S.E. 2d
STATE OF SOUTH CAROLINA
In The Supreme Court
Mary Gentry and Ralph
Bryan, Appellants,
v.
Kenneth M. Yonce,
D/B/A, Yonce's Stop N
Shop; Shirley Fincher,
formerly D/B/A, Star
Stop N Shop; Walter M.
Fulmer, D/B/A, Fulmer's
Amoco; Joseph A.
Rhinehart, D/B/A,
Country Peddler and
The Country Peddler; H
& S Amusements, Inc;
William Gordon Silver
and James Harold
Matthews, D/B/A, H & S
Amusements; and
Willard Britton, D/B/A,
Association
Amusements, Respondents.
Appeal From Saluda County
James W. Johnson, Jr., Judge
Opinion No. 24971
Heard June 22, 1999 - Filed July 13, 1999
AFFIRMED IN PART; REVERSED IN PART
Douglas H. Westbrook, of Charleston, for appellants.
p.24
GENTRY v. YONCE
James M. Griffin, of Simmons, Griffin & Lydon, of
Columbia, for respondents.
Lawrenc& E. Richter, Jr., and Saul Gliserman, of The
Richter Firm, of Mount Pleasant; and R. Randall
Bridwell, of Columbia, all for Amicus Curiae Legacy
Alliance.
Dwight F. Drake and B. Rush Smith, III, both of
Nelson, Mullins, Riley & Scarborough, L.L.P.; and
Richard A. Harpootlian, of the Law Offices of Richard
Harpootlian, all of Columbia, for Amicus Curiae
South Carolina Coin Operators Association.
MOORE, A.J.: Appellants brought this class action suit alleging
causes of action under the Racketeer Influenced and Corrupt Organizations
Act (RICO - 18 U.S.C. § 1961 et seq.) and the Unfair Trade Practices Act
(UTPA - S.C. Code Ann. § 39-5-20 et. seq.).1 Respondents are owners and
operators of video poker machines located in Saluda and Newberry Counties.
The trial court granted respondents' motion to dismiss the RICO and UTPA
causes of action. We affirm in part and reverse in part.
ISSUES
1) Did the trial court err in dismissing the RICO claim?
2) Did the trial court err in dismissing the UTPA claim?
DISCUSSION
Initially, we note that in deciding a motion to dismiss pursuant to
12(b)(6), SCRCP, the trial court should consider only the allegations set forth
1 Appellants did not appeal the circuit court's dismissal of their
conversion cause of action. Furthermore, the circuit court did not rule upon
the motion to dismiss the cause of action brought pursuant to S.C. Code Ann.
§ 32-1-10 (1977), which provides for the recovery of gambling losses.
p.25
GENTRY v. YONCE
on the face of the plaintiffs complaint and a 12(b)(6) motion should not be
granted if "facts alleged and inferences reasonably deducible therefrom
would entitle the plaintiff to any relief on any theory of the case." Stiles v.
Onorato, 318 S.C. 297, 300, 457 S.E.2d 601, 602 (1995).2 The question is
whether, in the light most favorable to the plaintiff, and with every doubt
resolved in his behalf, the complaint states any valid claim for relief
Further, the complaint should not be dismissed merely because the court
doubts the plaintiff will prevail in the action. Toussaint v. Ham, 292 S.C.
415, 357 S.E.2d 8 (1987). See also Kennedy v. Henderson, 289 S.C. 393, 346
S.E.2d 526 (1986) (where there is cause for doubt, or it is clear that the ends
of justice may well be promoted by a trial on the merits, a demurrer should
be denied where novel issues are present or are involved); Springfield v.
Williams Plumbing Supply Co., 249 S.C. 130,153 S.E.2d 184 (1967).
1) RICO claim
Respondents moved to dismiss the RICO claim on the grounds that
appellants: failed to state sufficient facts to constitute a cause of action;
failed to plead fraud with particularity; lacked standing because the injuries
complained of were not proximately caused by any alleged RICO violation;
and failed to plead the RICO claim with the particularity required pursuant
to Rule 9(b), SCRCP.
