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. Midnight Pass, L.P., et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Midnight Pass, L.P., Brandywine Realty, Inc., and Resort Investments, Inc., 2701 S. Kings Highway, Myrtle Beach, S.C.
 
DOCKET NUMBER:
98-ALJ-17-0366-CC

APPEARANCES:
Petitioner & Representative: South Carolina Department of Revenue, Jeffrey M. Nelson

Respondents & Representative: Midnight Pass, L.P., Brandywine Realty, Inc., and Resort Investments, Inc., Buck Cutts

Parties Present: All Parties Present
 

ORDERS:

FINAL ORDER AND DECISION

I. Statement of the Case


The South Carolina Department of Revenue (DOR) seeks an order revoking the 10 Class III video poker licenses of Midnight Pass, L.P., (Midnight Pass) for violation of S. C. Code Ann. § 12-21-2804(A) (Supp. 1997). Further, DOR asks that the order prohibit the use of any Class III video poker licenses at the offending locations for a period of 6 months from the date of the license revocation order. In addition, DOR seeks a fine of $5,000 against Resort Investments, Inc. (Resort Investments) and a $5,000 fine against Brandywine Realty, Inc., (Brandywine Realty) as the location operators. DOR also seeks a fine of $5,000 against Midnight Pass as the machine owner. Midnight Pass, Resort Investments, and Brandywine Realty oppose DOR's position and assert no violation occurred.

Disagreement over whether a violation occurred places jurisdiction in the Administrative Law Judge Division (ALJD) to hold a contested case hearing. S.C. Code Ann. §§ 12-60-1310, 12-60-1320,

1-23-600 (Supp. 1997). The hearing to decide this matter was held on the merits on September 15, 1998, at the Georgetown County Courthouse, Georgetown, South Carolina. Based upon the evidence and the arguments presented by the parties, the licenses for the ten machines of Midnight Pass housed in the game rooms known as Resort Investments, Inc. (035253, 035252, 034932, 034933, 034773) and Brandywine Realty, Inc. (034929, 034928, 034774, 034771, 035254) are revoked. Further, beginning with the date of this order, a six month prohibition on the use of those ten machines is imposed. Finally, the following fines are imposed: $2,000 on Midnight Pass, $4,000 on Resort Investments, and $4,000 on Brandywine Realty.

II. Issues


1. Did Midnight Pass, Resort Investments, or Brandywine Realty violate the single place or premises requirement of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1997) by failing to have at least one separate employee on the premises during business hours?

2. If a violation of the single place or premises requirement occurred, is DOR prevented from acting on that violation because of due process concerns since the citation

a. was issued six days after the violation was observed; and

b. the citation was issued solely on the basis that SLED Agents and

not actual customers played the machines.

3. If a violation of the single place or premises requirement occurred, are Midnight Pass, Resort Investments, and Brandywine Realty denied the use of any Class III machines at the location for a period of six months from the time the revocation becomes final, or are Midnight Pass, Resort Investments, and Brandywine Realty denied the privilege of using the ten machines already in place for a period of six months from the time the revocation becomes final?

4. If a violation of the single place or premises requirement occurred, is a revocation of Midnight Pass's licenses proper now after all of the licenses have expired?

5. If a violation of the single place or premises requirement occurred, is Midnight Pass, as the machine owner, not liable for a penalty due to having no involvement in the management affairs of the location?

6. If a violation of the single place or premises requirement occurred, what monetary penalty, if any, is proper for Midnight Pass and Resort Investments?











III. Analysis

A. Single Place or Premises: Employee On Premises


1. Positions of Parties

DOR asserts that two SLED Agents played the machines in Room #3, d/b/a Brandywine Realty and in Room #2, d/b/a Resort Investments. DOR's position is that during the time of the inspection no employees were present in either room. Midnight Pass, Resort Investments, and Brandywine Realty disagree and argue that an employee was assigned to each of the two rooms during the time period of the inspection and that such an assignment meets the requirement of separate employees "on the premises."

2. Findings of Fact

Based on the preponderance of the evidence, the following findings of fact are entered:

A. Background Facts

Midnight Pass holds several licenses for Class III video game machines, with ten of those licenses utilized at 2701 S. Kings Highway, Myrtle Beach, South Carolina. The building at the Myrtle Beach address contains a video game business in a mall-type structure housing eight video game rooms. Resort Investments and Brandywine Realty hold the requisite retail sales tax licenses for the video game rooms involved in this case. The game rooms involved here have the following names and house the following machines:

Resort Investments, Inc. 035253, 035252, 034932, 034933, 034773

Brandywine Realty, Inc. 034929, 034928, 034774, 034771, 035254

On February 6, 1997 SLED conducted an inspection of the video game businesses at the Myrtle Beach address. The inspection included walking into each of the disputed rooms, playing the machines in those rooms, listing the license numbers for machines located in the rooms, examining the business licenses, retail tax licenses, and utility meters for the location, and talking to an employee at the location.

As a result of the inspection, the SLED Agents issued a citation against Midnight Pass, Resort Investments, and Brandywine Realty for violation of S.C. Code Ann. § 12-21-2804(A) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1997) for operation of more than five machines in a single place or premises. Copies of the Violation Report were left with the employee on duty. In addition to revocation and a six month prohibition on the use of Class III machines, DOR also seeks a $5,000 fine against Midnight Pass as the owner and licensee of the machines and a $5,000 fine each against Resort Investments and Brandywine Realty as the location operators.

B. Disputed Facts

This dispute asks whether Midnight Pass, Resort Investments, and Brandywine Realty had at the time of the inspection at least one separate employee on the premises of each of the game rooms during business hours. While disputed, I find the evidence establishes that at the time of the inspection, no employee was within the four walls comprising game room 2 or game room 3 operated as Resort Investments and Brandywine Realty respectively.

