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. Will Wheeler, et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Will Wheeler, Robert Hills, Hot Spot Casino, Inc., and P.I. Leasing and
Management, Inc., 1918 Highway 17 South, Surfside Beach, S.C.
 
DOCKET NUMBER:
97-ALJ-17-0641-CC

APPEARANCES:
Nicholas P. Sipe, Esquire, for Petitioner

Douglas L. Hinds, Esquire, for Respondent
 

ORDERS:

ORDER AND DECISION

STATEMENT OF THE CASE

This matter came before me pursuant to citations issued by the Department of Revenue for violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) by allowing the use of more than five Class III licenses acquired pursuant to S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1997) for machines in a "single place or premises," as defined in 27 S.C. Code Ann. Regs. 117-190 (Supp. 1997). Originally assigned to Judge Ray N. Stevens, this case was reassigned when Judge Stevens recognized a conflict of interest and recused himself. After notice to the parties, a hearing was conducted on April 2, 1998. Any motions or issues raised in the proceedings, but not addressed in this Order are deemed denied pursuant to ALJD Rule 29(B).

FINDINGS OF FACT

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 November 22, 1996, at approximately 11:10 a.m., SLED Agents Williamson and Johnson visited a location at 1918 Highway 17 South, Surfside Beach, South Carolina known as Hot Spot Casino. The agents conducted an under cover inspection and gathered information.

2. The agents entered the location and found a mall-type setting with twenty separate game rooms each containing five Class III video game machines. An employee was located in two of these twenty rooms.

3. All of the game rooms were open at the time of inspection. The doors to the rooms were open, the lights in most rooms were on, and the machines themselves were turned on and available for play. No signs were posted on any of the machines to indicate that they were not operable. There were no signs indicating that the rooms where the machines were situated were closed.

4. The agents returned later that same afternoon to draw a diagram of the location and take pictures. They compiled a preliminary findings report on each of the eighteen rooms that lacked an employee at the time of the inspection.

5. Respondents Will Wheeler and Hot Spot Casino, Inc. are the operators of the Class III video game machines contained in Rooms 1-19. P.I. Leasing and Management, Inc. is the leaseholder on the building where Hot Spot is located and operates Room 20. Hot Spot Casino, Inc. and P.I. Leasing and Management, Inc. purchased the machines, and Will Wheeler purchased the licenses for the machines.

6. Will Wheeler owns a 75% interest in Hot Spot Casino, Inc. Jarvis Faircloth owns the remaining 25% interest.

7. The following Class III licenses were affixed to machines located in the eighteen game rooms subject to the citation:

Room #1- Room #2 - Room #3 -

Hot Spot Casino Inc. 1 Hot Spot Casino Inc. 10 Hot Spot Casino Inc. 2

035583 035588 035220

035877 035607 035219

3806075 035608 035218

3806076 035221 035584

3806077 035781 035217

Room #4- Room #7- Room #8 -

Hot Spot Casino Inc. 3 Hot Spot Casino Inc. 6 Hot Spot Casino Inc. 7

3806078 3806086 3806095

3806080 3806088 3806094

3806079 3806089 3806093

035587 3806090 3806092

035585 3806087 3806091



Room #9 - Room #10- Room #11 - Hot Spot Casino Inc. 8 Hot Spot Casino Inc. 11 Hot Spot Casino Inc. 9 035225 035720 3806097

035224 035719 3806098

035223 035780 3806100

035222 035646 035520

035582 035715 035644

Room #12 - Room #13- Room #14 -

Hot Spot Casino Inc. 12 Hot Spot Casino Inc. 13 Hot Spot Casino Inc. 14

3806096 036325 3806048

035580 035521 3806047

035409 035782 3806046

035410 035579 3806045

035408 035576

Room #15 - Room #16- Room #17 -

Hot Spot Casino Inc. 15 Hot Spot Casino Inc. 16 Hot Spot Casino Inc. 17

3806503 3806508 035522

3806504 3806509 035542

3806505 3806510 035586

3806506 3806511 3806501

3806507 3806512

Room #18 - Room #19- Room #20 -

Hot Spot Casino Inc. 18 Hot Spot Casino Inc. 19 PI Leasing & Management, Inc.