The circuit court dismissed the RICO cause of action on the ground
that complaints alleging RICO violations are subject to the same stringent
pleading requirements applicable to fraud claims. The circuit court also held
appellants failed to plead the existence of two "predicate acts" that constitute
2Appellants contend the circuit court erred in considering any of the
grounds for respondents' pre-answer motions that were based upon a defense
not listed in Rule 12(b), SCRCP. We agree. In Glenn v. School Dist. Five,
294 S.C. 530, 366 S.E.2d 47 (Ct. App. 1988), the Court of Appeals held the
statute of limitations is not a defense listed under Rule 12(b) that may be
raised by pre-answer motion. Similarly, here, respondents cannot raise any
defense or objection that is not permitted to be raised pre-answer in a Rule
12(b) motion, for example lack of standing. Thus, we have addressed only
the issues necessary to decide if the complaint states sufficient facts under
Rule 12 (b)(6).
p.26
GENTRY v. YONCE
a "pattern of racketeering" as required by RICO.3
A) Pleading Requirements
The circuit court held that complaints alleging RICO violations are
subject to the same stringent pleading requirements applicable to fraud
claims pursuant to Rule 9(b), SCRCP.4 We disagree.
The circuit court cited three cases to support its conclusion that RICO
actions are subject to the particularity pleading requirement of Rule 9(b).
However, in each of these cases, the underlying predicate acts alleged in
support of the RICO action were acts of fraud. Florida Dep't of Ins. v.
Debenture Guar., 921 F.Supp. 750 (M.D.Fla. 1996)(allegations of federal
securities fraud); Grant v. Union Bank, 629 F.Supp. 570, 575 (D. Utah
1986)(allegations of mail and wire fraud); Crystal v. Foy. 562 F.Supp. 422
(S.D.N.Y. 1983)(allegations of fraudulent conduct violating the Securities
Exchange Act). Here, the underlying predicate acts alleged in support. of the
RICO cause of action are violations of S.C. Code Ann. § 12-21-2804(B)(Supp.
1998) which prohibits the offering of special inducements5 and S.C. Code
Ann. § 12-21-2804(A)(Supp. 1998) which prohibits businesses from receiving
3 In order to establish a RICO violation, appellants are required to
establish the following: (1) the commission of two or more "predicate acts" (2)
constituting a "pattern" (3) of "racketeering activity" through which (4) the
culpable person (5) invests in, maintains an interest in, participates in, or
conspires to do any of the preceding in (6) an enterprise, and (7) such
activities affect interstate commerce. 18 U.S.C. § 1961-1962 (1984 &
Supp.1993). Roper v. Dynamique Concepts, 316 S.C. 131, 447 S.E.2d 218
(1994).. "Racketeering activity" is defined in § 1961(l)(A) to include any act
or threat involving gambling which is chargeable under State law and
punishable by imprisonment for more than one year.
4 Rule 9 (b), SCRCP, provides: "In all averments of fraud or mistake,
the circumstances constituting fraud or mistake shall be stated with
particularity. Malice, intent, knowledge, and other condition of mind of a
person may be averred generally."
5 In this case, appellants allege the offering of a "jackpot" is a special
inducement.
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GENTRY v. YONCE
primary or substantial gross proceeds from video gaming devices. Thus, the
alleged underlying predicate acts are not based in fraud.6
As respondents point out, some courts have specifically held that the
same standard of particularity should be applied to all RICO claims. See, e.g.
Plount v. American Home Assurance Co., 668 F.Supp. 204 (S.D.N.Y.1987);
Schnitzer v. Oppenheimer & Co., 633 F.Supp. 92 (D.Or.1985); Taylor v. Bear
Stearns & Co., 572 F.Supp. 667 (N.D.Ga.1983). However, contrary to the
respondents' contention, the specificity requirement for pleading RICO
claims is not well-settled. Many courts have not been persuaded by the
reasoning of the courts that have applied Rule 9(b) to all RICO actions and
have limited the application of Rule 9(b) to fraud-based RICO claims. See
United States v. District Council of N.Y. City, 778 F.Supp. 738 (S.D.N.Y.
