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. BHB Enterprises, et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
BHB Enterprises, LLC, d/b/a Tycoons Gallery of Games, and Timbes Architecture, Inc.
 
DOCKET NUMBER:
97-ALJ-17-0004-CC

APPEARANCES:
For the Petitioner: Carol I. McMahan, Esquire

For the Respondent: James H. Harrison, Esquire
 

ORDERS:

FINAL DECISION

STATEMENT OF CASE


This matter comes before me upon request for a Hearing by the Respondent after being cited for violating S.C. Code Ann. § 12-21-2804 (A)(Supp. 1996). The South Carolina Department of Revenue ("Department") contends that the Respondent operated more than five video poker machines in a "single place or premise." A Hearing was held before the Administrative Law Judge Division on April 17, 1997.

I find the Respondent violated Section 12-21-2804 (A).

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 evidence:

1. Notice of the time, date, place and subject matter of the Hearing was given to the Petitioner and the Respondent.

2. The Department issued a violation report against Timbes Architecture on June 13, 1996, charging the Respondent with having 35 Class III video game machines in Tycoons Gallery of Games (Tycoons Gallery). The Department offered no evidence as to whether each business located in Scott's had a separate electric meter, business license or a State sales tax license. Rather, the sole issue for determination is whether the Respondent violated S.C. Code Regs. § 117-190 (Supp. 1996) by not having "at least one separate employee on the premises during business hours."

3. On June 13, 1996, Department agents conducted an inspection of Tycoons Gallery at 1900 N. 17th Avenue, Surfside Beach, South Carolina. The Respondent's location was a mall type arrangement housing fifteen video gaming rooms. The Department contends that seven of the fifteen rooms were open. I find that Tycoons Gallery Game Rooms 5, 6, 7, 9, 10 and 11 were open for business. Each of the six open game rooms contained five Class III video game machines. The machines in these open rooms were all on and operational.

4. The doors leading into rooms 5, 6, 7 and 10 were open. There were no "Closed" signs on the doors or at the entryways leading into any of these game rooms. A customer was playing a machine in room 13. Furthermore, the overhead lights were on in each room as well.

5. There was a"Closed" sign on the door leading into game rooms number 8. However, the door leading into room 11 was open and a customer was in the room playing a machine.

6. When the Department's agents arrived, the door leading into room 9 was open. However, during the Department's inspection, the door to room 9 was closed. Additionally, there were no "Closed" signs on the door or at the entryway leading into the room and the overhead lights in that room were on.

7. The Department failed to meet their burden of proof that room 12 was open. Though the light and machines were on, the door was closed and no customers were in the room playing the machines.

8. The thirty (30) Class III machine licences located in the above open businesses were owned by Tycoons Gallery. The following video game machine permits were located in the respective game rooms:

Tycoons Gallery 5

036150

036149

036148

036146

036147

Tycoons Gallery 9

036211

036144

036145

036151

36152

Tycoons Gallery 6

036174

036175

036184

036183

036185

Tycoons Gallery 10

036157

036156

036155

036154

036153

Tycoons Gallery 7

036190

036189

036188

036187

036186

Tycoons Gallery 11

036159

036158

036161

036160

036162

9. Six employees were located on the premises of Tycoons Gallery; however, none of these employees were in any of the game rooms. Two of the employees were in the commons area in the middle of the structure, two were in the bar/grill area and one was outside the building.

10. The Respondent's Class III machine permits in Room B expire on May 31, 1997. The Department seeks the imposition of a Five Thousand ($5,000.00) Dollar fine against the Respondent, revocation of the machine permits and the restriction that no permit be issued for the Respondent's location for six months.

11. The Respondent had a sufficient number of employees at the location to service the open game rooms. However, though two of the employees were in a position that they could be summoned to assist the two customers present, the Respondent failed to have employees located within the open game rooms. I find therefore that the Respondent violated S.C. Code Ann. § 12-21-2804(A) by failing to have "at least one separate employee" in each of the open game rooms. I further find that the appropriate fine in this case is a Five Hundred ($500.00) Dollar fine for each violation.

