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SC Administrative Law Court Decisions

CAPTION:
SCDOR vs. Summit Social Club d/b/a Game Time Riptide, et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Summit Social Club d/b/a Game Time Riptide and James D. Hodges, d/b/a Cue Time
 
DOCKET NUMBER:
98-ALJ-17-0403-CC

APPEARANCES:
For the Petitioner: Nicholas P. Sipe, Esquire

For the Respondent: Zoe Sanders Nettles, Esquire
 

ORDERS:

FINAL ORDER AND 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. 1998). 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. 1998) (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 September 17, 1998.

DISCUSSION

The Department seeks a $30,000 fine for the alleged violations of S.C. Code Ann. § 12-21-2804(A) ($5,000 for each single place and premises against each Respondent), revocation of the fifteen (15) video game machine licenses located at each single place and premises and preclusion of the issuance of video game machine licenses at each single place and premises for six (6) months from the date of license revocation.

Respondents assert that no violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) and 27 S.C. Code Regs. 117 § 190 (Supp. 1997) occurred because the video poker businesses were for all practical purposes separated properly and that the only violation that occurred was of S.C. Code 12-21-2703, failure to have a retail license. Respondents further assert that the $30,000 fine sought by the Department for the alleged violations is excessive and that, even if a violation occurred, Section 12-21-2804(A) does not authorize revocation of video poker machine licenses. Respondents assert that if a fine is required only one Respondent should be fined as all Respondents are essentially one in the same. Respondents further challenged that validity of the portion of Section 12-21-2804(A) which permits revocation of licenses arguing that it is unconstitutionally vague.

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. Legal notice of the time, date, place, and subject matter of the hearing was given to the Petitioner and the Respondents.

2. On December 5, 1997, the Department's agents conducted an inspection at Gametime Riptide and Summit Social Club located at 5 Webb Road, Greenville, South Carolina. Summit Social Club is a wholly owned corporation of Mr. James D. Hodges. Therefore, Mr. Hodges and Summit Social Club for purposes of this case are essentially one in the same.

3. The Summit Social Club is operated as a private club under the name of Game Time Riptide (Game Time). Game Time is an upscale restaurant/sports bar. Within the club are four game rooms containing five machines each that were licensed under the provisions of S. C. Code Ann. § 12-21-2720(A)(3) (Supp. 1998). All four game rooms opened into the restaurant/sports bar area. At the time of the inspection, all of the game rooms were open, and the machines in these rooms were on and operational. In fact, customers were present in all the rooms. In addition to the four video poker single place and premises, there are eighteen pool tables, a full service kitchen and restaurant that serves lunch and dinner, many other kinds of video games such as golf simulators, a dance floor and band stage, and several large screen televisions in the club.

4. The day before Respondent opened Game Time and the single place and premises located therein, Respondent went to the Department of Revenue in Greenville and explained to the Department that he was opening Game Time which would have twenty machines in it. He asked the Department to give him everything he needed. Respondent spent approximately $52,000 on licenses for the video poker machines. The Department assisted Respondent with completing the forms and placed everything in one envelope. Respondent assumed that the Department had given him everything he needed. However, retail licenses for single place and premises 2, 3 and 4 were not in the envelope.

Therefore, on December 5, 1997, Game Time Riptide had one retail license. None of the game rooms had a sales tax license issued under the provisions of Chapter 36 of Title 12 of the S. C. Code Ann. However, since the restaurant/sports bar had a retail license, only three of the four game rooms were cited for failing to qualify as a single place or premises for not having a sales tax license.

5. The Class III machines and licenses in the above game rooms were owned by Respondent James D. Hodges. The following Class III video game machine licenses were located in the respective game rooms:

Room 2 Room 3 Room 4

3927481 3927487 3927491

3927482 3927490 3927492

3927483 3927489 3927493

3927484 3927488 3927480

3927485 3927486 3927479

6. Initially, Respondents were charged with three violations of S.C. Code § 12-21-2703, failure to have a retail license. Agent Asbill informed Respondent that the retail license violation was a minor violation carrying a $50.00 fine and instructed Respondent to obtain three retail licenses as soon as possible. Respondent obtained three retail licenses on December 8, 1997, and placed one in single place and premises 2, 3 and 4. However, on March 19, 1998, approximately four months after the initial inspection the same Department that assisted Respondent with completing the forms wrote a second violation for rooms 2, 3 and 4 finding that § 12-21-2804(A) had been violated for failure to have a retail license in each single place and premises.