1991); United States v. Bonanno Organized Crime Family, 683 F.Supp. 1411
(E.D.N.Y.1988); Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742
F.2d 786, 792 n. 7 (3d Cir.1984), cert. denied, 469 U.S. 1211, 105 S.Ct. 1179,
84 L.Ed.2d 327 (1985). "Logically it follows,'at least in most circuits, that
when predicate acts are not based on fraud, there is no pleading requirement
of particularity." 2 James Wm. Moore, Moore's Federal Practice §
9.03(6)(b)(3rd ed. 1999). "Fraud claims brought under the RICO Act are
subject to the particularity requirements of Rule 9(b)." 5 Wright & Miller,
Federal Practice and Procedure 2d § 1251.1 (1988)(emphasis added).
Furthermore, Rule 9(b) by its terms applies only to those cases in
which fraud or mistake are averred. The particularity requirement is a
means for courts to summarily dispose of frivolous lawsuits based on fraud.
Courts applying the particularity requirement to all RICO allegations have
reasoned that the purposes advanced by Rule 9(b) are equally served by
applying the rule to non-fraud RICO claims. These courts have also
concluded that RICO allegations are even more damaging to a defendant's
reputation by labeling him with the stigma-laden term "racketeer." See
Plount ("Yet all of the concerns that dictate that fraud be pleaded with
particularity exist with even greater urgency in civil RICO actions."). But see
Sedima v. Imrex Co., 473 U.S. 479) 492, 105 S.Ct. 3275, 3283, 87 L.,Ed.2d 346
6Appellants also allege violations of § 12-21-2791. As discussed more
fully herein, on appeal, appellants concede the circuit court correctly held a
violation of this section could not serve as a predicate act.
p.28
GENTRY v. YONCE
(1985) ("As for stigma, a civil RICO proceeding leaves no greater stain than
do a number of other civil proceedings"); Rodonich v. House Wreckers Union
Local 95, 627 F.Supp. 176, 178 (S.D.N.Y.1985) (questioning propriety of
altering RICO's pleading burden). However, federal courts have a greater
need to summarily treat frivolous RICO claims than fraud claims because
the civil RICO treble damages clause provides a strong incentive for
plaintiffs to convert the garden variety fraud cause of action into a
racketeering action.
We have considered the reasoning of the above cases and we agree
with the cases that do not require pleading to comply with Rule 9 unless
fraud is alleged as the predicate act.7 There are many actions that could
damage a person's reputation and particularity should not be required in
each of these cases. This was simply not intended by the enactment of Rule
9. "Since the rule is a special pleading requirement and contrary to the
general approach of simplified pleading adopted by the federal rules, its
scope of application should be construed narrowly and not extended to other
legal theories or defenses." 5 Wright and Miller Federal Practice and
Procedure § 1297 (1990). Accordingly, the circuit court's holding that the
particularity requirement of Rule 9(b) applies in this case is error.8
B) "Predicate Acts"9
7 Another consideration often cited by the cases discussing the pleading
requirements is Rule 8. Often courts read the rules together and specifically
attempt to harmonize Rule 8 and Rule 9. See e.g. Friedlander v. Nims, 755
F.2d 810, 813 n.3 (1 11h Cir. 1985)(acknowledging and resolving a "potential
conflict" between Rule 8's notice pleading and Rule 9's particularity
pleading).
8 We find no distinction in the pleading requirement between
allegations of mail fraud and common law fraud. Thus, we agree with the
circuit court that mail fraud must be pled with particularity and affirm the
dismissal of this part of the complaint.
9 The circuit court summarily held that a violation of § 12-21-2804(A)
could not be used as a predicate act since this provision had been ruled
unconstitutional for vagueness in Reyelt et al. v. South Carolina Tax
Comm'n, Civil Action No. 6:93-1491-3 (D.S.C. July 5, 1994). However, this
p.29
GENTRY v. YONCE
The circuit court also held that appellants did not plead the existence
of two predicate acts that could constitute a pattern of racketeering. The
circuit court held that the alleged violations of two sections of the South
Carolina Video Game Machines Act cannot serve as predicate offenses under
RICO.10We disagree.
