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Administrative Law Court
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SC Administrative Law Court Decisions

CAPTION:
SCDOR vs. James R. McDonald, III, d/b/a Coastal Video Gaming, et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
James R. McDonald, III, d/b/a Coastal Video Gaming, Ronald Elliott, d/b/a High Rollers, and d/b/a Diamonds, and d/b/a Shamrocks, and d/b/a Monte Carlo, Roger L. Sims, Jr., d/b/a Lady Luck
 
DOCKET NUMBER:
99-ALJ-17-0603-CC

APPEARANCES:
Carol I. McMahan
Attorney for Petitioner

Robert G. Rikard
Attorney for Respondents
 

ORDERS:

FINAL ORDER AND DECISION

STATEMENT OF THE CASE

This matter is before this tribunal for a contested case hearing pursuant to S.C. Code Ann. §§ 1-23-310 et seq. (Supp. 1999) and S.C. Code Ann. § 12-4-30(D) (Supp. 1999) on alleged administrative violations. The South Carolina Department of Revenue (Department) alleges that Respondents violated S.C. Code Ann. § 12-22-740 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 § 12-22-740, the Department seeks total fines of $5,000 against Respondent Roger L. Sims, Jr. (Sims), $22,500 against Respondent James R. McDonald, III (McDonald) and $17,500 against Respondent Ronald Elliott (Elliott). The Department also seeks revocation of the twenty-five (25) machine licenses and the five (5) retail licenses involved in the violations. Respondents do not dispute that there were technical violations of section 12-22-740. Rather, Respondents challenge the validity of this statute.

The hearing of this matter was held on April 4, 2000 at the Administrative Law Judge Division. The issues before this tribunal are (1) whether S.C. Code Ann. § 12-22-740 has been rendered invalid by the South Carolina Supreme Court's opinion in Joytime Distributors v. State, Op. No. 25007 (S.C. filed Oct. 14, 1999) (Shearouse Adv. Sh. No. 32 at 10); (2) whether section 12-22-740 is unconstitutional on its face; (3) whether Respondents obtained a vested property right for which there was an impermissible taking; and (4) whether the Department imposed the appropriate penalties for the violations.

Based upon the following Stipulated Facts, Findings of Fact, and Conclusions of Law, this tribunal concludes that S.C. Code Ann. § 12-22-740 is valid and enforceable, and Respondents violated this statute by allowing Class III machines to be operated at a casino. Consequently, the twenty-five (25) machine licenses and five (5) retail licenses involved in the violations shall be revoked. Further, the Department shall impose total fines of $2,500 against Sims, $11,250 against McDonald and $8,750 against Elliott.

STIPULATED FACTS

At the hearing of this matter, the parties entered the following stipulations into the record:

  1. On July 6, 1999 and July 12, 1999, Ronald Elliott held the following South Carolina retail/sales tax licenses for the video poker premises located at 772 Highway 1 South, Lugoff, South Carolina:

D/B/A Retail/Sales Tax License No.

High Rollers 028097693

Diamonds 028097737

Shamrocks 028097700

Monte Carlo 028097746



  1. On July 6 and 12, 1999, Roger L. Sims, Jr. held a South Carolina retail/sales tax license for the video poker premises at 772 Highway 1 South, Lugoff, South Carolina, doing business as "Lady Luck" (License No. 028097746).(1)
  2. On July 6 and July 12, 1999, James R. McDonald, III held the following video poker licenses (acquired pursuant to S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1999), commonly referred to as "Class III" machines and licenses) on video poker machines at each of the premises noted below:

July 6, 1999:

Machine License # Location

3161911 High Rollers

3161912 "

3161913 "

3161914 "

3161915 "



3161731 Diamonds

3161732 "

3161733 "

3161734 "

3161735 "



3161916 Shamrocks

3161917 "

3161918 "

3161919 "

3161920 "



3161801 Monte Carlo

3161802 "

3161803 "

