SC Administrative Law Court Decisions

STATEMENT OF THE CASE

This matter is before me pursuant to a request by the Respondents, Michael A. Kocak ("Kocak") and Carter Amusements, for a contested case hearing, pursuant to S. C. Code Ann. §§ 1-23-310, et seq. and 12-4-30 (Supp. 1997). Respondents have appealed an administrative citation issued by the South Carolina Department of Revenue ("Petitioner" or "Department") against them for a violation of the South Carolina Video Game Machines Act.

The Department issued an Administrative Citation and Final Agency Determination finding that the Respondents had violated the provisions of S.C. Code Ann. § 12-21-2804(A) by applying for, maintaining, and permitting to be used, permits and licenses for the operation of more than five machines authorized under S. C. Code Ann. § 12-21-2720(A)(3) (Supp. 1997) at one "single place or premises." Specifically, the Department alleges herein that the Respondents have violated both

the "one separate employee" and the "separate electric utility meter" provisions of S.C. Code Regs. 117-190 (Supp. 1996).

A hearing on this matter was held on January 29, 1998 at the Administrative Law Judge Division ("Division") in Columbia, South Carolina.

After considering all the evidence, based upon the following Findings of Fact and Conclusions of Law, this court finds and concludes that the Respondent, Michael A. Kocak, d/b/a LA Video, Best Bet Video and Video Plus violated S.C. Code Ann. § 12-21-2804(A) and 27 S. C. Code Regs. 117-190 (Supp. 1996), by utilizing the video game machine licenses in contravention of these laws; and, the licenses in these three game rooms shall be revoked. Further, no video game machine licenses shall be utilized in these three rooms for a period of six (6) months from the date of revocation of the licenses. Further, Michael A. Kocak is fined the sum of Five Thousand and no/100 Dollars ($5,000.00) for the violations against the three game rooms.

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

ISSUES

1. Did the Respondents violate the single place or premise provision of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) by failing to meet the "one separate employee" requirement of S.C. Code Regs. 117-190?

2. Did the Respondents violate the "single place or premise" provision of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) by failing to have separate electric utility meters for each "premise" as required under S.C. Code Regs. 117-190?

3. If the Respondents did violate the statutes and regulation, what are the appropriate penalties to be imposed?

FINDINGS OF FACT

Having observed the witnesses and exhibits presented at the hearing and closely passed upon their credibility, taking into consideration the burden of persuasion by the parties, I make the following findings of fact by a preponderance of the evidence:

1. Notice of the time, date, place and subject matter of the hearing was timely given to the Petitioner and the Respondents.

2. Michael A. Kocak is the business owner and operator of a video gaming business located at 9585 Highway 78 in Ladson, South Carolina. He holds both separate sales tax licenses and separate business licenses for four (4) businesses operated at that address which are as follows:

(1) LA Video;

(2) Best Bet Video;

(3) Video Plus; and

(4) Super Video.

3. Mr. Kocak is a petroleum distributor and owns and operates two convenience stores in addition to this location.

4. Carter Amusements is a sole proprietorship owned by Mr. Carlisle S. Carter, Sr. Mr. Carter is assisted by his son, Carlisle S. Carter, Jr., in the operation of the business. The son places video poker machines at locations, sets them up and services them.

5. Carter Amusements owned, operated, and held the South Carolina Class III Coin Operated Devices licenses on January 22, 1997 for five video game machines operated at each of the following:

1. L A Video (license #'s 027520, 027526, 027557, 027551, 028335);

2. Best Bet Video (license #'s 028806, 028807, 028808, 028809, 028810);

3. Video Plus (license #'s 027512, 027513, 027516, 027520, 027535.)

All fifteen of these licenses expired on May 31, 1997.

6. On January 22, 1997, at approximately 9:00 p.m., South Carolina Law Enforcement Division ("SLED") special agents Stacey Snow and Lt. Phil Grimsley conducted an inspection of the video gaming establishment located at 9581-B Highway 78 in Ladson, South Carolina. The location consisted of a mall-type arrangement inside and contained four (4) video poker rooms, known as rooms 1, 2, 3 and 4. The doors to three of the four rooms (#'s 1, 2 & 4) were open. These three rooms or "premises" were called L A Video, Video Plus, and Best Bet Video.

