Laws, lawsuits, tax rulings, regulatory changes—they can affect your future as much as changes in consumer preferences and demographic shifts. ICFA Government & Legal Affairs Committee Chairman Irwin Shipper fills you in on what's happening and what might happen in the next year.
Keeping up with Congress, courts, the FTC & the IRS
A Leap Forward
Irwin W. Shipper, CCE, has been involved in the cemetery business for more than 50 years. He is President of Rose Hills Memorial Park in Putnam Valley, New York, and formerly was president of Beth Israel Cemetery Association and Woodbridge Memorial Gardens, Woodbridge, New Jersey; with The Loewen Group (now Alderwoods) for several years, before returning to private cemetery ownership. He chaired the New Jersey State Cemetery Board 1972-1994 and earned a law degree from Brooklyn Law School. He is an ICFA past president; has been chair of the ICFA Government and Legal Affairs Committee since 1992; and is a member of the ICFA Hall of Fame.
Welcome, Irwin. We're not superstitious, so the fact that this is our 13th annual interview with you should not be a bad omen. That said, there has been a great deal of litigation related to our profession in recent months. Can you discuss these various lawsuits and place them into some sort of perspective?
I'm not superstitious either, but you are correct that industry-related litigation has increased recently. The most widely publicized case has been the antitrust action by the Funeral Consumers Alliance suing the three largest public companies as well as Hillenbrand/Batesville.
The lawsuit alleges that the defendants conspired to restrict casket sales and fixed prices to make consumers pay more than they would have in a competitive market, among other claims. It's a very ambitious lawsuit, and assuming it's not dismissed early on or settled, it will be working its way through the judicial system for years.
I believe this is the first time a consumers' organization has filed a lawsuit against members of the funeral profession, so this development may change the whole way the trade associations view a group such as FCA.
You mean because it's difficult to build a working relationship with some group that may turn around and sue you?
Yes. Part of the FCA complaint lists a number of "co-conspirators" who are not named as defendants-so far-including the National Funeral Directors Association. So the litigation targets more than the big corporations.
When and if the lawsuit reaches the pretrial discovery stage, I think a number of third parties who today may feel the lawsuit does not involve them at all will be subpoenaed. But this will be some months, if not years, down the road.
Then let's turn to another lawsuit, one that involves cemetery grave opening and closing policies, the Indiana litigation in SCI Indiana Funeral Services v. D.O. McComb and Sons. What's the status of that?
The Indiana appeals court upheld the state law requiring cemeteries or their agents to open and close all graves as constitutional to protect the public health, safety and welfare. The court reasoned that since a cemetery has the responsibility to maintain the integrity of the grave sites in perpetuity, it ought to have the responsibility to perform all openings and closings.
It is interesting that both the Indiana statute and the court view this function as a cemetery obligation. The plaintiffs claimed that the law should be held invalid and want the court to uphold a contract for performing openings and closings that they had with the previous cemetery owner before the law was passed.
The plaintiffs subsequently asked the Indiana Supreme Court to review the lower court decision and the ICFA submitted a friend of the court brief in support of the state law and the appeals court ruling. The Indiana Cemetery Association also joined us in the brief.
I am pleased to report that the state Supreme Court rejected the plaintiffs' petition so the lower court ruling is now a final judgment in the case. Many people will remember a similar case in Indiana over 10 years ago. In fact, the plaintiffs are the same companies so this action brings to a close an issue that has gone on for a long time.
Although the case presents a state and not a federal issue, many cemeteries outside of Indiana should be interested in this case, because a number of states have laws similar to the one in Indiana. So an adverse decision in Indiana—adverse to the cemetery, I should say—could have affected similar laws in other states, at least indirectly.
The ICFA has gotten quite a reputation for its policy of advocating open competition in the funeral and cemetery profession, but the association's position on grave openings and closings seems to be an exception. Can you explain this apparent contradiction?
That's easy, because it's not a contradiction. Everybody wants to save money, so a family might be willing to hire a third party that handles a burial at a lower cost than the cemetery. But adjacent graves containing the vault, casket and marker can be damaged when a nearby grave is opened for burial. It is one of the occupational hazards of cemetery operation.