3161804 "

3161805 "



3161806 Lady Luck

3161807 "

3161808 "

3161809 "

3161810 "

July 12, 1999:

Machine License # Location

3161911 High Rollers

3161912 "

3161913 "

3161914 "

3161915 "



3161731 Diamonds

3161732 "

3161733 "

3161734 "

3161735 "



3161801 Monte Carlo

3161802 "

3161803 "

3161804 "

3161805 "



3161806 Lady Luck

3161807 "

3161808 "

3161809 "

3161810 "



  1. On July 6, 1999 and July 12, 1999, the structure containing multiple premises with video poker machines located at 772 Highway 1 South, Lugoff, South Carolina was a "casino" as that term is used in S.C. Code Ann. § 12-22-740 (Supp. 1999).(2)
  1. On July 6 and July 12, 1999, the casino at 772 Highway 1 South, Lugoff, South Carolina contained the video poker premises and retail licenses noted in paragraph "1" above.
  2. The casino did not initially open for business until June 30, 1999.
  3. There were no Class III video poker machines in operation in the casino, to include the location noted in paragraph "2" above, located at 772 Highway 1 South, Lugoff, South Carolina, on or before May 31, 1999.
  4. The casino and each premises within it, to include the rooms noted in paragraphs 1 and 2 above, did not comply with the requirements of 27 S.C. Code Ann. Regs. 117-190 (Supp. 1999) on or before May 31, 1999.
  5. On July 6 and 12, 1999, agents of the South Carolina Law Enforcement Division ("SLED") conducted an investigation of the casino located at 772 Highway 1 South, Lugoff, South Carolina.
  6. Carolina Power and Light Company's business records show the casino first received power on June 10, 1999.
  7. On June 1, 1999, Mr. Elliott applied for water service to the casino. Service first began on June 14, 1999.
  8. On July 6 and 12, 1999, at the time of the SLED agents' inspection, the room noted in paragraph "2" above located in the casino (Lady Luck) was open for business and the machines were available for play.
  9. H. 3834, 113th General Assembly Spec. Sess. (S.C. 1999), § 12-22-740, was signed by the Governor on July 2, 1999.
  10. Respondents were notified by an Initial Letter of Violation and a Final Determination of the section 12-22-740 violations that are the subject of this action.
  11. Machines were placed in the casino on June 29, 1999.
  12. Licenses were purchased in May, 1999.
  13. Construction of the building began prior to May 31, 1999.

FINDINGS OF FACT

Having carefully considered all testimony, exhibits, and arguments presented at the hearing of this matter, and taking into account the credibility and accuracy of the evidence, I make the following Findings of Fact by a preponderance of the evidence:

1. On July 6, 1999, at the time of the SLED agents' inspection, the rooms High Rollers, Diamonds, Shamrocks, Monte Carlo, and Lady Luck, each located in the casino, were open for business and, the machines were available for play.

2. On July 12, 1999, at the time of the SLED agents' inspection, the rooms High Rollers, Diamonds, Monte Carlo, and Lady Luck, each located in the casino, were open for business, and the machines were available for play.

CONCLUSIONS OF LAW AND ANALYSIS

  1. Jurisdiction

Pursuant to S.C. Code Ann. § 12-4-30(D) (Supp. 1999) and S.C. Code Ann. § 1-23-320 (Supp. 1999), the Administrative Law Judge Division has jurisdiction to hear this matter.

  1. Burden of Proof

In civil cases, generally, the burden of proof rests upon the party who asserts the affirmative of an issue. 2 Am. Jur. 2d Administrative Law § 360 (1994); Alex Sanders, et al., South Carolina Trial Handbook § 9:3 Party With Burden, Civil Cases (1999). The Department is the party asserting the affirmative in this case; therefore, the Department must prove by a preponderance of the evidence that Respondents violated § 12-22-740 by allowing Class III machines to be operated at a casino. See Anonymous v. State Bd. of Medical Examiners, 329 S.C. 371, 796 S.E.2d 17 (1998) (standard of proof in an administrative proceeding is the preponderance of the evidence).(3) The weight and credibility assigned to evidence presented at the hearing of a matter is within the province of the trier of fact. See S.C. Cable Television Ass'n v. Southern Bell Telephone and Telegraph Co., 308 S.C. 216, 417 S.E.2d 586 (1992).

