ORDERS:
FINAL ORDER AND DECISION
STATEMENT OF THE CASE
This matter is before the Administrative Law Judge Division (ALJD or Division) pursuant to S.C. Code Ann. §§ 1-23-310 et
seq. (Supp. 1998) and S.C. Code Ann. § 12-4-30(D) (Supp. 1998) on alleged administrative violations. The South Carolina
Department of Revenue (Department) alleges that Respondents violated S.C. Code Ann. § 12-22-740 (Supp. 1999)(1) by
allowing Class III machines, which were not in operation on or before May 31, 1999, to be operated at a casino.
For the alleged violations of S.C. Code Ann. § 12-22-740 (Supp. 1999), the Department seeks fines in the amount of Forty
Thousand ($40,000.00) Dollars against Respondent McDonald's Amusements, Inc. (McDonald's Amusements), as the
location operator, and Forty Thousand ($40,000.00) Dollars against Respondent James R. McDonald, III (McDonald), as
the machine owner.
The day prior to the commencement of this hearing, the Respondents filed a "Motion to Dismiss." Pursuant to Rule 19A,
ALJDRP, "all motions pertaining to the hearing shall be filed not later than ten (10) days before the hearing date, unless
otherwise ordered by the Administrative Law Judge. Any party may file a written response to the motion within ten (10)
days...." Because the Respondents did not timely file this motion, I am not ruling on it. However, I do find the arguments
contained therein to be persuasive as they were also presented via oral argument at the hearing.
The hearing in this matter was held before me at the Division on February 16, 2000. At the hearing, the parties submitted
Stipulated Facts, which are incorporated herein below.
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. McDonald's Amusements, Inc., is located at 3391 Highway 51, Fort Mill, South Carolina. This location consists of the
below-listed game rooms that house(d) the following machines, as noted below:
Location Machine License #
Catawba Games Unit 1 3161821 Catawba Games Unit 1 3161822
Catawba Games Unit 1 3161823
Catawba Games Unit 1 3161824
Catawba Games Unit 1 3161824
Catawba Games Unit 2 3161826
Catawba Games Unit 2 3161827
Catawba Games Unit 2 3161828
Catawba Games Unit 2 3161829
Catawba Games Unit 2 3161830
Catawba Games Unit 3 3161831
Catawba Games Unit 3 3161832
Catawba Games Unit 3 3161833
Catawba Games Unit 3 3161834
Catawba Games Unit 3 3161835
Catawba Games Unit 6 3161846
Catawba Games Unit 6 3161847
Catawba Games Unit 6 3161848
Catawba Games Unit 6 3161849
Catawba Games Unit 6 3161850
Catawba Games Unit 7 3161891
Catawba Games Unit 7 3161892
Catawba Games Unit 7 3161893
Catawba Games Unit 7 3161894
Catawba Games Unit 7 3161895
Catawba Games Unit 8 3161896
Catawba Games Unit 8 3161897
Catawba Games Unit 8 3161898
Catawba Games Unit 8 3161899
Catawba Games Unit 8 3161900
Catawba Games Unit 9 3161901
Catawba Games Unit 9 3161902
Catawba Games Unit 9 3161903
Catawba Games Unit 9 3161904
Catawba Games Unit 9 3161905
Catawba Games Unit 10 3161906
Catawba Games Unit 10 3161907
Catawba Games Unit 10 3161908
Catawba Games Unit 10 3161909
Catawba Games Unit 10 3161910
Catawba Games Unit 11 3161125
Catawba Games Unit 11 3161876
Catawba Games Unit 11 3161877
Catawba Games Unit 11 3161878
Catawba Games Unit 11 3161879
STIPULATED FACTS
At the hearing on this matter, the parties entered the following written stipulations into the record:
3. On July 22, 1999, the Department of Revenue issued an administrative citation to the Respondents for alleged violations
of the Video Game Machines Act that occurred on July 7, 1999, and July 13, 1999, for operating video poker machines at a
casino as prohibited by S.C. Code Ann. § 12-22-740(B)(1)(a) and (b) (Supp. 1999).