CONCLUSIONS OF LAW


Based upon the above Findings of Fact, 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. 1996) and S.C. Code Ann. § 1-23-320 (Supp. 1996).

2. The Department contends that the Respondents violated S.C. Code Ann. § 12-21-2804(A)(Supp. 1996). Section 2804(A) prohibits the operation of more than five video game machines authorized under S.C. Code Ann. § 12-21-2720(A)(3) at a "single place or premises." However, the Video Game Machines Act does not define the term "single place or premises." On June 23, 1995, 27 S.C. Code Regs. 117-190 (Supp. 1996) became effective. It defines "single place or premises" for purposes of interpreting the Video Game Machines Act, including Section 12-21-2804(A). It provides:

A "single place" or "premises" means a structure surrounded by exterior walls or firewalls consistent with the requirements of the applicable building code (or where no building code is applicable, a one hour rated firewall), provided such exterior walls and fire walls may not have any windows, doors or other openings leading to another area where video game machines are located.

If a structure surrounded by exterior walls has two or more areas where video game machines are located, each surrounded by exterior walls or fire walls as defined and required above, the Department must review all the facts and circumstances to determine if each area in reality constitutes a single place or premise for video game machines. In determining whether each entity is in fact a single place or premises, the Department of Revenue will consider the following factors: (1) Does each entity or business have a separate electric utility meter? (2) Does each entity or business have at least one separate employee on the premises during business hours? (3) Does each entity or business have a separate local business license where required? (4) Does each entity or business have separate sales tax licenses? A positive answer to these four questions is required for each area to be considered a "single place or premise" for purposes of the Video Game Machines Act.

Regulation 117-190 sets forth that multiple video poker businesses are allowed under one roof. In this case, the Respondent complied with the structural requirements of Regulation 117-190. However, at the time of the Department's inspection, some of the businesses did not have an employee present. The Department contends that the Respondent violated the above regulation and statute by failing to maintain an employee in each business. The Department asserts that if an employee is not within the four walls of the business at the time of an inspection, the business is not a single place of premise as defined in regulation 117-190. Therefore, the Department insists that the mere absence of an employee from the business constitutes conclusive proof that the owner violated the statute.

The Respondent contends that the Department interpretation of "premises" is "so rigid, narrow, impractical and nonsensical that it furthers neither the literal interpretation nor the presumed intent of the legislature." To the contrary, the Department argues that this criterion is necessary to curtail casino type operations in South Carolina. However, the Department cannot curtail such operations by violating the Respondent's due process rights or by applying fundamentally flawed reasoning. Furthermore, the Department's approval of multiple video game businesses under one roof created the very quagmire they seek to rectify by requiring that an employee remain within the four walls of the business at all times.

In order to meet constitutional due process standards, a statute and therefore a regulation 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). Furthermore, penal statutes must be strictly construed against the state in favor of the citizen. Feldman v. S.C. Tax Commission, 203 S.C. 49, 26 S.E.2d 22 (1943). In that regard, Regulation 117-190 does not specifically state that, if an employee is not on the premises at all times, then a violation is presumed.

The Department's interpretation that an employee must physically remain within the four walls of each video game room at all times is based upon the presumption that all businesses maintain employees on the premises at all times, otherwise, the business is closed.(1) Therefore, the Respondent's business should have been closed, as each game room did not have an employee on the premises. Pursuant to that conclusion, the Department applies an irrebuttable or conclusive presumption that once the Department shows that an employee is not on the premises, that business does not qualify as a single place or premise.

Application of the proposition that the businesses should be closed whenever an employee leaves the premises creates a bright line standard to follow in future cases. A bright line test certainly creates both clarity and a straightforward method of dealing with this issue. However, if the bright line standard is not clearly supported by unassailable facts it becomes a standard of convenience that is simply not supported by due process. "This court has no legislative powers. In the interpretation of statutes our sole function is to determine and, within constitutional limits, give effect to the intention of the legislature. We must do this based upon the words of the statutes themselves. To do otherwise is to legislate, not interpret. The responsibility for the justice or wisdom of legislation rests exclusively with the legislature, whether or not we agree with the laws it enacts." Busby v. State Farm Mut. Auto. Ins. Co., 280 S.C. 330, 312 S.E.2d 716 (S.C. App. 1984).

