South Carolina              
Administrative Law Court
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SC Administrative Law Court Decisions

CAPTION:
SCDOR vs. Midnight Pass, LP, Midnight Pass, Inc., et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Midnight Pass, LP, Midnight Pass, Inc., Global Phone Card, LLC, and Brandywine Realty, Inc.
 
DOCKET NUMBER:
97-ALJ-17-0426-CC

APPEARANCES:
For the Petitioner: Nicholas P. Sipe, Esquire

For the Respondents: H. Buck Cutts, Esquire
 

ORDERS:

FINAL ORDER AND DECISION

This matter comes before me upon Respondents' request for a contested case hearing after being cited by the South Carolina Department of Revenue (DOR) for administrative violations of S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) of the Video Game Machines Act and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996). The primary issue for determination is whether the Respondents failed to have "at least one separate employee on the premises during business hours" in three video game rooms. DOR contends that the game rooms were each open and operational without an employee present as required by law. Respondents challenge the validity of R. 117-190 and of the relief requested, and dispute DOR's interpretation of the statute and regulation.

A contested case hearing in this matter was held in Columbia, South Carolina on

October 22, 1997. Prior to the commencement of the hearing, Respondents moved to dismiss the case. The motion was taken under advisement and the hearing on the merits proceeded. The Motion to Dismiss is denied. Based upon the relevant and probative evidence presented at the hearing and the applicable law, I find Respondents violated R. 117-190 and S.C. Code

§ 12-21-2804. Accordingly, the fifteen (15)machine Class III licenses in the subject rooms are hereby revoked. No Class III machines shall be operated in game rooms 1, 3, or 4, at 2701

S. Kings Highway, Myrtle Beach, South Carolina, for a period of six (6) months. Fines of Five Thousand Dollars ($5,000) are hereby imposed against each of the Respondents.

DISCUSSION

In addition to the typical factual and legal issues raised in "no employee/single place or premises" violation cases under R.117-190 and S.C. Code § 12-21-2804, the present case offers two somewhat novel issues, one legal and the other factual. As a matter of law, Respondents assert that DOR is estopped from pursuing the present action against Respondents because of an Order of Dismissal in a previous contested case involving the same location and some or all of the same parties. As a factual matter, Respondents presented evidence that each of the subject game rooms had a room attendant in the room, but the attendant was unidentifiable and without any job responsibilities other than to be physically present in the room.

Administrative Law Judge John D. Geathers issued an Order in the case of DOR v. Midnight Pass, LP, et al., Docket No. 96-ALJ-17-0405-CC, filed February 7, 1997, in which he dismissed the Video Game Machines Act violation charges against Midnight Pass, LP and Gold Crown Management, Inc. because, inter alia, DOR was attempting to get "two bites at the apple." See Milliken and Co. v. S.C. Department of Labor, Division of Occupational Safety and Health, 275 S.C. 264, 269 S.E.2d 763 (1980). The facts in the present case are clearly distinguishable from those in the case decided by Judge Geathers. The application of the Milliken "one bite at the apple" rule by Judge Geathers was directed at DOR's attempt to introduce and adjudicate charges of October 11, 1994 violations during the 1996 contested case proceedings, when the original administrative action had involved only charges of violations alleged to have occurred on June 3, 1994. On fundamental due process grounds, Judge Geathers cited Milliken to disallow bootstrapping a second administrative citation action into a pending case. In the present case, DOR has followed a straight-line process of enforcement and adjudication. Investigation and issuance of a citation for a single occurrence was followed by the agency's internal final determination in the matter. Subsequently, Respondents requested a contested case hearing, and the present case was transmitted to the ALJD for hearing. No subsequent investigation has occurred and no new allegations have been asserted or additional violations charged in the present matter during the pendency of this action. Merely because the same location and some or all of the same respondents have been the subject of previous, separate

violation actions, there is no reason to estop DOR from continuing to faithfully enforce the video gaming laws at such locations.

In regard to the factual issue of whether Respondents had employees physically located within the respective game rooms at the time of inspection, the matter comes down to one of witness credibility. Respondents presented testimony that the Gold Rush Saloon has room attendants and machine attendants. Machine attendants float from room to room and provide a variety of services for patrons, ranging from making change to serving drinks. Room attendants, on the other hand, have no other job duty than to be physically present inside a specified game room. Machine attendants are required to wear clothing bearing the name "Gold Rush Saloon" or "GRS," while room attendants purportedly are not required to wear the name-bearing clothing.