At the February 6, 1997 inspection, two undercover SLED Agents entered the location at 2701 S. Kings Highway, Myrtle Beach, South Carolina and found eight game rooms housing Class III machines. While some of the game rooms had their entrance doors closed and were not available for play, two rooms, game room 2 and game room 3, were open for play. The rooms had lights on, doors open, and operational machines inside the rooms. No chain or sign barred entrance to game room 2 and game room 3.

On the day of the inspection, eleven employees were scheduled for work that day. No fewer than six of those employees were at the to 2701 S. Kings Highway location on the afternoon of the SLED Agents' inspection. When the inspection began, one SLED Agent entered game room # 2, while the second agent entered game room #3. Game room #2 was empty of any players when the agent entered and it remained so for the entire time the agent was in the room. The agent played blackjack on the machines for approximately forty minutes.

During the forty minute period, an employee of the location entered and left the room at least twice. Each time the employee remained in the room for only a few minutes. Thus, during the forty minutes the agent was in the room, no employee was within the four walls of the room for the vast majority of the time. Rather, numerous employees were in other locations and were predominately in a common area.

The SLED Agent in game room #3 also entered a room that was empty of customers. Upon entering, the SLED Agent played the machines for approximately forty minutes. During that period, an employee of the location entered the room to ask if she could be of any assistance. Upon receiving an answer of "no," the employee left the room while the agent continued to play the machines. Thus, as was the case with game room #2, no employee was in game room for the vast majority of the forty minutes the SLED Agent played the machines.

3. Conclusions of Law

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

A. Statutory and Regulatory Requirements for Single Place or Premises

For machines authorized under § 12-21-2720(A)(3), i.e. Class III machines, no person may maintain licenses or permits for more than five Class III machines at a single place or premises. S.C. Code Ann. § 12-21-2804 (Supp. 1997). While the statute does not explain what constitutes a single place or premises, a definition is supplied by Regulation 117-190.

Regulation 117-190 concentrates its analysis of a single place or premises by examining the physical characteristics of the structure enclosing the Class III machines and gives particular attention to exterior walls surrounding two or more video game areas. If at least two interior structures exist (i.e., each having a proper four wall configuration) and if Class III video games are located within each interior structure, then each interior structure is a video game area. Under such circumstances, the inquiry becomes whether each video game area is a single place or premises allowing five machines within each area.

A decision on whether each video game area is a single place or premises is reached by a facts and circumstances methodology imposed by Regs. 117-190. Under the regulation, DOR "must review all the facts and circumstances to determine if each area in reality constitutes a single place or premise for video game machines." While a facts and circumstances review is normally very general, the regulation requires the existence of at least four specific criteria. Indeed, a failure to meet any one of these criteria results in the video game area not being a separate place or premises. The four criteria are: (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?

B. Law Addressing Employee on the Premises

DOR asserts that two game rooms at the Myrtle Beach location were without a separate employee on the premises as required by Regs. 117-190. However, in deciding this issue, a difference of opinion exists on whether the employee must be within the four walls of the area in question in order to meet the "on the premises" requirement.

One view is that an employee is not considered to be "on the premises" when the employee is working outside the game room and the Class III video game machines are operational and accessible to customers; i.e., an employee must be present in the room. (The four-walls position.) S.C. Dep't of Revenue and Taxation v. Mickey Stacks, 95-ALJ-17-0742-CC (March 8, 1996). A contrary view is that the requirement is met even if the employee is outside the four walls so long as the employee's physical position enables the employee to observe the room and the employee is performing his job functions at the employee's location. (The within-view-of-the-four-walls position). South Carolina Department of Revenue v. Great Games, Inc., Docket No. 96-ALJ-17-0204-CC, (January 22, 1997). In a similar vein, a view exists that an employee's absence from the room is permissible if the absence is for a short period and the absence is for a justifiable reason, e.g., personal physical needs. (The short-legitimate-absence position). DOR v. Ace Music Company of Spartanburg, Inc., 97-ALJ-17-0309-CC (October 19, 1997).





I agree with the four-walls position and respectfully disagree with both the within-view-of-the-four-walls position and the short-legitimate-absence position. While at first blush it may seem reasonable to provide exceptions to the four-walls rule, closer analysis dictates otherwise.

First, relying upon the rules of statutory construction to justify exceptions to the plain language is unwarranted. The language "on the premises" is not ambiguous and must be taken in its literal and ordinary meaning. Lail v. Richland Wrecking Company, Inc., 280 S.C. 532, 313 S.E.2d 342 (Ct. App. 1984). To employ the rules of statutory construction to find that "on the premises" allows an employee to be "away from the premises" violates the principle that the rules of statutory construction are provided to remove doubt but never to create doubt. See 73 Am Jur 2d Statutes § 146, citing Englewood Water Dist. v. Tate, 334 So 2d 626 (Fla. App. 1976).

Here, the language of the statute and the regulation is clear. The statute and regulation allow no more than five machines in a single place or premises. Where, as is the case in this matter, at least two interior structures exist with machines inside those structures, each interior structure is a "video game area." None of the video game areas can acquire the status of a separate single place or premises unless an employee is "on the premises during business hours." The premises, upon which the employee must be "on," is the space identified as the "video game area." An employee cannot be on the premises of an identified space if the employee is physically someplace else. Accordingly, once the employee physically leaves the space of the video game area, the employee is no longer "on the premises."