To declare the existence of a presumption of fact, the court must determine that "the result presumed must be one which a reasonable person would draw from certain facts which have been proven to him. Its basis is logic [sic], its source is probability, and it rests on the observed connection between facts." Lawrence v. Southern Ry., 169 S.C. 1, 167 S.E. 839 (1933). I do not find support in the general knowledge of how businesses are conducted that all businesses, especially those in a "mall type" setting, close every time an employee steps out of the business. It is foreseeable that an employee of a business in a mall setting could step out of the business momentarily to service a customer's needs or for some business or personal reason.

The Department's inspection revealed that no employee was working within the four walls of the Respondent's businesses. That evidence establishes a prima facie case or a rebuttable presumption that the business is not a single place or premise. The rebuttable presumption is supported by the general knowledge that businesses do not operate for any extended period of time without their employees present. Additionally, an employee's role and on-the-job conduct is within the Respondent's control. Therefore, once the Department establishes a prima facie case, the burden shifts to the Respondent to produce evidence that the business actually had a separate employee specifically assigned to that business. See, Stanley Smith & Sons v. D.M.R., Inc., 307 S.C. 413, 415 S.E.2d 428 (Ct. App. 1992). Furthermore, the Respondent must demonstrate that the employee's absence from the game room was of short duration and reasonable under the circumstances. A violation of Reg. 117-190 will still occur whenever an employee is absent from the premises for a prolonged period of time, or the reasons for the absence does not involve a reasonable business or personal need. Such determinations will depend greatly on the specific factual circumstances, and must be evaluated on a case-by-case basis.

An administrative regulation is valid so long as it is reasonably related to the purpose of the enabling legislation. Hunter & Walden Co. v. S.C. State Licensing Bd. for Contractors, 272 S.C. 211, 251 S.E.2d 186 (1978). In Young v. South Carolina Dept. of Highways and Public Transp., 287 S.C. 108, 336 S.E.2d 879 (S.C. App. 1985) the Court upheld a Highway Department's regulation which defined the term"transient or temporary." The Court held:

While the General Assembly did not define "transient or temporary" by statute, it has implicitly authorized the Department to interpret, clarify and explain the statute by authorizing the Department to promulgate regulations governing outdoor sign permits. Administrative agencies may be authorized " 'to fill up the details' by prescribing rules and regulations for the complete operation and enforcement of the law within its expressed general purpose." Heyward v. South Carolina Tax Commission, 240 S.C. 347, 355, 126 S.E.2d 15, 19-20 (1962); 73 C.J.S. Public Administrative Law and Procedure Section 67 (1983) (in the first instance, defining a particular statutory term is an administrative function). We hold the Department's definition is not overly restrictive and further the definition provides specific time limitations which will assure that the statute will be applied in a consistent manner. See Boucher Outdoor Advertising Co. v. Minnesota Department of Transportation, 347 N.W. 2d 88, 91 (Minn. App.1984).

In this case the General Assembly did not define the term "single place or premises." However, S.C. Code Ann. § 12-21-2798 (Supp. 1996) provides that "[t]he commission shall promulgate rules and regulations pertaining to the machines and persons licensed by it." Therefore, the Department was authorized to clarify the phrase "single place or premises" contained in Section 12-21-2804(A). Furthermore, Regulation 117-190, as applied above, is not an overly restrictive definition of that term.

3. The Respondent argues that the Department is using different definitions of "premises" in applying S.C. Code Ann. § 2804 (A) and the Regulation 117-190. The Respondent argues that the Department uses a definition of "premises" to mean the space within the four walls of the video game room to determine whether the business failed to have an employee upon the "premises." However, once a violation is claimed by the Department, the individual businesses and common areas contained within the entire structure all become "premises" for the purpose of determining a violation of the five machine limitation. Afterwards, the Department reverts to the narrow definition of "premises" for purposes of assessing a penalty.

