§ 15-3-550, 15-3-570, and 15-3-620 all refer to situations where there is a limitation on the time to commence an "action," these sections are not applicable to this proceeding. See Landes v. Department of Professional Regulation, 441 So.2d 687 (Fla. App. 5 Dist. 1983).

Likewise, S.C. Code Ann. § 12-54-85 does not apply because this statute clearly pertains to tax matters only, not license revocations or regulation of video game machines. This conclusion was confirmed by the Honorable G. Ross Anderson, Jr. in Reyelt, et al. v. Sessions, et al., Civil Action Nos. 6:93-1491-3 and 6:93-1493-3 (D.S.C. November 15, 1993). This tribunal is aware that the Revenue Procedures Act, which became effective August 1, 1995, defines "tax" as "including all taxes . . . and penalties imposed by title 12." S.C. Code Ann. § 12-60-30(27) (Supp. 1995). However, this Act was not in effect at the time of the alleged violation, which is now before this tribunal. Therefore, this tribunal will apply the ruling of the Honorable G. Ross Anderson, Jr.

For the foregoing reasons, this tribunal concludes that the statutes proffered by the Department and the Respondents are inapplicable to this case and there is no specific statute of limitations applicable to the Video Game Machines Act.

B. Unreasonable Delay

Regardless of the inapplicability of a statute of limitations, licensee disciplinary proceedings should be held without unnecessary delay. See Citrano v. Department of Registration and Education of the State of Illinois, 414 N.E.2d 74 (Ill. App. 1980); 53 C.J.S. Licenses § 56 (1987). As a general rule, before a license can be revoked, "the licensee must be given notice reasonably calculated to apprise him of proceedings and charges against him, and which affords him the opportunity to prepare his defense, and to be heard." 53 C.J.S. Licenses § 55 (1987). Furthermore, "where a statute mandates that reasonable notice must be given prior to the institution of proceedings, belated notice and a hearing is no substitute therefor." Id. The Department failed to notify the Respondents of the alleged October 10, 1994 violation, until September 26, 1996, nearly two years after the alleged violation. There is no justification for the Department waiting nearly two years to issue an administrative determination of a violation after an on-premises inspection. Without regard for the merits of the violation report, the delay in its issuance is unreasonable(1) and antithetical to notions of fair play and fair notice.(2) In this case, we are not only dealing with the delay in the commencement of an administrative proceeding, but the delay in the issuance of the citation in the first instance. It must be further noted that Respondents were unaware that such a violation was even being considered by the Department. Their first notice of the allegation was almost two years after their premises was inspected by the Department on October 10, 1994.

The action taken by the Department is arbitrary and capricious in that the delay in the issuance of the citation was unreasonable. S.C. Code Ann § 1-23-380(A)(6)(f) (Supp. 1995). In Deese v. South Carolina State Bd. of Dentistry, the Court stated: "[an administrative] decision is 'arbitrary' if it is without rational basis, is based on one's will and not upon any course of reasoning . . ., is governed by no fixed rules or standards." Deese v. South Carolina State Bd. of Dentistry, 286 S.C. 182, 184, 332 S.E.2d 539, 541 (1985). Furthermore, "arbitrary and capricious" has been defined as a "characterization of a decision or action taken by an administrative agency or inferior court meaning willful and unreasonable action without consideration or in disregard of facts or law or without determining principle." Black's Law Dictionary 105 (6th ed. 1990). Under the facts of this case, the Department's delay in the issuance of the citation is unreasonable and, therefore, arbitrary and capricious.

Additionally, the Department's action apparently conflicts with its own policy that once an appeal is filed of a violation of the Video Game Machines Act, the operator can continue to operate as is until the matter is heard by the [Commission], and an order is issued. The hearing on the June 3, 1994 citation was not conducted by the Tax Commission until November 23, 1994. Furthermore, an order was not issued until May 4, 1995. Yet, the Department conducted a second inspection of Respondents' premises on October 10, 1994, during the pendency of the adjudications by the Tax Commission, Circuit Court, and Court of Appeals.

