ORDERS:
FINAL ORDER AND DECISION
I. Statement of the Case
The South Carolina Department of Revenue (DOR) seeks revocation of thirteen Class III video poker
licenses(1) and a $5,000 fine against each of the machine owners and location owners for a failure to
have an employee on the premises of each game room.(2) AAA Entertainment Corp. (AAA) as the
machine owner and Le Cabaret, Inc. (Le Cabaret) and Wendy Spahn (Spahn) as location owners
oppose DOR's position and seek the dismissal of the administrative violations. This disagreement
places jurisdiction in the Administrative Law Judge Division. S.C. Code Ann. §§ 12-60-1310, 12-60-1320, 1-23-600 (Supp. 1998). The hearing in this matter was held February 25, 1999, at the Edgar
Brown Building, Columbia, South Carolina. Based upon the evidence and the arguments presented
by the parties, a violation of §12-21-2804(A) occurred on July 25, 1995 at the video gaming
businesses located at 13 Heritage Plaza, Hilton Head, South Carolina and requires that the licenses
for the thirteen machines in the two rooms be revoked. Further, under S.C. Code Ann. § 12-21-2804(F), for violating § 12-21-2804(A), a fine of $4,000 is imposed upon Le Cabaret and Spahn each
and a $2,000 fine on AAA. In addition, under §12-21-2720(C), AAA must pay licensee fees of
$3,000 for each of the four unlicensed stations for a total license fee due of $12,000. Finally, AAA,
under S.C. Code Ann § 12-21-2738, must pay a fine of $2,500 for each of its four failures to attach
a license, for a total of $10,000.
II. Issues
1. Did AAA Entertainment, Le Cabaret, or Spahn violate the single place or premises
requirement of S.C. Code Ann. § 12-21-2804(A) (Supp. 1998) and 27 S.C. Code Ann. Regs.
117-190 (Supp. 1998) 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 AAA Entertainment (the
machine owner) not liable for a penalty due to having no involvement in the management
affairs of the location?
3. If a violation of the single place or premises requirement occurred, what monetary penalty,
if any, is proper for AAA Entertainment, Le Cabaret, and Spahn?
4. Does South Carolina Dept. of Revenue & Taxation v. Rosemary Coin Machines, Inc. 331
S.C. 234, 500 S.E.2d 176 (Ct. App. 1998) require obtaining multiple licenses for a five player
machine?
5. If a violation of the multiplayer license requirement occurred, what is the penalty?
III. Analysis
A. Single Place or Premises: Employee On Premises
1. Positions of Parties
DOR asserts only one employee was in the building during the inspection by DOR. Further, DOR
asserts the single employee was assigned to cover two gaming rooms. Finally, DOR asserts the
employee was not physically present in either of the two gaming rooms, but instead, the employee
remained in the common area during the inspection. AAA Entertainment, Le Cabaret, and Spahn
disagree and argue no violation occurred.
2. Findings of Fact
Based on the preponderance of the evidence, the following findings of fact are entered:
A. Background Facts
AAA Entertainment holds several licenses for Class III video game machines with nine of those
licenses utilized at 13 Heritage Plaza, Hilton Head, South Carolina. The building at the Hilton Head
address contains a video game business in a mall-type structure housing two video game rooms. Le
Cabaret holds a retail sales tax license for one of the video game rooms, and Spahn holds a retail sales
tax license for the other video game room. The game rooms have the following names and house the
following machines:
Heritage Plaza Driftwood 40558, 40561, 40562, 40564, 40572
Le Cabaret 40559, 40560, 40563, 40565
License number 40560 is a single license for a Blackjack machine that has five stations.
On July 25, 1995, DOR conducted an inspection of the video game businesses at the Hilton Head
address. The inspection included walking into each area, listing the license numbers for machines
located in the two game rooms, taking photographs of the location, examining the business licenses,
retail tax licenses, and talking to an employee at the location.
