South Carolina              
Administrative Law Court
Edgar A. Brown building 1205 Pendleton St., Suite 224 Columbia, SC 29201 Voice: (803) 734-0550

SC Administrative Law Court Decisions

CAPTION:
SCDOR vs. Michael R. Swanson, d/b/a Marie's, Clubhouse Food & Spirits, Inc.

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Michael R. Swanson, d/b/a Marie's, Clubhouse Food & Spirits, Inc.
 
DOCKET NUMBER:
97-ALJ-17-0385-CC

APPEARANCES:
Carol McMahan
Attorney for Petitioner

John R. Clarke
Attorney for Respondents
 

ORDERS:

ORDER AND DECISION

This matter is before this tribunal for a contested case hearing pursuant to S.C. Code Ann. §§ 1-23-310, et seq. (Supp. 1996) and S.C. Code Ann. § 12-4-30(D) (Supp. 1996) on an alleged administrative violation. The South Carolina Department of Revenue alleges that on December 12, 1996, Respondents violated the "one separate employee" requirement of 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996), thus constituting a violation of S.C. Code Ann. § 12-21-2804(A).

For the alleged violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1996), the Department seeks a $5,000 fine against each Respondent, revocation of four Class III video game machine licenses located at Marie's on December 12, 1996, and preclusion of the use of any Class III video game machine licenses at this business for a period of six months from the date of revocation.

The hearing of this matter was held on December 4, 1997. The issues before this tribunal are (1) whether Respondents violated 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996) and, (2) if so, what is the proper penalty for such violation. Based upon the following Findings of Fact and Conclusions of Law, this tribunal concludes that Respondents violated 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996) by utilizing video game machine licenses in contravention of this regulation. Consequently, the licenses shall be revoked. No video game machine licenses shall be utilized in Marie's for a period of six months from the date of revocation of the licenses. Further, the Department shall impose a fine of $1,000 each against Respondents Michael Swanson and Clubhouse Food & Spirits, Inc.

FINDINGS OF FACT

Having carefully considered all testimony and arguments presented at the hearing of this matter, and taking into account the credibility and accuracy of the evidence, I make the following Findings of Fact by a preponderance of the evidence:

1. On December 12, 1996, the Department's agent, Stephen C. Rudloff, conducted an inspection of the video gaming business located at 77A Highway 17 South, North Myrtle Beach, South Carolina. After completion of the inspection on that day, the agents issued Respondents an administrative citation for a violation of the "single place or premises" requirement of 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996).

2. At the hearing, the Department amended the administrative citation so as to seek revocation of four Class III video gaming machine licenses located at Marie's on December 12, 1996, preclusion of the use of Class III machines at Marie's for a six month period, a $5,000 fine against Michael Swanson, as the operator, and a $5,000 fine against Clubhouse Food & Spirits, Inc., as the licensee/owner of the machines.

3. At the time of the inspection, the facts relating to the "single place or premises" requirement of the 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996) were as follows:

a. There was a main entrance into the structure that housed Marie's which opened into a common area containing a bar surrounded by tables and chairs. A five-station black jack machine was situated in one corner of this area.

b. On one side of the location near the back door was a room known as Marie's, which contained four operational Class III video game machines. This side of the building also contained the kitchen and bathrooms. See Petitioner's Exhibit # 4.

c. No employee was present in Marie's.

d. Agent Rudloff played a machine in Marie's for approximately fifteen minutes without any employee appearing.

e. Respondent Michael R. Swanson and the employee assigned to Marie's were present elsewhere in the building during the inspection.

4. On December 12, 1996, the following Class III licenses were affixed to the machines in Marie's as designated on Petitioner's Exhibit # 1 and held by Clubhouse Food & Spirits, Inc.: # s 3806045, 3806044, 3806043, and 3806042. See also Petitioner's Exhibit # 5.

5. Michael Swanson holds the retail license for Marie's. See Petitioner's Exhibit # 6.

6. Michael Swanson is the president of Clubhouse Food & Spirits, Inc. See Petitioner's Exhibit 6-3.

CONCLUSIONS OF LAW AND ANALYSIS

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

A. Jurisdiction

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.

