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Administrative Law Court
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SC Administrative Law Court Decisions

CAPTION:
SCDOR vs. Standing Room Only, Inc., et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Standing Room Only, Inc., Recovery Room, Inc., N. Ray Johnson, d/b/a Ray's Place, Ray N. Turner, d/b/a RT's Place, Kale Strickland, d/b/a Sonny's Place
 
DOCKET NUMBER:
97-ALJ-17-0148-CC

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

For the Respondents: H. Buck Cutts, Esquire
 

ORDERS:

FINAL ORDER AND DECISION

This matter comes before me pursuant to S.C. Code Ann. § 12-4-30(D) and § 1-23-310 et seq. (Supp. 1996), upon Respondents' request for a contested case hearing after being cited by the South Carolina Department of Revenue (hereinafter referred to as "DOR") for administrative violations of the Video Game Machines Act, S.C. Code Ann. § 12-21-2804(A) (Supp. 1996), and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996). The primary issue for determination is whether the Respondents violated R. 117-190 by not having "at least one separate employee on the premises during business hours." DOR contends that three game rooms were open and operational without an employee present. Respondents dispute the allegations.

A hearing of this matter was held in Conway, South Carolina, at the Horry County Courthouse before the undersigned Administrative Law Judge on August 29, 1997. Based upon the relevant and probative evidence and the applicable law, I find Respondents violated

R. 117-190 and § 12-21-2804. The fifteen (15) machine licenses in the subject rooms are hereby revoked. No machines shall be operated in the game rooms for a period of six months, and a total fine of $5,000 is imposed.



DISCUSSION

Many of the facts in this case are uncontroverted. At the time of DOR's inspection on September 3, 1996, there were fifteen operational Class III video game machines located at Standing Room Only, Inc., 115 Waccamaw Medical Park Mall, Conway, South Carolina, with five machines in each of the following game rooms: Ray's Place, RT's Place, and Sonny's Place. The door was open and the lights and video poker machines were turned on in each of the game rooms. No employees or customers were present in Ray's Place or RT's Place; however, an individual was playing one of the video poker machines in Sonny's Place during the inspection. Murray Kinley had performed some construction contracting work at the location but was not an employee of any of the video gaming businesses.

Eyewitness testimony offered at the hearing came from Revenue Officer Rick Hall, Respondent Ray Johnson and customer, Murray Kinley. DOR alleges all three game rooms were open for business without an employee present, in violation of the law. Officer Hall testified that he entered the location at approximately 4:00 p.m. He followed a customer in the front door of the establishment and observed the customer go to the bar in the common area. The customer ordered a drink and was served. Officer Hall inspected each of the game rooms, took photographs, listed the license numbers of the subject video machines, and made other notes. Officer Hall testified that he encountered two employees and two owners (Respondents Ray Johnson and Kale Strickland) in the common area but no employees or owners in any of the open game rooms. Hall issued a citation to Respondent Johnson with a fine of $5,000.

Respondents contend that the inspection occurred before normal business hours and that none of the businesses were open for business at the time of the inspection. Further, they maintain that the doors of the game rooms were open to allow the rooms to be cleaned. Respondent Johnson stated that the room lights and machines remain on at all times, whether the rooms are open or closed.

Six months after the date of inspection and citation, DOR issued its final agency determination in this matter in which it amended the original citation to include violations against all five (5) Respondents for a total fine of $25,000. Also included in the final agency determination were allegations that the game rooms in question were in violation of the single place or premises requirement by virtue of not having separate utility meters for each room and not having fire walls separating the rooms. Respondents assert that such amendment is unconstitutional. That issue is moot in this case. Failure to meet any of the requirements of the "single place or premises" criteria set forth in 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996) is grounds for revocation. The testimony of Officer Hall, coupled with that of Mr. Kinley, is sufficient to establish that the game rooms in question were open for business and lacked the requisite employees at the time of inspection. Ray's Place, RT's Place, and Sonny's Place, located at Standing Room Only, Inc. at 115 Waccamaw Medical Park Mall, Conway, South Carolina were operated in violation of S.C. Code Ann. § 12-21-2804(A).

