ORDERS:
FINAL ORDER AND DECISION
STATEMENT OF THE 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 October 22, 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. On November 25, 1997, SLED Special Agent Tanner conducted an undercover
inspection of three video gaming establishments located in the "Treasure Chest" at 2224 A2 Augusta
Highway, West Columbia, South Carolina. The Respondents' location was a mall-type arrangement
with all of the rooms opening into a commons area. Two of the game rooms, or "premises," in the
Treasure Chest were open when Agent Tanner entered the location. Both of those locations had an
employee on the premises. The other game room, Room 3, was closed when Agent Tanner entered
the location. However, Agent Tanner asked if that game room was closed and an employee of the
location, Christy Corcoran, opened the doors and told Agent Tanner he could go in. Agent Tanner
played the video poker machine[s] in Room 3 for approximately 30 minutes. Another couple also
entered the game room and began playing the machines during that 30 minute time period.
While Agent Tanner was playing the machines in Room 3, Ms. Corcoran asked if anyone
wanted drinks and then returned to serve the drinks to the couple also playing the machine[s] in
Room 3. No other employee entered the room. Moreover, though Ms. Corcoran, who was also
acting as the cashier for the Treasure Chest, was usually only a short distance from Room 3, she was
also attending to other duties for the Treasure Chest. After the inspection, Agent Tanner issued a
violation report charging the Respondents with operating game rooms in violation of S.C. Code
Regs. § 117-190 (Supp. 1997) by not having "at least one separate employee on the premises during
business hours."
3. The Respondent, Peggy Gibson, was the owner and business license holder for all of
the above locations. The Class III machine licenses were also all issued to Ms. Gibson. The
following Class III video game machine licenses were located in game room 3:
License Number
3937120
3937121
3937126
3937129
3937130
4. The Department seeks the imposition of a Five Thousand ($5,000.00) Dollar fine
against Respondent, Peggy Gibson. The Department further seeks revocation of the five Class III
machines licenses which were located in game room 3. Finally, the Department seeks that the Court
order the Respondents to discontinue the use or operation of any Class III coin-operated devices at
game room 3 for a period of six (6) months after the entry of an Order revoking the licenses.
5. I find that the Respondent was in violation for failing to have at least one separate
employee on the premises of game room 3 during business hours. However, there was no showing
by the Department that the Respondent has previously violated the Video Game Machines Act. I,
therefore, find that the appropriate penalty in this case is a One Thousand Five Hundred ($1,500.00)
Dollar fine against the Respondent for the above violation.
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. 1997) and S.C. Code Ann. § 1-23-320 (Supp. 1997).
2. The Department contends that the Respondents violated S.C. Code Ann. §
12-21-2804(A)(Supp. 1997). 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. 1997).
4. S.C. Code Ann. § 12-21-2804(A) (Supp.1997) mandates that the Department "shall
revoke the licenses in an establishment which fails to meet the requirements of this section." This
Section also mandates that the Department must not issue a license for a machine in an establishment
in which a license has been revoked for a period of six months. The authority to issue a license is
the power to revoke it. Feldman v. South Carolina Tax Commission, et al, 26 S.E.2d 22 (1943).
Single Place or Premises
5. The Department contends that the Respondents violated S.C. Code Regs. 117-190
(Supp. 1997) by failing to maintain an employee in each business. The Department asserts that if
an employee is not within the four walls of the business at the time of an inspection, the business is
not a "single place or premises" as defined in Regulation 117-190. Therefore, the Department insists
that the mere absence of an employee from the business constitutes conclusive proof that the owner
violated the statute. The Department argues that this criterion is necessary to curtail casino type
operations in South Carolina. However, the Department cannot curtail such operations by violating
the Respondents' due process rights or by applying fundamentally flawed reasoning. Furthermore,
the Department's approval of multiple video game businesses under one roof created the very
quagmire they seek to rectify by requiring that an employee remain within the four walls of each
game room at all times.
The Video Game Machines Act ("Act") does not define the term "single place or premises."
However, Regulation 117-190 (Supp. 1997) requires that each business must have a separate
employee on the premises while the business is open. The cardinal rule of statutory interpretation
is to ascertain and effectuate the legislative intent wherever possible. Bankers Trust of South
Carolina v. Bruce, 275 S.C. 35, 267 S.E.2d 424 (1980). "Full effect must be given to each section
of a statute, giving words their plain meaning, and, in the absence of ambiguity, words must not be
added or taken away." Hartford Accident and Indem. Co. v. Lindsay, 273 S.C. 79, 254 S.E.2d 301,
304 (1979). Thus, the phrase "on the premise" presumptively must have meaning. However, in order
to meet constitutional due process standards, a statute and therefore a regulation must give sufficient
notice to enable a reasonable person to comprehend what is prohibited. State v. Crenshaw, 274 S.C.