The Indiana law makes the cemetery solely responsible for any damage-and we agree that's the way it should be. But how can a cemetery assume total responsibility unless its own staff or agents open and close the grave?
In my opinion, the only time this becomes an issue is when there's a perception that the cemetery is exploiting its position by overcharging. I would much rather see authorities investigate this type of incident as a price-gouging issue than to see this function thrown open to anybody who has a backhoe or a shovel. Then it will become the lot owner's problem of trying to find out who damaged the family gravesite.
Under Indiana law, you don't have to look far, because the cemetery is the only party responsible. I think that policy qualifies as true consumer protection.
Before we go on to the next issue, I'd like to comment on something. Readers may notice that a number of the cases we're discussing involve Service Corporation International as defendant. But when you look at the issues involved, you realize that they don't affect only SCI. The issues and the outcome of these lawsuits will have a widespread impact in our profession.
When the plaintiffs first sued the cemeteries in Indiana, they were all independents and, as a profession, we had to raise legal funds to help them-and ourselves-maintain the right to open and close graves. This time, SCI took on the burden of defense in Indiana. So we ought to be intellectually honest and admit that SCI is fighting some legal battles on behalf of many other people in our industry. I think that fact ought to be acknowledged.
Speaking of state laws that are the subject of litigation, please comment on the recent federal appeals court decision regarding the Oklahoma casket law.
There are about nine states with laws restricting the sale of caskets exclusively to funeral directors. A few years ago, federal courts in Tennessee and Mississippi struck down as unconstitutional similar laws in those two states. ICFA applauded these decisions.
When the Oklahoma law was challenged by third-party casket retailers, many people thought the federal court there would rule along the same lines. It didn't; different courts can reach different judgments. The federal district court upheld the Oklahoma state law and even criticized the other federal courts for invalidating the Tennessee and Mississippi statutes.
The decision was appealed and the federal appellate court affirmed the lower court decision and said that a state could legitimately protect a business from competition. This decision was appealed to the U.S. Supreme Court, which declined to review it. So for the two steps forward we took with the Tennessee and Mississippi decisions, we took one step back in Oklahoma.
Let me play devil's advocate here. What's the difference between a state law that restricts casket sales to funeral directors and a state law that restricts grave openings and closings to cemeteries?
That's simple. A casket is a piece of merchandise that can be replaced if delivered damaged, or the purchaser's money can be refunded. There are no continuing maintenance obligations imposed on the seller of a casket. And the Uniform Commercial Code protects the consumer with warranties on the merchandise.
A grave opening and closing is a service that entails a continual maintenance obligation, and I can't think of anything more continual than "perpetuity." If damage occurs, a refund isn't going to satisfy the purchaser. And the consumer is not protected by any warranties I know of.
There is a difference between a cemetery and its perpetual obligation to its lot owners and, say, "Larry's Grave Opening Service." The cemetery, its ownership and/or board of directors will and should be held accountable for what goes on at the cemetery, but "Larry's" sole purpose is to open graves and stay in business. Larry doesn't put money aside in a perpetual care fund and its business model is not set up to make sure it has the resources to fix today's problems tomorrow.
We're in danger of spending the rest of our time discussing other lawsuits, so could you sum up the key decisions?
I'd say there are two more important recent decisions we should mention, and both are good news from the ICFA perspective. Both are from Pennsylvania, and both from the federal district courts.
In March, several cemetery regulations governing third-party marker installation were reviewed and upheld. The case, Monument Builders of Pennsylvania v. The Catholic Cemeteries Association Inc., resulted in a 41-page opinion containing findings of fact and conclusions of law that regulations requiring approval of the kind, size, type, design and craftsmanship of all materials were reasonable.
Also approved were requirements for five-day dealer notification to install, for dealers to additionally insure to at least $500,000 and indemnify the cemetery, for dealers to apply for a work permit and register with the cemetery, and a memorial care fee, among other issues. The court stated that any regulation that the cemetery requires the dealers' customers to follow, it must require its own customers to follow.
The second decision was announced in April, Walker v. Flitton, where another federal district court held that the members of the Pennsylvania State Board of Funeral Directors may not prohibit agents or employees of specific licensed funeral directors from providing accurate information to consumers regarding the sale of preneed funeral plans and services.
