SC Administrative Law Court Decisions

This matter came before me pursuant to a citation issued by the Department of Revenue (Department) against Respondents for violating S.C. Code Ann. § 12-21-2804(A) (Supp. 1996), by allowing the use of more than five Class III licenses acquired pursuant to S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1996) for machines in a "single place or premises," as defined in 27 S.C. Code Ann. Regs. 117-190 (Supp. 1995). After notice to the parties, a hearing was conducted on July 30, 1997.

Any issues raised or presented in the proceedings or hearing of this case not specifically addressed in this Order are deemed denied. ALJD Rule 29(B).

I make the following findings of fact, taking into consideration the burden on the parties to establish their respective cases by a preponderance of the evidence and taking into account the credibility of the witnesses:

1. On June 13, 1996, at approximately 2:55 p.m., Department of Revenue Officers Deborah Moore and Jack Rash visited a location at 9107 Highway 6, Santee, South Carolina known as Lakeside Video Games. The officers conducted an inspection, gathered information, drew a diagram of the location, and took pictures.

2. The officers entered the location and found a mall-type setting with a common area and four separate game rooms. Two employees were located in the common area.

3. Two of the four game rooms were open at the time of inspection, with three employees located in the common area. Room 1, Video Gaming Consultants, contained five video poker machines available for play. Room 2, Game Room #2, also contained five video poker machines available for play. At the time of the inspection, both doors to the rooms were open, the lights in the room were on and the machines themselves were turned on indicating the two rooms were open for business.

4. Respondents George Vinovich and Coastal Coins, Inc. are the operators and licensees of all the Class III machines contained in Rooms 1 and 2. Video Gaming Consultants and Mid South, Inc., doing business as Game Room #2, are the retailers for the two game rooms.

5. George Vinovich is the corporate officer for Coastal Coins, Inc., Video Gaming Consultants and Mid South, Inc.

6. The following Class III licenses were affixed to machines located in the two game rooms:

Video Gaming Consultants Gameroom #2

3805880 3805879

034888 035716

034872 035717

034887 035718

034883 034862

7. At the time of the inspection, there were no employees in either of the two open game rooms. Two employees were located in the common area and a third employee appeared shortly thereafter.

8. The officers observed three patrons located in Game Room #2. There were no patrons in Video Gaming Consultants.

9. At the time of the inspection, the location was undergoing renovations to the security system. A locksmith was on the premises making these changes.

10. On June 13, 1996, Officer Rash issued a citation to Respondent Coastal Coins, Inc. for operating the location in violation of the single place or premises requirement for having more than five video game machines in a single place or premises pursuant to S.C. Code Ann. § 12-21-2804(A). Petitioner seeks a $5,000 fine against Respondents George Vinovich, Coastal Coins, Inc., Mid South, Inc., and Video Gaming Consultants, Inc. for fines totaling $20,000, revocation of ten Class III machine licenses, and a six-month prohibition on the licensure and operation of Class III machines at the subject location.

Respondents raise several issues relating to the citation: 1) it is a violation of due process for the Department to amend the citation to add fines and parties nine months after the inspection; 2) the Department's interpretation of Regs. 117-190 on "single place or premises" leaves no room for the trier of fact to determine whether there has been compliance with its provisions; 3) there is no statutory authority for the penalty sought by the Department; and 4) the employee left the gameroom unoccupied to safeguard the open safe, excusing the employee's absence from the gameroom.

The original citation was issued to Coastal Coins, Inc. The Respondents argue that the amendment of the citation in the Department's Final Determination to include Respondents George Vinovich, Mid South, Inc. and Video Gaming Consultants denied these three Respondents due process. The argument rests on the assertion that these three Respondents would be inadequately prepared to defend themselves because they were not given proper or adequate notice of the alleged violations.