B. Burden of Proof

2. In civil cases, generally, the burden of proof rests upon the party who asserts the affirmative of an issue. 29 Am. Jur. 2d Evidence § 127 (1994); Alex Sanders, et al., South Carolina Trial Handbook § 9:3 Party With Burden, Civil Cases (1994). The Department is the party asserting the affirmative in this case; therefore, the Department must prove by a preponderance of the evidence that Respondents failed to have a separate employee in Marie's in violation of 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996) and have also violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) by virtue of violating Reg. 117-190. The preponderance of the evidence "is evidence which is of the greater weight or more convincing than the evidence which is offered in opposition to it . . . ." Black's Law Dictionary 1182 (6th ed. 1990). "The preponderance of the evidence means such evidence as, when considered and compared with that opposed to it, has more convincing force and produces in the mind the belief that what is sought to be proved is more likely true than not true." Sanders, supra, § 9:5 Quantum of Evidence in Civil Cases (1994), (citing Frazier v. Frazier, 228 S.C. 149, 89 S.E.2d 225 (1955)).

3. The weight and credibility assigned to evidence presented at the hearing of a matter is within the province of the trier of fact. See South Carolina Cable Television Ass'n v. Southern Bell Tel. and Tel. Co., 308 S.C. 216, 417 S.E.2d 586 (1992). Furthermore, a trial judge, who observes a witness, is in the better position to judge the witness's demeanor and veracity and evaluate his testimony. See 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); Mann v. Walker, 285 S.C. 194, 328 S.E.2d 659 (Ct. App. 1985); Marshall v. Marshall, 282 S.C. 534, 320 S.E.2d 44 (Ct. App. 1984).

C. Single Place or Premises Violation

4. Respondent Clubhouse Food & Spirits, Inc. is the licensee of the Class III video game machines licensed under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1996), which are the subject of this case.

5. Respondent Michael R. Swanson is the operator of the Class III video game machines located in Marie's, which are the subject of this case.

6. The Video Game Machines Act ("Act"), which regulates video game machine activity in South Carolina, was enacted in 1993 and became effective on July 1, 1993. This Act 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. South Carolina Tax Comm'n, Nos. 6:93-1491-3 and 6:93-1493-3 (D.S.C. Nov. 15, 1993); See also Op. Att'y Gen. 94-21 at 51 (1994).

7. Petitioner alleges that on December 12, 1996, Respondents violated 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996) by applying for, receiving, maintaining, or permitting to be used permits for the operation of video gaming machines authorized under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1996) in violation of the single place or premises requirement. Consequently, Petitioner alleges Respondents violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1996). This section provides: No person shall apply for, receive, maintain, or permit to be used, and the commission shall not allow to be maintained, permits or licenses for the operation of more than eight machines authorized under Section 12-21-2720(A)(3) at a single place or premises for the period beginning July 1, 1993, and ending July 1, 1994. After July 1, 1994, the commission may not issue nor authorize to be maintained any licenses or permits for more than five machines authorized under S.C. Code Ann. § 12-21-2720(A)(3) at a single place or premises . . . . (emphasis added).

8. On June 23, 1995, regulations were promulgated which further clarify the provisions of the Video Game Machines Act, and, as such, these regulations have the force and effect of law. See Young v. South Carolina Dep't of Highways and Pub. Trans., 287 S.C. 108, 336 S.E.2d 879 (1985); Faile v. South Carolina Employment Sec. Comm'n, 267 S.C. 536, 230 S.E.2d 219 (1976). Specifically, Regulation 117-190 was promulgated to clarify the meaning of the phrase "single place or premises" as set forth in § 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 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 firewalls 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 firewalls 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 (Supp. 1996) (emphasis added).

9. 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); State v. Harris, 268 S.C. 117, 232 S.E.2d 231 (1977); First South Savings Bank, Inc. v. Gold Coast Assocs., 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. Home Health Serv., Inc. v. South Carolina Tax Comm'n, 312 S.C. 324, 440 S.E.2d 375 (1994); Bryant v. City of Charleston, 295 S.C. 408, 368 S.E.2d 899 (1988). 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, et al., 308 S.C. 68, 417 S.E.2d 85 (1992); Green v. Zimmerman, 269 S.C. 535, 238 S.E.2d 323 (1977). This tribunal has no legislative powers, and the justice or wisdom of statutes rests exclusively with the General Assembly. See Smith v. Wallace, 295 S.C. 448, 369 S.E.2d 657 (Ct. App. 1988).

