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25158 - Westside Quik Shop, Inc et al. v. Stewart, et al.
Westside Quik Shop, Inc. et al., v. Stewart et al.,


Shearouse Adv. Sh. No.
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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