3806515 035227 035230

3806514 035226 035229

3806513 035577 035228

3806512 035543 035226

035606 035578 035581

8. At the time of the inspection, one employee was located in Room Five (Hot Spot Casino, Inc. 4) and another employee was located in Room Six (Hot Spot Casino, Inc. 5). Approximately ten other employees were located in the common areas, occasionally walking in and out of the game rooms. Employees were located in only two of the twenty open game rooms.

9. The Respondents were issued a citation on June 19, 1997 which alleged a violation of the single place or premises requirement of S.C. Code Ann. § 12-21-2804(A) and 27 S.C. Code Regs. 117-190 (Supp. 1996), because the operators of the business located at 1918 Highway 17 South, Surfside Beach, South Carolina allowed the operation of machines in a single place or premises without an employee present during business hours.

10. On August 22, 1997, the Department issued a Final Determination seeking a $5,000 fine against each Respondent Will Wheeler, Hot Spot Casino, Inc., Robert Hills, and P.I. Leasing & Management for fines totaling $20,000, the revocation of eighty-eight Class III machine licenses, and a six-month prohibition on the licensure and operation of Class III machines at the subject location.

11. At the hearing, Department withdrew its request for a fine against Respondent Robert Hills because the Department had been unable to tie Mr. Hills to the operation of the location. The Department, however, renewed its request for the maximum fine imposed on the remaining Respondents because of their previous violations.

DISCUSSION

Respondent raises several issues relating to the citation: 1) the Department violated its own longstanding position that it would not issue citations for infractions of the law and regulations governing video poker while there was administrative review of a citation pending; 2) S.C. Code Ann. Regs. 117-190 on "single place or premises" is unconstitutional; and 3) there is no statutory authority for the penalty sought by the Department.

A. Department's Policy

The Respondent argues that the Department policy was not to issue additional citations while another matter was under administrative review. 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." Respondent's Exhibit #5.

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 #9. 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. 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.

B. Validity of Regulation

The Respondent also alleges that Regulation 117-190 is void because it materially alters or adds to the law. 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.

C. Penalty

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).

CONCLUSIONS OF LAW

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. 1997) and S.C. Code Ann. § 1-23-320 (Supp.1997), the Administrative Law Judge Division has jurisdiction to hear this matter.

2. Respondent Will Wheeler is the licensee of the video game machines in the twenty game rooms licensed under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1997).

3. Respondents Will Wheeler, Hot Spot, Inc., and P.I. Leasing & Management, Inc. are the operators of the video game machines in the twenty game rooms.

4. The Department alleges that on November 22, 1996, Respondents violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1997) 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. 1997), 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 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 (1997) (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 (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).

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). 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).

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); app. dismissed S.C. Ct. App. Op. No. 97-UP-476 (Sept. 22, 1997).

12. S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) 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.1997), 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. 1997) 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 validity of the statutes and regulations, 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. Respondents Will Wheeler, Hot Spot Casino, Inc., and P.I. Leasing & Management, the licensees and operators of the eighteen game rooms without an employee present on the premises, permitted the use of more than five Class III machines at a single place or premises.

ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby

ORDERED, that the eighty-eight Class III video game machine licenses are revoked. Respondent Robert Hills is dismissed from this action. The remaining respondents are each fined $5,000.00 for a total of $15,000.00 payable to the S.C. Department of Revenue within fifteen days of the date of this Order.

Further, the Department may not issue licenses for and Respondents shall not operate Class III machines in the eighteen rooms cited at 1918 Highway 17 South, Surfside Beach, South Carolina, for a period of six months from the date of this order.

IT IS SO ORDERED.

_________________________________

ALISON RENEE LEE

Administrative Law Judge



June 29, 1998

Columbia, South Carolina


Brown Bldg.

 

 

 

 

 

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