475, 266 S.E.2d 61, cert. denied, 449 U.S. 883, 101 S. Ct. 236, 66 L. Ed. 2d 108 (1980); Toussaint
v. State Board of Medical Examiners, 303 S.C. 316, 400 S.E.2d 488 (1991) (the constitutional
standard for vagueness is the practical criterion of fair notice to those to whom the law applies).
Furthermore, penal statutes must be strictly construed against the state in favor of the citizen.
Feldman v. S.C. Tax Commission, 203 S.C. 49, 26 S.E.2d 22 (1943). In that regard, Regulation 117-190 does not specifically state that, if an employee is not on the premises at all times, then a violation
is presumed.
The Department's interpretation that an employee must physically remain within the four
walls of each video game room at all times is based upon the presumption that all businesses
maintain employees on the premises at all times; otherwise, the business is closed.(1) Therefore, the
Respondent's business should have been closed, as each game room did not have an employee on
the premises. Pursuant to that conclusion, the Department applies an irrebuttable or conclusive
presumption that once the Department shows that an employee is not on the premises, that business
does not qualify as a single place or premise.
Application of the proposition that the businesses should be closed whenever an employee
leaves the premises creates a bright line standard to follow in future cases. A bright line test certainly
creates both clarity and a straightforward method of dealing with this issue. However, if the bright
line standard is not clearly supported by unassailable facts it becomes a standard of convenience that
is simply not supported by due process. "This court has no legislative powers. In the interpretation
of statutes our sole function is to determine and, within constitutional limits, give effect to the
intention of the legislature. We must do this based upon the words of the statutes themselves. To
do otherwise is to legislate, not interpret. The responsibility for the justice or wisdom of legislation
rests exclusively with the legislature, whether or not we agree with the laws it enacts." Busby v. State
Farm Mut. Auto. Ins. Co., 280 S.C. 330, 312 S.E.2d 716 (S.C. App. 1984).
To declare the existence of a presumption of fact, the court must determine that "the result
presumed must be one which a reasonable person would draw from certain facts which have been
proven to him. Its basis is logic [sic], its source is probability, and it rests on the observed
connection between facts." Lawrence v. Southern Ry., 169 S.C. 1, 167 S.E. 839 (1933). I do not find
support in the general knowledge of how businesses are conducted that all businesses, especially
those in a "mall type" setting, close every time an employee steps out of the business. It is
foreseeable that an employee of a business in a mall setting could step out of the business
momentarily to service a customer's needs or for some business or personal reason.
If the Department's evidence shows that no employee was working within the four walls of
the Respondent's businesses, the Department has established a prima facie case or a rebuttable
presumption that the business is not a "single place or premises." The rebuttable presumption is
supported by the general knowledge that businesses do not operate for any extended period of time
without their employees present. Additionally, an employee's role and on-the-job conduct is within
the Respondent's control. Therefore, once the Department establishes a prima facie case, the burden
shifts to the Respondent to produce evidence that the business actually had a separate employee
specifically assigned to that business. See, Stanley Smith & Sons v. D.M.R., Inc., 307 S.C. 413, 415
S.E.2d 428 (Ct. App. 1992). Furthermore, the Respondent must demonstrate that the employee's
absence from the game room was of short duration and reasonable under the circumstances. A
violation of Regulation 117-190 will still occur whenever an employee is absent from the premises
for a prolonged period of time, or the reasons for the absence does not involve a reasonable business
or personal need. Such determinations will depend on the specific factual circumstances, and must
be evaluated on a case-by-case basis.
The Department proved that no employee was working within the four walls of the Treasure
Chest, Room 3. Therefore, the Department established a prima facie case that those businesses were
not being operated as a "single place or premises." Once the Department establishes a prima facie
case, the burden shifts to the Respondent to produce evidence that the business actually had a
separate employee specifically assigned to that business. See, Stanley Smith & Sons v. D.M.R., Inc.,
307 S.C. 413, 415 S.E.2d 428 (Ct. App. 1992). Furthermore, the Respondent must demonstrate that
the employee's absence from the game room was of short duration and reasonable under the
circumstances. A violation of Regulation 117-190 will still occur whenever an employee is absent
from the premises for a prolonged period of time, or the reasons for the absence do not involve a
reasonable business or personal need. The Respondents failed to prove that a separate employee was
solely assigned to Room 3 or properly absent from the premises of the game room.
Six Month Prohibition
6. The Department contends that no Class III video gaming machines should be allowed
to operate at Units A, C, D, and J for a period of six months from the effective date of the revocation
of the Respondent's licenses. The role of the court in statutory interpretation is limited to seeking
to effectuate the legislature's intent. Laird v. Nationwide Ins. Co., 243 S.C. 388, 395 S.E.2d 206
(1964). In statutory interpretation, courts must read the statute in a manner that harmonizes it with
its subject matter and is in accordance with its general purpose. Multi-Cinema, Ltd. v. South
Carolina Tax Comm'n, 292 S.C. 411, 357 S.E.2d 6 (1987). Plain and unambiguous language in a
statute that conveys a clear and definite meaning should not be altered or redefined by the judiciary.