In their complaint, appellants allege respondents have violated § § 12
2 1-2791 and 12-21-2804(A) and (B). Section 12-21-2791 provides for a $125
cap on the amount that may be paid out as winnings on a video game
machine. This section does not provide any penalty. Violations of this
specific section are punishable under § 12-54-40(H) which provides for a civil
penalty and not any criminal penalty.11 Thus, a violation of § 12-21-2791
decision is not binding on this Court. See Phillips v. Periodical Publishers'
Serv. Bureau, Inc., 300 S.C. 444, 388 S.E.2d 787 (1989). Accordingly, the
circuit court erred in holding a violation of this section could not be a
predicate act solely based upon this case. Kennedy v. Henderson, supra
(demurrer should be denied when novel issues are involved).
10Legacy Alliance filed an amicus brief in support of the reversal of the
grant of respondents' motion to dismiss. In its amicus brief, Legacy Alliance
sets forth an interesting argument that the predicate act could actually be a
violation of the federal Unlawful Gambling Business Act, 18 U.S.C. § 1955,
which prohibits the use of interstate instrumentalities by anyone who
conducts a business that violates the State law in which it is conducted.
Legacy Alliance states that a violation of any of the South Carolina Code
sections under the Video Game Machines Act could serve as a predicate act
because the federal law references any State law and does not limit it to
those which are punishable by an imprisonment of one year. However,
appellants are relying strictly upon 18 U.S.C. § 1961 (1)(A) which requires
that a violation of the State law be punishable by imprisonment for more
than one year. Accordingly, this argument is inapplicable to this case.
11The Department of Revenue has applied § 12-54-40(H) for violations
of § 12-21-2791. Section 12-54-40 (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
p.30
GENTRY v. YONCE
cannot be a predicate offense for a RICO violation. The circuit court
correctly ruled that § 12-21-2791 cannot be a predicate act and, in fact,
appellants concede this in their reply brief.
Section 12-21-2804(B) provides: "No person who maintains a place or
premises for the operation of machines licensed under Section
12-21-2720(A)(3)12 may advertise in any manner for the playing of the
machines nor may a person offer or allow to be offered any special inducement
to a person for the playing of machines permitted under Section
12-21-2720(A)(3). "(emphasis added). Section 12-21-2804(F) provides in
pertinent part: "A person violating subsections (A), (B), (D), or (E) of this
section is subject to a fine of up to five thousand dollars to be imposed by the
commission. The commission, upon a determination that the violation is
wilful, may refer the violation to the Attorney General or to the appropriate
circuit solicitor for criminal prosecution, and, upon conviction, the person
must be fined not more than ten thousand dollars or imprisoned not more
than two years, or both. . ." Appellants contend respondents violated this
section by advertising that "jackpots" could be won which were in excess of
dollars nor more than five hundred dollars for each failure. For failure to
obtain or display a license as prescribed in Sections 12-21-2720 and
12-21-2730, the penalty is fifty dollars for each failure to comply."
12 Section 12-21-2720(A) provides in part:
Every person who maintains for use or permits the use of, on a
place or premises occupied by him, one or more of the following
machines or devices shall apply for and procure from the South
Carolina Department of Revenue a license effective for two years
for the privilege of making use of the machine in South Carolina
and shall pay for the license a tax of fifty dollars for each machine
in item (1), two hundred dollars for each machine in item (2),
and four thousand dollars for each machine in item (3): . . .
(3) a machine of the nonpayout type, in-line pin game, or video
game with free play feature operated by a slot in which is deposited
a coin or thing of value except machines of the nonpayout pin table
type with levers or "flippers" operated by the player by which the
course of the balls may be altered or changed.
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GENTRY v. YONCE
the $125 limit. The circuit court held that § 12-21-2804(B) "does not apply to
the logos and other identifying information which physically comprise the
video game machine." We disagree.