It should be emphasized that S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) clearly precludes any person, not just the licensees, from applying for, receiving, maintaining, or permitting to be used permits for the operation of more than five Class III video game machines in a single place or premises. The term person is not defined in the Act, but its common and ordinary meaning clearly encompasses an individual or a business entity as well as a licensee or machine owner. See Black's Law Dictionary 1142 (6th ed. 1995). Further, § 12-21-2804(A) mandates that the Department revoke the licenses of the machines located in an establishment which fails to meet the requirements of this section.

10. The facts of this case clearly indicate that there were four operational Class III video game machines located in Marie's. The evidence further indicates that Marie's was open for business at the time of inspection. However, no employee was present in the business at the time the inspection was initiated or completed.

11. There is sufficient evidence to establish that Respondents permitted licenses to be used in contravention of the single place or premises provision of Regulation 117-190. Michael R. Swanson, as operator of Marie's, was directly involved in maintaining and permitting the use of Class III licenses in contravention of Reg. 117-190. Because Mr. Swanson is president of Clubhouse Food & Spirits, Inc., such knowledge is imputed to it as licensee of the machines. "Where . . . a stockholder or corporator is an officer or agent of the corporation and in that capacity has knowledge relating to the matter in which he is acting for it, such knowledge is imputable to the corporation, and notice or knowledge acquired by all the corporators or stockholders is imputable." 19 C.J.S. Corporations § 633 (1990).

12. Whether an establishment is being operated as a "single place or premises" is determined by evaluating the facts against the standard set forth in Regulation 117-190. With respect to the "employee" requirement, Regulation 117-190 requires that each entity or business have at least one separate employee on the premises of that respective entity or business during business hours to comply with the "single place or premises" requirements of § 12-21-2804(A).(1)

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 § 12-21-2804(A). An employee working in a common area or anywhere else outside the game room is not considered to be "on the premises" of the game room. See South Carolina Dep't of Revenue and Taxation v. Stacks, 95-ALJ-17-0742-CC (Mar. 8, 1996). This application is consistent with the intent of the General Assembly to prevent large-scale casino type gambling. See Singletary v. South Carolina Dep't of Educ., 316 S.C. 153, 447 S.E.2d 231 (Ct. App. 1994) (citing State v. Thrift, 312 S.C. 282, 440 S.E.2d 341 (1994) (legislative intent must prevail if it can be reasonably discovered and language of a statute must be construed in the light of the intended purpose of the statute)).

13. Respondents have failed to meet the "one separate employee" requirement set forth in Regulation 117-190 with regard to Marie's. Failing to satisfy one requirement is a sufficient ground constituting a violation of the single place or premises requirement. Therefore, I conclude that Marie's was operated in violation of S.C. Code Ann. § 12-21-2804(A). Consequently, the four Class III video game machine licenses in question are subject to revocation.

If a violation of Reg. 117-190 is not construed to result in a violation of S.C. Code Ann. § 12-21-2804(A), it would lead to an absurd result in light of the purpose and policy of the law. See Kiriakides v. United Artists Communications, Inc., 312 S.C. 271, 440 S.E.2d 364 (1994) (citing Stackhouse v. Rowland, 86 S.C. 419, 68 S.E. 561 (1910) (courts will reject the plain and ordinary meaning of words used in a statute when to accept it would lead to a result so absurd that it could not possibly have been intended by the legislature or would defeat the plain legislative intention)); South Carolina Coastal Council v. South Carolina State Ethics Comm'n, 306 S.C. 41, 410 S.E.2d 245 (1991) (citing Spartanburg Sanitary Sewer District v. City of Spartanburg, 283 S.C. 67, 321 S.E.2d 258, (1984) (in interpreting a statute, one does not look merely at a particular clause in which a word may be used, but should consider the word and its meaning in conjunction with the purpose of the statute, and the object and policy of the law)); Hamm v. South Carolina Pub. Serv. Comm'n, 287 S.C. 180, 336 S.E.2d 470 (1985) (citing State, ex rel. McCleod v. Montgomery, 244 S.C. 308, 136 S.E.2d 778 (1964) (the interpretation of a term set forth in a statute should support the statute and not lead to an absurd result)).

