S.E. 2d
THE STATE OF SOUTH CAROLINA
In The Supreme Court
Westside Quik Shop,
Inc., Phelix C. Byrd,
Ree M. Byrd, and
Winner's Pot of Gold
Hot Spot, Inc., Plaintiffs,
v.
Robert M. Stewart, Sr.,
in his official capacity as
Chief of the State Law
Enforcement Division;
and Charles M. Condon,
in his official capacity as
Attorney General for
the State of South
Carolina, Defendants.
IN THE ORIGINAL JURISDICTION
Opinion No. 25158
Submitted June 20, 2000 - Filed June 21, 2000
INJUNCTION DENIED
George M. Hearn, Jr., of Hearn, Brittain & Martin,
P.A., of Conway; John L. Napier, of Winston &
Strawn, of Washington, D.C.; and Roger J. Marzulla
and Nancie G. Marzulla, both of Marzulla &
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Westside Quik Shop, Inc., et al. v. Stewart and Condon
Marzulla, of Washington, D.C., for plaintiffs.
Attorney General Charles M. Condon, Assistant
Deputy Attorney General Robert D. Cook, Assistant
Deputy Attorney General J. Emory Smith, Jr., Senior
Assistant Attorney General Nathan Kaminski, Jr.,
Assistant Attorney General Christie Newman
Barrett, and Richard H. Seamon, of University of
South Carolina School of Law, all of Columbia, for
defendants.
JUSTICE MOORE: Plaintiffs are the owners and lessees of
video gaming machines used for profit in their places of business. On May
25, 2000, plaintiffs filed this action in circuit court challenging the
constitutionality of 1999 S.C. Act No. 125 which, among other things, makes
possession of these machines illegal as of July 1, 2000. Plaintiffs seek an
injunction against enforcement of the Act claiming it effects an
unconstitutional taking of their property without just compensation.
Because of the great public interest in finally determining this matter,
we accepted the case in our original jurisdiction and ordered expedited
briefing. Having considered the extensive briefs of the parties, we hold
compensation is not constitutionally required under either our Federal or
State Constitutions. Accordingly, we deny the injunction.
BACKGROUND
For nearly seventy years, gaming machines have been illegal in this
State and subject to forfeiture as contraband. In 1931, the General
Assembly enacted a comprehensive statute outlawing the possession of all
forms of gambling devices, including vending machines that could be
operated as gambling devices. 1931 S.C. Act No. 368. 1 In 1982, however, the
General Assembly enacted an exemption for "video games with free play
feature" which were a relatively recent technological development. 1982 S.C.
1 Codified as 1932 Code of Laws § 1301-A.
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Act No. 466. 2 In State v. Blackmon, 304 S.C. 270, 403 S.E.2d 660 (1991), we
held nonmachine cash payouts from these video gaming machines were legal
under a pre-existing statute, S.C. Code Ann. § 16-19-60 (Supp: 1999). 3
In the ensuing years, our State witnessed the dramatic growth of video
gaming into a multi-billion dollar industry that became the subject of much
public debate. Despite the repeated introduction of legislation aimed at
repealing the exemption for video gaming machines, 4 no legislation was
passed until 1993. In July of that year, the General Assembly provided for
local option referenda to be held on a county by county basis to determine
whether nonmachine cash payouts for video gaming should become illegal.
1993 S.C. Act No. 164, Pt. II, § 19H. In November 1994, twelve counties
voted in favor of making such payouts illegal. The local option referenda,
however, were ultimately struck down by this Court in 1996 as
unconstitutional special legislation. Martin v. Condon, 324 S.C. 183, 478
S.E.2d 272 (1996). Cash payouts once again became legal throughout the
State.
In November 1998, this Court upheld, the statutory scheme regulating
video gaming machines against a challenge that this type of gaming device
constituted an unconstitutional lottery. Johnson v. Collins Entertainment
Co., 333 S.C. 96, 508 S.E.2d 575 (1998).
