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. Executive Enterprises, Inc., et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Executive Enterprises, Inc., Cynthia Keith, d/b/a Red Dog Saloon, d/b/a Starlight, d/b/a Golddigger, d/b/a Excalibur, d/b/a Showboat, d/b/a Park Place, d/b/a Palace, d/b/a Squeeky's
 
DOCKET NUMBER:
97-ALJ-17-0052-CC

APPEARANCES:
Carol McMahan
Attorney for Petitioner

William E. Hopkins, Jr.
Debra Y. Chapman
Attorneys for Respondents
 

ORDERS:

ORDER AND DECISION

This matter is before this tribunal for a contested case hearing pursuant to S.C. Code Ann. §§ 1-23-310, et seq. (Supp. 1996) and S.C. Code Ann. § 12-4-30(D) (Supp. 1996) on an alleged administrative violation. The South Carolina Department of Revenue alleges that on June 13, 1996, Respondents violated S.C. Code Ann. § 12-21-2804(A) by applying for, receiving, maintaining, or permitting to be used permits for the operation of more than five machines authorized under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1996) at a single place or premises. Specifically, the Department alleges a violation of the "one separate employee" requirement of 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996).

For the alleged violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1996), the Department seeks a $5,000 fine against each Respondent, Executive Enterprises, Inc. and Cynthia Keith, revocation of thirty-five Class III video game machine licenses located at the businesses on June 13, 1996, and preclusion of the use of any Class III video game machine licenses at these businesses for a period of six months from the date of revocation.

The hearing of this matter was held on November 13, 1997. The issues before this tribunal are (1) whether Respondents violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996) and, (2) if so, what are the proper penalties for such violation. Based upon the following Findings of Fact and Conclusions of Law, this tribunal concludes that the Respondent Cynthia Keith and the subject businesses violated § 12-21-2804(A) and Regs. 117-190 by utilizing video game machine licenses in contravention of these laws. Consequently, the licenses shall be revoked. No video game machine licenses shall be utilized in the businesses for a period of six months from the date of revocation of the licenses. Further, the Department shall impose a fine of $5,000 against Respondent Cynthia Keith.

FINDINGS OF FACT

Having carefully considered all testimony and arguments presented at the hearing of this matter, and taking into account the credibility and accuracy of the evidence, I make the following Findings of Fact by a preponderance of the evidence:

  1. On June 13, 1996, the Department's agent, David Dean, conducted an inspection of the video gaming businesses located at 834 Inlet Square Drive, Murrell's Inlet, South Carolina. After completion of the inspection on that day, the agent issued Respondents an administrative citation for a violation of the "single place or premises" requirement of § 12-21-2804(A) and Regs. 117-190.
  2. The Department issued a Final Determination and Amendment of Violation to Respondents on January 10, 1997.
  3. At the time of the inspection, the facts relating to the "single place or premises" requirement of § 12-21-2804(A) and Regs. 117-190 were as follows:

a. There was a mall-type structure known as Red Dog Saloon, consisting of seven separate rooms containing video gaming machines. See Petitioner's Exhibit #s 3 and 4.

b. There was a main entrance into the structure that opened into a dining area and bar area. The rooms were accessed through the dining area.

c. All of the businesses or rooms were open and each contained five operational Class III video game machines which were available for play. Customers were in room # 1 and room # 7.

d. No employees were present in any of the rooms. However, at least six employees were at the location. See Petitioner's Exhibit # 1, Special Report.

e. Each of the video gaming businesses had separate sales tax licenses. See Petitioner's Exhibit # 5.

4. On June 13, 1996, Class III licenses were affixed to the machines in the respective businesses and held by the corresponding licensee(s) as designated in Petitioner's Exhibit #s 1 and 7.

5. Respondent Cynthia Keith is the operator of the Class III video game machines located in the various businesses, which are the subject of this case. Ms. Keith also has a twenty-five percent interest in Executive Enterprises, Inc. A family member, Dennie Keith, owns the remaining seventy-five percent interest. No evidence was proffered by the Department to establish the nature of the relationship between Ms. Keith and Executive Enterprises, Inc., other than that of a stock-holder. That is, the record in this matter is devoid of any evidence that Ms. Keith acted as an agent or officer for Executive Enterprises, Inc.

6. No sufficient evidence was proffered by the Department to establish that Respondent Executive Enterprises Inc., managed or operated the video game businesses located at Red Dog Saloon. Further, no evidence was presented to establish that Executive Enterprises, Inc., applied for, received, maintained, or permitted to be used Class III video game machine licenses in contravention of § 12-21-2804(A).