Rick Van Dyke, part owner of Midnight Pass, LP, testified that persons hired as room attendants are not prohibited from playing the machines while on duty and are employed merely to meet the Video Game Machines Act's requirement to have an employee on the business premises.

SLED Agent Williamson testified that she was familiar with the Gold Rush Saloon from previous visits and was known by the manager. When she entered the front door of the Gold Rush Saloon, an employee, dressed in a "GRS" shirt and hat, ran from the front door into one of the open game rooms. During her inspection of the subject game rooms, no one identified themselves as employees or room attendants in any of the rooms in question. When confronted by Williamson, Gold Rush Saloon manager Lisa Grantham did not identify any employees in the subject rooms.

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 is in the best position to weigh witnesses's demeanor and veracity and to 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).

I do not find the testimony of Respondents' witnesses to be credible. In short, I believe that the personnel scheme involving room attendants and machine attendants described by those witnesses to be a convenient and contrived explanation. While it may represent the current method of staffing at the Gold Rush Saloon, I am unconvinced that it accurately depicts the method used on the date of inspection.

FINDINGS OF FACT

By a preponderance of the evidence, I find:

  1. On or about November 22, 1996, a video gaming business known as the Gold Rush Saloon operated at 2701 S. Kings Highway, Myrtle Beach, South Carolina, in a mall-type structure containing nine video-gaming rooms and a common area.
  2. On or about November 22, 1996, Midnight Pass, Inc. was the retail operator of Room 1, which contained five Class III video game machines.
  3. On or about October 14, 1996, Global Phone Card, Inc. was the retail operator of

Room 3, which contained five Class III video game machines.

  1. On or about October 14, 1996, Brandywine Realty was the retail operator of Room 4, which contained five Class III video game machines.
  2. On or about October 14, 1996, Midnight Pass, LP was the licensee of the fifteen Class III video game machines located in game Rooms 1, 3, and 4, at 2701 S. Kings Highway, Myrtle Beach, South Carolina.
  3. All employees at the Gold Rush Saloon are employed by Midnight Pass, LP.
  4. SLED Agent Pamela Williamson, along with Agents Snow and Holcombe, inspected the video-gaming businesses known as the Gold Rush Saloon at 2701 S. Kings Highway, Myrtle Beach, South Carolina at or about 1:00 p.m. on October 14, 1996.
  5. Agent Williamson had visited and inspected the location on several previous dates.
  6. The main entrance to 2701 S. Kings Highway, Myrtle Beach, South Carolina opens into a common area, which contains a payout counter and a lounge.
  7. The October 14, 1996 inspection included examining each of the game rooms and their contents, taking photographs, listing the license numbers from the licenses affixed to the video game machines located in each of the game rooms, examining the business license and utility meter for each game room, and talking with the manager of the establishment.
  8. The inspection occurred at or about 1:00 p.m. during normal business hours.
  9. When the SLED agents first entered the location, an employee wearing a "GRS" shirt and hat ran into one of the open game rooms.
  10. Of the nine separate game rooms located at 2701 S. Kings Highway, Myrtle Beach, South Carolina, all but three were closed for business at the time of the inspection with the doors shut and "closed" signs displayed.
  11. At the time of inspection, game Rooms 1, 3, and 4 were open for business, with the doors open and the machines contained therein lighted and operational.
  12. At the time of the inspection, Room 1 (Midnight Pass, Inc.) contained four people, all of whom were playing the video machines, and none of them were employees.
  13. At the time of the inspection, Room 3 (Global Phone Card, Inc.) contained two people who were playing the video machines and who were not employees.
  14. At the time of the inspection, Room 4 (Brandywine Realty) contained two people who were playing the video machines and who were not employees.
  15. The following video game machine licenses were affixed to machines located in the respective game rooms:

Room 1

(Midnight Pass, Inc.)

034931

034937

034941

034934

034935

Room 3

(Global Phone Card, Inc.)

034769

034942

034940

034938

034762


Room 4

(Brandywine Realty)

035260

035259

035258

035257

035256
  1. As a result of the inspection of October 14, 1996, Agent Williamson completed a Regulatory Violation and Proposed Assessment Report citing Respondents with a violation of the "single place or premises" law for failure to have an employee in each of the three open game rooms, and provided an employee with a copy of the report.
  2. Notice of the time, date, place and subject matter of the hearing was given to the Petitioner and 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 the state Administrative Procedures Act (APA), S.C. Code Ann. §§ 1-23-310 et seq. (1986 & Supp. 1996), S.C. Code § 12-4-30(D), and §§ 12-60-1310 through 12-60-1350 of the South Carolina Revenue Procedures Act.
  2. The Video Game Machines Act, S.C. Code Ann. §§ 12-21-2770, et seq. (Supp. 1996), became effective on July 1, 1993 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, 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. Video Game Machines Act § 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.
  4. DOR regulations clarify the meaning of "single place or premises" (for purposes of the Video Games Machines Act):

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).