Finally, in an extra session called by the Governor in June 1999, the
General Assembly enacted 1999 S.C. Act No. 125 providing for a November
referendum to be held statewide to decide the fate of video gaming. Voters
2 Codified as S.C. Code Ann. § 52-15-10 and subsequently recodified as
§ 12-21-2710. In 1997, this section was amended to limit the exemption for
video games to those "which meet the technical requirements provided for in
Section 12-21-2782 and Section 12-21-2783." 1997 S.C. Act No. 155, Pt. II,
§ 54(B).
3 Repealed effective July 1, 2000, by 1999 S.C. Act No. 125, Pt. I, § 8.
4 See, e.g, H.R. 3823, 108th Leg., 2d Sess. (1989) (bill to repeal §
16-19-60); H.R. 3867, 108th Leg., 2d Sess. (1989) (bill to make it unlawful to
have or to operate a machine for playing games which utilizes a deck of
cards); H.R. 3104, 109th Leg., 1st Sess. (1991) (bill to repeal § 16-19-60).
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would be asked whether cash payouts for video gaming machines should
continue to be allowed after June 30, 2000. If voters answered "no," Part I of
the Act would become effective July 1, 2000. This part of the Act repeals
§ 16-19-60, which allows nonmachine cash payouts, and amends S.C. Code
Ann. § 12-21-2710 (2000) to remove the exemption for video gaming
machines, thereby rendering the possession or operation of these machines
illegal. 5 Further, under S.C. Code Ann. § 12-21-2712 (2000), these machines
are then subject to forfeiture and destruction by the State. 6
Before the referendum was held, an action was brought challenging its
constitutionality. After taking the case in our original jurisdiction, in
October 1999, this Court struck down the referendum but severed it from the
remaining parts of the Act. Specifically, we found Part I, which bans the
possession or operation of these machines, to be a free standing legislative
enactment and therefore valid. Joytime Distrib. and Amusement Co. v.
State, Op. No. 25007 (S.C. Sup. Ct. filed October 14, 1999) (Shearouse Adv.
Sh. No. 32 at 10). Accordingly, on July 1, under §§ 12-21-2710 and -2712,
these machines will become contraband subject to forfeiture and destruction
regardless of their use or operability. See State v. 192 Coin-Operated Video
Game Machines, 338 S.C. 176, 525 S.E.2d 872 (2000).
5 Section 12-21-2710, as amended effective July 1, 2000, provides in
part:
It is unlawful for any person to keep on his premises or operate
or permit to be kept on his premises or operated within this
State any vending or slot machine, or any video game machine
with a free play feature operated by a slot in which is deposited a
coin or thing of value . . . .
6 Section 12-21-2712, as amended effective July 1, 2000, provides:
Any machine, board, or other device prohibited by Section 12-21
2710 must be seized by any law enforcement officer and at once
taken before any magistrate of the county in which the machine,
board, or device is seized who shall immediately examine it, and
if satisfied that it is in violation of Section 12-21-2710 or any
other law of this State, direct that it be immediately destroyed.
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More than seven months after our decision in Joytime and less than
six weeks before the impending ban will go into effect, plaintiffs commenced
this action.
ISSUES
I. Are plaintiffs entitled to compensation for the forfeiture of their
video gaming machines?
II. Are plaintiffs entitled to compensation for their loss of business?
III. Are plaintiffs entitled to compensation for the real property upon
which their businesses are located?
DISCUSSION
I.
Plaintiffs contend Act. No. 125 should be enjoined because it effects a
taking of their video gaming machines without compensation. We find
plaintiffs are entitled to no compensation because their machines are
lawfully subject to forfeiture as contraband.