7. The Department seeks a $5,000 fine against each Respondent, revocation of thirty-five Class III video game machine licenses located at the businesses on June 13, 1996, and preclusion of the use of any Class III video game machine licenses at the businesses for a period of six months from the date of revocation.

CONCLUSIONS OF LAW AND ANALYSIS

A. Jurisdiction

1. Pursuant to S.C. Code Ann. § 12-4-30(D) (Supp. 1996) and S.C. Code Ann. § 1-23-320 (Supp. 1996), the Administrative Law Judge Division has jurisdiction to hear this matter.

B. Burden of Proof

2. In civil cases, generally, the burden of proof rests upon the party who asserts the affirmative of an issue. 29 Am. Jur. 2d Evidence § 127 (1994); Alex Sanders, et al., South Carolina Trial Handbook § 9:3 Party With Burden, Civil Cases (1994). The Department is the party asserting the affirmative in this case; therefore, the Department must prove by a preponderance of the evidence that Respondents violated § 12-21-2804(A) and Regs. 117-190 by failing to have a separate employee in the businesses which are the subject of this case. The preponderance of the evidence "is evidence which is of the greater weight or more convincing than the evidence which is offered in opposition to it . . . ." Black's Law Dictionary 1182 (6th ed. 1990). "The preponderance of the evidence means such evidence as, when considered and compared with that opposed to it, has more convincing force and produces in the mind the belief that what is sought to be proved is more likely true than not true." Sanders, supra, § 9:5 Quantum of Evidence in Civil Cases (1994), (citing Frazier v. Frazier, 228 S.C. 149, 89 S.E.2d 225 (1955)).

3. The weight and credibility assigned to evidence presented at the hearing of a matter is within the province of the trier of fact. See South Carolina Cable Television Ass'n v. Southern Bell Tel. and Tel. Co., 308 S.C. 216, 417 S.E.2d 586 (1992). Furthermore, a trial judge, who observes a witness, is in the better position to judge the witness' demeanor and veracity and evaluate their testimony. See Mann v. Walker, 285 S.C. 194, 328 S.E.2d 659 (Ct. App. 1985); Marshall v. Marshall, 282 S.C. 534, 320 S.E.2d 44 (Ct. App. 1984); McAlister v. Patterson, 278 S.C. 481, 299 S.E.2d 322 (1982); Peay v. Peay, 260 S.C. 108, 194 S.E.2d 392 (1973).

C. Single Place or Premises Violation

4. Respondent Executive Enterprises, Inc. is the licensee of the Class III video game machines licensed under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1996), which are the subject of this case.

5. Respondent Cynthia Keith is the operator of the Class III video game machines located in the various businesses, which are the subject of this case. Ms. Keith also has a twenty-five percent interest in Executive Enterprises, Inc. A family member, Dennie Keith, owns the remaining seventy-five percent interest.

6. The Video Game Machines Act ("Act"), which regulates video game machine activity in South Carolina, was enacted in 1993 and became effective on July 1, 1993. This Act is codified at S.C. Code Ann. §§ 12-21-2770, et seq. (Supp. 1996). The purpose of the Act is to regulate the video game machines industry and to prevent large-scale casino type gambling operations in the State of South Carolina. See Reyelt v. South Carolina Tax Comm'n, Nos. 6:93-1491-3 and 6:93-1493-3 (D.S.C. Nov. 15, 1993); See also Op. Att'y. Gen 94-21 at 51 (1994).

7. Petitioner alleges that on June 13, 1996, Respondents violated § 12-21-2804(A) and Regs. 117-190 by applying for, receiving, maintaining, or permitting to be used permits for the operation of more than five machines authorized under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1996) at a single place or premises. Section §12-21-2804(A) provides: No person shall apply for, receive, maintain, or permit to be used, and the commission shall not allow to be maintained, permits or licenses for the operation of more than eight machines authorized under Section 12-21-2720(A)(3) at a single place or premises for the period beginning July 1, 1993, and ending July 1, 1994. After July 1, 1994, the commission may not issue nor authorize to be maintained any licenses or permits for more than five machines authorized under S.C. Code Ann. § 12-21-2720(A)(3) at a single place or premises . . . . (emphasis added).

8. On June 23, 1995, regulations were promulgated which further clarify the provisions of the Video Game Machines Act, and, as such, these regulations have the force and effect of law. See Young v. South Carolina Dep't of Highways and Pub. Trans., 287 S.C. 108, 336 S.E.2d 879 (1985); Faile v. South Carolina Employment Sec. Comm'n, 267 S.C. 536, 230 S.E.2d 219 (1976). Specifically, Regulation 117-190 was promulgated to clarify the meaning of the phrase "single place or premises" as set forth in § 12-21-2804(A). This regulation, effective June 23, 1995, provides in relevant part:

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 firewalls 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 firewalls 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 a separate state sales tax license?

