535 S.E.2d 642 (S.C. 2000), 25177, Video Gaming Consultants, Inc. v. South Carolina Dept. of Revenue

Docket Nº:25177.
Citation:535 S.E.2d 642, 342 S.C. 34
Party Name:342 S.C. 34 VIDEO GAMING CONSULTANTS, INC., Appellant, v. SOUTH CAROLINA DEPARTMENT OF REVENUE, Respondent.
Case Date:July 31, 2000
Court:Supreme Court of South Carolina
 
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535 S.E.2d 642 (S.C. 2000)

342 S.C. 34

VIDEO GAMING CONSULTANTS, INC., Appellant,

v.

SOUTH CAROLINA DEPARTMENT OF REVENUE, Respondent.

No. 25177.

Supreme Court of South Carolina

July 31, 2000.

Heard June 20, 2000.

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[Copyrighted Material Omitted]

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[342 S.C. 36] H. Buck Cutts, of Surfside, for appellant.

General Counsel Harry T. Cooper, Jr., and Chief Counsel for Regulatory Litigation Nicholas P. Sipe, both of Columbia, for respondent.

[342 S.C. 37]MOORE, Justice:

Appellant Video Gaming Consultants, Inc. (Video Gaming), appeals the circuit court's decision holding S.C.Code Ann. § 12-21-2804(b) (Supp.1999) 1 constitutional. We reverse.

FACTS

Video Gaming operates a video gaming business, Jackpot Video Games, in Garden City. On July 27, 1995, and September 25, 1995, respondent South Carolina Department of Revenue (DOR) issued citations to Video Gaming for violating § 12-21-2804(b).

This code section states: "No person who maintains a place or premises for the operation of machines licensed under Section 12-21-2720(A)(3) may advertise in any manner for the playing of the machines." 2 Video Gaming had displayed a large sign reading: "STOP HERE TRY OUR POKER VIDEO GAMES" and two signs stating "JACKPOT VIDEO GAMES." 3

Video Gaming appealed to the Administrative Law Judge (ALJ) challenging the statute on the ground that it violates the First Amendment. The ALJ upheld the citations. Video Gaming appealed to the circuit court. The circuit court affirmed the ALJ.

ISSUES

1) Does the ALJ have the authority to rule on the constitutionality of a statute?

2[342 S.C. 38] ) Is the ban on advertising constitutional?

DISCUSSION

1) ALJ's authority

Initially, we address an issue which has appeared in several recent cases. The ALJ specifically stated he had the authority to declare a statute unconstitutional because an ALJ has the same authority as a circuit court judge. 4 However, we have ruled an ALJ should not rule on the constitutionality of statutes. See Al-Shabazz v. State, 338 S.C. 354, 527 S.E.2d 742 (2000) (ALJs must leave question of statute's constitutionality to the courts). ALJs are an agency of the executive branch of government and must follow the law as written until its constitutionally is judicially determined; ALJs have no authority to pass upon the constitutionality of a statute or regulation. See, e.g., Beaufort County Bd. of Educ. v. Lighthouse Charter Sch. Comm., 335 S.C. 230, 516 S.E.2d 655 (1999); South Carolina Tax Comm'n v. South Carolina Tax Bd. of Review, 278 S.C. 556, 299 S.E.2d 489 (1983). In the present case, the only issue raised is the constitutionality of a statute.

Exhaustion is generally required as a matter of preventing premature interference with agency processes, so that the agency may function efficiently and so that it may have an opportunity to correct its own errors, to afford the parties and the courts the benefit of its experience and expertise, and to compile a record which is adequate for judicial review. Plainly these purposes would

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not be served when the only issue is the validity of a statute. See, e.g., Insurance Commissioner of Md. v. Equitable Life Assurance Soc., 339 Md. 596, 664 A.2d 862 (1995).

Several cases from other jurisdictions have addressed this issue and have dispensed with the exhaustion requirement in certain situations. See, e.g., Finnerty v. Cowen, 508 F.2d 979 (2d Cir. 1974); Martinez v. Richardson, 472 F.2d 1121 (10th Cir. 1973) ; [342 S.C. 39] Marsh v. County Sch. Bd., 305 F.2d 94 (4th Cir. 1962). In Finnerty, the court held for it to require exhaustion of administrative remedies would be both futile and unnecessary when the party sought judicial resolution of only a constitutional question that could not be adjudicated by the federal agency. As here, Video Gaming sought a determination that could not be made by an agency or ALJ. See also Sch. Dist. of City of Saginaw v. United States Dept. of HEW, 431 F.Supp. 147 (E.D.Mich.1977); Plano v. Baker, 504 F.2d 595 (2d Cir. 1974). As a general rule, if the sole issue posed in a particular case is the constitutionality of a statute, a court may decide the case without waiting for an administrative ruling. Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975). Thus, we hold if the only issue is a constitutional challenge to a statute or regulation, a party should seek a declaratory judgment from circuit court rather than going before an ALJ.

We note the mere presence of a constitutional issue does not excuse the exhaustion requirement where there are other issues in controversy. The constitutional issues may be raised, but not ruled upon, in the administrative proceedings. Sch. Dist. of City of Saginaw, 431 F.Supp. 147, 154 (citing Yakus v. United States, 321 U.S. 414, 437, 64 S.Ct. 660, 88 L.Ed. 834 (1944)). However, practically speaking, requiring a party to raise an issue which cannot be ruled upon by an ALJ makes little sense. See Richardson v. Tennessee Bd. of Dentistry, 913 S.W.2d 446 (Tenn.1995) (APA requires more flexible approach and party may raise constitutional challenge upon judicial review). Thus, we hold the issue need only be raised to and ruled upon by the circuit court for preservation for further review.

2) Constitutionality of ban

The circuit court held the ALJ had properly applied the test set forth in Central Hudson. 5 In Central Hudson, the United States Supreme Court held:

[342 S.C. 40] In commercial speech cases, then, a four-part analysis has developed. At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask...

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