SC Administrative Law Court Decisions

This matter comes before me upon Respondents' request for a hearing after being cited for violating the Video Game Machines Act, specifically, S.C. Code Ann. § 12-21-2804 (A)(Supp. 1997). The South Carolina Department of Revenue (Department) contends that Respondents operated machines licensed pursuant to S.C. Code Ann. Section 12-21-2720(A)(3) (Supp. 1997) (commonly referred to as "Class III" machines and licenses) in violation of Section 12-21-2804(A). A hearing was held before the Administrative Law Judge Division on February 24, 1998.

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 evidence:

1. Notice of the time, date, place and subject matter of the Hearing was given to the Department and the Respondents.

2. On March 5, 1997, Special Agents Grimsley and Snow of the South Carolina Law Enforcement Division ("SLED"), inspected the video gaming establishment Player's Club located at 220 Church Street, Georgetown, South Carolina. The game rooms were operated by the Players Club of Georgetown. After the inspection Agent Holden issued a violation report charging the Respondents with operating Players Club I and II in violation of S.C. Code Regs. § 117-190 (Supp. 1996) by not having "at least one separate employee on the premises during business hours," and with operating Players Club III without a retail sales license.

3. The Respondents' location was a mall-type arrangement housing three video game rooms - Players Club I, II and III. Players Club I contained five (5) Class III video game machines. Players Club II and Players Club III contained three (3) Class III video game machines. All three rooms opened into a commons area. Players Club I and Players Club II were open and all of the machines in those rooms were turned on and available for play.

4. The agents played the machines in both Players Club I and II for approximately fifteen to twenty minutes. No employee was present in either room during the time the agents were playing the Class III machines. There were, however, four employees in the building. One of the employees was located outside the rooms on a couch and was acting as the cashier.

5. Players Club III did not have a retail/sales tax license posted on the day of the inspection. However, Players Club III was not open on the day of the inspection. No evidence was offered as to whether Players Club III had been previously opened without a retail/sales tax license.

6. Players Club I and II had a retail sales tax license issued to Players Club of Georgetown, LLC. The following Class III video game machine licenses were located in the respective game rooms and were purchased by the following persons:

Machine License Number Licensee Location

035722 Richard McComas Players Club I

027528 Carlisle S. Carter "

027563 " "

027564 " "

027897 " "

035918 Richard McComas Players Club II

035920 Richard McComas "

042913 Samuel R. Horne "

035923 Richard McComas Players Club III

035924 " "

035925 " "

7. I find that the Respondent Players Club was in violation of Regulation 117-190 for failing to have at least one separate employee on the premises of Players Club I and II during business hours. However, I find that the Department failed to establish the Respondents violated Regulation 117-190 by not having a posted retail sales tax license.

8. The Department seeks the imposition of a Five Thousand ($5,000.00) Dollar fine against each of the Respondents. The Department also seeks revocation of eleven (11) Class III machine licenses in the three (3) game rooms located within Players Club. Finally, the Department further seeks that the Court order the Respondents be precluded from the use or operation of any Class III coin operated devices at the above three locations for a period of six (6) months after the entry of an Order revoking the licenses. I find that the appropriate penalty in this case is a Two Thousand Five Hundred ($2,500.00) Dollar fine against the Players Club of Georgetown for each violation and revocation of the machine licenses in Players Club I and Players Club II.

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 this matter pursuant to S.C. Code Ann. § 12-4-30 (D) (Supp. 1996) and S.C. Code Ann. § 1-23-320 (Supp. 1996).

2. The Department contends that the Respondents violated S.C. Code Ann. § 12-21-2804(A)(Supp. 1996). That section provides:

After July 1, 1994, the commission [Department] may not issue nor authorize to be maintained any licenses or permits for more than five machines authorized under Section 12-21-2720(A)(3) at a single place or premises.

3. Machines licensed under Section 12-21-2720(A)(3) include video games with a free play feature operated by a slot in which a coin or thing of value is deposited. S.C. Code Ann. § 12-21-2720 (Supp. 1996).

4. S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) mandates that the Department "shall revoke the licenses in an establishment which fails to meet the requirements of this section." This Section also mandates that the Department must not issue a license for a machine in an establishment in which a license has been revoked for a period of six months. The authority to issue a license is the power to revoke it. Feldman v. South Carolina Tax Comm'n, 203 S.C. 49, 26 S.E.2d 22 (1943).

