Antitrust suits target Big 3, casket companies
by ICFA General Counsel Robert M. Fells, Esq.
As widely reported in the national news media in early May, Funeral Consumer Alliance, a consumer advocacy group, together with several individuals, filed a private antitrust lawsuit in a northern California federal district court against Service Corporation International, Alderwoods, Stewart Enterprises and Hillenbrand Industries/Batesville Casket Co.
The litigation seeks standing as a class action on behalf of consumers throughout the United States who were allegedly overcharged for caskets during the last four years. Plaintiffs claim that defendants violated federal and state antitrust laws through alleged price- fixing agreements and group boycotts and by engaging in an alleged conspiracy to monopolize the casket market to the detriment of consumers and independent casket dealers.
The complaint also identifies alleged "co-conspirators" that have not thus far been named as defendants in the litigation, including Aurora Casket Co., The York Group and the National Funeral Directors Association. The complaint's only reference to the ICFA was to note its open competition policy, stating that the ICFA criticizes state laws that limit casket sales exclusively to licensed funeral directors.
Plaintiffs seek a permanent injunction to restrain alleged illegal conduct, and treble damages plus interest as compensation for overcharges, among other forms of relief. Typically, antitrust litigation of this scope proceeds slowly over a long period with a number of procedural challenges to be decided by the court prior to focusing on the issues. Such challenges include whether the plaintiffs have standing to sue and whether the complaint should be dismissed for a failure to state a claim upon which relief can be granted.
A second private antitrust lawsuit involving similar issues was subsequently filed in a Tennessee federal district court by different plaintiffs, listed as, "Ralph L. Fancher on Behalf of Himself and All Others Similarly Situated." The defendants were the same as those named in the California litigation, with the addition of the York Group Inc. and Aurora Casket Co.
Decision in favor of cemetery stands
The Indiana Supreme Court voted 3-2 against reviewing the appeals court decision in SCI Indiana Services Inc. v. D.O. McComb & Sons Inc., a case that challenged a cemetery's policy of limiting to itself or its agents the right to open and close graves, as well as the constitutionality of the state law that authorized the cemetery policy.
The appeals court had ruled in favor of the cemetery, currently owned by SCI, which had claimed that it was not bound under a contract made by the previous owner to allow a third-party, McComb, to open and close graves in the cemetery.
The appeals court also upheld the state law as necessary to maintain public health, safety and welfare.
The ICFA, together with the Indiana Cemetery Association, filed an amicus curiae or "friend of the court" brief with the state supreme court, urging it to affirm the lower court decision. The case is of interest to cemeteries in several states outside of Indiana because other jurisdictions have enacted similar laws. The 1997 Indiana statute, titled the Exclusive Rights Act, states in part, "Because the owner of a cemetery is responsible for the performance of the care and maintenance of the cemetery, the cemetery owner has the exclusive right to: 1) open and close a grave or grave space, burial space, crypt or niche in a cemetery. … This exclusive right may also be exercised by the authorized representative of the cemetery owner."
Despite the clear language of the statute allowing a cemetery to hire an agent to perform the work, McComb's "friend of the court" parties filed briefs arguing that the law prohibited cemeteries from hiring agents if they lacked the staffing.
The state supreme court declined to consider the appeals court decision by noting that "the Court has reviewed the decision of the Court of Appeals. Any record on appeal that was submitted has been made available to the Court for review, along with any and all briefs that may have been filed in the Court of Appeals."
As a result of the supreme court's denial of petition, the appeals court decision is a final adjudication and ends this litigation. To the best of our knowledge, this case represents the first time any "grave opening/closing" legislation has been scrutinized by a court of law.
Positive IRS ruling
The Internal Revenue Service recently made public a private letter ruling, PLR 200518081, which examines whether a cemetery exempt from federal taxation under section 501(c)(13) can own and operate a for-profit subsidiary company that sells "final expense" insurance products. The IRS also ruled whether dividends from the subsidiary would be taxable to the cemetery as unrelated business income.
According to the fact situation, the insurance subsidiary would have a board separate from the cemetery, though two of the five board members would be from the cemetery, and the subsidiary would maintain its own financial system, among other points.
The IRS held that the insurance subsidiary was engaged in a business purpose not attributed to the cemetery, nor did the cemetery control the day-to-day operations of the subsidiary. Therefore, the IRS found that the creation, ownership and operation of the subsidiary by the cemetery would not cause the cemetery to lose its tax-exempt status. Also, the IRS held that the subsidiary's dividends are excluded from the computation of unrelated business income tax by the cemetery.
Private letter rulings are directed only to the organizations requesting them and may not be used or cited by others as precedent. However, private letter rulings are useful as an indication of the IRS's thinking on an issue.
ICFA members who would like a copy of PLR 200518081 should contact Bob Fells at 1.800.645.7700.