4. On July 20, 1999, the Department issued violations to McDonald's Amusements, Inc. and James R. McDonald, III, for
the offenses cited on July 7, 1999, and July 13, 1999. The Department informed the Respondents that it intended to revoke
its retail sales licenses and machine licenses in use on the premises and that it intended to assess penalties totaling Forty
Thousand ($40,000.00) Dollars to each Respondent.
5. On August 18, 1999, the Department issued its Final Determination holding that the Respondents violated S.C. Code
Ann. §12-22-740(a) (Supp. 1999) and assessed total fines and monetary penalties for all counts as Eighty Thousand
($80,000.00) Dollars. The Department also notified the Respondents that it intended to revoke the retail sales tax licenses,
establishment licenses and machine licenses that were in use at Catawba Games on July 7, 1999 and July 13, 1999.
6. H.3834, 113th General Assembly Spec. Sess. (S.C. 1999), Section 12-22-740(a), was signed by the Governor on July 2,
1999.
7. The structure at Catawba Games contains eleven video poker rooms, each containing five machines licensed under the
provision of S.C. Code Ann. §12-21-2720(a)(3) (Supp. 1998). On July 7, 1999, seven of the eleven rooms were open and
available for play. On July 13, 1999, nine of the eleven rooms were open and available for play. All of these rooms are
located in a single structure.
8. The machine owner delivered machines to the location on or about June 28, 1999. Prior to that date, there were no
machines licensed or in operation in this structure.
9. The machines were available for play at this structure on June 28, 1999.
10. KDC, Inc. bought the building which was part of the premises that is the subject of this action for One Hundred Twenty-five Thousand ($125,000.00) Dollars in October 1998 and began construction on that date.
11. A permit was issued to build a 5,000 square foot addition on December 18, 1998, valued at Two Hundred Forty
Thousand ($240,000.00) Dollars.
12. On December 18, 1998, water and sewer were paid and current.
13. On April 15, 1999, electrical power was connected to the structure.
14. A certificate of occupancy was issued on May 21, 1999.
CONCLUSIONS OF LAW
Based upon the above Findings of Fact, I conclude the following as a matter of law:
1. S.C. Code Ann. §§ 1-23-310 and 1-23-600 (Supp. 1998) grants jurisdiction to the Administrative Law Judge Division to
hear contested cases under the Administrative Procedures Act. Jurisdiction specifically over Department of Revenue
contested cases is supplied by S.C. Code Ann. § 12-4-30(D) (1998).
2. S.C. Code Ann. § 12-22-740 (Supp. 1999) prohibits casinos, as defined in the statute, unless the casino meets certain
conditions allowing it to be "grandfathered" in as an existing casino:
(A)(1) Except as provided in subsection (B), machines shall not be operated or continue to operate at any casino. For
purposes of this chapter, the term 'casino' shall mean both of the following:
(a) any two or more 'single place or premises', as that term was defined, applied, and interpreted in Regulation 117-190 on
or before May 31, 1999, that are located within a single structure; and
(b) beginning December 1, 1999, any two or more establishments located within one hundred feet of each other that have
establishment licenses issued to the same person or a person who has the same principals . . .
(B)(1) A casino shall not operate or continue to operate except as provided in this subsection. No casino shall continue to
operate as a casino unless on May 31, 1999:
(a) machines were both licensed and in operation within each 'single place or premises' as that term was defined, applied,
and interpreted in Regulation 117-190 on or before May 31, 1999; and
(b) each single place or premises within the casino met the qualifications of Regulation 117-190 and a certificate of
occupancy, if otherwise required by law, has been issued for the structure within which two or more single places or
premises are located.
3. The structure at issue in this case meets the definition of casino as defined in S.C. Code Ann. § 12-22-740 in that the
structure contains eleven video poker rooms with each room housing five machines. Furthermore, there were no Class III
machines operating in the casino on or before May 31, 1999. Pursuant to the parties' stipulated facts, Respondents did not
begin operating machines until June 28, 1999. Under these circumstances, the casino did not meet the requirements of
Section 12-22-740(B).
