SC Administrative Law Court Decisions

This matter came before me pursuant to a citation issued by the Department of Revenue ("Department") against Respondent Gateway Enterprises, Inc. 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. 1996). After notice to the parties, a hearing was conducted on August 1, 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 August 29, 1996, Revenue Officer Robert C. Sanders and Lonnie Roberts of the South Carolina Law Enforcement Division visited a location at 40B Palmetto Parkway, Hilton Head, South Carolina known as Monte Carlo. 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. A cashier station was located in the common area.

3. Two of the four game rooms were open at the time of inspection, with customers in each open room playing games. Room 1, Gameroom II, contained five video poker machines available for play. Room 2, Monte Carlo, contained four video poker machines available for play. At the time of the inspection, signs were displayed on both room doors indicating the two rooms were open for business.

4. Respondent Gateway Enterprises, Inc. is the operator and licensee of all the Class III machines contained in Rooms 1 and 2. Gateway Enterprises, Inc., doing business as Gameroom II and Monte Carlo is the retailer for the two game rooms.

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

Gameroom II Monte Carlo

3805618 3805612

3805617 3805611

3805619 3805613

3805620 3805614

3805610

6. There were no employees in either of the two open game rooms. Two employees were behind the cashier station.

7. On August 29, 1996, Officer Sanders issued a citation to Respondent Gateway Enterprises, 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 § 12-21-2804(A). Petitioner seeks a $5,000 fine against Respondent Gateway Enterprises, Inc., revocation of nine Class III machine licenses, and a six-month prohibition on the licensure and operation of Class III machines at the subject location.

Respondent raises several issues relating to the citation: 1) the Department violated its own longstanding position that it would not write additional violations for infractions of the law and regulations governing video poker while there is a contested case pending on a previous violation; 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; and 3) there is no statutory authority for the penalty sought by the Department.

With regard to the issue of multiple violations at the same time, Respondent contends that the Department issued four citations for the same location within a one-year period for violations of the "single place or premises" requirement of 27 S.C. Code Ann. Regs. 117-190. The Respondent submitted into evidence copies of three citations, dated January 29, 1996, June 13, 1996, and January 21, 1997. The fourth is the citation here at issue dated August 29, 1996. Three of the citations specifically list Gateway as the taxpayer. The Respondent argues that the practice of issuing more than one citation contravenes the Department's own policy. An affidavit dated November 22, 1994, executed by counsel for the Department, states that "once an appeal is filed of a violation of the Video Game Machines Act, the operator can continue to operate until the matter is heard by the [Tax] Commission, and an order issued."

The Department stated in a letter to SLED dated May 4, 1997, that "[d]uring the early implementation phases of the Video Game Machines Act, the Tax Commission permitted locations to continue to operate while litigation was pending on the issue of whether the particular facts presented in a specific case constituted a violation of the prohibition against more than five machines in a single place or premises". Petitioner's Exhibit #8. The Department asserts that, since Regulation 117-190 was enacted on June 23, 1995, its position has been to not allow locations to continue to operate in violation while litigation is in process. The Department's former position was taken due to the great confusion that existed prior to promulgation of the regulation defining the term "single place or premises."

The Department takes the position that it is authorized to issue violations when facts are reported that justify violations. The Department further asserts that there is no principle of law that grants persons immunity for continuing conduct because an appeal of the same conduct is pending. Respondent contends that issuing subsequent citations for the same violation is prohibited under the principles set forth in the Midnight Pass and Milliken cases. In Milliken, the S.C. Supreme Court held "that in the course of one investigation [the Department] cannot repeatedly intrude into the affairs of the business or person being investigated." Milliken and Co. v. South Carolina Dep't of Labor, 275 S.C. 264, 269 S.E.2d 763 (Ct. App. 1980) (emphasis added). The Court dealt with the issue of post-citation investigation in which the investigation revealed additional facts to bolster the original citation. The Milliken case does not speak to numerous citations for the same type of violation based upon specific facts discovered at the time of each citation. Further, in South Carolina Dep't of Revenue v. Midnight Pass, L.P., et al., 96-ALJ-17-0405-CC, (Filed February 7, 1997), the Administrative Law Judge did find that the Department's action conflicted with its own policy by issuing subsequent citations once an appeal was filed. However, the citation at issue in Midnight Pass was dated June 3, 1994, prior to enactment of Regulation 117-190. The Department concedes that its policy prior to promulgation of Regulation 117-190 was not to issue citations for subsequent violations until pending litigation on outstanding violations was resolved.

The Midnight Pass and Milliken cases offer no basis for finding the Department should not continue to issue citations for violations of the Video Game Machines Act. The Department is charged with the administration and enforcement of the Video Game Machines Act. Under this authority, the Department is empowered to issue citations for conduct which violates the Act. Notwithstanding a pending appeal, this authority is not limited to the issuance of only one citation where a subsequent violation is found.

The Respondent also alleges 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 v. South Carolina Dep't of Highways and Pub. Transp., supra. Further, the South Carolina Court of Appeals, in Norton v. Opening Break, 313 S.C. 508, 443 S.E.2d 406 (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. Atty. 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" in order to allow for uniform enforcement of the law. Furthermore, 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 Regs. 117-190.

Respondent's 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." 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. Gateway argues that Section 12-21-2804(A) is not a prohibition to operate video machines at a location in which a license has been revoked, but rather a directive to the Department not to issue licenses for machines at such a location. 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).

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. Respondent Gateway Enterprises, Inc. is the licensee of the video game machines in the two game rooms licensed under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1996).

3. Respondent Gateway Enterprises, Inc. is the operator of the video game machines in the two game rooms. Gameroom II and Monte Carlo are the retail licensees.

4. Petitioner alleges that on August 29, 1996, Respondent violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) and 27 S.C. Code Regs. 117-190 (Supp. 1996) by operating more than five Class III video game machines at a single place or premises.

5. 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.

6. 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.

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

8. 27 S.C. Code 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 Regs. 117-190 (1995) (emphasis added).

9. 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 (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).

10. 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); State v. Harris, 268 S.C. 117, 232 S.E.2d 231 (1977). 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 (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).

11. 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).

12. 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.

13. 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.

14. 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.

15. 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).

16. Respondent's claims relative to multiple citations, 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.").

17. Respondent Gateway Enterprises, Inc., the licensee and operator 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 nine Class III licensed video game machine licenses are revoked. Respondent Gateway Enterprises, Inc. is fined $5,000.00. Further, the Department may not issue licenses for and Respondent shall not operate Class III machines at 40B Palmetto Parkway, Hilton Head, 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 5, 1997

Columbia, South Carolina