5. The Video Game Machines Act ("Act") does not define the term "single place or premises." However, S.C. Code Regs. 117-190 (Supp. 1996) requires that each business must have a separate employee on the premises while the business is open. The cardinal rule of statutory interpretation is to ascertain and effectuate the legislative intent wherever possible. Bankers Trust of South Carolina v. Bruce, 275 S.C. 35, 267 S.E.2d 424 (1980). "Full effect must be given to each section of a statute, giving words their plain meaning, and, in the absence of ambiguity, words must not be added or taken away." Hartford Accident and Indem. Co. v. Lindsay, 273 S.C. 79, 254 S.E.2d 301, 304 (1979). Thus, the phrase "on the premise" presumptively must have meaning.

The Department proved that no employee was working within the four walls of Players Club I and II. Therefore, the Department established a prima facie case that those businesses were not being operated as a "single place or premises." Once the Department establishes a prima facie case, the burden shifts to the Respondent to produce evidence that the business actually had a separate employee specifically assigned to that business. See, Stanley Smith & Sons v. D.M.R., Inc., 307 S.C. 413, 415 S.E.2d 428 (Ct. App. 1992). Furthermore, the Respondent must demonstrate that the employee's absence from the game room was of short duration and reasonable under the circumstances. A violation of Regs. 117-190 will still occur whenever an employee is absent from the premises for a prolonged period of time, or the reasons for the absence does not involve a reasonable business or personal need. The Respondent failed to prove that a separate employee was specifically assigned to the above cited game rooms.

6. It is a generally recognized principle of administrative law that the fact finder has the authority to impose an administrative penalty after the parties have had an opportunity to have a hearing and be heard on the issues. See Ohio Real Estate Comm'n v. Aqua Sun Investments, 655 N.E. 2d 266 (Ohio 1995); Shadow Lake of Noel, Inc. v. Supervisor of Liquor Control, 893 S.W. 2d 835 (Mo. App. S.D. 1995); Matter of Henry Youth Hockey Ass'n, 511 N.W. 2d 452 (Minn. App. 1994); Vermont Agency of Natural Resources v. Duranleau, 617 A.2d 143 (Vt. 1992); City of Louisville v. Milligan, 798 S.W. 2d 454 (Ky. 1990); Com., Dept. of Transp. v. Slipp, 550 A.2d 838 (Pa. 1988); Dept. of Transp. v. Miller, 528 A.2d 1030 (Pa. 1987); State Police v. Cantina Gloria's, 639 A. 2d 14 (Pa. 1994).

Prior to governmental restructuring, a 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, 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 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). With the advent of restructuring and the abolition of the Tax Commission, however, the Administrative Law Judge Division was given the authority to hear "all contested cases, as defined by Section 1-23-310 and as previously considered by the three [Tax] commissioners. . . ." S.C. Code Ann. Section 12-4-30(D) (Supp. 1996). The Administrative Law Judge, as the current fact-finder, must also impose a 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 and the tribunal responsible for conducting the contested case proceedings has the authority to decide the issues based on the facts presented, and make the final decisions on all the issues, including the appropriate penalty.

7. The Department contends that no Class III video gaming machines should be allowed to operate at the location for a period of six months from the effective date of the revocation of the Respondent's licenses. The role of the court in statutory interpretation is limited to seeking to effectuate the legislature's intent. Laird v. Nationwide Ins. Co., 243 S.C. 388, 395 S.E.2d 206 (1964). In statutory interpretation, courts must read the statute in a manner that harmonizes it with its subject matter and is in accordance with its general purpose. Multi-Cinema, Ltd. v. South Carolina Tax Comm'n, 292 S.C. 411, 357 S.E.2d 6 (1987). Plain and unambiguous language in a statute that conveys a clear and definite meaning should not be altered or redefined by the judiciary. Paschal v. State Election Comm'n, 317 S.C. 434, 454 S.E.2d 890 (1995). However, if a statute is ambiguous, courts must ascertain legislative intent through statutory construction. See Abell v. Bell, 229 S.C. 1, 91 S.E.2d 548 (1956). An ambiguity arises when the language of a statute is capable of being understood by reasonably well-informed persons in either of two or more senses. Southeastern Fire Ins. Co. v. South Carolina Tax Comm'n, 253 S.C. 407, 171 S.E.2d 355 (1969).

The Video Game Machines Act ("Act") became effective on July 1, 1993. This Act provides the framework for the licensing and operation of various video game machines and locations in the State of South Carolina. The Act is directed at the regulation of the ever growing gambling industry in the State of South Carolina. Justice v. The Pantry, et al., Opinion No. 2787 (S.C. January 26, 1998).

