Johnson v. Collins Entertainment Co., Inc.

• Decision Date: 28 May 2002
• Docket Number: No. 25474.,25474.
• Citation: 349 S.C. 613,564 S.E.2d 653
• Court: South Carolina Supreme Court
• Parties: Joan Caldwell JOHNSON, Bryce Anderson, Lorraine Witherspoon Baker, William Bell, Faye Blaylock, Sara Edell Boan, Mike Brewer, Mike Brown, Ronald Callahan, Sandra Coulter, Lisa Crum, Andreas Drutis, Darryl Bernard Epps, Buster Elfin Floyd, Deanna Kay Frans, William Joseph Harnett, Jr., George Henley, Loretta Jones, Margaret Locklear, Tammy Locklear, Linda McCleod, William McCormick, Hugh Meise, Patty Miller, Andrew Nobles, Gary Padgett, Mary Pinchback, Vardry Pittman, Albert J. Samra, Mason Skeenes, Danny Kay Smith, Amber Strickland, Charles Stubbs, Lonya Thigpen, James Thompson, Joseph Chester Walker, Jessie Williams, Valerie Williams, on behalf of themselves and all others similarly situated, Plaintiffs, v. COLLINS ENTERTAINMENT COMPANY, INC., Ace Amusement, LLC, American Amusement Company, Inc., American Amusement of Aiken, Inc., B & J Amusement, Best Amusement Co., Broyles & Lutz, Inc., CBA Games, Inc., Carousel Amusements, Coley, Inc., Drew Industries, Fast Freddies, Great Games, Inc., Greenwood Music Co., Inc., H & J of South Carolina, Inc., Holliday Amusement Company of Charleston, Inc., Hoyts Music Co., Inc., Huckleberry Amusement, Inc., Ingram Investments, J.M. Brown Amusement Co., Inc., Joytime Distributors & Amusement, MHJ Corporation, MHS Enterprises, Inc., Martin Coin Machine, Inc., McDonald Amusement Co., Midlands Gaming Corp., Pedroland, Inc., R.L. Jordan Oil Co. of North Carolina, Red Dot Amusements, Rosemary Coin Machines of Florence, Inc., Scott's Vending Inc. of Columbia, Sumter Petroleum Co., Tim's Amusement, Inc., Video-Matic Amusements, Inc., H. Hugh Andrews, II, Pamela A. Andrews, Dwayne I. Bohannon, J.M. Brown, Don E. Broyles, Grace E. Coley, Fred Collins, J. Samuel Cox, Kenneth G. Flowe, Carey Hardee, Scott G. Hogue, Lowell E. Holden, Patricia Holliday, Warren P. Holliday, Henry E. Ingram, Steven E. Lipscomb, Tim Mahon, Jimmy Martin, Jr., Cynthia McDonald, James McDonald, Allan Schaefer, David R. Simpson, Ron Simpson, Mickey H. Stacks, William Darwin Wheeler, and Hershel L. Williamson, Defendants.

349 S.C. 613

564 S.E.2d 653

Joan Caldwell JOHNSON, Bryce Anderson, Lorraine Witherspoon Baker, William Bell, Faye Blaylock, Sara Edell Boan, Mike Brewer, Mike Brown, Ronald Callahan, Sandra Coulter, Lisa Crum, Andreas Drutis, Darryl Bernard Epps, Buster Elfin Floyd, Deanna Kay Frans, William Joseph Harnett, Jr., George Henley, Loretta Jones, Margaret Locklear, Tammy Locklear, Linda McCleod, William McCormick, Hugh Meise, Patty Miller, Andrew Nobles, Gary Padgett, Mary Pinchback, Vardry Pittman, Albert J. Samra, Mason Skeenes, Danny Kay Smith, Amber Strickland, Charles Stubbs, Lonya Thigpen, James Thompson, Joseph Chester Walker, Jessie Williams, Valerie Williams, on behalf of themselves and all others similarly situated, Plaintiffs, v. COLLINS ENTERTAINMENT COMPANY, INC., Ace Amusement, LLC, American Amusement Company, Inc., American Amusement of Aiken, Inc., B & J Amusement, Best Amusement Co., Broyles & Lutz, Inc., CBA Games, Inc., Carousel Amusements, Coley, Inc., Drew Industries, Fast Freddies, Great Games, Inc., Greenwood Music Co., Inc., H & J of South Carolina, Inc., Holliday Amusement Company of Charleston, Inc., Hoyts Music Co., Inc., Huckleberry Amusement, Inc., Ingram Investments, J.M. Brown Amusement Co., Inc., Joytime