D. Penalty

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

15. S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) 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.

16. 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." The clear meaning of this language is to preclude an establishment which has had a license revoked from utilizing new licenses for a six month period. Hence, as all of the current licenses have been revoked and no new licenses may be utilized at Marie's, Marie's must cease operations for six months. That is, the Department does not issue licenses for specific locations, but rather issues licenses to individuals. Therefore, licenses may be utilized by an operator at any, otherwise qualified, location in the State. Consequently, the above provision would be rendered meaningless if it were read not to require an establishment whose licenses have been revoked to cease operations for six months. See Singletary v. South Carolina Dep't of Educ., 316 S.C. 153, 447 S.E.2d 231 (Ct. App. 1994) (citing State v. Thrift, 312 S.C. 282, 440 S.E.2d 341 (1994) (legislative intent must prevail if it can be reasonably discovered and language of a statute must be construed in the light of the intended purpose of the statute)).

17. 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. The Department seeks a $5,000 fine against Michael R. Swanson and Clubhouse Food & Spirits, Inc.

18. It is a generally recognized principle of administrative law that the fact-finder has the authority to impose an administrative penalty, as established by the legislature, after the parties have had an opportunity to have a hearing and be heard on the issues. Walker v. South Carolina ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633 (1991). See City of Louisville v. Milligan, 798 S.W.2d 454 (Ky. 1990); Matter of Henry Youth Hockey Ass'n, 511 N.W.2d 452 (Minn. Ct. App. 1994); Shadow Lake of Noel, Inc. v. Supervisor of Liquor Control, 893 S.W.2d 835 (Mo. Ct. App. 1995); Ohio Real Estate Comm'n v. Aqua Sun Inv., 655 N.E.2d 266 (Ohio 1995); State Police v. Cantina Gloria's, 639 A.2d 14 (Pa. 1994); Vermont Agency of Natural Resources v. Duranleau, 617 A.2d 143 (Vt. 1992).

Prior to governmental restructuring, the South Carolina Tax Commission, sitting in its adjudicatory capacity, imposed penalties for violations of statutory provisions administered by the Commission's subordinate agency. In its capacity as the fact-finder, the Tax Commission would conduct an adjudicatory hearing in all contested cases arising under Title 12 of the South Carolina Code of Laws, and would render an order containing findings of fact and conclusions of law. As the fact-finder, it was the Commission's prerogative "to impose an appropriate penalty based on the facts presented." With the advent of restructuring and the abolishment of the Tax Commission, however, such authority has devolved to the Administrative Law Judge Division. Currently, "all contested cases, as defined by Section 1-23-310 and as previously considered by the three [Tax] commissioners, shall be heard by an administrative law judge . . . ." S.C. Code Ann. § 12-4-30(D) (Supp. 1996). An administrative law judge, as the fact-finder, must also determine an appropriate penalty based on the facts presented at the contested case hearing. Parties are entitled to present evidence on all issues arising out of the contested agency action. Additionally, the tribunal responsible for conducting the contested case proceeding has the authority to decide the issues based on the facts presented, and make the final decision on all the issues, including the appropriate penalty.

ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, IT IS HEREBY ORDERED that, as mandated by S.C. Code Ann. § 12-21-2804(A) (Supp. 1996), the Department shall revoke the four video game machine licenses referenced herein, located at Marie's, 77A Highway 17 South, North Myrtle Beach, South Carolina on December 12, 1996.

IT IS FURTHER ORDERED that no video game machine licenses shall be utilized at Marie's for a period of six months from the date of revocation of the licenses.

IT IS FURTHER ORDERED that the Department shall impose a fine of $1,000 each against Respondents Michael R. Swanson and Clubhouse Good & Spirits, Inc.

IT IS FURTHER NOTED that according to ALJD Rule 29(B), issues raised in the proceedings, but not addressed in the Order are deemed denied.

AND IT IS SO ORDERED.

______________________________

JOHN D. GEATHERS

Administrative Law Judge

Post Office Box 11667

Columbia, South Carolina 29211-1667

January 16, 1998

Columbia, South Carolina

1. Regulation 117-190 has been held to be "valid and enforceable and a valid exercise of the power of the . . . Department." McNickel's, Inc. v. South Carolina Dep't of Revenue, 96-CP-07-1072 (C.P. Beaufort County June 6, 1997); See also AAA Entertainment Corp. v. South Carolina Dep't of Revenue, 96-CP-07-1595 (C.P. Beaufort County June 6, 1997); Scurry v. South Carolina Dep't of Revenue, 97-CP-07-0408 (C.P. Beaufort County June 6, 1997). The one separate employee requirement of Regulation 117-190 was specifically considered in each of these decisions and held to be a valid exercise of legislative authority. Id.


Brown Bldg.

 

 

 

 

 

Copyright © 2021 South Carolina Administrative Law Court