7. Customers were playing the machines in rooms 1, 2 and 4 when the officers first entered the location. Room # 3 (Super Video) was closed. Agents Snow and Grimsley went into each of the three open rooms.

8. There were fifteen Class III licensed video poker machines in the three rooms at the time of the inspection. All of the machines in these three rooms were turned "on" and were available for play.

9. Only one employee, Dianne D. Roesner, was present and on the premises at the location at the time of the inspection. She was in the commons area within the location. No employee was within either room 1, 2 or 4. Ms. Roesner was working as a cashier for the Respondent, Mr. Kocak, at the time of the inspection and had no supervisory obligations or duties as a part of her employment. Further, she exercised no control over the other employees at the location.

10. Agent Snow observed and recorded the license numbers and expiration dates of the licenses on the fifteen machines in rooms 1, 2 and 4, as shown in the Regulatory Violation and Proposed Assessment Report which was offered into evidence as Petitioner's Exhibit 1.

11. There were separate electric metering devices located inside each of the four rooms in the building. Each meter device was wired when the building was constructed. Each meter has a digital read-out; however, they do not have moving parts or wheels which are typical of the electrical meters located on the exterior of buildings which can be observed by the naked eye. None of these meters inside the rooms had ever functioned satisfactorily and were not reading the electricity usage in the rooms at the time of the inspection.

12. The main meter located on the exterior of the building was functional and operational and was so observed by agent Snow during his inspection. It recorded the usage of electricity of the entire operation at the location.

13. At the time of the hearing, Mr. Kocak was in the process of getting someone else from the factory to work on the meters inside the rooms to have them function.

14. Carlisle S. Carter, Sr., the owner of Carter Amusements and his son, Mr. Carlisle S. Carter, Jr., are aware of S. C. Code Regs. 117-190 and its requirements. However, they have no control over or any interest in the operation or businesses owned by Mr. Kocak at the location.

15. Carter Amusements does not provide any employees at the location. Although Carlisle S. Carter, Jr., testified that he checked on the location from time to time to ensure that it was being operated in compliance with the law and, more particularly whether it was being operated on Sundays, he stated that Carter Amusements had no written contract with Mr. Kocak to do so and, that the only recourse of Carter Amusements, if it determined that the location was being operated in violation of a statute or regulation with regard to the operation of the video game machines, would be to remove its machines from the location.

16. Mr. Kocak testified that he knew that he had to have an employee in each separate room at the location. Further, he testified that he keeps records on all the employees who work at the location; however, he testified that he did not bring the records to the hearing. He was not able to put into evidence proof of any employee other than Ms. Roesner being at the location at the time of the inspection.

18. On the date of the inspection, Agent Snow issued a violation to the Respondents for failure to comply with the "single place or premises" requirements of S.C. Code Ann. § 12-21-2804(A) and S. C. Code Regs. 117-190. The Respondents were cited for violating both the "one separate employee" and the "separate electric utility meter" requirements of S.C. Code Regs. 117-190 (Supp. 1996).

CONCLUSIONS OF LAW

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

1. The Administrative Law Judge Division has jurisdiction to hear this matter pursuant to S.C. Code Ann. § 12-4-30(D) (Supp. 1997) and S.C. Code Ann. § 1-23-320 (Supp. 1997).

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 separate electric utility meters and failed to have an employee in each of their respective businesses in violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996). 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 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. The Act is codified at S.C. Code Ann. §§ 12-21-2770 et seq. (Supp. 1997). The expressed purpose of the Act is to regulate the video games machine industry in South Carolina and to prevent large scale casino-type gambling operations in the State of South Carolina. See Reyelt v. S.C. 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. Atty. Gen. No. 94-21 at 51.

4. The Department alleges that on January 22, 1997, Respondents violated S.C. Code Ann. § 12-21-2804(A) and S.C. Code Regs. 117-190 (Supp. 1996) by applying for, maintaining, or permitting to be used, permits for the operation of more than five machines authorized under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1996) at a single place or premises. § 12-21-2804(A) provides that:

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 or 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. . . .

5. 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).