As a result of the inspection, the SLED Agents issued a citation against AAA, Le Cabaret, and Spahn
for violation of S.C. Code Ann. § 12-21-2804(A) and 27 S.C. Code Ann. Regs. 117-190 (Supp.
1998) 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, DOR also seeks a $5,000 fine
against AAA Entertainment as the owner and licensee of the machines and a $5,000 fine each against
Le Cabaret and Spahn as the operators of the location.
B. Disputed Facts
This dispute asks whether AAA Entertainment, Le Cabaret, and Spahn had at the time of the
inspection at least one separate employee on the premises of each of the game rooms during business
hours. The evidence establishes that at the time of the inspection, no employee was in Heritage Plaza
Driftwood or Le Cabaret. Further, the evidence establishes that both rooms were open to customers.
None of the rooms gave any appearance of being closed, and one employee was in the building in the
capacity of being available to assist customers. In fact, the evidence establishes that at the time of the
inspection the single employee was assigned to cover two rooms since another employee had left the
building. Further, the evidence confirms that the employee remained in the commons area during the
time of the inspection and did not enter the game rooms during the inspection.
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. 1998). The statute does not explain what constitutes a single place or
premises. A definition is supplied, however, 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 facts. Indeed, a failure to meet any one of
the four 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
The issue in dispute in this case is criteria (2): Does each entity or business have at least one separate
employee on the premises during business hours? DOR asserts that both game rooms at the Hilton
Head location were without separate employees 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 firewalls. 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 that no separate employee was on each of the premises, DOR bears the burden of proof.
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, at the time of the inspection, no employee was in Heritage Plaza Driftwood or Le Cabaret.
Further, the rooms were open to customers and none of the rooms gave any appearance of being
closed. Only one employee was in the building and that employee was there in the capacity of being
available to assist customers. In fact, the evidence establishes that at the time of the inspection that
single employee was assigned to cover two rooms since another employee had left the building.
Further, the evidence confirms that the employee remained in the commons area during the time of
the inspection and did not enter the game rooms during the inspection. Accordingly, for two reasons,
a violation of §12-21-2804(A) occurred on July 25, 1995 at the video gaming businesses located at
13 Heritage Plaza, Hilton Head, South Carolina. First, a violation occurred since no employee was
physically present in either of the two game rooms. Second, a violation occurred since a separate
employee must be assigned to each room. Here one employee was assigned to cover two rooms.
Thus, the licenses for the two rooms are revoked.
B. Applicability of Penalty to Machine Owner
1. Positions of Parties
DOR asserts that a fine of $5,000 is due from AAA Entertainment, as the holder of the machine
licenses. AAA Entertainment argues 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 AAA Entertainment's
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 AAA Entertainment.
2. Findings of Fact
Based on the preponderance of the evidence, the following findings of fact are entered:
No dispute exists that AAA Entertainment 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 two game rooms was totally outside AAA Entertainment and was in Le Cabaret and Spahn.
However, despite a lack of daily control, AAA Entertainment shared profits and losses with the
location operator. Accordingly, control of the licenses to the Class III machines is in AAA
Entertainment.
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. 1998). The pertinent question: 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. 1998). 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."(3)
S.C. Code Ann. § 12-21-2804(A) (Supp. 1998). 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 also Merriam-Webster OnLine Dictionary, 1999 ("maintain" means "to continue or
persevere in: carry on, keep up" or "to support or provide for.").(4)
Who carries on the license in this case? AAA Entertainment, Le Cabaret, and Spahn all maintain the
licenses for the machines owned by AAA Entertainment. The joint "maintaining" is evident from the
parties' agreement to share in the profits or losses produced by the license. AAA Entertainment
maintains and carries on the licenses by, not insignificantly, providing the very license needed to
operate the machines.
Likewise, Le Cabaret and Spahn maintain the licenses as well. They maintain the licenses by sharing
in the profits and losses from the license as well as providing the operational environment for the
machines: housing, seating and equipment for customers, required employees, adequate parking, etc.
