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. Collins Entertainment Corporation, et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Collins Entertainment Corporation; D.L.K., Inc., d/b/a Frank's Oasis; and Frank and Marilyn Muggeo, a partnership, d/b/a M&M Leasing Company, and d/b/a Archer Property, 27 Archer Road, Hilton Head, S.C.
 
DOCKET NUMBER:
97-ALJ-17-0079-CC

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

For the Respondents: James H. Harrison, Esquire
 

ORDERS:

FINAL DECISION

STATEMENT OF CASE


This matter comes before me upon request for a Hearing by the Respondents 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 Respondents operated more than five (5) video poker machines in a "single place or premises." A Hearing was held before the Administrative Law Judge Division on June 25, 1997.

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 Respondents.

2. The Department's agents conducted an inspection at Frank's Oasis located at 27 Archer Road, Hilton Head, South Carolina on June 13, 1996. The location was operated by Frank Muggeo. After the inspection the Department's agents issued a violation report against Collins Entertainment Corporation, and Frank Muggeo/Archer Property charging the Respondents with operating in violation of S.C. Code Regs. § 117-190 (Supp. 1996) by not having "at least one separate employee on the premises during business hours." The above violation report was later amended to charge all of the Respondents.

3. The Respondents' location, Frank's Oasis, was a "sports bar" with five (5) Class III video poker machines located in the bar area. Additionally, the location has a newly constructed area accessible through a doorway from the "sports bar" that houses four video game rooms. Two of those game rooms - Archer Property ("Archer") and M&M Leasing ("M&M") - were open and the machines in those rooms were on and operational. Archer contained a five (5) station multi-player Class III video game machine. M&M contained five (5) Class III video game machines.

4. At the time of the inspection, there were six employees present in the location. Two of those employees worked in the kitchen, two were waitresses, and the other two were Frank and Marilyn Muggeo. Mr. and Mrs. Muggeo were in Frank's Oasis. No employees or customers were in either Archer or M&M when the Revenue Officers entered the premises. Furthermore, the Respondent did not prove that any employees were specifically assigned to Archer or M&M. As a result of the Department's inspection, Mr. Muggeo assigned an employee to M&M and closed the door to Archer.

5. The retail sales tax licenses issued to Archer and M&M are both owned by Frank and Marilyn Muggeo. The fifteen machine licenses present at the location were all purchased by Collins Entertainment Corporation. The following video game machine licenses were located in the respective game rooms:

Archer Property: M&M Leasing:

026015 026453

026016 026454

026037 026455

026057 026456

3800537 026460

6. I find that the Respondents were not in violation of S.C. Code Ann. § 12-21-2804(A) by failing to have "at least one separate employee" on the premises of the Frank's Oasis during business hours. Frank and Marilyn Muggeo were located in that game room when the Department inspected the location. In fact, the Department's agents did not initially charge the Respondent with a violation at Frank's Oasis. However, I do find the Respondent Frank Muggeo was in violation for failing to have at least one separate employee on the premises of the Archer and M&M during business hours. Though both Mr. or Mrs. Muggeo were available to work in that area, I do not find that they were specifically employed upon the premises of either Archer and M&M. Moreover, their absence from Archer and M&M was not sufficiently temporary or within the proximity of the game rooms as to comply with the intent of Regulation 117-190.

7. The Department seeks the imposition of a Five Thousand ($5,000.00) Dollar fine against each of the Respondents, revocation of the machine permits and the restriction that no permit be issued for the Respondent's location for six months. The Respondent Muggeo had a sufficient number of employees at the location to service two of the three open game rooms. Furthermore, there was no showing by the Department that the Respondent Muggeo has previously violated the Video Game Machines Act. I, therefore, find that the appropriate penalty in this case is a One Thousand ($1,000.00) Dollar fine for each game room violating the regulation (Archer Property and M&M Leasing) and revocation of the machine licenses in the Archer Property and M&M Leasing.

CONCLUSIONS OF LAW


Based upon the 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). That section provides:

After July 1, 1994, the commission [Department] may not issue nor authorize to be maintained any licenses or permits for more than five machines authorized under Section 12-21-2720(A)(3) at a single place or premises.

3. Machines licensed 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).

4. 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 premises" is the revocation of the licenses of machines located in the establishment.

5. 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.

6. The Video Game Machines Act ("Act") does not define the term "single place or premises."

7. 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.

8. The Department contends that the Respondents violated Regulation 117-190 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 or premises" 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 Respondents contend that the Department's interpretation of "premises" is too rigid to be practical. 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 Respondents' 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 each game room 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.

If the Department's evidence shows that no employee was working within the four walls of the Respondent's businesses, the Department has established a prima facie case or a rebuttable presumption that the business is not a "single place or premises." 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.

9. Regulation 117-190 requires that each business must have a separate employee on the premises while the business is open. The cardinal rule of statutory interpretation is to ascertain and effectuate the legislative intent wherever possible. Bankers Trust of South Carolina v. Bruce, 275 S.C. 35, 267 S.E.2d 424 (1980). "Full effect must be given to each section of a statute, giving words their plain meaning, and, in the absence of ambiguity, words must not be added or taken away." Hartford Accident and Indem. Co. v. Lindsay, 273 S.C. 79, 254 S.E.2d 301, 304 (S.C. 1979). Thus, the phrase "on the premise" presumptively must have meaning. Therefore, the employees of a video poker business must be sufficiently connected to an open video game room as to indicate that each game room that is open for business has a specific employee assigned to work solely in that room.

10. 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 regardless of whether the other game rooms in the mall were in compliance with the regulation, and 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 the Department's interpretation of the regulation leads to an absurd result, and therefore revocation of all the licenses located in the Respondent's "video mall" is unwarranted. Only those licenses located in the game rooms which were not in compliance with the regulation should be revoked.

11. Under Section 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 Section 12-21-2804(F) may only be imposed on the actual person directly involved in the violation of Section 12-21-2804(A). In this case, the Department only presented sufficient evidence to establish that the operator of the location was directly involved in violating the Act. The Department did not present sufficient evidence to warrant the imposition of a fine against Respondent Collins Entertainment Corporation.







ORDER


Based upon the Findings of Fact and Conclusions of Law, it is hereby:

ORDERED that the licenses listed in Findings of Fact paragraph six are revoked, and a fine of One Thousand ($1,000.00) Dollars is imposed upon Frank Muggeo for each violation, d/b/a Archer Property and M&M Leasing, resulting in a total fine of Two Thousand ($2,000) 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.

___________________________

Ralph King Anderson, III

Administrative Law Judge


Columbia, South Carolina

August 14, 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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