Second, a court can not seek ways to rewrite statutes or regulations. To depart from the plainly expressed meaning causes the tribunal to legislate rather than interpret since "[t]he responsibility for the justice or wisdom of legislation rests with the Legislature, and it is the province of the courts to construe, not to make, the laws." Creech v. South Carolina Pub. Serv. Auth., 200 S.C. 127, 146, 20 S.E.2d 645, 652 (1942) (superseded on other grounds by S.C. Code Ann. § 5-7-30). In short, an ALJ cannot add conditions to the "on the premises" language of the regulation in an effort to provide exceptions that seek to improve upon what the General Assembly has plainly promulgated.

Finally, the purpose of the regulation under review dictates a holding that "on the premises" means exactly what it says. The purpose of the regulation is to provide a high degree of certainty to defining a separate place or premises. The very reason for the promulgation is that no statutory definition was provided.

In accordance with the purpose sought, the regulation adopts site specific criteria. Indeed, the regulation counts walls, limits openings in the walls, prevents access from one area to another, and even details that the walls must be one-hour fire walls. Given the regulations's site specific analysis, the most consistent view is that the plain language of "on the premises" limits the employee to the physical space of the four walls. On the contrary, inconsistency with the regulation results if "on the premises" requires examining whether the employee's line of sight covers more than one area or whether the reason the employee is away is a proper reason. In short, the regulation is site specific and requires that "on the premises" be within the four walls of the area under review.

C. Law Applied to Facts

In proving a violation, DOR bears the burden of proving that no employee was on the premises. See 2 Am. Jur. 2d Administrative Law § 360 (1994) (burden of proof generally rests with the party who asserts the affirmative of an issue). Under the facts of this case, DOR has met that burden.

Here, Midnight Pass holds ten licenses for Class III video game machines in a video gaming business in a mall-type structure containing eight video gaming rooms located at 2701 S. Kings Highway, Myrtle Beach, South Carolina. At the time of the SLED Agent inspection, no employee was within the four walls of game room #2 or game room #3. Rather, employees entered the rooms only briefly and almost immediately left. Accordingly, a violation of S.C. Code Ann. § 12-21-2804(A) occurred on February 6, 1997 at the video gaming businesses located at 2701 S. Kings Highway, Myrtle Beach, South Carolina.

B. Due Process


1. Positions of Parties

Midnight Pass, Resort Investments, and Brandywine Realty argue their due process rights are violated by DOR's citation since it was not issued until six days after the observation of the violation. Further, they argue due process is violated by SLED issuing a citation resulting from a game room having no employee on the premises when the room was empty of any customers at the time of the inspection except for play by undercover SLED Agents.

DOR asserts no due process concerns are present. First, notice of the violation was given at the time of the inspection and only the written citation was delayed by six days. Second, SLED Agents violate no due process rights by operating in an undercover capacity to act as customers playing machines in game rooms.

2. Findings of Fact

Based on the preponderance of the evidence, the following findings of fact are entered:

At the February 6, 1997 inspection, two undercover SLED Agents entered the location at 2701 S. Kings Highway, Myrtle Beach, South Carolina and they found eight game rooms housing Class III machines. They played the machines in two of the rooms. The rooms were open, the lights were on, and the machines were operational. No one attempted to stop the agents and no one asked the agents to leave. Upon concluding their inspection on February 6, 1997, the two SLED Agents identified themselves to an employee at the location and they explained that a violation had occurred since the two game rooms did not have an employee on the premises during business hours.

Oral, but not written notice of the violation was given on February 6, 1997. However, employees at the location promptly notified upper management that the SLED Agents had made an inspection. Subsequently, on February 12, 1997, one of the SLED Agents returned and left a written citation explaining that a violation had occurred on February 6, 1997, since on that date the two game rooms failed to have employees on the premises during business hours.

3. Conclusions of Law

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

The due process issue here is whether DOR is prevented from acting on a violation due to the issuance of a citation six days beyond the date the violation occurred. A second due process issue is whether the citation is valid since it was issued solely on the basis that the machines were played by undercover SLED Agents and not customers. I conclude no due process violation results from either the delay or the undercover Agents playing the machines.

Due process requires the opportunity to be heard "at a meaningful time and in a meaningful manner." Armstrong v. Manzo, 380 U.S. 545, 552, 85 S.Ct. 1187, 1191, 14 L.Ed.2d 62 (1965). However, the extent of the process that is due is not a fixed standard, but rather it must be determined by examining the importance of the interest involved and the circumstances under which the deprivation may occur. Walters v. National Ass'n of Radiation Survivors, 473 U.S. 305, 105 S.Ct. 3180, 87 L.Ed.2d 220 (1985); South Carolina National Bank, Inc. v. Central Carolina Livestock Market, 289 S.C. 309, 345 S.E.2d 485 (1986).

1. Delay In Issuing Administrative Citation

The due process interest involved here is that of receiving adequate notice of the violation so as to allow the presentation of a proper defense. Here the notice was adequate given the circumstances surrounding the violation.

Certainly, in applying the flexible standard of due process, a delay in reaching a final administrative determination of a matter can lead to a deprivation of due process if the basis for the delay is unreasonable when compared to the prejudice caused by the delay. See Matter of O'Keefe v. Murphy, 38 N.Y.2d 563, 568, 381 N.Y.S.2d 821, 345 N.E.2d 292 (1976) ("[W]henever a delay in an administrative adjudication significantly or deliberately interferes with a party's capacity to prepare or to present his case, the right to due process has been violated."); Will v. Department of Health & Social Services, 44 Wis.2d 507, 519, 171 N.W.2d 378, 384 (1969) ("Failure of an administrative agency to schedule and hold required review hearings can relate to a violation of due process . . .").