  1. Validity and Enforcement of Section 12-22-740

1. Introduction

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.



S.C. Code Ann. § 12-22-740(A)(1) & (B)(1) (Supp. 1999).

In this case, the Stipulated Facts and the evidence establish that (1) the structure at issue met the definition of "casino" as defined in section 12-22-740; (2) on July 6, 1999, five of the game rooms in the casino were open for business, and their machines were available for play; (3) on July 12, 1999, four of the game rooms in the casino were open for business, and their machines were available for play; (4) there were no Class III machines operating in the casino on or before May 31, 1999; and (5) the casino and each premises within it did not comply with Regulation 117-190 on or before May 31, 1999. Under these circumstances, the casino did not meet the statutory requirements necessary for it to be grandfathered in under the subsection (B) of the statute.

Further, Respondent McDonald, the machine owner, allowed twenty-five (25) Class III machines to be operated at a casino on July 6, 1999, and he allowed twenty (20) machines to be operated at a casino on July 12, 1999, without meeting the specific requirements of subsection (B) of the statute. Therefore McDonald committed twenty-five (25) violations of the statute on July 6, 1999 and twenty (20) violations of the statute on July 12, 1999. Respondent Elliott, who held the retail licenses for the game rooms High Rollers, Diamonds, Shamrocks, and Monte Carlo, allowed twenty (20) Class III machines to be operated in these game rooms at the casino on July 6, 1999, thus committing twenty (20) violations of section 12-22-740 on that date. On July 12, 1999, Elliott allowed fifteen (15) Class III machines to be operated in High Rollers, Diamonds, and Monte Carlo at the casino, thus committing fifteen (15) violations on that date. Respondent Sims allowed five (5) Class III machines to be operated in Lady Luck at the casino on both July 6 and July 12, 1999, thus committing ten (10) total violations on those dates.

2. Effect of Joytime

Respondents argue that section 12-22-740 was rendered invalid by the South Carolina Supreme Court's recent opinion in Joytime Distributors v. State, Op. No. 25007 (S.C. filed Oct. 14, 1999) (Shearouse Adv. Sh. No. 32 at 10). Respondents contend there was no authority on which to base the violations. I disagree.

Section 12-22-740 was enacted on July 2, 1999 as part of Act No. 125 of the General Assembly. Act 125 provided for a referendum to determine whether video game machine payouts in this State would remain legal. In the event that such payouts remained legal, Act 125 provided for extensive new regulation of the video gaming industry.

Before the scheduled date for the referendum, the South Carolina Supreme Court, in Joytime, declared Part II of Act 125, which provided for the referendum, invalid. Joytime, Shearouse Adv. Sh. No. 32 at 20, 23. The Court also declared those portions of the Act which were contingent upon the referendum, such as those portions providing for new regulation of the industry, invalid. Id. The Court, however, did not expressly declare section 12-22-740 invalid. Instead, the Court stated that:

[As for the provisions in Act 125 that became effective on June 1 and July 1, 1999,] those provisions relate, in the interim, to registering machines, to the number of video machines, which are located on any one premise, and to casinos. The provisions are not inconsistent with the intent of the legislature to ban video gaming on July 1, 2000.



