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. Golden Image Enterprises, Inc., Richard McComas

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Golden Image Enterprises, Inc., Richard McComas
 
DOCKET NUMBER:
97-ALJ-17-0766-CC

APPEARANCES:
For the Petitioner: Carol I. McMahan, Esquire

For the Respondent: George W. Cox, Esquire
 

ORDERS:

FINAL DECISION

STATEMENT OF CASE

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 March 17, 1998.

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 evidence:

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

2. The Department issued a violation report against Respondents on October 8, 1997, for operating Class III machines in an establishment under suspension. Previously, on September 24, 1997, Administrative Law Judge Bates determined that Respondents had violated the single place or premises requirement of Section 12-21-2804(A) on June 13, 1996. South Carolina Department of Revenue v. Richard McComas, et al., 97-ALJ-17-0165-CC ("Decision"). In his Decision, Judge Bates ordered revocation of the Class III licenses at the location, monetary fines, and that no machines could be licensed at that location for a period of six months from the date of revocation.

3. The Department issued a Final Determination for this violation, revoking the twenty Class III licenses in the establishment on October 8, 1997, suspending licensing at the location for a period of six months, and imposing monetary fines in the amount of $100,000.00 and $20,000.00 against Respondents Richard McComas and Golden Image Enterprises, Inc., respectively. Respondents timely appealed this determination.

4. Mr. McComas is the successor in interest to Golden Image Enterprises, Inc.

5. On October 8, 1997, SLED agent Pamela Williamson entered the video gaming location at 2761 Hwy. 17 South, Garden City, South Carolina. Agent Williamson found three rooms in operation. A fourth room also contained five Class III machines that were plugged in and operational. However, the doors to that room were closed. The attendant on duty told Agent Williamson that if she wished to play in that room, the attendant would open it for her. Respondents contend that if room four had been open, that a corresponding room would have been closed. However, the attendant's comments show that the Respondents maintained machine and Class III licenses that were available for play in the fourth room. I therefore find that each of these rooms contained five Class III video poker machines that were available for operation.

6. Department records and the owner/identification on each of the Class III machines indicated the owner/operator/licensee was Richard McComas. Mr. McComas further testified that he owned each Class III machine and license and had placed each machine and license in the four rooms for operation. The Class III license numbers and their specific location are set forth below:

Machine License Number Location

3806105 Golden Image, Lic. #026443938

3806104 "

3806103 "

3806101 "

3806108 "

3806115 Golden Image 2, Lic. #026443947

3806107 "

3806113 "

3806111 "

3806112 "

3806110 Golden Image 3, Lic. #026443965

3806114 "

3806106 "

3806117 "

3806065 "

3929721 Golden Image 4, Lic. # 026443974

3806102 "

3806118 "

3806116 "

3806109 "

7. Petitioner's Exhibit No.3, "Diagram of Location Suspended," when compared with Petitioner's Exhibit No. 4 "Diagram of Location on October 8, 1997," clearly show the location suspended in Judge Bates' September 27, 1997 Decision, is the exact same location wherein video poker machines were operating on October 8, 1997. Furthermore, Agent Williamson spoke with Mrs. McComas, wife of Richard McComas, who managed the location. Agent Williamson showed Mrs. McComas the Decision of Judge Bates which had revoked licenses and prohibited operation of Class III machines at this location for a period of six months. Mrs. McComas stated she knew of the Decision.

8. The evidence established the following sequence and timing of events:

June 13, 1996 Initial Single Place or Premise Violation

September 24, 1997 Judge Bates' Decision Revoking Twenty-five

Licenses and Suspending Video Poker Operations

for Six Months

September 27, 1997 Respondents Receive Notice of Judge Bates' Decision

October 8, 1997 Respondents are issued a Preliminary Citation for Operating Under Suspension

October 17, 1997 Respondents File an Appeal and Motion for Stay of Judge Bates' Decision in Horry County

October 27, 1997 Respondents Post Bond Pursuant to S.C. Code

Ann. Section 12-60-3370 (Supp. 1997) for Appeal

of Judge Bates' Decision

March 17, 1998 Respondents Continue to Operate the Video Poker Location at 2761 Highway 17 South, Garden City, South Carolina

9. Respondents' witness, Richard McComas, testified that his video poker business located at 2761 Hwy. 17 South, Garden City, South Carolina, had been operating consistently since receiving Judge Bates' Decision on September 27, 1997. Mr. McComas stated he knew of the Decision suspending his licenses and prohibiting video poker operations on the premises. However, Mr. McComas testified he thought he could continue to operate while the Decision was under appeal.