Advertising that jackpots greater than $125 may be won is more than
a logo.13At this stage of these proceedings, we think that the advertising or
offering of jackpots could be construed as a special inducement and thus could
support a RICO claim. 14Accordingly, the circuit court erred in dismissing
appellants' RICO cause of action alleging violations of §§ 12-21-2804(A) and
(B) as predicate acts.15
2) UTPA
Respondents moved to dismiss the UTPA claim on the grounds that
appellants: failed to state sufficient facts to constitute a cause of action;
failed to plead the UTPA claim with the particularity required pursuant to
Rule 9(b), SCRCP; the conduct complained of is authorized by the S.C. Video
Game Machines Act (S.C. Code Ann. § 12-21-2770 (Supp. 1998)); and the
actions are exempt from the UTPA pursuant to S.C. Code Ann. § 39-5-40
(1985). Again, only the grounds based upon Rule 12(b) should have been
considered by the circuit court. Glenn v. School Dist. Five, supra.
13To hold otherwise, would mean that offers for free food and drinks,
which are clearly prohibited, when part of the machine would not be special
inducements.
14 The circuit court also cites 44 Liquormart v. Rhode Island, 517 U.S.
484, 116 S.Ct. 1495, 134 L.Ed.2d 711 (1996), for the proposition that
interpreting this statute to apply to logos would render the statute
unconstitutionally broad. 44 Liquormart dealt with a complete ban on price
advertising for alcohol in Rhode Island. It is simply inapplicable to this
situation.
15We note the General Assembly recently passed legislation which
specifically provides that an operator is prohibited from offering an
inducement of cash other than authorized payouts and jackpots. This
legislation takes effect December 1, 1999, if a majority of the voters in the
November 2nd referendum decide that cash payouts on video game machines
should continue.
p.32
GENTRY v. YONCE
The circuit court held the conduct which appellants contend forms the
basis for a UTPA cause of action are exempt from the UTPA pursuant to §
39-5-40. Section 39-5-40 (emphasis added) provides, in part: "Nothing in this
article shall apply to: (a) Actions or transactions permitted under laws
administered by any regulatory body or officer acting under statutory
authority of this State or the United States or actions or transactions
permitted by any other South Carolina State law."
The circuit court held that appellants have not alleged that advertising
a jackpot is a deceptive act because appellants have not alleged that
respondents have not paid out more than $125 in winnings. The circuit
court also held that appellants had failed to allege either that the statements
regarding the jackpots were false or that they were ignorant of the $125
limit.
Section 12-21-2791 states that operators "shall limit the cash payout
for credits earned for free games to two thousand five hundred credits a
player a location during any twenty-four hour period. The cash value of
credits for each free game is limited to five cents." Thus, there is a cap of
$125 per 24-hour period on payouts. Again, we note appellants are alleging
a violation of the inducement section (§12-21-2804(B)) and not solely the
payout section (§ 12-21-2791). The advertising of the jackpot and the paying
out of the jackpot are two separate violations under the Gaming Act.
Under the UTPA, it is unlawful to engage in " [u]nfair methods of
competition and unfair or deceptive acts or practices in the conduct of any
trade or commerce." S.C. Code Ann. § 39-5-20 (1985). An act is "unfair"
when it is offensive to public policy or when it is immoral, unethical, or
oppressive. An act is "deceptive" when it has a tendency to deceive. Harris
v. NCNB, 85 N.C.App. 669, 355 S.E.2d 838 (1987)(cited in Young v. Century
Lincoln-Mercury, Inc., 302 S.C. 320, 396 S.E.2d 105 (Ct. App. 1989), reversed
on other grounds, 309 S.C. 263, 422 S.E.2d 103 (1992)). Advertising a
jackpot over the statutory $125 limit is offensive and has a tendency to
deceive a person into thinking that a jackpot ov6r-$125 is legal.16 Thus, we
16We easily reject respondents' argument that there are no restrictions
on "winning jackpots" or an amount of credits worth more than $125.