In this instance, the delay created no violation of due process since it did not interfere with to the parties' ability to present their case. First, the delay was only six days. In such a short period, no significant prejudice occurred as to loss of witnesses or loss of records. Indeed, records of employment were available to substantiate the identification of employees working on the date of the inspection. Second, the evidence establishes that the SLED Agents notified the location operators on February 6, 1997 that a violation had occurred. In fact, the testimony establishes that employees promptly notified upper management of the SLED Agents' inspection. Thus, neither surprise nor significant prejudice resulted. Accordingly, the six day delay is not a violation of due process.

2. Use of Undercover Agents

The challenge to SLED's use of undercover agents focuses on whether it violates "fundamental fairness, shocking to the universal sense of justice." United States v Russell, 411 US 423, 36 L Ed 2d 366, 93 S Ct 1637 (1973). When an official's manner of carrying out an enforcement action is asserted to be in violation of due process, the test is whether the official's conduct is so egregious as to be arbitrary in the constitutional sense. County of Sacramento v. Lewis, 140 L.Ed.2d 1043, 66 USLW 4407 (May 26, 1998). I find no violation of due process in the instant case.

Establishing proof of conduct that equates to being outrageous requires demonstrating an extraordinary level of inappropriate behavior by the investigating agent. Even in a criminal matter with more serious ramifications resulting to a defendant, the challenger has a high burden.

The level of 'outrageousness' needed to prove . . . a due process violation, however, is quite high. . . . This court has never held law enforcement undercover conduct to have reached that level of outrageousness. . . . [W]e have stressed that '[g]overnment agents may go a long way in concert with the individual in question without violating due process.'

Gunderson v. Schlueter, 904 F.2d 407, 410-11 (8th Cir.1990).

Here, the mere use of an undercover agent to conduct an investigation for potential infractions of the Video Game Machines Act is not shocking and it presents no due process violation. In their undercover capacity, the SLED Agents merely played the machines. The rooms were open, the lights were on, and the machines were operational. No one attempted to stop the agents and no one asked the agents to leave. In short, no conduct was outrageous. Thus, no due process violation has been proven.

C. Six Month Prohibition


1. Positions of Parties

DOR asserts that Section 12-21-2804(A) requires a prohibition on the use of any Class III machines at the location for a period of six months from the time the revocation becomes final. Midnight Pass, Resort Investments, and Brandywine Realty argue that if a revocation is applied, no six month penalty should be imposed on the location, but only on the machines in use at the time of the violation.



2. Findings of Fact

Based on the preponderance of the evidence, the following findings of fact are entered:

Midnight Pass placed ten Class III machines in the two game rooms in dispute. At the time of the inspection on February 6, 1997, Resort Investments and Brandywine Realty operated the two game rooms and held retail licenses issued by DOR pursuant to Chapter 36 of Title 12 of the S.C. Code. At the time of the inspection, each game room was a licensed establishment.

Judicial notice is taken of the published decisions of the Administrative Law Judge Division and of the numerous instances in which DOR has argued before the Division that S.C. Code Ann. § 12-21-2804(A) imposes a six month prohibition on the use of any Class III machine at the offending location. However, judicial notice is also taken of the extensive opposition to DOR's view. In hearings before the Division, license holders routinely and repeatedly object to DOR's position.

3. Conclusions of Law

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

A. Prohibition Applicable to Machines or to Location

1. Introduction

The following language of § 12-21-2804 is in issue:

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.

This language has produced two interpretations. DOR's interpretation is that once a license for a Class III machine in a location is revoked, the location is prohibited from having any Class III machines on its premises for a period of six months from the date of the revocation. This view is the "dead location" interpretation. A second interpretation is that once the location has a revocation of a Class III machine license, the machines within the establishment (but not the establishment itself) are prohibited from being re-licensed as Class III machines for a period of six months from the date of the revocation. This view is the "dead machines" interpretation. Considering the plain language of the statute and applying the legislative intent as gleaned from applicable factors, the six month prohibition applies to the machines involved and not to the location involved.

2. Legislative Intent

Courts do not legislate. Rather, when asked to interpret the meaning of a statute, the task is solely that of seeking to effectuate the legislature's intent. Laird v. Nationwide Ins. Co., 243 S.C. 388, 134 S.E.2d 206 (1964). In deciding legislative intent, the first and most basic inquiry is whether the language of the statute is plain and unambiguous and whether the statute conveys a clear and definite meaning. If the answer is yes, no occasion exists for employing rules of statutory interpretation, and the court has no right to look for or impose another meaning. Paschal v. State Election Comm'n, 317 S.C. 434, 454 S.E.2d 890 (1995).

However, where an ambiguity prevents the statute from conveying a clear and definite meaning, the court must find the legislative intent through statutory construction. See Abell v. Bell, 229 S.C. 1, 91 S.E.2d 548 (1956) ("But where the language of the statute gives rise to doubt or uncertainty as to the legislative intent, the search for that intent may range beyond the borders of the statute itself; for it must be gathered from a reading of the statute as a whole in the light of the circumstances and conditions existing at the time of its enactment.") An ambiguity arises when the meaning of the language is doubtful or provides "doubleness of meaning." Chapman v. Metropolitan Life Ins. Co., 172 S.C. 250, 173 S.E. 801, 803 (1934); see also Southeastern Fire Ins. Co. v. S.C. Tax Comm'n, 253 S.C. 407, 171 S.E.2d 355 (1969) (language is ambiguous when it is capable of being understood by reasonably well-informed persons in either of two or more senses.).