10. I find that on October 8, 1997, Respondents maintained for operation, Class III machines and licenses in video gaming rooms, Golden Image, Golden Image 2, Golden Image 3 and Golden Image 4 while the location was under suspension from operating.

ISSUES PRESENTED

The Department advances that Respondents operated and maintained Class III video poker machines in a location under a six-month suspension in violation of Section 12-21-2804(A). The Department asserts this is a separate and distinct violation as set forth in Section 12-21-2804(A), requiring revocation of Class III licenses, suspension of licensing, and monetary penalties.

Respondents argue that Judge Bates' Decision was stayed due to their appeal of the matter to Circuit Court and as such, they have not committed a violation. Similarly, they argue the penalties are excessive.

CONCLUSIONS OF LAW

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

General Conclusions

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. Respondents violated Section 12-21-2804(A) by operating in a location under a six-month suspension of licensing for video poker.

3. Section 12-21-2804(A) mandates that the Commission (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 Commission, et al, 26 S.E.2d 22 (1943).

4. Section 12-21-2804(F) states that a person who violates Section 12-21-2804(A) may be fined up to five thousand dollars.

5. The Department contends that operating in a location under a six-month suspension of licensing is a violation of Section 12-21-2804(A). Respondents argue this is not correct. I find continued operation of video poker in a location prohibited from such business is a violation of the Video Game Machines Act, Section 12-21-2804(A).

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 reasonable, but 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 the Department refuse to issue licenses for any machine to be placed in an establishment where machine licenses have been revoked for six months.

In this case, Judge Bates ordered the revocation of the Class III licenses at the establishment at issue. Moreover, Judge Bates ordered that "that no video game machine licenses shall be utilized in Pennies from Heaven, M&R's Network, R&M Amusement or Power Player for a period of six (6) months from the date of revocation of the licenses." Subsequent to that Decision, Respondents continued to operate Class III machines therein. Specifically, Respondents were operating the video poker location on October 8, 1997 and have stated they will continue to operate in violation of the language of Judge Bates' Decision. Therefore, Respondents have committed a clear violation of operating under suspension.

Stay of the September 24, 1997 Order

6. Respondents argue that there is no violation here because various rules permit a stay. The Department advances there has been no stay of the Decision under any rule. I find that there was no stay of Judge Bates' Decision suspending video poker operations at the location at issue.

The current matter and the violation found in Judge Bates' Decision are governed by the Administrative Procedures Act. S.C. Code Ann. Section 1-23-380(A)(2) (Supp. 1997) provides:

The filing of the petition does not itself stay enforcement of the agency decision. The agency may grant, or the reviewing court may order, a stay upon appropriate terms.

Furthermore, under the authority set forth in the Administrative Procedures Act, S.C. Code Ann. Section 1-23-650 (Supp. 1997), the Administrative Law Judge Division has adopted procedural rules. Specifically, Rules 29© and (D), ALJD, provide that the Division may stay the effect of its order within the terms of the order, or on motion of any party. Additionally, ALJD Rule 29(C) provides that a Motion for Reconsideration does not, of itself, stay the Division's decision.

Here, the violation for operating under suspension was issued on October 8, 1997. To the date of the hearing on this matter, March 17, 1998, there was no Circuit Court or Division order granting a stay of the Division's Decision of September 24, 1997. In fact, Respondents did not request that the Division issue a stay of its order. Similarly, although Respondents filed a Motion for Stay in Horry County Circuit Court on October 21, 1997, Respondents admit the motion has never been heard or granted. Because the Administrative Procedures Act specifically provides that a stay of the Division's order is not automatic and, to date, Respondents have not been granted a stay of the Decision, the Department's issuance of a violation for operating under suspension was appropriate.