Distributors & Amusement, MHJ Corporation, MHS Enterprises, Inc., Martin Coin Machine, Inc., McDonald Amusement Co., Midlands Gaming Corp., Pedroland, Inc., R.L. Jordan Oil Co. of North Carolina, Red Dot Amusements, Rosemary Coin Machines of Florence, Inc., Scott's Vending Inc. of Columbia, Sumter Petroleum Co., Tim's Amusement, Inc., Video-Matic Amusements, Inc., H. Hugh Andrews, II, Pamela A. Andrews, Dwayne I. Bohannon, J.M. Brown, Don E. Broyles, Grace E. Coley, Fred Collins, J. Samuel Cox, Kenneth G. Flowe, Carey Hardee, Scott G. Hogue, Lowell E. Holden, Patricia Holliday, Warren P. Holliday, Henry E. Ingram, Steven E. Lipscomb, Tim Mahon, Jimmy Martin, Jr., Cynthia McDonald, James McDonald, Allan Schaefer, David R. Simpson, Ron Simpson, Mickey H. Stacks, William Darwin Wheeler, and Hershel L. Williamson, Defendants.

No. 25474.

Supreme Court of South Carolina.

Heard December 11, 2001.

Decided May 28, 2002.

Lawrence Edward Richter, Jr., and David K. Haller, both of The Richter Firm, of Mt. Pleasant; R. Randall Bridwell, of Columbia; and Richard Mark Gergel, W. Allen Nickles, III, Carl L. Solomon and David E. Rothstein, of Gergel, Nickles & Solomon, of Columbia, all for Plaintiffs.

Dwight F. Drake, C. Mitchell Brown, B. Rush Smith, III, Zoe Sanders Nettles and R. Bruce Shaw, all of Nelson Mullins Riley & Scarborough; A. Camden Lewis, Mary Geiger Lewis and Mark W. Hardee, of Lewis Babcock & Hawkins, L.L.P., all of Columbia, for Exhibit A Defendants.

Richard A. Harpootlian, of Richard A. Harpootlian, P.A., of Columbia, for Exhibit B Defendants. J. Boone Aiken, III, of Aiken, Bridges, Nunn, Elliott & Tyler, of Florence; and James B. Richardson, Jr., of Richardson & Birdsong, of Columbia, for Defendant Pedroland, Inc.

TOAL, Chief Justice.

We agreed to answer the following questions certified by the United States District Court for the District of South Carolina:

I. Does the ruling in Video Gaming Consultants v. South Carolina Dep't of Revenue, 342 S.C. 34, 535 S.E.2d 642 (2000), apply to the second phrase in S.C.Code Ann. § 12-21-2804(B) prohibiting the offering of "special inducements" or is that portion of the statute otherwise unconstitutional on its face?

II. Would S.C.Code Ann. § 12-21-2804(B) be unconstitutional as applied, if construed to prohibit the offering of cash payouts in excess of $125?

III. Is the special inducement prohibition in S.C.Code Ann. § 12-21-2804(B) applicable to persons who do not themselves "maintain a place or premises," but instead lease machines to others who "maintain a place or premises" on a basis which results in the sharing of profits and under circumstances in which the lessor is aware of the activities which violate section 12-21-2804(B) and, despite that knowledge, accepts profits from the operation of the machines at issue?

IV. Under the findings of fact set forth in the District Court's Memorandum Opinion on Plaintiffs' Motion for Partial Summary Judgment, entered April 28, 1999, in which the facts were viewed in the light most favorable to the defendants, is the defendants' conduct in offering or allowing to be offered, the payment of sums in excess of $125 for credits accumulated on a video gambling machine subject to prosecution under S.C.Code Ann. § 12-21-2804(F) as the unlawful offering of a special inducement to gamble as prohibited by Section 12-21-2804(B)?

V. While the general operation of the devices at issue was authorized by law during all times at issue, and while South Carolina law generally exempts the operation of the devices at issue from statutory penalties under the state's criminal laws relating to gambling, would the activity alleged nonetheless become "a gambling business which is a violation of the law of [the] State" of South Carolina if defendants are proven to have routinely offered and made payouts in excess of that allowed by state law or to have created fraudulent records to disguise the making of such payouts?