Paschal v. State Election Comm'n, 317 S.C. 434, 454 S.E.2d 890 (1995). However, if a statute is
ambiguous, courts must ascertain legislative intent through statutory construction. See Abell v. Bell,
229 S.C. 1, 91 S.E.2d 548 (1956). An ambiguity arises when the language of a statute is capable of
being understood by reasonably well-informed persons in either of two or more senses. Southeastern
Fire Ins. Co. v. South Carolina Tax Comm'n, 253 S.C. 407, 171 S.E.2d 355 (1969).
The Video Game Machines Act ("Act") became effective on July 1, 1993. This Act provides
the framework for the licensing and operation of various video game machines and locations in the
State of South Carolina. The Act is directed at the regulation of the ever growing gambling industry
in the State of South Carolina. Justice v. The Pantry, et al., Opinion No. 2787 (S.C. January 26,
1998).
Section 12-21-2804(A) of the Act, provides in relevant part that:
(A) . . . The commission shall revoke the licenses of machines located
in an establishment which fails to meet the requirements of this
section. No license may be issued for a machine in an establishment
in which a license has been revoked for a period of six months from
the date of the revocation . . . (emphasis added).
This language has produced two varying interpretations. One interpretation, commonly
referred to as the "dead location" approach, holds that once a license has been revoked for a machine
within an establishment, no Class III machines may be maintained at that location for six months
from the date of revocation. The alternative interpretation, the "dead machine" approach, maintains
that no license should be reissued on specific machines for six months after a Class III license has
been revoked on those machines.
These differing interpretations result from the legislature's usage of the phrase "a machine"
in the six-month penalty provision. As an indefinite article, "a" may refer to a specific object or
thing. See Black's Law Dictionary 1 (6th ed. 1990). However, the article is "often used in the sense
of 'any' and is then applied to more than one individual object." Id. Therefore, interpreting this
statute in a manner that harmonizes it with its subject matter and is in accordance with its general
purpose, the relevant portion of Section 12-21-2804(A) is best read to state that "[n]o license may
be issued for [any] machine in an establishment in which a license has been revoked."
Furthermore, the dead machine approach should not be adopted because doing so would
make Section 12-21-2804(A) internally inconsistent. Courts reject a construction of words used in
a statute when acceptance of a statutory interpretation would lead to a result so absurd that it could
not possibly have been intended by the legislature or would defeat the plain legislative intention.
Kiriakides v. United Artists Communications, Inc., 312 S.C. 271, 440 S.E.2d 364 (1994) (citing
Stackhouse v. Rowland, 86 S.C. 419, 68 S.E. 561 (1910) (courts will reject the plain and ordinary
meaning of words used in a statute when to accept it would lead to a result so absurd that it could
not possibly have been intended by the legislature or would defeat the plain legislative intention)).
The clear language of Section 12-21-2804(A) grants the Department the authority to revoke any
licenses at an establishment found in violation of the requirements of the statute.
The Department, however, does not issue video game machine licenses for specific locations.
Instead, licenses are issued to individuals for machine ownership. Therefore, meaningful punishment
of the licensee for failure to comply with the statute is best effectuated through revocation of the
machine licenses. Under Section 12-21-2804(A), a machine license must be revoked by virtue of
its misuse at a particular establishment, whether the actual violator is the licensee, machine owner,
or lessee. Although machine owners may seek relicensure of the machines, they incur significant
costs in so doing. First of all, the machine owner must pay the fee for licensure in accordance with
S.C. Code Ann. § 12-21-2728(A). Secondly, the owner must find another location for machine
placement and develop a clientele without advertising the machine's existence at the new location.(2)
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).(3) 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
7. 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.
1997). 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.
ORDER
Based upon the Findings of Fact and Conclusions of Law, it is hereby:
ORDERED that the licenses listed in Findings of Fact paragraph three are revoked, and a
One Thousand Five Hundred ($1,500.00) Dollar fine is imposed upon the Respondent.
IT IS FURTHER ORDERED that no Class III machine shall be operated in any of the
above game rooms (Findings of Fact, paragraph three) for a period of six months from the date of
this Final Decision.
___________________________
Ralph King Anderson, III
Administrative Law Judge
Columbia, South Carolina
November 5, 1998
1. If the Department's reasoning is not based upon the premise that all businesses maintain employees on the
premises at all times, otherwise the business is closed, then their reasoning is flawed. If all businesses do not close
when an employee leaves the premises, their conclusion is based upon the premise that some or most businesses
maintain employees on the premises at all times, otherwise the business is closed. Creation of an irrebuttable
presumption based upon historical facts that sustain the presumption only under some, but not all of the possible
circumstances would be fundamentally unfair.
2. S.C. Code Ann. § 12-21-2804(B) (Supp. 1997) forbids the advertisement of the availability of video gaming
machines.
3. 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. |