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.

27 S.C. Code Ann. Regs. 117-190 (Supp. 1996) (emphasis added).

9. The first issue before this tribunal is whether any person applied for, received, maintained, or permitted to be used permits for the operation of more than five machines authorized under § 12-21-2720(A)(3) at a single place or premises, in violation of § 12-21-2804(A) and Regs. 117-190.

10. It is well established that in interpreting a statute, the court's primary function is to ascertain the intention of the legislature. State v. Blackmon, 304 S.C. 270, 403 S.E.2d 660 (1991); First South Savings Bank, Inc. v. Gold Coast Assocs., 301 S.C. 158, 390 S.E.2d 486 (Ct. App. 1990); State v. Harris, 268 S.C. 117, 232 S.E.2d 231 (1977). In ascertaining the intent of the legislature, a court should not focus on any single section or provision but should consider the language of the statute as a whole. Creech v. South Carolina Pub. Serv. Auth., 200 S.C. 127, 20 S.E.2d 645 (1942). Furthermore, in construing statutes, the language used should be given its plain and ordinary meaning without resort to subtle or forced construction to limit or expand the statute's operation. Home Health Serv., Inc. v. South Carolina Tax Comm'n, 312 S.C. 324, 440 S.E.2d 375 (1994); Bryant v. City of Charleston, 295 S.C. 408, 368 S.E.2d 899 (1988). Where terms of a statute are clear and unambiguous, they must be applied according to their literal meaning. Medlock v. 1985 Ford F-150 Pick Up, et al., 308 S.C. 68, 417 S.E.2d 85 (1992); Green v. Zimmerman, 269 S.C. 535, 238 S.E.2d 323 (1977). This tribunal has no legislative powers, and the justice or wisdom of statutes rests exclusively with the General Assembly. See Smith v. Wallace, 295 S.C. 448, 369 S.E.2d 657 (Ct. App. 1988).

It should be emphasized that S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) clearly precludes any person, not just the licensee, from applying for, receiving, maintaining, or permitting to be used permits for the operation of more than five Class III video game machines in a single place or premises. The term person is not defined in the Act, but its common and ordinary meaning clearly encompasses an individual or a business entity as well as a licensee or machine owner. See Black's Law Dictionary 1142 (6th ed. 1995). Further, § 12-21-2804(A) mandates that the Department revoke the licenses of the machines located in an establishment which fails to meet the requirements of this section.

11. Whether an establishment is being operated as a "single place or premises" is determined by evaluating the facts against the standard set forth in Regulation 117-190. With respect to the "employee" requirement, Regulation 117-190 requires that each entity or business have at least one separate employee on the premises of that respective entity or business during business hours to comply with the "single place or premises" requirements of § 12-21-2804(A).(1)

If a game room containing operational Class III video game machines is accessible to customers and no employee is present in that room, the room is being operated in violation of § 12-21-2804(A). An employee working in a common area or anywhere else outside the game room is not considered to be "on the premises" of the game room. See South Carolina Dep't of Revenue and Taxation v. Stacks, 95-ALJ-17-0742-CC (Mar. 8, 1996). This interpretation is consistent with the intent of the General Assembly to prevent large-scale casino type gambling. See Singletary v. South Carolina Dep't of Educ., 316 S.C. 153, 447 S.E.2d 231 (Ct. App. 1994), citing State v. Thrift, 312 S.C. 282, 440 S.E.2d 341 (1994) (legislative intent must prevail if it can be reasonably discovered and language of a statute must be construed in the light of the intended purpose of the statute).

12. The facts of this case clearly indicate that there were five operational Class III video game machines located in each of the seven businesses with corresponding licenses, as designated in Petitioner's Exhibit #s 1 and 7. The evidence further indicates that these seven businesses were open for business at the time of inspection. However, no employee was present in any of them during the inspection.

13. In the instant case, there is sufficient evidence to establish that Respondent Cynthia Keith permitted licenses to be used in contravention of the statute, § 12-21-2804(A), which prohibits the operation of more than five Class III video game machines within a single place or premises. Cynthia Keith, as operator of the businesses, was directly involved in maintaining and permitting the use of Class III licenses in contravention of § 12-21-2804(A).

14. Respondent Cynthia Keith has failed to meet the "one separate employee" requirement set forth in Regulation 117-190. Failing to satisfy one requirement is a sufficient ground constituting a violation of the single place or premises requirement. Therefore, I conclude that the businesses which are the subject of this case were operated in violation of S.C. Code Ann. § 12-21-2804(A). Consequently, the thirty-five Class III video game machine licenses involved are subject to revocation.