Here, I am not convinced that the language is devoid of a clear and definite meaning. A plain and unforced reading requires a dead machine result and does not support a dead location result. However, even if the statute creates an ambiguity, an inquiry into statutory construction still leads me to conclude that the legislature imposed a six month prohibition on the machines and not on the location.

a. Plain Meaning

The plain meaning of a statute is best determined by reading the statute as a whole so that phraseology of an isolated section is not controlling. City of Columbia v. Niagara Fire Insurance Company, 249 S.C. 388, 154 S.E.2d 674 (1967). When read as a whole, S.C. Code Ann. § 12-21-2804(A) states that DOR is required to "revoke the licenses of machines located in an establishment which fails to meet the requirements of [§ 12-21-2804]." Under that language, a failure to satisfy the single place or premises requirement causes a revocation of all of the machine licenses in the establishment that failed to meet the test. As a result of that violation, an establishment becomes filled with unlicensed machines.

In fact, that is precisely what has happened in this case. Midnight Pass' machines effectively became unlicensed, and those unlicensed machines were incapable of being lawfully operated until new licenses were issued. See S.C. Code Ann. § 12-21-2776 (Supp. 1997) (all machines must be licensed). This factual and legal background supplies the proper context for an unforced reading of the plain language of the six month prohibition.



Following the statutory language revoking the machine licenses at the offending establishment, the statute immediately and succinctly states "[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." In other words, the specific machines that lost their licenses due to the revocation are prohibited from receiving a new machine license until a six month period has elapsed.

When relying upon the plain meaning of words in a statute, the words must be applied without resorting to a subtle or forced construction to limit or expand the statute's operation. Stephen v. Avins Constr. Co., 324 S.C. 334, 478 S.E.2d 74 (Ct. App. 1996). The interpretation expressed above provides a plain, unforced reading that answers an obvious need raised by the revocation language. Obviously, to make the revocation meaningful, a fixed period is needed. Otherwise, the owner would be able to acquire a new license the same day as the revocation and begin operating the same machine almost immediately. In my view, the six month period simply tells the owner that the machine is dead for six months and serves to give teeth to the revocation of the machine license.(1)

In contrast to the plain reading of the language that supports the dead machine interpretation, a reading giving a dead location requires a forced construction. For example, to impose a six month limitation on the location requires reading additional language into the statute so that the statute states "no license may be issued for a machine TO BE PLACED in an establishment in which a license has been revoked for a period of six months from the date of the revocation." (Capitalized words added). Obviously, a court may not add words to a statute but can only apply the statutory language given by the General Assembly. Banks v. Columbia Ry., Gas & Electric Co., 113 S.C. 99, 101 S.E. 285 (1919).

Accordingly, § 12-21-2804(A) imposes a six month prohibition on the issuance of licenses for those Class III machines that were in an establishment at the time a license for a machine in that establishment was revoked. No prohibition is imposed on the location itself.

b. Statutory Construction

While I believe a plain reading requires a dead machine interpretation, even if resort to statutory construction is required, such an inquiry does not support a dead location view.

A commonly applied rule of statutory construction is that where the same words are used in an enactment more than once, it is presumed the words have the same meaning throughout unless a different meaning is necessary to avoid an absurd result. Busby v. State Farm Mut. Auto. Ins. Co., 280 S.C. 330, 312 S.E.2d 716 (Ct. App. 1984). Likewise, when the legislative body defines a term, the use of that term in the enactment must be interpreted as having the defined meaning. Windham v. Pace, 192 S.C. 271, 6 S.E.2d 270 (1939).

In the Video Game Machines Act (Act), Class III machines must be licensed under Article 19 before placement or operation on the premises of a "licensed establishment." S.C. Code Ann. § 12-21-2778 (Supp. 1997). The legislature defined "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." S.C. Code Ann. § 12-21-2772(4) (Supp. 1997). To impose a location penalty, the legislature could simply have stated the establishment may not be a licensed establishment for six months. No such statement was made.

Additionally, Article 20 imposes a further license beyond the establishment license required by Article 19. Specifically, Article 20 requires a location license since "[e]ach . . . 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."(2) S.C. Code Ann. § 12-21-2784 (Supp. 1997) (emphasis added). The location license of Article 20 is identified as an "establishment license for machine placement." S.C. Code Ann. § 12-21-2788 (Supp. 1997). In fact, DOR is required to revoke "an establishment license for machine placement" when the placement of machines does not meet "the provisions of Article 19 of this chapter and the [corresponding] rules and regulations promulgated by [DOR]." Id.; S.C. Code Ann. § 12-21-2786 (Supp. 1997). (3) Again, the General Assembly could have easily penalized the location by revoking the establishment license for machine placement. Finally, the location may not house Class III machines "unless the location is licensed pursuant to the provisions of Chapter 36 of Title 12." S.C. Code Ann. § 12-21-2703 (Supp. 1997). Accordingly, at least three areas of location or establishment licenses are available for revocation, but § 12-21-2804(A) chooses to revoke only "licenses of machines."

These statutes demonstrate that the General Assembly was cognizant of the difference between a license for a machine and a license involving an establishment or location. In section 12-21-2804(A), the General Assembly provided for the revocation of the licenses for the machines and made no mention of revocation of an establishment license.

A common sense reading shows a symmetry exists between the revocation and the six month prohibition on re-licensing the affected machines, and further, that the symmetry is broken by the dead location view. No symmetry results from revoking a machine license and then concluding the location is penalized for six months. Had the General Assembly meant to revoke the establishment or location license it could have easily done so by specifying the revocation of a specific establishment license. Accordingly, the normal rules of statutory construction support the dead machine interpretation.

c. Deference To Agency

DOR argues its position should be followed since it is the agency charged with administering the video games law. DOR believes the facts are well established that it has consistently applied its interpretation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997). Further, under such circumstances, DOR believes that its position is reasonable and should be accorded great deference. Finally, in deciding whether to deviate from DOR's position, DOR asserts compelling reasons must be established. In significant part, I disagree with DOR's analysis as it relates to the weight to be accorded that agency's interpretation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997).

i. Consistently Applied Position

No doubt exists that DOR has consistently applied its position. Judicial notice is taken of the published decisions of the Administrative Law Judge Division and of the numerous instances in which DOR has advanced its position in hearings before the Division. DOR has consistently viewed S.C. Code Ann. § 12-21-2804(A) as imposing a six month prohibition on the use of any Class III machine at the offending location.