6. Respondents first challenge the validity of 27 S.C. Code Regs. 117-190. 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. To determine if a regulation is reasonable, inquiry must be made as to whether the regulation has a rational basis or is rationally related to the end sought to be achieved. Hunter & Walden Co. v. S.C. State Licensing Bd. for Contractors, 272 S.C. 211, 251 S.E.2d 186 (1978). That is, a regulation is valid as long as it is reasonably related to the purpose of the enabling legislation. Young v. SCDHPT, 287 S.C. 108, 336 S.E.2d 879 (Ct. App. 1985). However, a regulation which is beyond the authorization of the agency's enabling legislation or which materially alters or adds to the law is invalid. Society of Professional Journalists v. Sexton, 283 S.C. 563, 324 S.E.2d 313 (1984); Banks v. Batesburg Hauling Co., 202 S.C. 273, 24 S.E.2d 496 (1943). Regulation 117-190 does not lessen or enlarge the powers of the Department, but is reasonable for the enforcement of the provisions of S.C. Code Ann. § 12-21-2804(A). The requirements of Regulation 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 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.

Moreover, 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. S.C. Dept. of Revenue, Court of Common Pleas, Beaufort County, No. 96-CP-07-1072 (June 6, 1997); See also, AAA Entertainment Corp., et. al. v. S.C. Dept. of Revenue, Court of Common Pleas, Beaufort County, No. 96-CP-07-1595 (June 6, 1997); William Scurry v. S.C. Dept. of Revenue, Court of Common Pleas, Beaufort County, No. 97-CP-07-0408 (June 6, 1997). The 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.

8. The second issue before this tribunal is whether any person, that is, Michael A. Kocak and Carter Amusements, applied for, received, maintained, or permitted to be used permits for the operation of more than five machines authorized under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1996) at a single place or premises, in violation of S.C. Code Ann. § 12-21-2804(A) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996).

9. 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" requirement of § 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 § 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 (March 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).

10. The second criterion of Regs. 117-190 only requires that each separate game room have an employee working on the premises during business hours. There is no requirement that the employee remain within the four walls of the premises every minute he is on duty. An individual employed to work in a specific game room from time to time may stand outside. If he continues to observe the game room operation and remains in control of its operation, standing ready to assist in the totality of its operation, this criterion is complied with. In interpreting this regulation, the court must look to the purpose of the legislature in enacting § 12-21-2804(A) as a part of the Video Game Machines Act. Our courts have held that "all rules of statutory construction are subservient to the one that legislative intent must prevail if it can be reasonably discovered in the language used, and that language must be construed in the light of the intended purpose." Lewis v. Gaddy, 254 S.C. 66, 71, 173 S.E.2d 376, 378 (1970). Further, the South Carolina Supreme Court has stated that "the language of a revenue statute must not be extended beyond its clear import, the taxpayer being entitled to favorable resolution of any substantial doubt arising therefrom." Deering Milliken, Inc. v. S.C. Tax Comm'n, 257 S.C. 185, 187-88, 184 S.E.2d 711 (1971). Finally, the Court has stated the rule that "The legislature must have intended to mean what it has plainly expressed, and consequently there is no room for construction. . . ." Beaty v. Richardson, 56 S.C. 173, 34 S.E. 73 (1899).

11. In this case, the inspection revealed that no employee was working within the four walls of three of the businesses (LA Video, Best Bet Video and Video Plus) at the location. No evidence was offered to show that Ms. Roesner was hired or assigned for or to any specific game room or business. The evidence is uncontroverted and overwhelming that the three game rooms were open for business at the time of the inspection and no employees were in any of the three rooms.

12. The documents and testimony presented before the court in this matter indicate that there were fifteen (15) Class III video poker machines collectively located in the three (3) businesses listed above which were open for business at the time of the SLED agent's inspection on January 22, 1997. Each of these three "places" contained five operational Class III video game machines. Although there was one employee present in the commons area of the building at the time of the inspection, none were "on the premises" of the three licensed video poker rooms. Mr. Kocak could produce no evidence in the form of employment records, pay stubs or other documents either to the SLED agents at the time of inspection or under cross-examination at trial to establish that any employees were present in or working for the three cited businesses at the time of the inspection.