The original citation issued to Coastal Coins, Inc. put George Vinovich, as corporate officer of Coastal Coin, Inc., on notice of the alleged violation. George Vinovich is the corporate officer for Coastal Coin, Inc., Mid South, Inc. and Video Gaming Consultants. Therefore, Vinovich has imputed knowledge of all the corporations' activities. See 19 C.J.S. Corporations § 632 (1990). The amended "complaint" in the form of the Department's Final Determination essentially joins parties that arose from the same transaction, the same set of facts and involves the same issues of law. These additions to the initial citation were reasonably foreseeable. The Department should have amended its citation or determination prior to nine months after the initial citation. However, there is evidence in the record that there was correspondence in July, 1996 about the inspection and citation, although neither party presented the correspondence as evidence. Considering the amount of time Vinovich had knowledge of the citation as a corporate officer, the Respondents had adequate time to prepare a defense for these allegations, and therefore the amendment did not cause unfair surprise nor was it unduly burdensome. The amendment to the citation was proper and the requirements for due process were met. Further, the Respondents, through this contested case, has had ample opportunity to present evidence and defenses against the administrative citation.

The Respondents also allege that Regulation 117-190 is void because it materially alters or adds to the law, and secondly, that the Department's interpretation of Regulation 117-190 goes too far. S.C. Code Ann. § 12-21-2798 (Supp. 1996) gives the Department the authority to promulgate rules and regulations pertaining to video game machines and persons licensed by the Department. Pursuant to this statutory authority, the Department proposed Regs. 117-190 in order to clarify the phrase "single place or premises" contained in S.C. Code Ann. §12-21-2804(A). "Administrative agencies may be authorized 'to fill up the details' by prescribing rules and regulations for the complete operation and enforcement of the law with its expressed general purpose." Young v. South Carolina Dep't of Highways & Pub. Transp., 287 S.C. 108, 336 S.E.2d 879, 882 (Ct. App. 1985). However, a regulation may only implement the law; it may not alter or add to a statute. Society of Professional Journalists v. Sexton, 283 S.C. 563, 324 S.E.2d 313 (1984). An administrative regulation is valid so long as it is reasonably related to the purpose of the enabling legislation. Hunter & Walden Co. v. South Carolina State Licensing Bd. for Contractors, 272 S.C. 211, 251 S.E.2d 186 (1978); Young, 287 S.C. 108, 336 S.E.2d 879 (Ct. App. 1985). Further, the South Carolina Court of Appeals, in Norton v. Opening Break, 313 S.C. 508, 443 S.E.2d 406 (Ct. App. 1994), recited that "[r]egulations authorized by the Legislature have the force of law." The General Assembly approved the regulations promulgated by the Department regarding "single place or premises."

The purpose of the Video Game Machines Act is to prevent large-scale casino type gambling operations in the State of South Carolina. See 1994 Op. Att'y Gen. No. 94-21 at 51; Reyelt v. South Carolina Tax Comm'n, No. 6:93-1491-3 and 6:93-1493-3 (U.S. Dist. Ct., Greenville, S.C., Nov. 15, 1993). The requirements of Regs. 117-190, including the requirement that each business have an employee on the premises at all times during business hours, do not constitute an impermissible alteration or addition to Section 12-21-2804(A). Instead, the regulation merely clarifies the phrase "single place or premises" to allow for uniform enforcement of the law. The regulation is reasonably related to and is designed to further the purpose of the Video Game Machines Act in that it creates an impediment to the establishment of large-scale gambling operations. Accordingly, the Department acted within its authority when it promulgated Regulation 117-190.

Respondents argument that the regulation creates a bright line test for what constitutes a single place or premise which leaves no room for the trier of fact to make a determination is also without merit. Respondent cites to Miller v. U.S., 294 U.S. 435, 55 S.Ct. 440 (1935). Regs. 117-190 sets forth four questions which must be answered affirmatively in order to comply with the regulatory scheme. The Department makes its determination based upon its interpretation of the regulation and its application to the facts as the Department sees them. In a contested case hearing, the administrative law judge is the trier of fact who takes into consideration all of the facts presented by the Department and the operator. The answer to each question set forth is the regulation must be based upon the relevant facts presented. In Miller, the regulation at issue removed any fact finding from the ultimate legal conclusion. In Miller, the regulation required a determination of total and permanent disability for the loss of one hand and the sight of one eye. This ruling was conclusive upon the evidence of the loss without any factual finding regarding the nature of the disability. Here, facts must be presented on each question and the trier of fact must decide whether those facts fall within the confines of the inquiry to render an affirmative or negative response. Clearly, the regulation does not convert a "question of fact requiring proof into a conclusive presumption which dispenses with proof and precludes dispute." Miller, 55 S.Ct. at 442.