The court's opinion was 57 pages long and, among other things, pointed out that board members did not produce any evidence of consumer harm where unlicensed individuals provided consumers with information. Pennsylvania is one of the most restrictive states in terms of competition, so this decision is very important.
A moment ago we mentioned the Funeral Rule. We seem to ask this question every year, but is the FTC ever going to resume the review proceedings?
I think we may see action this year. In late April, the ICFA staff met with FTC Funeral Rule staff, and we were told the reopening of rule review probably will be announced before the end of the year.
Public comments would be solicited to "refresh" the rulemaking record. Remember, the original public comments we all filed are now six years old, and a lot has changed since 1999. However, FTC staff intends to use the old comments to the extent that parties update them, so I think that's important to know.
The most recent proceedings ended in November 1999 with a public roundtable conference of interested parties, including the ICFA. There were a number of issues pending, the most important of which were whether the Funeral Rule should be expanded to all sellers and whether the non-declinable professional service fee should be limited or even prohibited.
One argument made at the time by proponents of expanding the rule to all sellers was the consolidation of the funeral business due to acquisitions by the public companies. Since that trend has reversed during the past five years, it will be interesting to see how that factors into the rule review.
Of course, the ICFA maintains its position that the rule should not be expanded unless the rulemaking record contains substantial evidence of consumer harm by funeral-related sellers who are not covered under the rule and that the rule would prevent or remedy.
Our position parallels the FTC's own internal procedures, and we have obtained funeral-related consumer complaints filed with the FTC through Freedom of Information Act requests to determine the types of problems that consumers experience. We believe such data will be helpful in any findings of fact down the road. (Editor's note: See the Washington Report on page 8 for analysis of this data.)
Before we leave the Funeral Rule, what is the current status of Sen. Christopher Dodd's efforts to codify the rule into a federal statute?
There was a great deal of attention by industry members after Sen. Dodd (D-CT) introduced his bill in November 2002. But when almost two years passed by and nothing more was heard about it, I'm afraid that many people were lulled into a false sense of complacency by thinking perhaps Dodd had lost interest in the issue.
The same can be said for Rep. Mark Foley (R-FL), who introduced a similar bill in the House, also in November 2002. So I'd say there was some surprise when Foley reintroduced his bill last April (2004) and Dodd followed up in November (2004). I can tell everybody for certain that they have not forgotten about this issue and they are not going to lose interest in it. So neither should we.
Is it fair to ask why Dodd and Foley haven't been more aggressive in pushing their proposed legislation?
Such bills need to be timely and topical to attract attention from their colleagues in Congress and from the news media. Both Dodd and Foley are experienced politicians who understand that new bills usually take years to develop before Congress will seriously consider the legislation.
Dodd has just been re-elected to another six-year term and Foley seems to occupy a "safe" seat and will probably be re-elected for as long as he wants to serve. So their strategy is long-term and they will be alert for any headline-grabbing event involving funeral service that will make their proposals timely.
In the meantime, we have to pursue our own strategy, and that includes using the ICFA Political Action Committee to develop relationships with members of Congress. The PAC will help ensure that our profession will receive a fair hearing when-and I don't say if-when these bills are eventually considered.
Also, more of our members should become politically active by contacting and meeting their Congressional representatives. The day will come when we will need ICFA members to call their representatives and senators, and if a relationship has been established, the answer will be, "Hello, Mary," or "Hello, Tom" instead of "Who are you?"
We haven't discussed veterans' burial benefits in a long time, but the ICFA recently testified on Capitol Hill about this issue.
On April 20, Paul Elvig testified on behalf of the ICFA before the House Veterans Affairs Subcommittee on Memorial Affairs in Washington, D.C. The main focus of our testimony was to urge Congress to restore the plot and marker cash reimbursement allowances that had been available to private cemeteries until 1990.
Today, everyone seems to agree that Congress was ill-advised to cut these benefits, but the difficulty now is to get Congress to restore them. Currently, there is a great deal of interest by members of Congress to enhance various veterans benefits due to the increased use of our military in fighting the war on terrorism. So for the first time in many years, there seems to be genuine interest in restoring these allowances. But as I said before, with legislation, timing is important.