However, judicial notice is also taken of the extensive opposition to DOR's view. In hearings before the Division, license holders routinely and repeatedly object to DOR's position. The validity of that position is now pending in the S.C. Supreme Court in the case of Gateway Enterprise, Inc., v. DOR. Thus, the position of DOR is not one which has found routine acceptance by the affected public. On the contrary, DOR's position is far from a settled view.

ii. Deference To DOR's Position

The issue in interpreting a statute is what did the legislature intend. Laird v. Nationwide Ins. Co., 243 S.C. 388, 134 S.E.2d 206 (1964). Depending upon the nature of the language under review, an agency's view may or may not be entitled to deference.

-- Plain Meaning

No deference to an agency's position is warranted where the language presents a clear meaning. Glens Falls Insurance Co. v. City of Columbia, 242 S.C. 237, 130 S.E.2d 573 (1963) (no occasion arises for considering an agency's position where the language of the statute is plain and unambiguous and conveys a clear and definite meaning). Further, of particular significance to this case, the clear and definite meaning will always be applied despite an agency's contrary but consistently followed position. Davidson v. Eastern Fire & Cas. Ins. Co., 245 S.C. 472, 141 S.E.2d 135 (1965) ("An uninsured motorist endorsement that contravenes the requirements of the statute is, to that extent, invalid, regardless of the Department's approval of it.").

Here, the statute in dispute is plain and unambiguous. The plain language of § 12-21-2804(A) imposes a six month prohibition on the issuance of licenses for those Class III machines that were in an establishment at the time a license for a machine in that establishment was revoked. Thus, having found that the plain meaning of the statute establishes legislative intent, no deference to DOR's position is required.

-- Ambiguous Meaning

However, even if an ambiguity were found in the statute, a resort to rules of construction supports the view that the revocation affects the machines but not the location. In examining the rules of statutory construction, deference to DOR's view is not a meaningful indicator of legislative intent when compared to other more significant indicators.

When required to apply the rules of construction, the construction of a statute by an agency charged with administering that statute is entitled to most respectful consideration. Stephenson Finance Co. v. South Carolina Tax Comm'n, 242 S.C. 98, 130 S.E.2d 72 (1963). More particularly, however, the degree of respect rises to one of "great weight" only if the agency position "has been acquiesced in by the [Legislature] for a long period of time." Etiwan Fertilizer Co. v. South Carolina Tax Comm'n, 217 S.C. 354, 60 S.E.2d 682 (1950).

Here, the Video Game Machines Act became effective July 1, 1993. Thus, even assuming DOR's position was announced, enforced or in some way made known to the Legislature from the first day the statute became effective, DOR's position is five years old. Such a time frame is far too short to amount to a showing of acquiescence "by the Legislature for a long period of time." Id. Hence, the short period does not show strong evidence of acquiescence by the Legislature and does not allow "great weight" to be accorded to DOR's position. Such is especially so where the agency position is challenged repeatedly by the affected public. At best, only respectful consideration is due.

The Legislature is presumed to have knowledge of its own laws. See Ingram v. Bearden, 212 S.C. 399, 47 S.E.2d 833 (1948)(a machine was definitely outlawed by prior statute and the General Assembly was deemed to be aware of that fact). Respectful consideration to DOR's position (which consideration relies upon a presumption that the Legislature has knowledge of and gives tacit approval to the agency's actions) pales in comparison to the Legislature's presumptive knowledge of its own laws. The Legislature intentionally created licensed establishments and created machine licenses. Further, the Legislature defined licensed establishments and demonstrated it clearly knew the difference between machine licenses and establishment licenses. Thus, reliance upon the Legislature's knowledge of its own laws is a far superior indicator of legislative intent than reliance upon the respectful consideration of DOR's position.

iii. Compelling Reasons

While others may exist, at least two compelling reasons warrant deviating from DOR's view. First, DOR's position is inconsistent with the plain meaning of the statute such that reliance upon DOR's view places far too much weight on an administrative interpretation. See Stone Mfg. Co. v. South Carolina Employment Sec. Comm'n, 219 S.C. 239, 64 S.E.2d 644 (1951) citing F. W. Woolworth Co. v. United States, 91 F.2d 973, 976 (2d. Cir. 1937) ("At most, administrative practice is a weight in the scale, to be considered, but not to be inevitably followed. * * * While we are of course bound to weigh seriously such rulings, they are never conclusive."). Second, a compelling reason to deviate from DOR's view is that following the position perpetuates an administrative error. Fennell v. South Carolina Tax Commission, 233 S.C. 43, 103 S.E.2d 424 (1958) (an interpretation presented by an administrative position is not so sacrosanct as to be beyond the correction of error; it need not perpetuate error). In short, sufficient and compelling reasons exist to deviate from DOR's position.

D. Expired Licenses


1. Positions of Parties

Midnight Pass argues that no six month prohibition can be imposed on the ten machines since the six month prohibition is triggered only when a license is revoked. Midnight Pass reasons that all ten licenses have already expired, and therefore, they cannot be revoked. DOR asserts that the six month prohibition is not defeated by expiration of a license. Rather, it argues that the six month prohibition "attached" at the time the violation occurred.