The Respondent also argues that there is no statutory authority for the penalty sought by the Department. This argument is wholly without merit. The penalty sought by the Department for the cited violations is outlined and clearly authorized pursuant to S.C. Code Ann. § 12-21-2804(A) (Supp.1996), which states that the penalty for failure to comply with the limitation on the number of machines permitted within a "single place or premises" is the mandatory revocation of the licenses of machines located in the establishment. In addition, 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. Class III licenses are not issued for video poker machines at specified locations, but the licenses are affixed to the machines which are moveable and useable at any location within the state not expressly prohibited by law. The clear import of Section 12-21-2804(A) is to revoke licenses for machines in establishments failing to comply with the single place or premise provisions and to prohibit, for six months, the operation of video machines at any establishment in which a license has been revoked.

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. As the finder of fact, it is the administrative law judge's prerogative "to impose the appropriate penalty based on the facts presented." Walker v. South Carolina ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633, 634 (1991). In the present case, the administrative law judge has the authority to establish the monetary fine within the allowable range provided for by S.C. Code Ann. § 12-21-2804(F) (Supp. 1996). S.C. Code Ann. § 12-4-30(D) (Supp. 1996).

D) Employee Absence

Respondents concede that no employee was present in the gamerooms when the inspection occurred. Respondents contend that the employee's absence from the gamerooms is excusable because the safe was open and the employee was guarding the contents. Respondents maintain the location had been robbed the week before and the locks were being changed and the security system upgraded. Respondents also state that the employee was able to monitor the activity within the gameroom through video cameras.

However, the regulation is clear and unambiguous regarding the requirement that an employee be within the four walls of the single place or premises. See 27 S.C. Code Ann. Regs. 117-190 (Supp. 1995). There were two gamerooms open for business, only one of which was occupied with patrons. Respondents had two employees in the common area, with a third employee appearing during the inspection. Despite the need to watch over the safe, its contents and supervise the locksmith, and the one gameroom containing customers, the three employees should have been able to comply with the applicable laws and regulations by having one of the employees present in the occupied gameroom. If the need arose, the unoccupied gameroom could be closed until the work was completed and therefore, the regulations and the law could be followed.

Based upon the Findings of Fact, I conclude as a matter of law, the following:

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.

2. Respondents George Vinovich and Coastal Coins, Inc. are the licensees of the video game machines in the two game rooms licensed under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1996).

3. Respondents Mid South, Inc. and Video Gaming Consultants are the operators of the video game machines in the two game rooms.

4. "[T]he general rule is that knowledge of or notice to an agent or officer of a corporation acquired in the ordinary discharge of his duties for the corporation is imputed to the corporation." 19 C.J.S. Corporations § 632 (1990). The original citation issued to Coastal Coins, Inc. put George Vinovich, as corporate officer of Coastal Coin, Inc., on notice of the alleged violation. George Vinovich is the corporate officer for Coastal Coin, Inc., Mid South, Inc. and Video Gaming Consultants. Therefore, Vinovich has imputed knowledge of all the corporations activities.

5. Petitioner alleges that on June 13, 1996, Respondents violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1995) by operating more than five Class III video game machines at a single place or premises.

6. Section 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 Class III machines at a single place or premises.

7. Pursuant to S.C. Code Ann. § 12-21-2798 (Supp. 1996), the Department is authorized to promulgate regulations to assist in the administration and enforcement of the Video Game Machines Act.

