THE STATE OF SOUTH CAROLINA
In The Supreme Court
Mibbs, Inc., Appellant,
South Carolina Department of Revenue, Respondent.
Appeal From Richland County
James R. Barber, III, Circuit Court Judge
Opinion No. 25024
Heard November 3, 1999 - Filed December 6, 1999
A. Camden Lewis and Mark W. Hardee, both of
Lewis, Babcock & Hawkins, L.L.P.; and Richard A.
Harpootlian and Robert G. Rickard, both of Law
Offices of Richard A. Harpootlian, P.A.; all of
Columbia, for appellant.
James D. Brice and Ronald K. Wray, II, both of
Gibbes, Gallivan, White & Boyd, P.A., of Greenville,
MOORE, A.J.: Appellant (Mibbs) commenced this action against
respondent (Department) to recover for business losses allegedly incurred
when cash payouts for video poker were banned in Anderson and Oconee
counties pursuant to a November 1994 local option referendum. The trial
judge granted Department summary judgment. We affirm.
Mibbs operated two convenience stores, one in Oconee County
and one in Anderson County. In July 1993, the legislature enacted S.C.
Code Ann. § 12-21-2806 which provided for the local option referendum
regarding cash payouts to be held in November 1994. Mibbs subsequently
entered into written contracts1with Best Amusement, Inc. (Best) for the
placement of nine video poker machines in its stores in exchange for a 50%
share of the profits for a term of five years.2 At the time, the Best employee
discussed with Mibbs's owner the recent enactment of § 12-21-2806 and its
possible effect. Best held the licenses for the machines. Mibbs paid no charge
to lease the machines.
In November 1994, Oconee County and Anderson County voted
against continuing cash payouts for video poker. On July 1, 1995, cash
payouts became illegal and Department revoked Best's licenses for the
machines. Mibbs's Anderson County store was sold sometime in 1995; the
Oconee County store went out of business in September 1996. In November
1996, this Court struck down the law providing for the local option
referendum as unconstitutional. Martin v. Condom 324 S.C. 183, 478 S.E.2d
placed in its Oconee County store. This contract was superseded by a second
contract with the same terms signed on October 21, 1993. The parties signed
the same contract applicable to the Anderson County store on October 1,
1993, and July 6, 1994. No reason is given in the record to explain why the
superseding contracts were signed. Best's owner stated he did not know of
2 The contracts provide that Best was entitled to $25 before the split
was calculated but Best's owner testified this was not done in practice.
Mibbs subsequently commenced this action to recover damages
allegedly resulting from the loss of video poker revenue. The complaint
alleged a regulatory taking of Mibbs's contracts with Best and an
unconstitutional impairment of contract. Department asserted immunity as
a defense and moved for summary judgment.
The trial judge found no taking or impairment of contract. In
addition, he found Department absolutely immune under S.C. Code Ann. §
15-78-60(4) (Supp. 1998) which provides that a government entity is not
liable for the enforcement -of any law "whether valid or invalid."
The trial judge's ruling regarding Department's immunity was
not appealed and is the law of the case. In re: Morrison, 321 S.C. 370, 468
S.E.2d 651 (1996). Since Department is immune, summary judgment was
properly granted on all causes of action. Failure to appeal an alternative
ground of the judgment will result in affirmance. South Carolina Tax
Comm'n v. Gaston Copper Recycling Corp., 316 S.C. 163, 447 S.E.2d 843
(1994); Biales v. Young, 315 S.C. 166, 432 S.E.2d 482 (1993). Further, the
issues raised regarding the taking and impairment of contract causes of
action are completely without merit as discussed below.
Mibbs contends the ban on cash payouts resulted in a regulatory
taking of Mibbs's property interest in the contracts in violation of due
In determining whether governmental regulation violates the
takings clause, the Court will consider the economic impact of the regulation,
its interference with reasonable investment-backed expectations, and the
character of the governmental action. Eastern Enterprises v. Anfel, 524 U.S.
498 (1998). Where there is no reasonable investment-backed expectation, no
taking will be found. Id.; Connolly v. Pension Benefit Guaranty Corp., 475
U.S. 211 (1986). In this case, there is no "investment-backed" expectation
since Mibbs invested nothing in obtaining or ,performing these contracts.
Further, Mibbs complains of no taking except lost business
profits. Collateral damages, including lost business profits, are not
recoverable on a takings claim. United States v. General Motors Corp., 323
U.S. 373 (1945) (Fifth Amendment takings clause concerns itself solely with
the owner's relation to the physical thing and not with consequential
damages); Carolina Power & Light Co. v. Copeland, 258 S.C. 206, 188 S.E.2d 1
88 (1972). Here, the contracts entitled Mibbs to no contractual amount in
exchange for placement of the machines in his stores. Had no one played the
video poker machines, Mibbs would have earned no profits from cash
payouts and would have had no recourse under the contracts. The profits
from cash payouts were therefore collateral to the contracts and not
recoverable on a takings claim. General Motors, 323 U.S. at 378.
