THE
STATE OF SOUTH CAROLINA
In The Court of Appeals
Video Gaming Consultants, Inc., Respondent,
v.
South Carolina Department of Revenue, Appellant.
Appeal From Horry County
J. Stanton Cross, Jr., Special
Circuit Court Judge
Opinion No. 3782
Heard February 11, 2004 Filed
April 26, 2004
REVERSED
Carol I. McMahan, Nicholas P. Sipe, Harry T. Cooper, Jr., of Columbia; for Appellant.
H. Buck Cutts, of Surfside Beach; for Respondent.
HUFF, J.: After prevailing in underlying litigation against the South Carolina Department of Revenue (Department), Video Gaming Consultants, Inc. (Video Gaming) asked that it be awarded attorneys fees pursuant to S.C. Code Ann. 15-77-300 (Supp. 2003). The circuit court awarded $25,286.00 in attorneys fees. The Department appeals. We reverse.
FACTS
Video Gaming operated a video gaming business in Garden City. On July 27, 1995, the Department issued Video Gaming a citation for violation of S.C. Code Ann. 12-21-2804(b) (Supp. 1999) [1] for advertising video games on its premises. Video Gaming had displayed a large sign stating STOP HERE TRY OUR POKER VIDEO GAMES and two signs stating JACKPOT VIDEO GAMES.
Video Gaming appealed the citation to the Administrative Law Judge (ALJ) Division, contending that the States prohibition against advertising violated the protection of free speech afforded by the First Amendment and the relevant statute should be declared void and unconstitutional. The ALJ upheld the citation. The Honorable J. Stanton Cross, Jr., sitting as Special Circuit Court Judge, affirmed the ALJ decision. The South Carolina Supreme Court reversed finding the statute was an unconstitutional restriction on commercial speech. Video Gaming Consultants v. S.C. Dept. of Revenue, 342 S.C. 34, 535 S.E.2d 642 (2000).
After the supreme court issued its opinion, Video Gaming filed a petition for attorneys fees pursuant to S.C. Code Ann. 15-77-300 (Supp. 2003). The case was heard by Judge Cross. He awarded Video Gaming $27,453.00 in fees. In an amended order, Judge Cross reduced the amount by $6,499.00 to correct a billing error and also added $3,404.00 for fees incurred between May 2001 through September 2001 for a total award of $25,286.00 in attorneys fees. This appeal followed.
STANDARD OF REVIEW
On appeal, the trial courts decision regarding an award of attorneys fees under S.C. Code Ann. 15-77-300 (Supp. 2003) will not be disturbed absent an abuse of discretion. Heath v. County of Aiken, 302 S.C. 178, 182, 394 S.E.2d 709, 711 (1990). An abuse of discretion occurs when a trial courts decision is unsupported by the evidence or controlled by an error of law. Zabinski v. Bright Acres Assocs., 346 S.C. 580, 601, 553 S.E.2d 110, 121 (2001).
LAW/ANALYSIS
The Department argues the trial court erred in awarding attorneys fees to Video Gaming. We agree.
The prevailing party to a civil action may recover attorneys fees against a state agency only if the agency acted without substantial justification in pressing its claim against the party and there are no special circumstances that would make the award of attorneys fees unjust. S.C. Code Ann. 15-77-300 (Supp. 2003). Our supreme court held substantial justification does not mean justified to a high degree, but rather justified in substance or in the main-- that is, justified to a degree that could satisfy a reasonable person. Heath v. County of Aiken, 302 S.C. 178, 183, 394 S.E.2d 709, 712 (1990) (quoting Pierce v. Underwood, 487 U.S. 552, 565 (1988), which was applying the federal Equal Access to Justice Act (EAJA), 28 U.S.C. 2412(d)(1)(A) (Supp. 2003) [2] ). In deciding whether a state agency acted with substantial justification, the courts look to the agencys position in litigating the case to determine whether it is one which has a reasonable basis in law and fact. McDowell v. S.C. Dept of Soc. Servs., 304 S.C. 539, 542, 405 S.E.2d 830, 832 (1991). An agencys loss on the merits does not create a presumption that its position was not substantially justified. Kiareldeen v. Ashcroft, 273 F.3d 542, 554 (3rd Cir. 2001); see Pierce, 487 U.S. at 569 (noting the government could take a position that is substantially justified, yet lose).
In awarding attorneys fees to Video Gaming, Judge Cross stated the following:
In further response to [the Departments] Motion to Reconsider, I point out that [the Department] acted without substantial justification when it continued to vigorously prosecute this case after the United States Supreme Court handed down its decision in the 44 Liquormart case [3] in the summer 1996. This decision was handed down before the Administrative Law Judge decision was issued and substantially undercut the legal analysis and argument of the state relative to both the Reyelt [4] and Posadas [5] decisions.
The court then explained that the Department had failed to meet its affirmative duty to disclose to the ALJ Division Court and to this Court the impact and legal effect of 44 Liquormart.
We find no evidence the Department acted without substantial justification in continuing its action against Video Gaming after the United States Supreme Courts decision in 44 Liquormart. Rule 3.3(a)(3) of the Rules of Professional Conduct, Rule 407, SCACR, requires lawyers to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel . . . As the comment to this section notes, [a] lawyer is not required to make a disinterested exposition of the law, but must recognize the existence of pertinent legal authorities.
Our review of the record reveals no indication of the Department being less than forthcoming with regard to the Courts decision in 44 Liquormart. The Department did not fail to disclose the case to the tribunals in the underlying litigation. The parties argued extensively about the proper interpretation of 44 Liquormart during the ALJ hearing. The circuit court likewise engaged in a substantial discussion of the cases impact in its order affirming the ALJ decision. We find no point at which the Department maintained a position that can be viewed as disingenuous.
Furthermore, the Department was in no position to determine that 44 Liquormart had rendered Section 12-21-2804 unconstitutional. All statutes are presumed constitutional. Davis v. County of Greenville, 322 S.C. 73, 77, 470 S.E.2d 94, 96 (1996). As an administrative agency, the Department must follow the law as written until its constitutionality is judicially determined; an agency has no authority to pass on the constitutionality of a statute. Beaufort County Bd. of Educ. v. Lighthouse Charter Sch. Comm., 335 S.C. 230, 241, 516 S.E.2d 655, 660-61 (1999). By continuing its action against Video Gaming, the Department was merely enforcing Section 12-21-2804 as it was obligated to do until a proper court determined the statute to be unconstitutional. Thus, we find the Department had a reasonable basis in law and fact for continuing its action against Video Gaming.
Accordingly, we hold the trial court abused its discretion in determining the Department acted without substantial justification in the underlying litigation. The trial courts award of attorneys fees pursuant to Section 15-77-300 is
REVERSED
STILWELL,J. and CURETON, A.J.,
concur.
[1] This section provided, 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. It was repealed by Act No. 125, Part I, 8, eff. July 1, 2000, 1999 S.C. Acts 1325.
[2] The EAJA provides that a court shall award to a prevailing party other than the United States fees and other expenses . . . incurred by that party in any civil action (other than cases sounding in tort), including proceedings for judicial review of agency action, brought by or against the United States in any court having jurisdiction of that action, unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust. 28 U.S.C. 2412(d)(1)(A) (Supp. 2003).
[3] 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484 (1996).
[4] Reyelt et al. v. S.C. Tax Commn, C/A No. 6-93-1491-3 (D.S.C. 1993).
[5] Posadas de Puerto Rico Assocs. v. Tourism Co. of P.R., 478 U.S. 328, 341 (1986).