2. Findings of Fact

Based on the preponderance of the evidence, the following findings of fact are entered:

The violation of S.C. Code Ann. § 12-21-2804 occurred on February 6, 1997. On that date all ten licenses for the ten machines in issue were unexpired. However, all ten of Midnight Pass' machine licenses expired in May of 1997. Thus, at the time of hearing, none of the disputed licenses remained in operation.

3. Conclusions of Law

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

Midnight Pass argues no six month prohibition can be imposed on the re-licensing of the ten machines since the corresponding licenses expired prior to the final hearing in this case. Midnight Pass reasons that the six month prohibition on the use of Class III machines cannot be imposed unless a revocation is first imposed, and that an expired license cannot be revoked since nothing exists to revoke.

I disagree. The conduct for which DOR seeks license revocation occurred while the affected licenses were still in effect. All statutorily mandated consequences of such conduct attach regardless of the natural life of the license. To read the statute as suggested by Midnight Pass renders the six month prohibition meaningless. If all that is required to avoid the six month prohibition is a showing that the license no longer exists (i.e. nothing remains to be revoked), one could easily avoid the six month prohibition by merely turning in the license before the decision on the merits of a violation was adjudicated. This interpretation is inconsistent with the intent of the General Assembly. See Kiriakides v. United Artists Communications, 312 S.C. 271, 440 S.E.2d 364 (1994)(the courts will reject an interpretation that would lead to a result so plainly absurd that it could not possibly have been intended by the legislature or would defeat the plain legislative intention).

Here, the plain wording of the statute indicates that the General Assembly intended the six month prohibition to flow as a natural consequence of a proven violation, and it did not intend to create a prohibition so easily defeated as that suggested by Midnight Pass.(4)

Accordingly, the expiration of the licenses on the ten machines owned by Midnight Pass prevents neither the revocation of the licenses nor the imposition of a six month prohibition on the use of those machines.

E. Applicability of Penalty to Machine Owner


1. Positions of Parties

DOR asserts that a fine of $ 5,000 is due from Midnight Pass as the holder of the machine licenses. Midnight Pass argues that it is not liable for a penalty since, as a machine owner, it had no part in violating the single place or premises requirement. In response to Midnight Pass' argument, DOR asserts that a violation of S.C. Code Ann. § 12-21-2804 has been established and that a fine is imposed on the license holder. Further, the fine is not dependent upon a showing that knowledge of the violation was present in Midnight Pass.

2. Findings of Fact

Based on the preponderance of the evidence, the following findings of fact are entered:

No dispute exists that Midnight Pass has no management control of any employee working for the game rooms involved in this case. Rather, the day-to-day management control over employees at the location was totally outside Midnight Pass and was in Resort Investments and Brandywine Realty. However, despite a lack of daily control, Midnight Pass regularly repaired the machines, serviced the machines on a weekly basis, and shared profits and losses with the location operator. Accordingly, actual maintenance and control of the licenses to the Class III machines are in Midnight Pass.

3. Conclusions of Law

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

A violation of section 12-21-2804(A) results in the imposition of a fine. S.C. Code Ann. § 12-21-2804(F) (Supp. 1997). The pertinent question is: a fine against whom?

A. Persons Liable

The person liable for the fine is the "person violating" section 12-21-2804(A). S.C. Code Ann. § 12-21-2804(F) (Supp. 1997). For periods beginning after July 1, 1994 (obviously the case in this matter), the person violating § 12-21-2804(A) is the one who "maintain[s] any licenses or permits for more than five machines authorized under Section 12-21-2720(A)(3) at a single place or premises."(5) S.C. Code Ann. § 12-21-2804(A) (Supp. 1997). Persons maintain licenses for more than five machines if they "continue or preserve in or with; to carry on." Black's Law Dictionary 953 (6th ed. 1990); see Merriam-Webster OnLine Dictionary, 1998 ("maintain" means "to continue or persevere in: carry on, keep up" or "to support or provide for.").(6)

Who carries on the license in this case? Midnight Pass, Resort Investments, and Brandywine Realty. All three maintained the licenses for the machines owned by Midnight Pass. The joint "maintaining" is evident from the parties' agreement to share in the profits or losses produced by the license. Indeed, that sharing is established by an agreement on the respective duties in relation to the license. Midnight Pass maintains and carries on the licenses by repairing the machines, making sure the license is on a properly functioning machine, and, not insignificantly, provides the very license needed to operate the machines.

Likewise, Resort Investments and Brandywine Realty maintain the licenses as well. Resort Investments and Brandywine Realty share in the maintenance of the licenses since they receive profits and losses from the license and provide all of the operational environment for the machines: housing, seating and equipment for customers, required employees, adequate parking, etc. Duties performed by Resort Investments and Brandywine Realty are ones that Midnight Pass would otherwise have had to perform itself; however, Midnight Pass chose instead to have Resort Investments and Brandywine Realty perform these tasks. Accordingly, Midnight Pass, Resort Investments, and Brandywine Realty maintain the licenses on the Class III machines. As such, Midnight Pass, as one of the maintainers of the licenses, is liable for a fine. S.C. Code Ann. § 12-21-2804(F) (Supp. 1997).

B. Lack of Knowledge

For two reasons, the fact that Midnight Pass had no day-to-day control over the employees absent from the premises of a game room does not remove the imposition of a fine. First, the General Assembly did not impose a duty of finding the violator had any degree of intention such as "knowingly," "intentionally" or "willfully." Instead of an intention to violate the law, all the statute demands is proof that a license is being maintained for more than five machines at a single place or premises. In fact, the General Assembly has demonstrated that when it wanted to impose guilty knowledge as a part of a violation it did so by specific language. See S.C. Code Ann. §12-21-2804(F) (Supp. 1997) (upon a determination that a violation is wilful, criminal prosecution may be pursued). Second, since the statutory language does not impose knowledge as a requirement, none can be added. Accordingly, lack of knowledge or intention does not halt the imposition of a fine against Midnight Pass.