VI. Does the availability of a remedy under S.C.Code Ann. §§ 32-1-10 and 32-1-20 for certain gambling losses preclude plaintiffs from seeking recovery under other state law theories for: (a) losses which are compensable under these sections if timely filed; or (b) losses which would not be compensable under these sections regardless of the time of filing?

VII. Under the findings of fact set forth in the District Court's Memorandum Opinion on Plaintiffs' Motion for Partial Summary Judgment, entered April 28, 1999, in which the facts were viewed in the light most favorable to the defendants, does the defendants' conduct constitute an unfair or deceptive act in the conduct of any trade or commerce, as a matter of law, under SCUPA, S.C.Code Ann. § 39-5-10 et seq.?

FACTUAL/PROCEDURAL BACKGROUND

In June 1997, plaintiffs¹ brought this suit in state court alleging that defendants participated in operating video poker machines in a manner which violated state law. The causes of action asserted by the plaintiffs arise under the Racketeer Influenced Corrupt Organizations Act (RICO), the South Carolina Unfair Trade Practices Act (SCUTPA), and S.C.Code Ann. §§ 32-1-10 and 32-1-20 (recovery for gambling losses in excess of $50.00 at any one time or sitting). Because one of the plaintiffs' claims involved federal law (RICO), the defendants removed the action to federal court. However, the District Court also had to deal with several state law issues. In 1998, the District Court certified the following question to this Court: "Do video poker machines violate South Carolina's constitutional ban on lotteries?" By a 3-2 vote, this Court held that video poker does not constitute a lottery. Johnson v. Collins, 333 S.C. 96, 508 S.E.2d 575 (1998).

In February 1999, plaintiffs moved for summary judgment against eight² of the defendants.³ The District Court issued a Memorandum Opinion on April 28, 1999, granting plaintiffs' motion for partial summary judgment. The defendants' appealed. The Fourth Circuit Court of Appeals vacated the District Court's Order. Johnson v. Collins Entertainment Co., 199 F.3d 710 (4th Cir.1999). The Fourth Circuit based its ruling on the federal courts' abstention doctrine established in Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943), and determined the District Court improperly ruled on unsettled issues of state law. The Fourth Circuit remanded the case with directions to stay plaintiffs' damage claims until the state court system could address the unresolved issues of state law.⁴

LAW/ANALYSIS

I. Does the ruling in Video Gaming Consultants v. South Carolina Dep't of Revenue, 342 S.C. 34, 535 S.E.2d 642 (2000), apply to the second phrase in S.C.Code Ann. § 12-21-2804(B) prohibiting the offering of special inducements or is that portion of the statute otherwise unconstitutional on its face?

The defendants argue plaintiffs cannot rely on S.C.Code Ann. § 12-21-2804(B) as a "predicate act" for their RICO claim because in Video Gaming Consultants, Inc. v. South Carolina Dep't of Revenue, 342 S.C. 34, 535 S.E.2d 642 (2000), this Court declared all of section 12-21-2804(B) unconstitutional. We disagree. In Video Gaming, we limited our holding to the first clause of section 12-21-2804(B).

S.C.Code Ann. § 12-21-2804(B) provides as follows:

No person who maintains a place or premises for the operations of machines licensed under § 12-21-2720(A)(3) 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 § 12-21-2720(A)(3).⁵

This section addresses two distinct topics. The first clause of the section provides for a ban on advertising the playing of gaming machines. The second clause of the section provides for a ban on the offering of "special inducements" to play video gaming machines. In Video Gaming Consultants, this Court addressed the constitutionality of section 12-21-2804(B). We identified the issue as follows: "Is the ban on advertising constitutional?" As we began our analysis, we quoted only the first phrase of the statute, observing: "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.'" Video Gaming Consultants, 342 S.C. at 37-38,535 S.E.2d at 644. This Court then analyzed the statute's constitutionality under the commercial speech test set forth in Central Hudson Gas & Elec. Corp. v. Public Serv. Commn., 447 U.S. 557, 100 S.Ct. 2343, 65 L.Ed.2d 341 (1980). Although this Court never made any reference to the second clause of subsection B, the defendants argue that the following...