At the April hearing, both the Republican chair, Jeff Miller (R-FL), and the ranking minority member, Shelley Berkley (D-NV), agreed to support such legislation. In fact, Rep. Berkley said that she would introduce it. So though we don't expect that the proposal will be acted on immediately, we've made a good start, and that's further than we have been with this issue in years.
Every year there seems to be tax issues to discuss. Anything new?
Always. Most of the ICFA's tax involvement is on the federal level, with the IRS or sometimes with Congress. But we do take the initiative on state taxation issues when they apply across the board in many states. That's the case with the Streamlined Sales Tax Project, which involves 42 states and the District of Columbia, and its Streamlined Sales Tax Act, which has already been adopted in 20 states.
The act calculates sales tax based on the point of delivery, not the point of sale. For funeral homes and cemeteries, this means that if they deliver merchandise or provide services at locations other than their offices, they will be required to track the zip+4 code of the point of final delivery to determine taxability and sales tax rates. So if the point of final delivery occurs in another state, county or city, the seller will have to know and understand how the act applies.
The ICFA has been participating in this project, and we have been urging all of our members to contact their state associations and legislators to express their concerns with how the act is interpreted. I should add that the Washington Report column in the February 2005 issue of ICFM provides detailed information on this issue. (Editor's note: the Washington Report is available online at www.icfa.org. It can be accessed either through the ICFM or government & legal affairs section.)
On the federal level, we understand that the IRS has been increasing its audits of 501(c)(13) cemeteries, though we don't have many details. Obviously, a business undergoing an IRS audit won't announce that fact. However, the ICFA has obtained copies of the IRS audit examination guidelines for (c)(13) cemeteries and made them available to any members who want them. I think the guidelines are helpful in showing tax-exempt cemeteries what to expect during an audit.
Recently the IRS published a private letter ruling that determined the circumstances under which a tax-exempt cemetery can operate a subsidiary that sells insurance and receive tax-free dividends from the subsidiary. Again, the ICFA has obtained copies of the ruling for its members.
I hope that all ICFA members are receiving the ICFA WIRELESS e-mail newsletter where these new developments are first announced. The newsletter, sent out every other Tuesday, is a membership benefit available to any member who sends the ICFA office an e-mail address. It includes links to the ICFA Web page (www.icfa.org) for obtaining copies of documents such as court decisions and IRS rulings.
We've been discussing only the "front-burner" issues so far, but the ICFA also keeps track of a number of back-burner issues.
That's correct. Staff monitors the federal agencies, the courts and, of course, Congress, literally on a daily basis. Today's computer technology, enabling Internet key-word searches, has helped staff discover many important issues I am sure we would have missed just a few years ago.
The association has participated in and continues to monitor developments with the FTC Telemarketing Sales Rule and with the regulations being developed for the CAN SPAM Act that govern the commercial use of e-mail.
Staff also checks on congressional bills such as Senator Dodd's "other" bill regarding VA markers in private cemeteries for potential amendments, and assists state associations with their legislative and regulatory issues.
Part of the ICFA Government and Legal Affairs program focuses on the State Association Legislative Roundtable that convened for its second annual meeting at our convention earlier this year.
The ICFA is establishing a listserv, or e-mail community, specifically for the state associations-separate from The Network listserv- to enable them to network more effectively.
I think one of the most important functions of the ICFA is to facilitate communication among the state associations so one group doesn't have to reinvent the wheel where another group already has experience it can share.
Finally, what are your thoughts about the year ahead?
I have seen a lot of issues and challenges come and go. I started working in this business in 1948 and attended my first association convention in 1950. Today we hear a lot of concern about the public's changing tastes in how they view funerals, burials and memorialization, and about the rising cremation rate, but we've always faced new and perplexing problems.
It has always been true that people who want to be successful and stay successful cannot put their business on automatic pilot, cannot stand by while others decide how their operations will be regulated and cannot ignore the problems colleagues face just because they aren't confronted with those exact problems at the moment. That's why trade associations were invented.
I'd say the decade of the 1990s was a whirlwind time in our profession that only now is coming into historical perspective. I'll leave it to others to say what we did right and where we went wrong, but we are dealing with the consequences of that era today and for the foreseeable future.