Additionally, all of the subject machines were owned and/or licensed in the name of Standing Room Only, Inc. or Recovery Room, Inc., the names appearing on the original citation issued. Although each game room was technically managed by a separate retailer, with each operator holding a separate retail tax license, the testimony indicated that Standing Room Only, Inc., Recovery Room, Inc., and the individual games rooms were managed as a common enterprise. Several mitigating circumstances also exist which tend to make a fine of $25,000 appear overly harsh: (1) none of Respondents has been cited previously; (2) only one customer was playing a machine; (3) the inspection occurred at about the normal time for the daily opening of business; and (4) it is reasonable to believe that the customer playing the machines was doing so without the express knowledge of the Respondents. Accordingly, I find and conclude that imposition of a $2,500 fine against Standing Room Only, Inc. and a $2,500 fine against Recovery Room, Inc., for a total fine of $5,000, is reasonable under the circumstances.



FINDINGS OF FACT

By a preponderance of the evidence, I find:

  1. Standing Room Only, Inc., and/or Recovery Room, Inc., located at 115 Waccamaw Medical Park Mall, Conway, South Carolina, is a video gaming business in a mall-type structure containing three video gaming rooms and a common area.




  2. Standing Room Only, Inc., and/or Recovery Room, Inc., is the owner/licensee of fifteen Class III video game machines located in the three game rooms at 115 Waccamaw Medical Park Mall, Conway, South Carolina.
  3. The three game rooms located at 115 Waccamaw Medical Park Mall, Conway, South Carolina are: Ray's Place, RT's Place, and Sonny's Place.
  4. Respondent Ray Johnson is the operator of Ray's Place.
  5. Respondent Ray Turner is the operator of RT's Place.
  6. Respondent Kale Strickland is the operator of Sonny's Place.
  7. On September 3, 1996, DOR's agent, Rick Hall, conducted an inspection of the Standing Room Only, Inc. and/or Recovery Room, Inc. video gaming business.
  8. The main entrance to Standing Room Only, Inc. opens into a common area, which contains a payout counter and bar.
  9. All three rooms, Ray's Place, RT's Place and Sonny's Place, were open for business at the date and time of inspection.
  10. DOR Agent Rick Hall entered the location at approximately 4:00 p.m. He followed a customer in the front door of the establishment and observed the customer go to the bar in the common area. The customer ordered a drink and was served.
  11. The inspection included walking into the common area and the open game rooms, listing the license numbers for machines located in the open game rooms, taking photographs of the location, examining the business licenses, retail tax licenses, and utility meters for the location, and talking to employees and the manager of the location.
  12. The following video game machine licenses were affixed to machines located in the respective game rooms:

Ray's Place RT's Place Sonny's Place

036100 3806031 035965

036051 3806030 035967

036050 3806029 035966

036049 3806028 035968

036099 3806027 035969







  1. At the time of inspection, Revenue Officer Rick Hall entered Recovery Room, Inc. and observed two employees and two owners at or near the payout counter/bar in the common area.
  2. At the time of the inspection, a customer was in Sonny's Place playing the machines, while the other two game rooms were empty.
  3. At the time of the inspection, no employees were located on the premises of Ray's Place, RT's Place, or Sonny's Place.
  4. Respondents Ray Johnson and Kale Strickland were on the premises when the DOR agent arrived to conduct the inspection.
  5. At the time of the inspection, each of the game rooms had separate utility meters; however, none of the meters were connected.
  6. At the time of the inspection, one of the walls between RT's Place and the common area contained a window.
  7. As a result of his inspection, Revenue Officer Hall issued a Regulatory Violation and Proposed Assessment Report against Standing Room Only, Inc. and Recovery Room, Inc., citing Respondent Johnson with an alleged violation of S.C. Code § 12-21-2804(A) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996) for operation of more than five (5) machines in a single place or premise without an employee present in Ray's Place, RT's Place and Sonny's Place.
  8. Copies of the Violation Report were left with Mr. Johnson.
  9. DOR originally sought a $5,000 fine against Ray Johnson as the owner of Standing Room Only, Inc. for the violations. In its Final Determination, dated March 4, 1997, DOR amended the citation to include violations against each of the five (5) Respondents for a total fine of $25,000.
  10. Respondents have never been cited for any other violations of the video Game Machines Act.
  11. The inspection occurred at about the normal time for the daily opening of business.
  12. It is reasonable to believe that the customer playing the machines was doing so without the express knowledge of the Respondents.
  13. Notice of the time, date, place and subject matter of the hearing was given to the Petitioner and the Respondents.