The forfeiture of contraband that comports with the Fourteenth
Amendment's Due Process Clause 7 is not a compensable taking under the
Takings Clause of the Fifth Amendment. 8 Bennis v. Michigan, 516 U.S. 442,
452 (1996); see also United States v. $7,990.00 in U.S. Currency, 170 F.3d
843 (8th Cir. 1999). Nor is it a compensable taking under the corresponding
provision of our State Constitution, article I, § 13. Myers v. Real Property at
1518 Holmes Street, 306 S.C. 232, 411 S.E.2d 209 (1991).
Under § 12-21-2712, gaming machines that are operated or possessed
7 " [N]or shall any state deprive any person of life, liberty, or property,
without due process of law." U.S. Const., Amend. XIV, § 1.
8 "[N]or shall private property be taken for public use, without just
compensation." U.S. Const., Amend. V.
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in violation of § 12-21-2710 are subject to forfeiture as contraband per se.
192 Coin-Operated Video Game Machines, supra. Act No. 125 amends § 12
21-2710 to include the video gaming machines in question which will become
subject to forfeiture under § 12-21-2712 as of July 1, 2000. We have already
determined that the forfeiture of gaming machines pursuant to these
statutes accords with due process requirements. Id. 9 We see no reason to
answer this question differently where the forfeiture applies to video gaming
machines that until recently were not contraband.
In determining whether the forfeiture of a particular type of property
violates due process, we consider the nature of the property, the necessity for
its sacrifice, and the extent to which it has heretofore been regarded as
within the police power. See Sentell v. New Orleans & C.R. Co., 166 U.S.
698, 705 (1897); Peoples Program for Endangered Species v. Sexton, 323 S.C.
526, 529, 476 S.E.2d 477, 479 (1996). Gaming devices in general have long
been recognized as legitimately within the police power of the State to
control or take by forfeiture, Lawton v. Steele, 152 U.S. 133, 136 (1894), and
we have consistently deferred to the legislature's determination of what
gaming devices must be sacrificed for the public welfare. See, e.g., Johnson
v. Collins Entertainment Co., supra. Further, we have acknowledged the
difficulty of enforcing statutes prohibiting gaming. State v. Kizer, 164 S.C.
383, 162 S.E. 444 (1932), overruled on other grounds, State v. 192 Coin
Operated Video Game Machines, 338 S.C. 176, 525 S.E.2d 872 (2000). As
the United States Supreme Court has observed, forfeiture serves a deterrent
purpose both by preventing the further illicit use of the property and by
imposing an economic penalty, thereby rendering the illegal behavior
unprofitable. Bennis, 516 U.S. at 452 (quoting Calero-Toledo v. Pearson
Yacht Leasing Co., 416 U.S. 663, 687 (1974)). We conclude the forfeiture of
gaming machines pursuant to º§§ 12-21-2710 and -2712 comports with due
process even when applied to machines that were previously lawfully
possessed.
Further, we note there will have been a lapse of more than eight
months from the time Part I of Act No. 125 became law by decision of this
Court in October 1999 and the date it becomes enforceable on July 1, 2000.
9 We construed § 12-21-2712 to include an opportunity for the owner to
contest the magistrate's determination of illegality. Id. at 16.
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During this time, plaintiffs owning video gaming machines have been free to
profitably dispose of them out of state. These plaintiffs have had a
reasonable period of time to avoid any forfeiture of their property and cannot
claim a compensable taking. See Hamilton v. Kentucky Distilleries &
Warehouse Co., 251 U.S. 146 (1919) (finding no taking under War-Time
Prohibition Act which prohibited sale of liquor but allowed a period of seven
months and nine days to dispose of stored liquor).
We find the forfeiture of plaintiffs' video gaming machines, or their
leasehold interest in these machines, is not a compensable taking under
either our Federal or State Constitutions.
II.
Plaintiffs claim the forfeiture of their video gaming machines effects a
taking of their businesses.
It has long been settled that injury to a business dependent on
confiscated property is not compensable under the Fifth Amendment.
United States v. Petty Motor Co., 327 U.S. 372 (1946); Mitchell v. United
States, 267 U.S. 341 (1925); Joslin Mfg. Co. v. City of Providence, 262 U.S.