7. The Department seeks a $30,000 fine for the alleged violations of S.C. Code Ann. § 12-21-2804(A) ($5,000 for each single place and premises against each Respondent) and revocation of the fifteen (15) Class III video game machine licenses located at each single place and premises. Finally, the Department seeks that the Court order the Respondents to discontinue the use or operation of any Class III coin-operated devices at the above four locations for a period of six (6) months after the entry of an Order revoking the licenses.

I find that the Respondents were in violation of S.C. Code Ann. §12-21-2804(A) (Sup. 1998) by failing to have retail sales tax licenses in room 2, 3, and 4 as required by 23 S. C. Code Reg. 117-190 (Supp. 1998). However, the Department produced no evidence that the respondent has previously violated the Video Games Machine Act. Moreover, the evidence does not establish that Respondent purposely violated the Act. In fact, an additional three retail licenses would have cost merely $150.00 which is a small amount compared to the millions invested by Respondent in Game Time Riptide.

Since, James D. Hodges and Summit Social Club Inc. are essentially the same for purposes of this case, penalizing both would be excessive. I, therefore, find that the appropriate penalty in this case is a Four Hundred and Fifty ($450.00) Dollar fine against the Respondent for the above violations.

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. 1998) and S.C. Code Ann. § 1-23-320 (Supp. 1998).

2. The Department contends that the Respondents violated S.C. Code Ann. § 12-21-2804(A)(Supp. 1998). 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. 1998).

4. S.C. Code Ann. § 12-21-2804(A) (Supp.1998) 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 Commission, et al, 26 S.E.2d 22 (1943).

Six Month Prohibition

5. The Department contends that no Class III video gaming machines should be allowed to operate at single place and premises 2, 3 and 4 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 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. 1998).(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.

Penalty Discretion

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); Pa. Commw., 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. 1998). 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 to make the final decisions on all the issues, including the appropriate penalty.

Constitutionality

7. Respondents challenged that validity of the portion of Section 12-21-2804(A) which permits revocation of licenses arguing that it is unconstitutionally vague. However, I do not find that the statute is unconstitutionally vague. "The constitutional standard for vagueness is the practical criterion of fair notice to those to whom the law applies." Toussaint v. State Bd. of Medical Examiners, 303 S.C. 316, 400 S.E.2d 488 (1991). Similarly, in City of Beaufort v. Baker, 315 S.C. 146, 432 S.E.2d 470 (1993), the Court stated:

In determining whether a statute is vague, we have held: The concept of vagueness or indefiniteness rests on the constitutional principle that procedural due process requires fair notice and proper standards for adjudication. The primary issues involved are whether the provisions of a penal statute are sufficiently definite to give reasonable notice of the prohibited conduct to those who wish to avoid its penalties and to apprise judge and jury of standards for the determination of guilt. If the statute is so obscure that men of common intelligence must necessarily guess at its meaning and differ as to its applicability, it is unconstitutional.

S.C. Code Ann. § 2804 (A) and the Regulation 117-190 placed Respondent upon fair notice of the need to obtain separate retail licenses for each "single place or premises."

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 Four Hundred and Fifty ($450.00) Dollar is imposed upon James D. Hodges.

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

___________________________

Ralph King Anderson, III

Administrative Law Judge

Columbia, South Carolina

January 28, 1999

1. S.C. Code Ann. § 12-21-2804(B) (Supp. 1998) forbids the advertisement of the availability of video gaming machines.

2. S.C. Code Ann. § 12-21-2784 (Supp. 1998) 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. 1998) 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.


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