Respondents further argue Rule 62, SCRCP, prohibits the Department's issuance of the violation at issue. Such is not the case. Rule 62 (d), SCRCP provides "[w]hen an appeal is taken, a party, by giving a supersedeas bond, may obtain a stay subject to the exceptions contained in subdivision (a) of this rule and the South Carolina Appellate Court Rules. The bond may be given at or after the time of filing the notice of appeal or of procuring the order allowing the supersedeas as the case may be. The stay is effective when the supersedeas bond is approved by the court." However, SCRCP Rule 62 is not applicable to Administrative Law Judge Decisions, which are administrative decisions, effective upon issuance. Also, ALJD Rule 52 sets forth that "[t]he South Carolina Rules of Civil Procedure may, where practicable, be applied in proceedings before the Division to resolve questions not addressed by these rules." In this case there is no need to apply the South Carolina Rules of Civil Procedure since there are specific provisions in the ALJD Rules and the Administrative Procedures Act governing the granting of a stay.

Additionally, even if this Court were to determine that the ten-day rule in Rule 62, SCRCP, is applicable, Respondents would still be in violation, since October 8, 1997, is beyond the ten days set forth within the rule.

Respondents also contend that since they posted bond, they may continue to operate. I find this argument to be without merit. First, Respondents posted bond for the monetary fines imposed by Judge Bates' Decision as required by S.C. Code Ann. Section 12-60-3370 (Supp. 1997). This bond was posted on October 27, 1997, well after October 8, 1997. Similarly, the Petition for Review was filed October 21, 1998. This Section requires that one must post bond or pay the amount ordered by the Administrative Law Judge prior to filing a petition for review in Circuit Court. Nowhere within this Section is there any reference to a stay of other penalties set forth within the Administrative Law Judge Decision. A court may not add words to a statute, but may only apply the language adopted by the Legislature. Banks v. Columbia Ry., Gas & Electric Co., 113 S.C. 99, 101 S.E. 285 (1919).

Penalties

7. The Department seeks the revocation and suspension mandated by statute and a $5,000.00 monetary penalty for each violation of the suspension. The Department's position is that Respondent McComas has committed twenty violations, one for each licensed Class III machine in the location under suspension on October 8, 1997. The Department also seeks a $20,000.00 monetary penalty against Golden Image Enterprises, Inc. ($5,000.00 for each of the four rooms under suspension that maintained Class III machines). Respondents argue these penalties are too severe. Section 12-21-2804(A) which provides for five machines at a "single place or premises" also requires, in part that:

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 revocation.

The use of the word "shall" rather than "may" establishes the legislative intent to require as a mandatory penalty, the revocation of the machine licenses at locations that do not meet the requirements of Section 12-21-2804(A). Similarly, the authority to issue a license is the authority to revoke that license. Feldman, supra. Here, the Department issued the license for the twenty machines at issue. As the license is not location specific, when used in an unlawful manner, the Department is mandated to revoke it pursuant to Section 12-21-2804(A). Therefore, the revocation of all twenty Class III licenses and a six-month suspension of licensing at the establishment is proper.

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.

S.C. Code Ann. Section 12-21-2804(F) (Supp. 1997) provides: "A person violating subsection (A) . . . of this section is subject to a fine of up to five thousand dollars to be imposed by the commission." Additionally, as stated above, Section 12-21-2804(A) sets forth 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 the revocation." (Emphasis added). Here, Respondents unlawfully placed twenty machines in operation at the location. I therefore find that a fine for each machine unlawfully placed in operation at the location is appropriate.

Furthermore, the Respondent has continued the operation of video poker at his location, despite Judge Bates' decision prohibiting such operations for a period of six months and despite notice from agent Williamson. The Respondent has thus disregarded all laws seeking to regulate him. Despite ample notice he continues to operate his video poker location. Such acts fly in the face of the very regulatory scheme adopted by the Legislature. Based on such blatant disregard for the law, I find a $2,500.00 monetary penalty for each machine Respondent McComas placed in the location in contravention of the law requiring suspension, to be appropriate.





ORDER

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

ORDERED that the licenses listed in Findings of Fact paragraph five are revoked, and a fine of $50,000.00 is imposed on Richard McComas.

IT IS FURTHER ORDERED that no permits shall be issued for any Class III machine to be operated in any of the above game rooms (Findings of Fact, paragraph 6) for a period of six months from the date of this Final Decision.



___________________________

Ralph King Anderson, III

Administrative Law Judge




Columbia, South Carolina

May 29, 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.


Brown Bldg.

 

 

 

 

 

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