  1. The application of R. 117-190 does not create an impermissible conclusive presumption which removes the prerogative of the trier of fact to determine regulatory compliance, in contravention of Miller v. U.S., 294 U.S. 435, 55 S.Ct. 440 (1935). In criminal cases, a jury instruction which constitutes a conclusive presumption is unconstitutional. See State v. Peterson, 287 S.C. 244, 335 S.E.2d 800 (1985). Conclusive presumptions in civil or administrative case, however, are not disallowed per se. It must be noted, however, that while a fact may be conclusively presumed, a party against whom the presumption operates may introduce evidence to rebut the underlying fact(s) upon which the presumption relies. Sanders, Neese, and Nichols, Trial Handbook for South Carolina Lawyers, § 12:3 (1994).
  2. Words used in a statute should be given their ordinary and popular meaning, unless there is something in the statute which requires a different interpretation. Hughes v. Edwards, 265 S.C. 529, 220 S.E.2d 231 (1975).
  3. The language of S.C. Code Ann. § 12-21-2804(A) (Supp. 1995) is not unconstitutionally vague or violative of due process. "The constitutional standard for vagueness is the practical criterion of fair notice to those to whom the law applies." Huber v. South Carolina State Bd. of Physical Therapy Examiners, 316 S.C. 24, 446 S.E.2d 433 (1994) (reh'g denied July 28, 1994); Toussaint v. State Bd. of Med. Examiners, 303 S.C. 316, 400 S.E.2d 488 (1991).
  4. The phrase "on the premises" is unambiguous and does not merely mean having the same number of employees as the number of rooms.
  5. Respondents failed to have "one separate employee" within their respective businesses at 2701 S. Kings Highway, Myrtle Beach, South Carolina, in violation of Regulation 117-190.
  6. Section 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.
  7. Section 12-21-2804(F) (Supp. 1996) provides that a person who violates Section

12-21-2804(A) is subject to a fine of up to $5,000.

  1. Under Section 12-21-2804(A), a license on a video poker machine must be revoked by virtue of its misuse under the Act, regardless if the actual violator is the retail licensee, machine owner, or lessee. A monetary fine under § 12-21-2804(F), however, must only be imposed upon those persons directly involved in the management or operation of the location in violation of Section 12-21-2804(A).
  2. Section 12-21-2804(A) further provides that "[n]o 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."
  3. Respondents, the retail operators, violated S.C. Code § 12-21-2804 by operating video machines in locations failing to meet all requirements of the "single place or premises" criteria set forth in R. 117-190.
  4. Midnight Pass, LP, was not merely the owner/licensee of the machines in question, without control or management of the subject game rooms. By virtue of being the employer of all of the employees at the Gold Rush Saloon, Midnight Pass, LP had a direct and substantial amount of interest and control over the operation and management of the subject game rooms and should be assessed a monetary penalty for the failure to maintain a separate employee for each game room under the provisions of S.C. Code Ann. §§ 12-21-2804(A) and 12-21-2804(F).
  5. The fact-finder in a case has the authority to impose a penalty consistent with the facts presented. Walker v. South Carolina ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633 (1991).
  6. Under the circumstances, it is appropriate and reasonable to assess a penalty against each of the Respondents in the amount of $5,000 per party.
  7. 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 Class III video game machine licenses held by Respondent Gateway Enterprises, Inc. and located at 2701 S. Kings Highway, Myrtle Beach, South Carolina, are revoked:

Room 1

(Midnight Pass, Inc.)

034931

034937

034941

034934

034935

Room 3

(Global Phone Card, Inc.)

034769

034942

034940

034938

034762

Room 4

(Brandywine Realty)

035260

035259

035258

035257

035256
IT IS FURTHER ORDERED that no video game machine licenses shall be utilized in game Rooms 1, 3, and 4, at 2701 S. Kings Highway, Myrtle Beach, South Carolina, for a period of six (6) months from the date of revocation of the licenses.

IT IS FURTHER ORDERED that Respondents shall each pay a fine of Five Thousand Dollars ($5,000), respectively, to the South Carolina Department of Revenue.

AND IT IS SO ORDERED.

_____________________________

STEPHEN P. BATES

ADMINISTRATIVE LAW JUDGE

November 26, 1997

Columbia, South Carolina


Brown Bldg.

 

 

 

 

 

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