Id. at 22. Accordingly, the ban of video gaming to begin on July 1, 2000, as well as the provisions of Act 125 that became effective on June 1 and July 1, 1999, remain in effect. Section 12-22-740 became effective on June 1, 1999. Consequently, section 12-22-740 remains valid.(4)

Further, section 12-22-740 has not yet been repealed. Act 125 provides for the repeal of section 12-22-740 only in the event of a "no" vote in the referendum. As stated above, only Part II of Act 125 and those provisions contingent upon the outcome of the referendum were invalidated by the Supreme Court's decision in Joytime. Since section 12-22-740 became effective last year without being contingent on the referendum, section 12-22-740 has not been invalidated by the decision in Joytime.

It should be noted, however, that when Part I of Act 125, which bans video poker, takes effect on July 1, 2000, section 12-22-740 will be repealed by necessary implication. Joytime, Shearouse Adv. Sh. 32 at 22, 1999 WL 969280, * 9 ("The provisions [that are only repealed in the case of a majority "no" vote on the referendum] are not inconsistent with the intent of the legislature to ban video gaming on July 1, 2000. Should the legislature fail to repeal those provisions when it reconvenes, they will be repealed by necessary implication.").(5) In the meantime, section 12-22-740 remains in effect.

3. Constitutionality of Section 12-22-740

Respondents also argue that section 12-22-740 is unconstitutional as retroactive land-use legislation affecting vested property rights. The Department asserts that this tribunal does not have the authority to address the constitutionality of a statute. The Department is correct in its assertion.

The South Carolina Supreme Court has expressly stated that an administrative law judge has no authority to pass upon the constitutionality of a statute. See Great Games, Inc. v. S.C. Dep't of Revenue, Op. No. 25081 (S.C. filed Mar. 6, 2000) (Shearouse Adv. Sh. 9 at 36). The Administrative Law Judge Division is an agency of the executive branch of the 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' argument that section 12-22-740 is unconstitutional.

4. Vested Property Rights

Respondents also argue that they had a vested property right because they had purchased the land, built the building, purchased the video gaming machines, obtained the machine licenses, and employed persons working in the building prior to July 2, 1999, when the Governor signed into law Act 125. Respondents further argue that the Department's enforcement action to revoke their licenses is an unconstitutional deprivation of their property rights, resulting in an unconstitutional taking.

This tribunal, however, cannot dismiss an administrative enforcement action on the basis that it may result in an unconstitutional taking of property. Instead, the appropriate redress of a takings claim is in another forum which has jurisdiction to award money damages. See Lucas v. S.C. Coastal Council, 505 U.S. 1003 (1992) (state must pay compensation to landowner where it seeks to sustain regulation that deprives land of all economically beneficial use); Agins v. City of Tiburon, 447 U.S. 255 (1980) (inverse condemnation occurs where a landowner recovers just compensation for a taking of his property when condemnation proceedings have not been instituted). Therefore, this tribunal declines to address Respondents' argument that an unconstitutional taking has occurred by the Department's application of section 12-22-740 in this case.

  1. Penalty

1. Monetary Penalty

It is a generally recognized principle of administrative law that the fact-finder has the authority to impose an administrative penalty, as established by the legislature, after the parties have had an opportunity for a hearing on the issues. See, e.g., Walker v. S.C. ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633 (1991).

The Department seeks the imposition of total monetary penalties of $22,500 against McDonald, $17,500 against Elliott, and $5,000 against Sims. I find that a monetary penalty of only $11,250 against McDonald, $8,750 against Elliott, and $2,500 against Sims is warranted under the facts of this case.

The general penalty provision of S.C. Code Ann. § 12-54-43(H) (Supp. 1999) applies to the Respondents' violations.(6) Section 12-54-43(H) provides:

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.



Here, the facts warrant a monetary penalty less than the maximum allowed. The casino was completed prior to the July 2, 1999 passage of Act 125. The evidence establishes that the construction of the casino was carried out in good faith reliance on the status of the law as it existed prior to July 2, 1999. Further, Respondents sought and obtained from the Department machine licenses and retail licenses prior to July 2, 1999. Under such circumstances, the imposition of a $250 fine, rather than a $500 fine, for each violation of section 12-22-740 is appropriate.