F. Amount of Penalty


1. Positions of Parties

DOR asserts that a fine of $ 5,000 is due from Midnight Pass, as the holder of the machine licenses, and that $5,000 each is due from Resort Investments and Brandywine Realty as the location operators. Midnight Pass, Resort Investments, and Brandywine Realty argue that the penalty is too severe.



2. Findings of Fact

Based on the preponderance of the evidence, the following findings of fact are entered:

Both Resort Investments and Brandywine Realty have a current policy to assign an employee to a single game room, with that employee required to close the game room upon leaving its four walls. However, employee actions on February 6, 1997 were not consistent with the stated policy since at the time of inspection no employee was present in the two game rooms in dispute.

Midnight Pass places the machines with Resort Investments and Brandywine Realty and all share in the profits of the machines. Under this arrangement, management of the game rooms in dispute is in Resort Investments and Brandywine Realty. However, actual maintenance and control of the Class III machines is in Midnight Pass; as to the operation of the machines, Resort Investments and Brandywine Realty use the game rooms for their retail businesses and Midnight Pass uses the game rooms for its ownership of machines.

3. Conclusions of Law

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

A violation of section 12-21-2804(A) results in the imposition of a fine. S.C. Code Ann. § 12-21-2804(F) (Supp. 1997). In this case, the persons liable for the fine are Midnight Pass, Resort Investments, and Brandywine Realty.

Where the General Assembly authorizes a range for an administratively-imposed penalty, the administrative adjudicator sitting as the fact-finder may set the amount of the penalty after a hearing on the dispute. Walker v. South Carolina ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633 (1991). When penalty disputes are part of the factual issues for decision, the fact-finder must receive evidence and make a determination on all such factual disputes arising from the contested case. S.C. Code Ann. § 1-23-350 (Rev. 1986).

Here, the evidence establishes that Resort Investments, Brandywine Realty, and Midnight Pass have violated section 12-21-2804(A). Under all of the circumstances, Midnight Pass, having less control over the operation of the location, is liable for a fine of $2,000, and Resort Investments and Brandywine Realty are each liable for a fine of $ 4,000.

IV. Order


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

The licenses for the ten machines of Midnight Pass housed in the game rooms known as Resort Investments, Inc. (035253, 035252, 034932, 034933, 034773) and Brandywine Realty, Inc. (034929, 034928, 034774, 034771, 035254) are revoked; a six month prohibition on the use of those ten machines is imposed, beginning with the date of this order; a $2,000 fine is imposed of on Midnight Pass, a $4,000 fine on Resort Investments, and a $4,000 fine on Brandywine Realty.

AND IT IS SO ORDERED.

RAY N. STEVENS

Administrative Law Judge

Dated: September 23, 1998

Columbia, South Carolina

1. The dead machine view allows purchasing of new machines, purchasing new licenses and beginning operation almost immediately at the same location. However, the machine revocation penalty is meaningful since the cost includes new licenses and new machines, and it leaves old machines worthless for six months. The General Assembly provided this result. A court should not provide a "better" penalty since such matters must rest solely within the wisdom of the General Assembly. Creech v. South Carolina Pub. Serv. Auth., 200 S.C. 127, 20 S.E.2d 645 (1942).

2. The additional license of Article 20 also applies to other entities; machine manufacturers, distributors, and operators must obtain the Article 20 license.

3. The "establishment license for machine placement" as required by Article 20 is not the retail sales tax license of S.C. Code Ann. § 12-36-510 (Supp. 1997) required by S.C. Code Ann. § 12-21-2703 (Supp. 1997). The name "retail license" is well known by the legislature. Had the legislature meant "retail license" in § 12-21-2788 it would have used that name rather than the unusual name of "establishment license for machine placement." Rather, the Article 20 "establishment license" is the license required (albeit currently postponed in part until December 31, 1998) to assure Class III machines meet the technology demands of §§ 12-21-2782 and 12-21-2783. S.C. Code Ann. § 12-21-2784 (Supp. 1997).

4. Other jurisdictions have also held that the expiration of a license does not moot the revocation of that license when revocation proceedings are timely commenced. See Alpern v. License Appeal Commission of City of Chicago, 38 Ill.App.3d 565, 348 N.E.2d 271 (1976); People v. Standard Accident Insurance Company, 17 A.D.2d 1, 230 N.Y.S.2d 145 (1962); Wallman v. New York State Athletic Commission, 20 Misc.2d 398, 194 N.Y.S.2d 213 (1959); Valley Lodge v. Pennsylvania Liquor Control Board, 163 Pa.Super. 395, 62 A.2d 68 (1948); Vitali v. Smith, 105 R.I. 760, 254 A.2d 766 (1969); see also 51 Am.Jur.2d License and Permits § 83 (1970).

5. The actual language of the statute is that DOR may not "authorize to be maintained" any licenses or permits for more than five Class III machines at a single place or premises. Given such language, the clear intent is that if DOR is not authorized to allow one to maintain more than five licenses, then the person who improperly maintains the excess number of licenses is the person who violates the statute.

6. In arriving at the meaning of words used in a statute, the primary rule is to ascertain and give effect to the legislature's intent or purpose as expressed in the statute. Green v. Thornton, 265 S.C. 436, 219 S.E.2d 827 (1975). The legislature's intent should be ascertained primarily from the plain language of the statute. 82 C.J.S. Statutes § 322 (b), at 571 (1953). Unless the statute requires a different interpretation, the words used must be given their ordinary meaning. Hughes v. Edwards, 265 S.C. 529, 220 S.E.2d 231 (1975).


Brown Bldg.

 

 

 

 

 

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