Section 12-21-2804(A) of the Act, provides in relevant part that:

(A) . . . The commission shall revoke the licenses of machines located in an establishment which fails to meet the requirements of this section. 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 the revocation . . . (emphasis added).

This language has produced two varying interpretations. One interpretation, commonly referred to as the "dead location" approach, holds that once a license has been revoked for a machine within an establishment, no Class III machines may be maintained at that location for six months from the date of revocation. The alternative interpretation, the "dead machine" approach, maintains that no license should be reissued on specific machines for six months after a Class III license has been revoked on those machines.

These differing interpretations result from the legislature's usage of the phrase "a machine" in the six month penalty provision. As an indefinite article, "a" may refer to a specific object or thing. See Black's Law Dictionary 1 (6th ed. 1990). However, the article is "often used in the sense of 'any' and is then applied to more than one individual object." Id. Therefore, interpreting this statute in a manner that harmonizes it with its subject matter and is in accordance with its general purpose, the relevant portion of Section 12-21-2804(A) is best read to state that "[n]o license may be issued for [any] machine in an establishment in which a license has been revoked."

Furthermore, the dead machine approach should not be adopted because doing so would make Section 12-21-2804(A) internally inconsistent. Courts reject a construction of words used in a statute when acceptance of a statutory interpretation 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. 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)). The clear language of Section 12-21-2804(A) grants the Department the authority to revoke any licenses at an establishment found in violation of the requirements of the statute.

The Department, however, does not issue video game machine licenses for specific locations. Instead, licenses are issued to individuals for machine ownership. Therefore, meaningful punishment of the licensee for failure to comply with the statute is best effectuated through revocation of the machine licenses. Under Section 12-21-2804(A), a machine license must be revoked by virtue of its misuse at a particular establishment, whether the actual violator is the licensee, machine owner, or lessee. Although machine owners may seek relicensure of the machines, they incur significant costs in so doing. First of all, the machine owner must pay the fee for licensure in accordance with S.C. Code Ann. § 12-21-2728(A). Secondly, the owner must find another location for machine placement and develop a clientele without advertising the machine's existence at the new location.⁽¹⁾

The statute also curtails violations of the Act by requiring that the place where the violation occurred cease operations for six months. The Legislature probably envisioned that licenses would be issued for video poker machines at specific establishments. However, the practical effect of the dead machine approach as the Department currently licenses video poker activity would be to exact an additional penalty for violation of the Act upon the machine owner alone, although the owner may not have been the actual violator. Punishment against the operators of the establishment would be virtually meaningless. Owners of establishments would be able to buy or lease new machines, purchase new licenses and resume operations at the same location (benefitting from the same patrons) almost immediately, having only suffered replacement costs and usage losses for the affected machines during the revocation period. The operators of the establishments who potentially may possess greater culpability could escape any punishment pursuant to the dead machine approach. The legislature surely did not intend such an absurd result.

Additionally, it would be impossible, as a practical matter, for the Department to enforce the penalty provision of Section 12-21-2804(A) under the "dead machine" approach. The Department has elected to issue licenses that may be attached to any machine at any location. The "dead machine" approach would necessitate that the Department track machines that are readily movable by serial number to make sure that no "dead machine" was being operated at any given location.

Proponents of the dead machine approach argue that the legislature would have provided for a six month revocation of the "establishment license" if it intended to impose a "location" penalty. If the Department issued video gaming licenses for specific establishments, application of this provision would be simple. However, the Department does not issue a specific "establishment license" other than retail licenses pursuant to Section 12-36-510 (Supp. 1997).⁽²⁾ Moreover, video gaming machines are usually placed in establishments that conduct business activities other than video gaming. Therefore, revocation of a retail license would impose a greater punishment upon an establishment than intended by the legislature by precluding all retail activities, not just video gaming. The only practical way to curtail violations of the Act at a given location is to revoke the licenses of machines in the establishment and refuse to license any machines at that location for a fixed period of time.

Furthermore, the Department's interpretation of Section 12-21-2804(A) should be given significant consideration. The construction of a statute by the agency charged within its administration will be accorded the most respectful consideration and will not be overruled absent compelling reasons. Captain's Quarters v. S.C. Coastal Council, 306 S.C. 488, 413 S.E.2d 13 (1992). The Department is the agency charged with the administration of the Video Game Machines Act. The Department has consistently interpreted Section 12-21-2804(A) as imposing a six month prohibition on the use of any Class III machine at an offending location. The Department's interpretation is reasonable and should be afforded great deference. Because there are no compelling reasons to deviate from the Department's interpretation, the dead location approach should be adopted in this case. Therefore, Section 12-21-2804(A) requires that no Class III video gaming machines should be allowed to operate at a location found in violation of the Section for a period of six months from the effective date of the revocation of the licenses in the location .