At the same time, we are seeing the changing of the guard as people from my generation retire and the younger generation, a bit uncertain perhaps, picks up where we leave off. So there are a number of dynamics in play, but these should not obscure some permanent principles.
For example, our business has never been for people who wanted to make a quick buck, and still isn't. I think it's no coincidence that the most successful people I know of in this profession have been those who plan years into the future. The ones who fall by the wayside seem to be those who just go along day to day.
In the communities we serve, nobody wants to be forgotten and everyone wants to be remembered for having once walked the earth and accomplished something. Until that basic trait of human nature changes, our services will continue to be needed.
The challenge is that the public may not want what we offered 50 years ago, or 30 or even five years ago. I don't see that as a problem but as an opportunity. So I'm very optimistic about our future as we move further into the 21st century, and the ICFA is fortunate to have the most progressive leaders, young and old, in the cemetery and funeral profession.
What is a 'cash advance'?
Do you have to disclose the amount of your service fees? Keep your eyes on Texas ...
The El Paso, Texas, case of Hijar v. SCI Funeral Services should be of genuine concern to any business covered under the FTC Funeral Rule. Similar lawsuits, seeking status as national class actions, have recently been filed in California against the "Big Three."
Basically, the plaintiffs allege that their preneed contracts were breached by the sellers because certain items were not identified as being cash advance items and the amount of the service charge imposed was not disclosed.
Plaintiffs claim violations of state law, creating the breach of contract, but what attracted our attention in particular is plaintiffs' claim that the cash advance requirements of the Funeral Rule were also violated.
Does the FTC Funeral Rule require that the amount of the service charge on cash advance items be disclosed?
Not as far as we know. The Funeral Rule requires that the imposition of a service charge be disclosed, but not the amount of the charge. The rule also limits cash advance items to items the funeral home obtains on the family's behalf, acting really as the family's agent, from other retailers.
The Texas and California lawsuits claim that under the Funeral Rule anything a funeral home obtains from a third party, including caskets and vaults, are cash advance items and the mark-ups must be disclosed to the purchasers.
They completely blur the distinction between goods obtained wholesale for resale to customers and true cash advance situations where the funeral home acts as agent for the customer in obtaining something it does not stock as a courtesy to the customer.
The ICFA as well as others have strongly urged the FTC staff to clarify these distinctions for the benefit of the courts. I believe that if the FTC comes through, the claims will be dismissed as far as breach of contract due to noncompliance with the Funeral Rule. But that remains to be seen.
In the meantime, the plaintiffs in the Hijar case have won the first round and the "friend of the court" briefs filed by the ICFA and many other organizations were not accepted by the court. So we're taking this case very seriously.
Questions about legal and regulatory issues may be addressed to Robert M. Fells, ICFA general counsel, rfells@icfa.org, 1-800-645-7700.
Voluntary but crucial: Government and Legal Fund donations
New issues emerge all the time, so it's important for the ICFA to have the flexibility to move its resources quickly to where they are needed. The Government and Legal Fund is a crucial part of the ICFA's resources, and the most remarkable thing about it is that contributions by ICFA members are voluntary.
I estimate that 90 percent of ICFA members have contributed to the fund at one time or another in its 14-year history. In recent years, contributions have slacked off, although we are drawing from the fund more than ever. For example, last year we received about $66,000 in contributions but spent $152,500.
In addition to underwriting the various projects we've discussed, the fund also:
- pays retainers for the tax and labor law attorneys (Les Schneider and Mike Pepperman, respectively) the ICFA makes available to our members for free telephone consultations;
- pays all of the expenses of the ICFA PAC so that every contribution the PAC receives goes directly to political candidates;
- defrays ICFA's court interventions via friend of the court briefs; and
- covers critical staffing needs to ensure that experienced and dedicated personnel are safeguarding our members' business interests.
Frankly, annual dues alone can't support all these projects and cover all the other resources the association provides for members, so the active support of all our members in the Government and Legal Fund is important. We recently mailed the first fundraising letters for the 2005 campaign and the results so far are encouraging. I think the more our members know what the fund does, the more they will want to support it.
For information about donating to the ICFA Government & Legal Fund, contact Bob Fells at rfells@icfa.org or 1.800.645.7700
Copyright ICFA 2005
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