In this case, McDonald committed forty-five (45) violations, Elliott committed thirty-five (35) violations, and Sims committed ten (10) violations. See § C.1, supra (calculation of numbers of violations). Therefore, the Department shall impose fines of $11,250 against McDonald, $8,750 against Elliott, and $2,500 against Sims.



2. Revocation

South Carolina Code Ann. § 12-54-90(A) (Supp. 1999) provides

When a person fails, neglects, violates, or refuses to comply with a provision of law or regulation administered by the department, the department, in its discretion, may revoke one or more licenses held by the taxpayer within ten days of notification in writing of the taxpayer's failure to comply.



The Department has established that Respondents violated section 12-22-740, and the parties have stipulated that the Department notified Respondents in writing of the violations by its Final Determination dated October 12, 1999. Further, the penalty of a revocation of all machine licenses and retail licenses involved in the violations is appropriate given the illegality of their use on the date of the inspections. Therefore, McDonald's twenty-five (25) machine licenses, Elliott's four retail (4) licenses for High Rollers, Diamonds, Shamrocks, and Monte Carlo, and Sims' retail license for Lady Luck, are revoked.

Pursuant to ALJD Rule 29(C), issues raised in the proceedings but not addressed in this Order are deemed denied.

ORDER

Based upon the foregoing Stipulated Facts, Findings of Fact, and Conclusions of Law,

IT IS HEREBY ORDERED that the Department shall revoke the licenses for the twenty-five (25) Class III machines located at 772 Highway 1 South, Lugoff, South Carolina, identified herein, and the five (5) retail licenses for High Rollers, Diamonds, Shamrocks, Monte Carlo and Lady Luck.

IT IS FURTHER ORDERED that the Department shall impose total fines of $11,250 against McDonald, $8,750 against Elliott, and $2,500 against Sims.

AND IT IS SO ORDERED.



______________________________

JOHN D. GEATHERS

Administrative Law Judge

May 9, 2000

Columbia, South Carolina

1. This license number appears to be a typographical error in the parties' written Stipulation of Facts and the Department's Final Determination; it is the same license number assigned to Monte Carlo. The business tax application for Lady Luck indicates that the license number is 028097755.

2. Items 4, 5, 7 and 9 in the parties' written stipulation indicate "722 Highway 1 South;" however, this appears to be a typographical error. The business tax applications for the various game rooms at the location indicates an address of 772 Highway 1 South.

3. The preponderance of the evidence is "[t]he greater weight of the evidence" or "superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other." BLACK'S LAW DICTIONARY 1201 (7th ed. 1999). "The preponderance of the evidence means such evidence as, when considered and compared with that opposed to it, has more convincing force and produces in the mind the belief that what is sought to be proved is more likely true than not true." Sanders, supra, § 9:5 Quantum of Evidence in Civil Cases (1999) (citing Frazier v. Frazier, 228 S.C. 149, 89 S.E.2d 225 (1955)).

4. The Supreme Court in Joytime suggested that Part III of the Act is contingent upon the outcome of the referendum provided for in Part II. Joytime, Shearouse Adv. Sh. 32 at 22. It is clear, however, from section 23(B) of Act 125 that the effective date of section 12-22-740, which was included in Part III of the Act, was June 1, 1999. The effectiveness of section 12-22-740 was never contingent upon the referendum.

5. Citing Yahnis Coastal, Inc. v. Stroh Brewery Company, 295 S.C. 243, 368 S.E.2d 64 (1988). In Yahnis, the Court held that if statutes in apparent conflict are incapable of any reasonable reconcilement, the last statute passed will prevail, so as to impliedly repeal the earlier statute to the extent of the repugnancy. Yahnis, 368 S.E.2d at 66 (1988).

6. The penalty provisions in Part III of Act 125 were invalidated by the Supreme Court's decision in Joytime, Shearouse Adv. Sh. No. 32 at 20, 23.


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