Respondents contend there is only a limitation that prohibits an operator
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GENTRY v. YONCE
hold that advertising a "jackpot" could be a violation of the UTPA and
dismissal of this cause of action is not appropriate at this stage of the
proceedings.
On appeal, respondents also contend the $125 limit does not prohibit
successive cash payouts over several days and/or the subtracting the amount
of money placed into the machine by the player prior to the operator paying
the $125 limit. We disagree. The circuit court did not interpret § 12-21-2791
in his order. The circuit court merely held that there is no limit on the
amount of free game credits a player may earn during a 24-hour period and §
12-21-2791 limits the amount of cash payouts for free game credits earned to
$125 in any 24-hour period. However, we take this opportunity to hold that §
12-21-2791 states exactly what it means.
The statue is not ambiguous. "When the terms of a statute are clear
and not ambiguous, there is no room for construction and the Courts are
required to apply such according to their literal meaning." McMillen Feed
Mills, Inc. v. Mayer, 265 S.C. 500, 220 S.E.2d 221 (1975). Allowing video
operators to pay out a larger jackpot over several days would render the
statute meaningless. It would nullify the limit. Further, to subtract how
much the player has deposited into the machine would likewise render the
statue meaningless. 17Statutes should not be construed so as to lead to an
absurd result. Carolina Power & Light v. Town of Pageland, 321 S.C. 5382
471 S.E.2d 137 (1996). We will reject a meaning when to accept it would
lead to a result so plainly absurd that it could not have been intended by the
Legislature or would defeat the plain legislative intention. Kiriakides v.
from redeeming more that $125 worth of free game credits. Accepting
respondents' argument would render the advertising "unfair" because as
stated 'above an act is unfair under the UTPA when it has a tendency to
deceive. Surely, the average person playing video poker that advertises the
winning of a jackpot would assume that the operator would pay the
advertised jackpot amount if won.
17We note that the video poker industry as ' whole has not been
subtracting a player's deposits into the machine from his total winnings
when paying out. Thus, the procedures followed by the industry in paying
out winnings do not even comply with or support this interpretation of the
$125 payout limit.
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GENTRY v. YONCE
United Artists Communications, Inc., 312 S.C. 271, 440 S.E.2d 364 (1994).
Thus, we hold the $125 limit is a $125 per 24-hour period limit.18 Successive
cash payouts over several days or subtracting the money a player has
deposited into the machine is not authorized under this statue and would
render the $125 limit meaningless.19
In conclusion, on the basis of the complaint it cannot be stated
appellants are not entitled to any relief whatsoever. Accordingly, we reverse
the circuit court's ruling that the RICO cause of action must be pled with
particularity, §§ 12-21-2804(A) and (B) cannot serve as predicate acts under
RICO, the UTPA cause of action was not sufficiently pled, and the conduct
alleged in violation of the UTPA is authorized by law or is exempted. We
affirm the circuit court's ruling that §12-21-2791 cannot serve as a predicate
act.
AFFIRMED IN PART AND REVERSED IN PART.
FINNEY, C.J., TOAL, BURNETT, JJ., and Acting Associate
Justice George T. Gregory, Jr., concur.
18The United States District Court held similarly in Johnson v. Collins,
C.A. No. 3:97-2136-17 (D.S.C. filed September 15, 1998, and April 28, 1999),
that the $125 payout limit is $125 per 24-hour period, and alleged violations
of §§ 12-21-2804(A) and (B) can serve as predicate acts in a RICO cause of
action. The order which granted permanent injunctive relief has been stayed
by the Fourth Circuit Court of Appeals pending appeal of the injunction
order on its merits. Johnson v. Collins, No. 98-2225(L)(CA-97-2136-3-17) (4 th
Cir. filed July 7, 1999). However, the District Court's ruling and analysis on
the above issues are consistent with our opinion.
19Again, we note that the General Assembly-has recently passed
legislation which increases the payout limit to $500 regardless of the amount
of money deposited into the machine by the player. This part of the
legislation takes effect December 1, 1999) if a majority of the voters decide in
the November 2nd referendum that cash payouts on video game machines
should continue.
p.35