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 and decide 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 Video Game Machines Act ("Act") which regulates video game machine activity in South Carolina was enacted in 1993, became effective on July 1, 1993, and 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. S.C. Tax Comm'n, 6:93-1491-3 and 6:93-1493-3 (U.S. Dist. Ct., Greenville, S.C., Nov. 15, 1993); see also 1994 Op. S.C. Att'y Gen. 21.
  3. S.C. Code Ann. § 12-21-2804(A) prohibits a person from applying for, receiving, maintaining, or permitting to be used permits for the operation of more than five (5) Class III machines at a single place or premises.
  4. 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996), promulgated by DOR, clarifies the meaning of the phrase "single place or premises" as set forth in § 12-21-2804(A). The regulation provides in relevant part (emphasis added):

A "single place" or "premises" means a structure surrounded by exterior walls or fire walls 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 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.

  1. S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) expressly authorizes DOR to enforce the provisions of this section and also provides that the penalty for exceeding the maximum number of video game machines permitted in a single place or premises requires the revocation of the licenses of machines located in the establishment.
  2. The trier of fact must weigh and pass upon the credibility of evidence presented. See S.C. Cable Television Ass'n v. Southern Bell Tel. and Tel. Co., 308 S.C. 216, 417 S.E.2d 586 (1992). The trial judge who observes a witness is in the best position to judge the witness's demeanor and veracity and evaluate their testimony. See Mann v. Walker, 285 S.C. 194, 328 S.E.2d (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).
  3. Respondents failed to have "one separate employee" in Ray's Place, RT's Place and Sonny's Place during business hours, in violation of the requirement set forth in

R. 117-190.

  1. Failing to satisfy one requirement is a sufficient ground constituting a violation of the single place or premises requirements of S.C. Code Ann. § 12-21-2804(A) (Supp. 1996).


  2. Respondents violated S.C. Code Ann. § 12-21-2804 by operating video machines in three locations which fail to meet all requirements of the "single place or premises" criteria set forth in 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996).
  3. 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."
  4. 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.

12. Because this is the first violation against Respondents and because other mitigating circumstances exist, a total fine of $5,000 is reasonable.

  1. Respondents' claim of inadequate notice due to the six-month time period between the original citation and the amended citation (the latter including all five Respondents as parties and increasing the fine from $5,000 to $25,000) is thus moot and need not be addressed.

13 Pursuant to ALJD Rule 29(B), any issues or motions raised at the hearing but not addressed in this Order are deemed denied.



ORDER

IT IS THEREFORE ORDERED that the following fifteen (15) video game machine licenses owned by Respondents, located at 115 Waccamaw Medical Park Mall, Conway, South Carolina in the business known as Standing Room Only, Inc. are revoked:

Ray's Place RT's Place Sonny's Place

036100 3806031 035965

036051 3806030 035967

036050 3806029 035966

036049 3806028 035968

036099 3806027 035969



IT IS FURTHER ORDERED that no video game machine licenses shall be utilized in Ray's Place, RT's Place and Sonny's Place for a period of six months from the date of revocation of the licenses.

IT IS FURTHER ORDERED that Respondent Standing Room Only, Inc. shall pay a fine of $2,500 to the South Carolina Department of Revenue.

IT IS FURTHER ORDERED that Respondent Recovery Room, Inc. shall pay a fine of $2,500 to the South Carolina Department of Revenue.

AND IT IS SO ORDERED.



_____________________________

STEPHEN P. BATES

ADMINISTRATIVE LAW JUDGE

September 24, 1997



Columbia, South Carolina


Brown Bldg.

 

 

 

 

 

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