Accordingly, AAA Entertainment, Le Cabaret, and Spahn maintain the licenses on the Class III
machines. As such, AAA Entertainment, as one of the maintainers of the licenses, is liable for a fine.
S.C. Code Ann. § 12-21-2804(F) (Supp. 1998).
B. Lack of Knowledge
For two reasons, the fact that AAA Entertainment had no day-to-day control over the employees at
the location 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) (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 AAA Entertainment.
C. Amount of Penalty
1. Positions of Parties
DOR asserts that a fine of $5,000 is due from AAA Entertainment as the holder of the machine
licenses, and that $5,000 is due from Le Cabaret as the location operator and $5,000 is due from
Spahn also as a location operator. AAA Entertainment, Le Cabaret, and Spahn argue the penalty is
too severe.
2. Findings of Fact
Based on the preponderance of the evidence, the following findings of fact are entered:
Le Cabaret's and Spahn's policy is that an employee need not at all times be assigned to a single game
room and that the employee need not be in the game room at all times. Consistent with the stated
policy, at the time of inspection on July 25, 1995, no employee was present in either of the two game
rooms and one employee was assigned to cover two rooms.
AAA Entertainment places the machines with Le Cabaret and Spahn and each share in the profits of
the machines. Under this arrangement, management of the rooms in which the Class III machines are
located is in Le Cabaret and Spahn. However, actual maintenance and control of the Class III
machines is in AAA Entertainment. Thus, as to the operation of the machines, Le Cabaret and Spahn
use the game rooms for their retail businesses and AAA Entertainment uses the game rooms for its
ownership of the 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. 1998). In this case the persons liable for the fine are AAA Entertainment, Le
Cabaret, and Spahn.
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 Le Cabaret, Spahn, and AAA Entertainment have violated § 12-21-2804(A). Le Cabaret and Spahn have incorrectly interpreted the single place or premises
requirement but appear not to have done so in a manner that intentionally disregards the mandates
of the statute. Given the different views on what criteria satisfy the statute, a party's incorrect
attempt to satisfy the statute is at least a mitigating factor warranting an imposition less than the
maximum fine allowed by law. Thus, under all of the circumstances, a fine of $4,000 each is
appropriate for Le Cabaret and Spahn. Further, a mitigating factor as to AAA Entertainment is that
entity's lack of management control over employees. While such a lack of control is not a sufficient
basis for avoiding the imposition of a fine, that lack of control does present a mitigating factor
resulting in a reduced fine of $2,000 for AAA Entertainment.
D. Licenses for a Multiplayer Machine
1. Positions of Parties
DOR asserts that AAA Entertainment Corp. failed to procure licenses for four of the stations of a
multi-station video machine. Based on such, DOR asserts a $3,000 licensing fee is due for each of
the stations for a total license fee of $12,000. Both AAA Entertainment and Le Cabaret argue that
a single license is all that is needed on the multiplayer machine. Thus, the $12,000 license fee is not
required.
2. Findings of Fact
Based on the preponderance of the evidence, the following findings of fact are entered:
AAA Entertainment owns a Class III machine offering Blackjack and having stations for five players.
The machine is located in the game room identified as Le Cabaret and has only one license. That
single license was acquired for the five player machine prior to July 1, 1995. While the five stations
were not being played at the time of the inspection, the five stations of the machine were available
for play on that date and had been available for play at least since July 1, 1995. On July 1, 1995, S.C.
Code Ann § 12-21-2720(C) became effective. DOR's inspection on July 25, 1995 concluded that
the machine must have a license for each of the five stations. Thus, DOR imposed a license fee for
the remaining four stations.
