SC Administrative Law Court Decisions

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 sole 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 four 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 twenty (20) machine licenses in the subject rooms are hereby revoked. No machines may be operated in the game rooms for a period of six months, and a total fine of $7,000 is imposed.

DISCUSSION

The material facts in this case are not in dispute. At the time of DOR's inspection on

June 13, 1996, there were twenty operational Class III video game machines located at Golden Image at 2761 Highway 17, Garden City, South Carolina, with five machines in each of the following game rooms: Pennies from Heaven, M&R's Network, R&M Amusement, and Power Player. Richard McComas is the owner and licensee of all twenty machines. Eyewitness testimony offered at the hearing by Revenue Officer David Dean and Respondent Richard McComas is in substantive agreement as to the specifics of Officer Dean's Regulatory Violation & Proposed Assessment Report. Officer Dean entered Respondents' facility and identified himself to the employees and owners present (the latter including Richard and Margaret McComas). Officer Dean observed that the doors to each of the game rooms were open and that the lights and video poker machines were turned on. No employees or owners were located in any of the four game rooms, but they were gathered in the common area. According to Officer Dean, most of the game rooms contained customers playing the video poker machines. Respondent Richard McComas testified that approximately three of the four games rooms contained customers. Upon completion of his inspection, Officer Dean issued a citation to

Mr. McComas assessing a fine of $5,000. In its March 19, 1997 Final Agency Determination, DOR amended the original citation to include violations against all four Respondents for a total fine of $20,000.

The testimony presented at the hearing is sufficient to establish that the game rooms in question were open for business and lacked the requisite employees at the time of inspection. Pennies from Heaven, M&R's Network, R&M Amusement, and Power Player, located at Golden Image at 2761 Highway 17, Garden City, South Carolina were operated in violation of S.C. Code Ann. § 12-21-2804(A).

Respondents contend they were unaware of the requirement, found in 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996), that each video game room possess "at least one separate employee on the premises." Respondents had a sufficient number of employees present to potentially comply with the law, however those employees were located in the common area rather than the individual game rooms. Respondents believed they were in compliance with the law until cited by Officer Dean, and they claim DOR failed to adequately notify them of DOR's interpretation and application of the regulation. Respondents' ignorance of the law is not a legitimate defense to the charges. 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.

While ignorance may not be a meritorious defense to the violations charged, it may be considered as a mitigating factor when assessing a penalty. Respondents' violations appear to be the genuine result of a lack of familiarity with the applicable regulation rather than any willful disregard of the law. Respondents were cited on the first day that Officer Dean had enforced the "one employee per premises" regulation in his area, and no warnings were given by Officer Dean or DOR prior to that enforcement action. In addition, none of the Respondents have previously been cited for video gaming violations. Respondents are not involved in video gaming operations on a large scale. Considering these mitigating circumstances, a fine of $20,000 is unreasonably harsh. Accordingly, I find and conclude that imposition of a $4,000 fine against Respondent Richard McComas, and a $1,000 fine against each of the remaining respondents is reasonable under the circumstances.

FINDINGS OF FACT

By a preponderance of the evidence, I find:

1. Golden Image, located at 2761 Highway 17, Garden City, South Carolina, is a video gaming business in a mall-type structure containing four video gaming rooms and a common area.
2. Respondent Richard McComas is the owner of twenty Class III video game machines located in the four game rooms at 2761 Highway 17, Garden City, South Carolina.
3. The four game rooms located at 2761 Highway 17, Garden City, South Carolina are: Pennies from Heaven, M&R's Network, R&M Amusement and Power Player.
4. Respondent Connie Royer is the operator of Pennies from Heaven.
5. Respondent Margaret McComas is the operator of M&R's Network.
6. Respondent Richard McComas is the operator of R&M Amusement.
7. Respondent Power Player, Inc. is the operator of Power Player.
8. On June 13, 1996, the Department's agent, David Dean, conducted an inspection of the Golden Image video gaming business.
9. The main entrance to Golden Image opens into a common area, which contains a payout counter.
10. All four rooms, Pennies from Heaven, M&R's Network, R&M Amusement and Power Player, were open for business at the date and time of inspection.
11. DOR Agent David Dean entered the location and identified himself to the employees and owners present.
12. 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.
13. Pennies from Heaven, M&R's Network, R&M Amusement and Power Player each contained five (5) Class III video game machines owned by Respondent Richard McComas.
14. The following video game machine licenses were affixed to machines located in the respective game rooms:

Pennies from Heaven M&R's Network R&M Amusement Power Player

631115 631103 631107 631096

631105 631099 631108 631113

631101 631097 631110 035922

631114 631098 631109 631111

631102 631104 631106 631112

1. At the time of inspection, Revenue Officer Rick Hall entered Golden Image and observed employees and owners at or near the payout counter in the common area.
2. At the time of the inspection, customers were in most or all of the four game rooms playing the machines.
3. At the time of the inspection, no employees were located on the premises of any of the game rooms.



4. Respondents Richard and Margaret McComas were on the premises when the DOR agent arrived to conduct the inspection.
5. As a result of his inspection, Revenue Officer Dean issued a Regulatory Violation and Proposed Assessment Report against Golden Image, citing Respondent Richard McComas 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 Pennies from Heaven, M&R's Network, R&M Amusement and Power Player.
6. Copies of the Violation Report were left with Mr. McComas.
7. DOR originally sought a $5,000 fine against Richard McComas as the owner of Golden Image for the violations. In its Final Determination, dated March 19, 1997, DOR amended the citation to include violations against each of the four Respondents for a total fine of $20,000.
8. Respondents have never been cited for any other violations of the Video Game Machines Act.
9. It is reasonable to assume Respondents' violations resulted from ignorance and confusion rather than any willful intent to disregard the law.
10. 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 Section 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 Pennies from Heaven, M&R's Network, R&M Amusement and Power Player during business hours, in violation of the requirement set forth in R. 117-190.
4. 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).
5. Respondents violated S.C. Code Ann. § 12-21-2804 by operating video machines in four 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).

13. Respondents' claim that DOR failed to adequately notify them of DOR's interpretation and application of 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996) is without merit. Those who engage in a particular business bear the responsibility of familiarizing themselves with the applicable statutes and regulations governing the industry. Cf. South Carolina Wildlife & Marine Resources Dep't v. Kunkle, 287 S.C. 177 at 179, 336 S.E.2d 468 at 469 (1985) ("[I]t is a well-settled maxim that ignorance of the law is no excuse.").

1. 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."



2. 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 Respondent Richard McComas is the owner and licensee of the machines and the principal manager of the location, he is primarily responsible for the lawful operation of machines and the business location. Because this is the first violation against McComas, and because of other mitigating circumstances, a fine of $4,000 is reasonable rather than the maximum $5,000.

1. Because this is the first violation against the remaining Respondents and none of them are owners or licensees of the machines in question, a fine of $1,000 against each is reasonable.
2. Pursuant to ALJD Rule 29(B), any issues or motions raised at the hearing but not addressed in this Order, including Respondents' request for judicial notice to be taken of an ALJD Report regarding the recently proposed DOR video gaming regulations, are deemed denied as irrelevant and lacking probative value.

ORDER

IT IS THEREFORE ORDERED that the following twenty (20) video game machine licenses held by Respondent Richard McComas, located at 2761 Highway 17, Garden City, South Carolina in the business known as Golden Image are revoked:

Pennies from Heaven M&R's Network R&M Amusement Power Player

631115 631103 631107 631096

631105 631099 631108 631113

631101 631097 631110 035922

631114 631098 631109 631111

631102 631104 631106 631112

IT IS FURTHER ORDERED that no video game machine licenses shall be utilized in Pennies from Heaven, M&R's Network, R&M Amusement or Power Player for a period of six (6) months from the date of revocation of the licenses.

IT IS FURTHER ORDERED that Respondent Richard McComas shall pay a fine of $4,000 to the South Carolina Department of Revenue.

IT IS FURTHER ORDERED that Respondents Connie Royer, Margaret McComas, and Power Play, Inc., shall each pay a fine of $1,000 to the South Carolina Department of Revenue.

AND IT IS SO ORDERED.

_____________________________

STEPHEN P. BATES

ADMINISTRATIVE LAW JUDGE

September 24, 1997

Columbia, South Carolina