On September 26, 1996, the Department issued another citation which included certain charges in its June 3, 1994 citation, involving the same licenses. In an Occupational Safety and Health case involving post-citation discovery by the Department of Labor after its issuance of a citation, our Supreme Court invalidated agency regulations providing for post-citation discovery. Milliken and Company v. South Carolina Dep't of Labor, Division of Occupational Safety and Health, 275 S.C. 264, 269 S.E.2d 763 (1980). The Supreme Court reasoned:

The underlying issue would appear to be whether the Department is to get effectively two bites at the apple. Under the approach taken, it would be able to conduct two full-scale investigations, using its designedly very broad investigatory powers, in the course of pursuing one basic inquiry into the activities of a business.
Fundamental fairness would seem to indicate that there should be one basic fact-finding process, and that review thereafter should be on the record made in that fact-finding process or procedure.
. . .
The State's Administrative Procedure Act . . . [c]learly contemplates a straight-line agency process beginning with fact-finding and ending with judicial review, it does not contemplate an agency's continuous reinitiation of investigation throughout the process.

Id. at 764, (emphasis added). In the instant case, the facts clearly indicate that the Department is attempting to get "two bites at the apple" by issuing a violation report nearly two years after the inspection --- an inspection which occurred during the pendency of an adjudication for a virtually identical and previously issued citation. This too seems fundamentally unfair and is prohibited under the principles set forth in Milliken. Id.

It is clear that there is a need for a statute of repose because after the passage of time evidence has been lost, memories have faded, and witnesses have disappeared. See FEC v. NRSC, 877 F.Supp 15 (D.D.C. 1995). Furthermore, it is inappropriate for a government regulator to wield the threat of an open-ended penalty and there must be some period of time where the threat of being cited by the Department for an administrative violation ends. Id.







ORDER

Based upon the foregoing Statement of Facts and Legal Conclusions, IT IS HEREBY ORDERED that the violations pending against Respondents are dismissed, with prejudice.

IT IS SO ORDERED.



______________________________________

JOHN D. GEATHERS

Administrative Law Judge

P.O. Box 11667

Columbia, SC 29211-1667

February 7, 1997

Columbia, South Carolina

______________________

Fn. 1. See State v. Bowers, 270 S.C. 124, 241 S.E.2d 409 (1978) (in absence of a statute limiting the time in which to bring contempt proceedings, a correct statement of the law in South Carolina is that delay is no defense unless such delay is unreasonable or the defendant is prejudiced thereby).

Fn. 2. "The minimal due process requirements for licensing hearings --- whether for the purpose of granting, denying, or revoking a license --- demand that the applicant be given: . . .

(1) Adequate notice of any and all charges made affecting the licensee; (2) An opportunity to be apprised of the claim of opposing parties; . . . ." 4 Jacob A. Stein et al., Administrative Law § 41.02 at 41-10 (1996); See also Misurelli v. City of Racine, 346 F.Supp. 43, 49-50 (E.D. Wisc. 1972), vacated on other grounds sub nom. City of Kenosha v. Bruno, 412 U.S. 507, 93 S.Ct. 2222, 37 L.E.2d 109 (1973). In Misurelli v. City of Racine, the court set forth due process procedures in a liquor license renewal case:
. . . Prior to a renewal license hearing, the applicant must be given timely notice of the reasons urged for denial. Given the wide ranging reasons that may constitute an adequate basis for denial of the renewal of a liquor license in Wisconsin as well as the fact that even if denial might be legally justified the licensing authority usually has the discretion to grant it if circumstances warrant such action, an applicant can present a meaningful defense only if he knows the basis upon which denial is urged. This notice must be timed so as to allow the applicant an adequate opportunity to investigate the charges, gather witnesses, and otherwise prepare a defense. Mere notice of a hearing date or notice of charges only an instant before the hearing fail to satisfy due process.
. . .
4 Jacob A. Stein et al., Administrative Law § 41.02 at 41-10 (1996), quoting Misurelli v. City of Racine, 346 F.Supp. 43, 49-50 (E.D. Wisc. 1972) (emphasis added).

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