3. Conclusions of Law
Based upon the above Findings of Fact, I conclude as a matter of law, the following:
A five station Class III machine offering Blackjack must have five licenses. S.C. Code Ann. 12-21-2720(C), as effective on July 1, 1995. AAA argues that a single license was all the law required at
the time it acquired its license and that the amended statute requiring a license for each station can
only apply to licenses acquired after the effective date of amendment, i.e. after July 1, 1995.
Accordingly, AAA argues that on the inspection date of July 25, 1995, it was not subject to §12-21-2720(C), since it acquired its license before the amendment's effective date of July 1, 1995. I
disagree with AAA.
South Carolina Department of Revenue and Taxation v. Rosemary Coin Machines, Inc. 331 S.C.
234, 500 S.E.2d 176 (Ct. App. 1998) holds that the amendment to 12-21-2720(C) was effective
immediately and that on July 1, 1995 each station of a multiplayer machine was to be licensed.
Accordingly, AAA was required to obtain licenses for each of the stations. Since the machines had
been in use after July 1, 1995, and were available for play on the inspection date of July 25, 1995,
DOR imposed upon AAA the duty to obtain the licenses consistent with the use being made of the
machine. Thus, the license fees of $3,000 for each station is properly imposed for a total license fee
due of $12,000.
E. Penalty for Violation of Licenses for a Multiplayer Machine
1. Positions of Parties
DOR asserts that a fine is due from AAA Entertainment since AAA had operated a five station
machine since July 1, 1995 without the required five licenses. DOR asserts the penalty is calculated
at $2,500 for each station for a total of $10,000. AAA Entertainment argues the penalty is too
severe.
2. Findings of Fact
Based on the preponderance of the evidence, the following findings of fact are entered:
AAA did not have a license on each of the stations for the five player station Blackjack machine in
the game room Le Cabaret. Rather, AAA had only one license for the machine.
3. Conclusions of Law
Based upon the above Findings of Fact, I conclude as a matter of law, the following:
A person who fails to attach the required license to any machine as required by law is subject to a
$2,500 penalty for each failure. S.C. Code Ann § 12-21-2738. The amount of the penalty is not
discretionary since the statute explains that "the applicable penalty is two thousand five hundred
dollars." Here, the licenses were not attached on the July 25, 1995 inspection date. Each station of
the machine was required to have a license. Thus, each station without a license created a separate
failure to attach a license. Accordingly, the fine of $2,500 must be imposed for each failure, resulting
in a total fine of $10,000.
IV. Order
Based upon the Findings of Fact and Conclusions of Law, it is hereby ordered:
Since a violation of §12-21-2804(A) occurred on July 25, 1995 at the video gaming businesses
located at 13 Heritage Plaza, Hilton Head, South Carolina, the licenses for the thirteen machines
in the two rooms are revoked. Further, under S.C. Code Ann. § 12-21-2804(F), for violating §
12-21-2804(A), a fine of $4,000 is imposed upon Le Cabaret and Spahn each and a $2,000 fine on
AAA. In addition, under §12-21-2720(C), AAA must pay licensee fees of $3,000 for each of the
four unlicensed stations for a total license fee due of $12,000. Finally, AAA, under S.C. Code Ann
§ 12-21-2738, must pay a fine of $2,500 for each of its four failures to attach a license for a total
of $10,000.
AND IT IS SO ORDERED.
RAY N. STEVENS
Administrative Law Judge
Dated: March 16, 1999
Columbia, South Carolina
1. Nine licenses were in use at the location involved in this matter. However, DOR asserts
that as a matter of law thirteen licenses were required. Thus, DOR seeks to revoke the nine
licenses in use, require the obtaining of four additional licenses, and revoke the additional four
licenses as well.
2. DOR does not seek a prohibition on the use of Class III machines at the location for a six
month period. Rather, DOR conceded that the location's character and configuration have
changed significantly since the alleged violation occurred in 1995. Such change, DOR concedes,
warrants abandoning the six month prohibition issue. Since DOR has chosen not to pursue the
prohibition, that issue is not addressed in this order.
3. 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.
4. 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). |