8. S.C. Code Ann. § 12-21-2804(F) (Supp. 1996) provides that a person who violates Section 12-21-2804(A) may be fined up to Five Thousand ($5,000.00) Dollars. A licensee is subject to the above fine if he violates Section 12-21-2804(A) (Supp. 1997) by "apply[ing] for . . . permits or licenses for the operation of more than . . . five machines authorized under Section 12-21-2720(A)(3) at a single place or premises." For a person who applied for a license to be liable for the fine, the Department must present sufficient evidence to establish that the licensee obtained the machine license to be used in the operation of more than five machines at a single place or premises. The licensee does not violate Section 12-21-2804(A) when the license for which he applied is subsequently used by another for the operation of more than five machines at a single place or premises.

However, a licensee alternatively could be liable for a fine if he "maintain[s] or permit[s] to be used" his license in violation of Section 12-21-2804(A). A licensee "maintains" his license in violation of Section 12-21-2804(A) when he is directly involved in the management or supervision of a business which operates more than five machines at a single place or premises. A licensee "permits" his license to be used in violation of Section 12-21-2804(A) when he knowingly consents to another using his license to operate more than five machines at a single place or premises.

To permit means to "allow, consent, let . . . to acquiesce by failure to prevent, or to expressly assent or agree to the doing of an act." Black's Law Dictionary 1140 (6th ed. 1990). "Consent is an act of reason, accompanied with deliberation, the mind weighing as in a balance the good or evil on each side." Id. at 304. Accordingly, to "permit the use of," clearly requires knowledge. Therefore, a licensee does not permit the use of his license for the operation of more than five machines at a single place or premises simply because he holds a license. He must know that the license is being used in violation of section 12-21-2804(A) and acquiesce to such use by failing to prevent or correct the offending use.

A party manifests knowledge and consent to allowing a person under twenty-one years of age to purchase alcohol if, from the appearance of the person or otherwise, the party had sufficient information that would lead a prudent person to believe the person was under the age of twenty-one, especially when a simple inquiry would have confirmed such fact. Feldman v. South Carolina Tax Comm'n, 203 S.C. 49, 26 S.E.2d 22 (1943). Similarly, a video poker licensee manifests knowledge and consent to allowing his license to be used in violation of section 12-21-2804(A) if, from the evidence presented by the Department, the licensee had sufficient information that would lead a prudent person to believe that the license was being used for the operation of more than five machines at a single place or premises, especially when a simple inquiry would have confirmed such fact. Therefore, a licensee is subject to a fine under section 12-21-2804(F) for violating section 12-21-2804(A) if he either "applies for" or "maintain[s] or permit[s] to be used" licenses for the operation of more than five machines at a single place or premises.

The distinction between applying for a license and subsequently maintaining or permitting that license to be used for the operation of more than five machines at a single place or premises is a question of fact to be determined on a case by case basis. In this case, the Department presented sufficient evidence only to establish that the operator of the location was directly involved in violating the Act. The Department did not present sufficient evidence to warrant the imposition of a fine against Respondents Carlisle S. Carter, Richard McComas or Samuel R. Horne.

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

ORDERED that the licenses of the machines located in Players Club I and II are revoked, and a fine of Five Thousand ($5,000.00) Dollars is imposed on the Players Club of Georgetown.

IT IS FURTHER ORDERED that no Class III machine shall be operated in Players Club I or II for a period of six months from the date of this Final Decision.

Columbia, South Carolina

July 22, 1998

1. S.C. Code Ann. § 12-21-2804(B) (Supp. 1997) forbids the advertisement of the availability of video gaming machines.

2. S.C. Code Ann. § 12-21-2784 (Supp. 1997) provides that "[e]ach machine . . . operator, and licensed establishment must be licensed by [DOR] pursuant to Article 19 of this chapter and this article before a machine . . . is placed for public use in this State." S.C. Code Ann. § 12-21-2772(4) (Supp. 1997) defines "'licensed establishment' as "an establishment owned or managed by a person who is licensed pursuant to Article 19 of this chapter for the location of coin-operated nonpayout video machines with a free play feature." The Department interprets this section as simply requiring a sales tax license. Therefore, there is no "establishment license" to revoke.