It is evident from the documents in evidence and the testimony presented at the hearing on this matter that the Respondent/Michael A. Kocak applied for, received, or permitted permits to be used for the operation of more than five (5) machines at a "single place or premises." Further, Mr. Kocak violated this statute and regulation both by failing to have an employee on the premises of each location and in failing to have separate electrical utility meters which were operational for each separate "place or premise." Mr. Kocak was operating the three cited businesses as one "single place or premises" on the night of the inspection. Despite the separation of the video game machines into different rooms, each of which are licensed as an individual business, it is clear from the evidence that the location operates as a video poker casino, with only one employee in the commons area connecting the rooms and one central utility meter for all four of the business located within the building. This business "set up" is precisely the type of arrangement which the General Assembly attempted to prohibit with the adoption of Section 12-21-2804(A). I therefore conclude as a matter of law that Respondent Kocak violated S.C. Code Ann. § 12-21-2804(A) and S.C. Code Ann. Regs. 117-190. However, the Department did not present sufficient evidence to establish that the Respondent Carter Amusements applied for, received, maintained, or permitted to be used permits for the operation of more than five machines authorized under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1996) at a single place or premises, in violation of S.C. Code Ann. § 12-21-2804(A) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1996).

13. South Carolina Code Ann. § 12-21-2804(A) (Supp. 1996) clearly precludes any "person" from applying for, receiving, maintaining, or permitting to be used permits for the operation of more than five Class III video game machines at a single place or premises. The term "person" is not defined in the Act but is generally defined as encompassing an individual or business entity, as well as a licensee or machine owner. See Black's Law Dictionary p. 1142 (6th Ed., 1995). Further, § 12-21-2804(A) requires the Department to revoke the licenses of machines located in an establishment which fails to meet the requirements of § 12-21-2804(A). Such an interpretation is consistent with the clear and unambiguous language of the statute. See, Home Health Services, Inc. v. S.C. Tax Com'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) (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); See also, 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) (where the terms of a statute are clear and unambiguous, they must be applied according to their literal meaning). Hence, § 12-21-2804(A) (Supp. 1996) mandates revocation of the licenses used in violation of the statute, even if the licensee, Carter Amusements, was not directly involved in applying for, receiving, maintaining, or permitting its licenses to be used by Michael Kocak in contravention of the statute. Such an interpretation is consistent with the plain language of the statute.

14. 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, the practical effect would be preclusion of operation at such an establishment. 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).

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. The Department seeks a $5,000 fine against Carter Amusements, the licensee of the machines in question. However, the Department has not established that Carter Amusements, applied for, received, maintained, or permitted to be used permits for the operation of more than five machines authorized under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1996) at a single place or premises. See Stacks v. South Carolina Dep't of Revenue and Taxation, 95-CP-40-0239 at 8-9 (C.P. Richland County April 20, 1995).

Under § 12-21-2804(A), a license on a video game machine must be revoked by virtue of its misuse under the Act, regardless of whether the actual violator is the licensee, machine owner, or lessee. However, a monetary fine under § 12-21-2804(F) may only be imposed on the person directly involved in the violation of § 12-21-2804(A). In this case, the Department only presented sufficient evidence to establish that the operator of the location, Michael A. Kocak, was directly involved in violating the Act. The Department did not present sufficient evidence to warrant the imposition of a fine against Respondent Carter Amusements, pursuant to S.C. Code Ann. § 12-21-2804(F) (Supp. 1996). When applying for a license, a licensee violates the statute if he applies for a license to be used in the operation of more than five machines at a single place or premises. The statute does not state, as the Department would like this tribunal to construe it, that a person who applies for a license which is subsequently used for the operation of more than five machines at a single place or premises is in violation of the statute. In the instant case, as the licensee did not violate the statute at the time of application, or have direct involvement in the maintenance or operation of the businesses, the alleged violation has not been established against the Respondent Carter Amusements.

ORDER

Based on 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 fifteen (15) video game machine licenses referenced herein, owned by Carter Amusements, located in rooms 1, 2 and 4 (L A Video, Best Bet Video, and Video Plus) within the video gaming business at 9585 Highway 78, Ladson, South Carolina, are revoked, and it is further

ORDERED that no Class III video game machines shall be operated or utilized in the three subject rooms at the location at 9585 Highway 78, Ladson, South Carolina, for a period of six (6) months from the date of the revocation of the fifteen licenses, and it is further

ORDERED that the Respondent Michael A. Kocak shall pay a monetary fine in the amount of Five Thousand and no/100 ($5,000.00) to the Department of Revenue no later than fifteen (15) days from the date of this order, and it is further

ORDERED that the violation against the Respondent, Carter Amusements, is dismissed.

AND IT IS SO ORDERED.

_______________________________

Marvin F. Kittrell

Chief Judge

Columbia, South Carolina

April 13, 1998