SC Administrative Law Court Decisions

STATEMENT OF THE CASE

This is a case brought by the Respondents for a contested case hearing, pursuant to S.C. Code Ann. §§ 1-23-310, et seq., and § 12-4-30 (Supp. 1998). Respondents have appealed an administrative citation issued by the South Carolina Department of Revenue ("Department") against them for a violation of the South Carolina Video Game Machines Act. The Department issued an administrative citation and Final Agency Determination finding that the Respondent had violated the provisions of S. C. Code Ann.§ 12-21-2804(A) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1998) by applying for, maintaining, and permitting to be used, permits and licenses for the operation of more than five machines authorized under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1998) at one "single place or premises."

The Department issued a Final Agency Determination on June 1, 1999 affirming a fine of $5,000 against the Respondent Steven J. Lipe as the owner/operator of the business, Omega City C, and another $5,000 fine against Mr. Lipe d/b/a S L Amusements as the owner of the machines at this location. The Respondents have appealed the Department's Final Agency Determination.

A hearing on this matter was held on October 26, 1999 at the Administrative Law Judge Division ("ALJD"). Any issues raised in the proceedings or hearing of this case that are not addressed in this Order are deemed denied. ALJD Rule 29(B).

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 the evidence:

1. Notice of the time, date, place and subject matter of the hearing was timely given to the Petitioner and the Respondents.

2. Respondent, Steven J. Lipe, is the business owner and operator of a video gaming business known as Omega City located at 222 Albright Road in Rock Hill, South Carolina, and does business under three separate business licenses for video poker businesses operated at that address, to include "Omega City C" (a/k/a "Players World C") as shown on the S.C. Department of Revenue Business Tax Application license SID # 0462201319 contained in Petitioner's Exhibit 3.

3. Respondent, Steven J. Lipe, is the owner and licensee of the five (5) Class III Video Game Machines in use at "Omega City Room C" on March 2, 1999 (license numbers 3011316, 3011317, 3011318, 3011319, and 3011320) as shown in Petitioner's Exhibits 1 and 3. All of these licenses will expire on May 31, 2000.

4. On Tuesday, March 2, 1999, South Carolina Law Enforcement Division Special Agent Clayton W. Pope, conducted an undercover investigation of the video poker casino located at 222 Albright Rd. in Rock Hill, South Carolina and doing business as "Omega City." This building/location contained nine rooms, three of which were operating as separately licensed video poker businesses. The three licensed rooms each contained five video poker machines.

5. Upon arriving at the building, Agent Pope noted that two of the licensed video poker rooms appeared to be open for business and were operating with an employee in each room. The door to the third room, Omega City C, was open approximately six inches. There was also a chain pulled across the door with a "closed" sign on it. Agent Pope looked into the room and observed a male, later identified as Mr. Gerald F. Rogers, playing one of the video poker machines in the room. There were 48 credits on the machine.

6. Although being an occasional unpaid "employee" of the Respondent, Mr. Rogers was not employed by Mr. Lipe or Omega City at the time he was observed by Agent Pope on

March 2, 1999. Mr. Rogers inserted his own money into the machine he was playing. He was not observed entering the room by any of the business' employees.

7. There was no other person, hence no employee of Omega City Room C or Mr. Lipe, in the room with Mr. Rogers at the time he was observed by Agent Pope playing a Class III machine.

8. The employee (room attendant) of Omega City Room C on duty at the time of the inspection was Ms. Alberta Brock. Ms. Brock was away from the room making her lunch in the building's kitchen at the time Mr. Rogers was observed playing one of the machines in Room C. Ms. Brock had placed a chain with a "closed" sign on it and had closed, but not locked, the door to Room C upon leaving the room to make her lunch. There was no one in the room playing the machines when Ms. Brock left.

9. After concluding his investigation on March 2, 1999, Agent Pope issued a Preliminary Findings Report citing the business for violating the single place or premises provision of § 12-21-2804(A) and provided a copy of his report to Dana Montgomery, the on-duty manager. He further recorded the license numbers of the machines in all three businesses and produced a diagram and photographs of the location. These documents were made a part of the record in this case as Petitioner's Exhibits 1 and 2.

10. On the date of the inspection, Agent Pope issued a violation to the Respondent for failure to comply with the single place or premises requirements of § 12-21-2804(A) and R. 117-190, specifically citing the Respondents for violating the "one separate employee" requirement of S.C. Code Ann. Regs. 117-190 (Supp. 1998), as shown in Petitioner's Exhibit 1.

CONCLUSIONS OF LAW

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

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. Pursuant to S.C. Code Ann. § 12-21-2798 (Supp. 1998) the Department may promulgate rules and regulations pertaining to Class III video game machines and persons licensed for their operation.