15. Further, knowledge gained by an officer of a corporation can be imputed to that corporation. "Where . . . a stockholder or corporator is an officer or agent of the corporation and in that capacity has knowledge relating to the matter in which he is acting for it, such knowledge is imputable to the corporation, and notice or knowledge acquired by all the corporators or stockholders is imputable." 19 C.J.S. Corporations § 633 (1990).

While Cynthia Keith owns a twenty-five percent interest in Executive Enterprises, Inc., and a family member owns the remaining seventy-five percent interest, no evidence was proffered to establish that she acted as an agent or officer on behalf of the corporation. Even though Cynthia Keith is the operator of the various businesses which are the subject of this case, any knowledge she had that the licenses were being used in contravention of the statute cannot be automatically imputed to the corporation. This tribunal cannot draw inferences of liability of Executive Enterprises, Inc. based on the fact that Ms. Keith has a twenty-five percent interest in the corporation. Such findings would rest on conjecture, guesswork, supposition or suspicion. 32 C.J.S. Evidence § 1042 (1964); S.C. Code Ann. § 1-23-320(i) (Supp. 1996).

Under § 12-21-2804(A), a license on a video game machine must be revoked by virtue of its misuse under the Act, regardless if the actual violator is the licensee, machine owner, or lessee. However, a monetary fine under § 12-21-2804(F) may only be imposed on the actual person directly involved in the violation of § 12-21-2804(A). When applying for a license, a licensee violates the statute if he applies for a license to be used in the operation of more than five machines at a single place or premises to violate the statute. The Department has not established that Respondent Executive Enterprises, Inc., violated the statute when applying for licenses or was involved in the operation and maintenance of Red Dog Saloon.

D. Penalty

16. S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) expressly authorizes the "commission" [Department] to enforce the provisions of this section and also requires the Department to revoke licenses utilized in a fashion that fails to comply with the provisions of this section.

17. S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) further provides: "No license may be issued for a machine in an establishment in which a license has been revoked for a period of six months from the date of revocation." The clear meaning of this language is to preclude an establishment which has had a license revoked from utilizing new licenses for a six month period. Hence, the practical effect would be preclusion of operation at such an establishment. That is, the Department does not issue licenses for specific locations, but rather issues licenses to individuals. Therefore, licenses may be utilized by an operator at any, otherwise qualified, location in the State. Consequently, the above provision would be rendered meaningless if it were read not to require an establishment whose licenses have been revoked to cease operations for six months. See Singletary v. South Carolina Dep't of Educ., 316 S.C. 153, 447 S.E.2d 231 (Ct. App. 1994), citing State v. Thrift, 312 S.C. 282, 440 S.E.2d 341 (1994) (legislative intent must prevail if it can be reasonably discovered and language of a statute must be construed in the light of the intended purpose of the statute).

18. S.C. Code Ann. § 12-21-2804(F) (Supp. 1996) provides that a person who violates S.C. Code Ann. § 12-21-2804(A) is subject to a fine of up to $5,000.

ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, IT IS HEREBY ORDERED that, as mandated by S.C. Code Ann. § 12-21-2804(A) (Supp. 1996), the Department shall revoke the thirty-five video game machine licenses referenced herein, located at the businesses operated by Cynthia Keith on June 13, 1996 at 834 Inlet Square Drive, Murrell's Inlet, South Carolina.

IT IS FURTHER ORDERED that no video game machine licenses shall be utilized at these businesses for a period of six months from the date of revocation of the licenses.

IT IS FURTHER ORDERED that the Department shall impose a fine of $5,000 against Respondent Cynthia Keith.

IT IS FURTHER ORDERED that the imposition of a fine of $5,000 against Respondent Executive Enterprises, Inc. must fail.

IT IS FURTHER NOTED that according to ALJD Rule 29(B), issues raised in the proceedings, but not addressed in the Order are deemed denied.

AND IT IS SO ORDERED.

______________________________

JOHN D. GEATHERS

Administrative Law Judge

Post Office Box 11667

Columbia, South Carolina 29211-1667

December 31, 1997

Columbia, South Carolina

1. Regulation 117-190 has been held to be "valid and enforceable and a valid exercise of the power of the . . . Department." McNickel's, Inc. v. South Carolina Dep't of Revenue, 96-CP-07-1072 (C.P. Beaufort County June 6, 1997); See also AAA Entertainment Corp. v. South Carolina Dep't of Revenue, 96-CP-07-1595 (C.P. Beaufort County June 6, 1997); Scurry v. South Carolina Dep't of Revenue, 97-CP-07-0408 (C.P. Beaufort County June 6, 1997). The one separate employee requirement of Regulation 117-190 was specifically considered in each of these decisions and held to be a valid exercise of legislative authority. Id.


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