4. Respondents were operating thirty-five machines at a casino on July 7, 1999, and forty-five machines at a casino on July
13, 1999, in violation of S.C. Code Ann. § 12-22-740 (Supp. 1999).
5. Respondents argue that Section 12-22-740 is unconstitutional as retroactive land-
use legislation affecting vested property rights. The Administrative Law Judge Division, however, may not rule upon the
constitutionality of a statute. See Great Games, Inc. V. S.C. Dept. of Revenue, Op. No. 25081 (S.C. filed March 6, 2000)
(Shearouse Adv. Sh. 9 at 36). The Administrative Law Judge Division is an agency of the executive branch of government,
and as such, it must follow the law as written until its constitutionality is judicially determined. Beaufort County Board of
Education v. Lighthouse Charter School Committee, 335 S.C. 230, 516 S.E.2d 655 (1999). Therefore, this tribunal declines
to address Respondents' arguments concerning the constitutionality of a statute.
6. Respondents also argue that they had a vested property right because of their substantial investment in the casino.
Further, Respondents argue that the Department's actions are an unconstitutional deprivation of property rights. However,
an administrative enforcement action cannot be dismissed on the basis that the action may result in an unconstitutional taking
of property. Rather, the appropriate redress for a takings claim is in a forum having jurisdiction to award monetary
damages. See Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992).
7. The trier of fact must weigh and pass upon the credibility of evidence presented. See S.C. Cable Television Ass'n v.
Southern Bell Tel. and Tel. Co., 308 S.C. 216, 417 S.E. 2d 586 (1992). Additionally, the Administrative Law Judge, as the
current fact-finder, must also impose a penalty based on the facts presented at the contested case hearing. 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).
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. To that end, the Administrative Law Judge must
consider relevant evidence presented in mitigation. Mitigation is defined as a lessening to any extent, great or small. It may
be anything between the limits of complete remission on the one hand and a denial of any relief on the other. In a legal
sense, it necessarily implies the exercise of the judgment of the court as to what is proper under the facts of the particular
case. 58 C.J.S. Mitigation p. 834-835 (1948). Under that analysis, I find the retroactive application of this bill to be a
mitigating factor in this case. The Governor holds the power to veto a bill and could have exercised his veto authority with
H.3834.
The Department seeks a total fine of Eighty Thousand ($80,000.00) Dollars against the Respondents. The general penalty
provision of S.C. Code Ann. § 12-54-43(H) (Supp. 1999) (effective for taxable year after 1998) applies to this violation:
A person who must obtain a license or purchase stamps for identification purposes, and who fails to obtain or display the
license properly, or to affix the stamps properly, or to comply with statutory provisions, is subject to a penalty of not less
than fifty dollars nor more than five hundred dollars for each failure.
(Emphasis added.)
In the present case, Respondents failed to comply with the statutory provisions governing casinos. Therefore, I find that the
imposition of a monetary penalty is proper. However, I find that the facts in this case warrant a penalty less than the
maximum of Five Hundred ($500.00) Dollars per violation. Respondents carried out their preparations for opening the
casino in good faith reliance on the law as it existed prior to the enactment of S.C. Code Ann. § 12-22-740 on July 2, 1999.
In fact, the stipulated facts indicate that the Respondents began construction on this building in October 1998.
ORDER
Based upon the foregoing Findings of Fact and Conclusions of Law,
IT IS HEREBY ORDERED that the Respondents shall pay a fine to the Department in the amount of Twenty Thousand
($20,000.00) Dollars each for the violations of S.C. Code Ann. § 12-22-740 (Supp. 1999).
AND IT IS SO ORDERED.
Ralph King Anderson, III
Administrative Law Judge
July 24, 2000
Columbia, South Carolina
1. Throughout this Final Order and Decision, Section 12-22-740 is cited to the 1999 Supplement to accurately reflect the relevant law on the dates
of the violations. |