3. The Respondent, Steven J. Lipe, is the licensee of the Class III video machines which were located and operating at Omega City Room C on March 2, 1999.

4. The Respondent, Steven J. Lipe, is the owner/operator of the video poker establishment doing business as Omega City Room C on March 2, 1999.

5. The Video Games Machine Act ("Act") which regulates video game machine activity in South Carolina, was enacted in 1993 and became effective on July 1, 1993. The Act is codified at S.C. Code Ann. §§ 12-21-2770, et. seq. (Supp. 1998).

6. In order to establish a violation of S. C. Code Ann. § 12-21-2804(A) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1998), the Department must prove by a preponderance of the evidence that the Respondent applied for, maintained, or permitted to be used, permits for the operation of more than five machines authorized under S. C. Code Ann. § 12-21-2720(A)(3) (Supp. 1998) at a single place or premises. Section 12-21-2804(A) provides that:

No person shall apply for, receive, maintain, or permit to be used, and the commission shall not allow to be maintained, permits or licenses for the operation of more than eight machines authorized under Section 12-21-2720(a)(3) at a single place or premises for the period beginning July 1, 1993, and ending July 1, 1994. After July 1, 1994, the commission may not issue or authorize to be maintained any licenses or permits for more than five machines authorized under S.C. Code Ann. Section 12-21-2720(A)(3) at a single place or premises....7. On June 23, 1995, regulations were promulgated which further clarified the provisions of the Act. These regulations were adopted by a joint resolution of the South Carolina Legislature in 1995 in Senate Bill 687. Thus, these regulations have the force and effect of law. Young v. S.C. Dept. of Hwy. and Pub. Transp., 287 S.C. 108, 336 S.E.2d 879 (Ct. App. 1985); Faile v. S.C. Employment Security Comm'n, 267 S.C. 536, 230 S.E.2d 219 (1976). Specifically, R. 117-190 was promulgated to clarify the meaning of the phrase contained in S.C. Code Ann.§ 12-21-2804(A) "single place or premises." This regulation provides, in relevant part, that:

In determining whether each entity is in fact a single place or premises, the Department of Revenue will consider the following factors:

(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?

A positive answer to these four questions is required for each area to be considered a "single place or premise" for purposes of the Video Games Machines Act.

27 S.C. Code Ann. Regs. 117-190 (1998) (emphasis added).

8. Regulation 117-190 has been held to be valid and enforceable and a valid exercise of the power delegated by the Legislature to the Department. See McNickel's Inc. v. S.C. Dept. of Revenue, 331 S.C. 629, 503 S.E.2d 723 (1998); S.C. Dept. of Rev. and Taxation v. Rosemary Coin

Machines, Inc., 331 S.C. 234, 500 S.E.2d 176 (1998). The separate employee requirement of R. 117-190 is thus a valid exercise of authority.

9. The issue is whether Respondent failed to have at least one separate employee on the premises during business hours. The Department bears the burden of proving when the location's business hours began and when they ended. See 2 Am.Jur.2d Administrative Law § 360 (1994) (burden of proof generally rests with the party who asserts the affirmative of an issue).

10. Business hours begin at the moment a location opens for the transacting of its business. See Jolly v. Marion Nat. Bank, 267 S.C. 681, 231 S.E.2d 206, (1976) (a shareholder's access to records during business hours is allowed as long as the access is for those hours of those days during which business could be transacted). However, deciding when business hours conclude is a factual issue based upon the totality of the circumstances for the time period in dispute. See Dym v. Merit Oil Corporation, 36 A.2d 276 (Conn. 1944) (where a facility appeared closed, the evidence may support a determination that a facility is open where no closed sign is conspicuously displayed at the entrance and where doors at the facility are unlocked.).

11. There is significant merit in the Department's position, which was ably set forth and articulated in the hearing and in its well-reasoned proposed order, that the business became "open" when Mr. Rogers entered the room, inserted his money in a machine, and began playing it. However, more persuasive is the argument that the business was not opened at the time of the inspection because the door had been shut by Ms. Brock, albeit unlocked; the chain was a barrier impeding the public from gaining access to the room; and the closed sign informed the public that the room was closed. Further, none of the Respondents' employees knew or had reason to know that Mr. Rogers was in Omega City Room C. Considering that the burden of persuasion rests with the Department, I conclude that Omega City Room C was not open for business at the time the inspection occurred and was not required to post an employee in the room at the time of the inspection.

12. The Department has not proven by a preponderance of the evidence that Respondent violated § 12-21-2804(A) and R. 117-190.

ORDER

IT IS THEREFORE ORDERED that the Final Agency Determination of the South Carolina Department of Revenue be and is hereby vacated.

AND IT IS SO ORDERED.

_______________________________

C. DUKES SCOTT

ADMINISTRATIVE LAW JUDGE

November 15, 1999

Columbia, South Carolina