8. Regulations authorized by the Legislature have the force of law. Norton v. Opening Break, 313 S.C. 508, 443 S.E.2d 406 (1994).

9. 27 S.C. Code Ann. Regs. 117-190 was promulgated to clarify the meaning of the phrase "single place or premises" as set forth in Section 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 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.

27 S.C. Code Ann. Regs. 117-190 (1995) (emphasis added).

10. An administrative regulation is valid so long as it is reasonably related to the purpose of the enabling legislation. Hunter & Walden Co. v. South Carolina State Licensing Bd. for Contractors, 272 S.C. 211, 251 S.E.2d 186 (1978); Young v. South Carolina Dep't of Highways and Pub. Transp., 287 S.C. 108, 336 S.E. 2d 313 (Ct. App. 1984). However, a regulation may only implement the law; it may not alter or add to a statute. Society of Professional Journalists v. Sexton, 283 S.C. 563, 324 S.E.2d 313 (1984).

11. 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 Sav. Bank, Inc. v. Gold Coast Ass'n., 301 S.C. 158, 390 S.E.2d 486 (Ct. App. 1990). 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. Bryant v. City of Charleston, 295 S.C. 408, 368 S.E.2d 899 (1988); Home Health Serv. v. South Carolina Tax Comm'n, 312 S.C. 324, 440 S.E.2d 375 (Ct. App. 1994). 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, 308 S.C. 68, 417 S.E.2d 85 (1992); Green v. Zimmerman, 269 S.C. 535, 238 S.E.2d 323 (1977).

12. With respect to the "employee" requirement, Regulation 117-190 requires that each entity or business have at least one separate employee on the premises during business hours for a business to comply with the "single place or premises" requirements of Section 12-21-2804(A). 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 Section 12-21-2804(A). An employee working in a common area or anywhere else outside the game rooms is not considered to be "on the premises" of the game room. See South Carolina Dep't of Revenue & Taxation v. Mickey Stacks, 95-ALJ-17-0742-CC (March 8, 1996), aff'd Court of Common Pleas, Richland County, Civil Action No. 96-CP-40-0889 (March 21, 1997).

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

14. Pursuant to S.C. Code Ann. § 12-21-2804(A) (Supp.1996), the penalty for exceeding the maximum number of video gaming machines permitted in a single place or premises is revocation of the licenses of the Class III machines located in the establishment. Additionally, no machine license may be issued for, nor a machine be operated at, an establishment in which a license has been revoked for a period of six months from the date of the revocation.

15. 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.

16. As the finder of fact, it is the administrative law judge's prerogative "to impose the appropriate penalty based on the facts presented." Walker v. South Carolina ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633, 634 (1991). In the present case, the administrative law judge has the authority to establish the monetary fine within the allowable range provided for by S.C. Code Ann. § 12-21-2804(F) (Supp. 1996). S.C. Code Ann. § 12-4-30(D) (Supp. 1996).

17. Respondent's claims relative to citation amendment, validity of the regulation, the Department's interpretation of the regulation, and the validity of the penalty statutes are without merit. The language of Regulation 117-190 clearly defines a premises in terms of that area where five Class III licenses are located. Regulation 117-190 clearly defines the criteria necessary to meet the "single place or premises" requirement, including the separate employee criteria. Finally, S.C. Code Ann. § 12-21-2804 clearly establishes the penalty to be imposed for violations. 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.").

18. Respondents George Vinovich, Coastal Coin, Inc., Mid South, Inc., and Video Gaming Consultants, the licensees and operators of the two game rooms, permitted the use of more than five Class III machines at a single place or premises.

Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby ORDERED, that the ten Class III licensed video game machine licenses are revoked. Respondents are each fined $5,000.00 for a total of $20,000.00.

Further, the Department may not issue licenses for and Respondents shall not operate Class III machines at 9107 Highway 6, Santee, South Carolina, for a period of six months from the date of this order.

IT IS SO ORDERED.

___________________________

ALISON RENEE LEE

Administrative Law Judge

December 17, 1997

Columbia, South Carolina