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. |