Moreover, an interest that depends totally upon regulatory
licensing is not a property interest that is compensable under the takings
clause. Mitchell Arms, Inc. v. United States, 7 F.3d 212 (Fed. Cir. 1993).
Mitchell involved the federal government's revocation of import permits for
certain assault weapons after the plaintiff had signed contracts with a
foreign government to purchase such weapons for resale in this country.
The plaintiff claimed its investment-backed reliance on the permits constituted a
compensable property interest under the takings clause. The court found the
plaintiff's right to sell the weapons was not inherent in its ownership of them
because any sale depended upon government import permits. Similarly,
Mibbs's contractual right to the profits from cash payouts depends totally
upon regulatory licensing and is not inherent in its right to possess the
machines. Mibbs's interest in the contracts is therefore not a property
interest that is compensable as a taking.
Further, Mibbs signed the contracts after enactment of the
statute allowing for the local option referendum that ultimately prohibited
cash payouts. The continuing legality of cash payouts was therefore
completely speculative at the time the contracts were signed and Mibbs had
no "reasonable expectation" the contracts would retain their value for the
remainder of the five-year terms. We find no merit in Mibbs's contention
that a taking occurred when the statute providing for the local option
referendum was enacted in light of the fact no property right could have
existed at that time since the contracts had not yet been signed.3
Mibbs has failed to allege a compensable taking and summary
judgment was properly granted on this cause of action.
Impairment of contract
A three-step analysis applies to a Contract Clause claim. First,
the Court must determine whether the State law has in fact operated as a
substantial impairment of a contractual relationship. If the State regulation
constitutes a substantial impairment, the State, in justification, must have a
significant and legitimate public purpose behind the regulation. Once a
legitimate public purpose has been identified, the next inquiry is whether
the adjustment of contractual rights is based upon reasonable conditions and
is of a character appropriate to the public purpose. Energy Reserves Group,
Inc, v. Kansas Power and Light Co., 459 U.S. 400 (1983); see also Ken
Moorhead Oil Co. v. Federated Mut. Ins. Co., 323 S.C. 532, 476 S.E.2d 481
(1996); St. Andrews Pub. Serv. District v. Moseley, 323 S.C. 389, 475 S.E.2d
Mibbs contends because the ban on cash payouts in Anderson
and Oconee counties was struck down by this Court as invalid, it is
unreasonable regulation and therefore unconstitutionally impaired Mibbs's
This argument misapprehends the nature of the Contract Clause
analysis. The threshold inquiry is whether the State law has operated as a
substantial impairment of a contractual relationship. Energy Reserves, 459
U.S. at 411. We have specifically found no substantial impairment of a
of the contracts is irrelevant. Such an agreement would be unenforceable
under the Statute of Frauds. S.C. Code Ann. § 32-3-10 (1991) (agreement
not to be performed within the space of one year from its making not subject
to action for its enforcement). An unenforceable agreement cannot give rise
to any vested property right and therefore can be the basis of no takings
claim. See Barnhill v. City of North Myrtle Beach, 333 S.C. 482, 511 S.E.2d
361 (1999) (no taking where no vested right in property).
contract where the subject of the contract is a highly regulated business
whose history makes further regulation foreseeable. Ken Moorhead Oil,
supra. In this case, further regulation regarding cash payouts was
foreseeable, especially in light of the fact Mibbs signed these contracts after
enactment of the law providing for the local option referendum.
Mibbs complains it could not foresee an invalid regulation of cash
payouts. The reasonableness of the regulation itself is irrelevant at this
point in the inquiry. For purposes of determining whether there was a
substantial impairment of contract, we consider whether the law in question
altered the reasonable expectations of the parties. Ken Moorehead Oil,
supra. At the time the contracts were signed, Mibbs could not have
reasonably expected no regulation would interfere with its profits from cash
payouts. Further, we note that in Martin v. Condon we struck down the ban
on cash payouts because it did not apply statewide, not because it was
substantively invalid regulation.
Moreover, there is no impairment for purposes of a Contract
Clause analysis where the statute does not affect a pre-existing contract
between private parties. Ogden v. Saunders, 25 U.S. (12 Wheat) 212 (1827);
American Nat'l Fire Ins. Co. v. Smith Grading and Paving Inc, 317 S.C.
445, 454 S.E.2d 897 (1995). Here, Mibbs's contracts were entered into after
enactment of the legislation it claims created the impairment.4 We conclude
the trial judge properly granted Department summary judgment on the
Contract Clause cause of action.
Finney, C.J., Toal, A.J., Acting Associate Justices William T.
Howell and C. Tolbert Goolsby, Jr., concur.
no rights protected under the Contract Clause. See Miller v. Rowland, 999
F.2d 389 (9th Cir. 1993) (Contract Clause does not protect unenforceable