668 (1923); cf. Kimball Laundry Co. v. United States, 338 U.S. 1 (1949)
(where government has taken business for continued operation by
government entity, Fifth Amendment requires compensation for going
concern value); see also United States v. 57.09 Acres of Land, 757 F.2d 1025
(9th Cir. 1985); Hooten v. United States, 405 F.2d 1167 (5th Cir. 1969); United
States v. Becktold Co., 129 F.2d 473 (8th Cir. 1942); cf. Yachts America. Inc.
v. United States, 779 F.2d 656 (Fed. Cir. 1985) (destruction of business not
compensable as separate element although value of business may be
indirectly considered in valuation of land). The Fifth Amendment Takings
Clause concerns itself solely with the owner's relation to the physical thing
and not with consequential damages. United States v. General Motors
Corp., 323 U.S. 373 (1945). Collateral damages, which include lost business
profits and goodwill, are not recoverable on a federal takings claim. Id.;
Mibbs v. South Carolina Dept of Revenue, 337 S.C. 601, 524 S.E.2d 626
(1999); Carolina Power & Light Co. v. Copeland, 258 S.C. 206, 188 S.E.2d
188 (1972).
We apply this same analysis to the takings claim under our State
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Constitution and find no taking of plaintiffs' businesses under either
constitution.
III.
Plaintiffs claim the forfeiture of their video gaming machines effects a
taking of the real property upon which their businesses are located.
To the extent § 12-21-2710 may be considered a land use regulation,
we consider its economic impact, its interference with reasonable
investment-backed expectations, and the character of the governmental
action in determining whether there has been a regulatory taking. Eastern
Enterprises v. Apfel, 524 U.S. 498 (1998). Although plaintiffs assert their
real property is well-suited in location and configuration only to the video
gaming business, they cannot tenably claim it will have absolutely no
economic value if no longer used to house video gaming operations. Further,
even if the regulation does deny the owner all economically viable use of his
land, it does not constitute a taking if it substantially advances legitimate
government interests. Lucas v. South Carolina Coastal Council, 505 U.S.
1003 (1992). As discussed above, we find the forfeiture of video gaming
machines does substantially advance legitimate government interests in
prohibiting illicit gaming.
Moreover, even where he is deprived of all economically viable use of
his property, an owner must still have reasonable investment-backed
expectations to establish a taking. Good v. United States, 189 F.3d 1355
(Fed. Cir. 1999); McQueen v. South Carolina Coastal Council, Op. No. 25108
(S.C. Sup. Ct. filed April 17, 2000) (Shearouse Adv. Sh. No. 15 at 1). A
property owner operating in a highly regulated field cannot assert a
reasonable expectation that government regulation will not be altered to his
detriment. Concrete Pipe and Products of California Inc. v Constr.
Laborers Pension Trust for Southern California, 508 U.S. 602 (1993);
Connolly v. Pension Benefit Guar. Corp, 475 U.S. 211 (1986). Where, as
here, the regulatory climate renders an owner's investment-backed
expectations unreasonable, no taking will be found. Good, 189 F.3d at 1362
63 (finding that in light of growing public consciousness and sensitivity on
issue, owner must have been aware that the standards and conditions
governing the issuance of permits could change to his detriment).
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We apply this same analysis to the takings claim under our State
Constitution and conclude plaintiffs have established no taking of their real
property under either constitution.
CONCLUSION
Because we find plaintiffs' takings claims to be without merit, we
refuse to enjoin the enforcement of Part I of Act No. 125. Further, we
summarily dispose of plaintiffs' 42 U.S.C. § 1983 cause of action. See Brown
v. Evatt, 322 S.C. 189, 470 S.E.2d 848 (1996) (§ 1983 cause of action fails
where no constitutional deprivation).
INJUNCTION DENIED.
TOAL, C.J., BURNETT, PLEICONES, JJ., and Acting Justice
James W. Johnson, Jr., concur.
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