The Respondent contends that S.C. Code Ann. § 2804 (A) and the Regulation 117-190 are unconstitutionally vague if they require different definitions for "premises." However, I do not find that the statute or regulation applies different definitions concerning the term "premises." "The constitutional standard for vagueness is the practical criterion of fair notice to those to whom the law applies." Toussaint v. State Bd. of Medical Examiners, 303 S.C. 316, 400 S.E.2d 488 (1991). Similarly, in City of Beaufort v. Baker, 315 S.C.146, 432 S.E.2d 470 (1993), the Court stated:

In determining whether a statute is vague, we have held: The concept of vagueness or indefiniteness rests on the constitutional principle that procedural due process requires fair notice and proper standards for adjudication. The primary issues involved are whether the provisions of a penal statute are sufficiently definite to give reasonable notice of the prohibited conduct to those who wish to avoid its penalties and to apprise judge and jury of standards for the determination of guilt. If the statute is so obscure that men of common intelligence must necessarily guess at its meaning and differ as to its applicability, it is unconstitutional.

I find that Regulation 117-190 is not unconstitutionally vague.

4. The Department contends that if any game room is not a single place or premise then the entire "mall setting" is one single place or premise. Therefore, every license for each machine located upon the premises of the video poker mall is subject to revocation. This result would be true whether or not the game room violating the regulation had any business connection with the other game rooms located within the same mall area. "Court [s] must avoid construing a statute so as to lead to an absurd result." Stone v. State, 313 S.C. 533, 443 S.E.2d 544 (1994).

I find that each of the game rooms that failed to have a separate employee working within its confines at the time of the Department's inspection is considered a "single place or premises" pursuant to the requirements of S.C. Code Ann. § 12-21-2804(A) (Supp. 1996). Therefore, any fine or punishment imposed against those businesses would not necessarily be imposed against the whole structure.

5. Machines permitted under Section 12-21-2720(A)(3) include video games with a free play feature operated by a slot in which a coin or thing of value is deposited. S.C. Code Ann. § 12-21-2720 (Supp. 1996).

6. S.C. Code Ann. § 12-21-2804(A) (Supp.1996) states that the penalty for failing to comply with the maximum number of machines in a "single place or premise" is the revocation of the permits of machines located in the establishment.

7. S.C. Code Ann. § 12-21-2804(F) (Supp. 1996) states that a person who violates Section 12-21-2804(A) may be fined up to five thousand dollars.

8. 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 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 administered by the Commission's subordinate agency. 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. Parties are entitled to present evidence on all issues arising out of the contested agency action and the tribunal responsible for conducting the contested case proceedings has 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 the following permits for the thirty Class III video game machines located in Tycoons Gallery game rooms 5, 6, 7, 9, 10 and 11 at 1900 N. 17th Avenue, Surfside Beach, South Carolina, are hereby revoked:

Tycoons Gallery 5

036150

036149

036148

036146

036147

Tycoons Gallery 9

036211

036144

036145

036151

036152

Tycoons Gallery 6

036174

036175

036184

036183

036185

Tycoons Gallery 10

036157

036156

036155

036154

036153

Tycoons Gallery 7

036190

036189

036188

036187

036186

Tycoons Gallery 11

036159

036158

036161

036160

036162

IT IS FURTHER ORDERED that a fine of Five Hundred ($500.00) Dollars is imposed for each offense upon the Respondent, resulting in a total fine of Three Thousand ($3,000.00) Dollars.

IT IS FURTHER ORDERED that no permits shall be issued for any Class III machine to be operated in any of the above game rooms for a period of six (6) months from the date of this Final Decision.

AND IT IS SO ORDERED.



___________________________

Ralph King Anderson, III

Administrative Law Judge


Columbia, South Carolina

June 16, 1997

1. If the Department's reasoning is not based upon the premise that all businesses maintain employees on the premises at all times, otherwise the business is closed, then their reasoning is flawed. If all businesses do not close when an employee leaves the premises, their conclusion is based upon the premise that some or most businesses maintain employees on the premises at all times, otherwise the business is closed. Creation of an irrebuttable presumption based upon historical facts that sustain the presumption only under some, but not all of the possible circumstances would be fundamentally unfair.


Brown Bldg.

 

 

 

 

 

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