ICCFA Fall Management Conference
October 10, 2013
Federal Court & the Political Quagmire of
Unconstitutional Laws: Heffner v. Murphy
James J. Kutz
Jason G. Benion
Post & Schell, PC
17 North Second Street
Harrisburg, PA 17101
(717) 731-1970
jkutz@postschell.com
jbenion@postschell.com
Where Are We Going?
Before
Heffner v. Murphy
Implications for the rest of the county
After
Subject to change…
A little history…
• 1895: First “undertaker”
law
• 1931: First funeral
director law
• January 14, 1952:
Current Funeral Director
Law enacted
When the FDL was enacted…
Segregation was still
legal
“Miranda” rights were
14 years away
Brown v. Board of Education,
Miranda v. Arizona, 384 U.S.
347 U.S. 483 (1954).
436 (1966).
The last Union Civil War veteran…
would not die for another 4½ years.
The “Audit Report”
Why?
• Outdated
• No health purpose
• No consumer protection purpose in law
• Board does not reflect deathcare industry
At the time, the Board agreed…
The State Board of Funeral Directors
• 9 members:
 Commissioner of the Bureau of Professional
and Occupational Affairs
 Designee from the Bureau of Consumer
Protection in the Office of Attorney General
 2 public members*
 5 licensed funeral directors
*One of whom is the trade association’s attorney
Appointment to the Board
• Appointed by the Governor, with the advice and
consent of the Senate
• Legislative oversight
 Senate Consumer
Protection & Professional
Licensure Committee*
 House Professional
Licensure Committee*
*Leaders are funeral directors
Regulatory Capture
FTC Report on Funeral Industry Practices (1978)
Regulatory Capture
PA Audit Report (1994)
Not much has changed
Heffner v. Murphy
• Filed on May 20, 2008
• 30 Plaintiffs: funeral directors, funeral homes,
cemeteries, crematories, salespersons, and
unlicensed individuals
• Constitutional challenge to 12 aspects of the
Funeral Director Law
Overview of Claims
The Pennsylvania Funeral Director Law -1.
Prohibited anyone but licensed funeral directors from
owning funeral homes.
2.
Prohibited a funeral director from owning more than
two funeral homes.
3.
Prohibited a funeral director from passing on a home to
a non-licensee.
4.
Required funeral homes to operate under the name of
their current owner or predecessor name.
5.
Prohibited serving food in funeral homes.
6.
Allowed inspections of funeral homes, at any time, for
any reason, and without a warrant.
Overview of Claims
7.
Prohibited a funeral director from working at more than
two locations.
8.
Prohibited a funeral director from supervising more
than one location.
9.
Required every funeral home to have an embalming
preparation room.
10. Prohibited anyone but licensed funeral directors from
selling cremation.
11. Prohibited funeral directors from owning funeral
merchandise companies.
12. Prohibited commissions and most forms of
compensation for salespeople.
District Court and Third Circuit Support
• Plaintiffs
 ICCFA
 Funeral Consumer
Alliance
 Institute for Justice
• Defendants
 NFDA
 PFDA
Heffner v. Murphy
• On May 8, 2012, the court granted summary
judgment in favor of Plaintiffs on 11 counts, and
in favor of Defendants on 1 count.
• Gave the Board 90 days to react to the decision.
• They didn’t…
Heffner v. Murphy
• On August 22, 2012, the court:
 Declared 11 aspects of the Funeral Director
Law unconstitutional
 Enjoined the Board from enforcing those
aspects of the law
 Awarded Plaintiffs $1.1 million in attorneys’
fees
How the law has changed
The Pennsylvania Funeral Director Law -1.
2.
3.
4.
5.
6.
How the law has changed
7.
8.
9.
10. Prohibited anyone but licensed funeral directors from
selling cremation.
11.
12.
What’s Next?
• Argument before the Court of Appeals
on June 12, 2013
• Decision soon?
Why Federal Court?
• Potentially less deference to state agency
• Avoid the administrative process
• Damages and attorneys’ fees
• Familiarity with federal law
• Discovery
• Appeal
• Time
“The best defense is
a good offense!”
Why Not Federal Court?
• Potentially greater
deference to State
• Delay
• Need to educate about
administrative issues
• Cost
Ownership – Before
• Only a funeral director could own a funeral
home.
• A funeral director could own only one principal
location and one branch.
• Only a funeral director can inherit a funeral
home.
Only PA and MD require owner
to be a funeral director
Exceptions…
• Widows*
• Estates*
• Spouses, children, and grandchildren*
• Pre-1935 corporations
• Asset sale and leaseback
*Only of a Pennsylvania
funeral director
Constitutional Claims
• “Dormant” Commerce Clause
 Benefits in-state interests at the expense of
out-of-state interests
• Substantive Due Process
 Is the regulation rationally related to a
legitimate government interest?
 Pure protectionism
 Exceptions swallow the rule
Ownership – After
• Ownership restrictions violate the Commerce
Clause and Due Process Clause.
• The Board is enjoined from prohibiting
individuals and entities who are not licensed
funeral directors from owning a funeral home.
• The Board is enjoined from limiting the number
of funeral homes that may be owned.
Funeral Home Names – Before
• Name of the licensed funeral director owner or a
predecessor name.
• If funeral director Smith bought the Jones
Funeral Home, Inc.:
 Smith Funeral Home
 Jones Funeral Home
 Smith-Jones Funeral Home
9 other states have a similar rule
Funeral Home Names – Before
Legal
• Terry Funeral Home, Inc.
owned by Board Member
Burrell
• Goldsteins’ Rosenberg’s
Raphael Sacks, Inc.
• Jefferson Memorial
Funeral Home*
Illegal
• Delaware Valley
Cremation Center
• Griffiths Funeral Home,
owned by Mr. Griffiths’
widow
Constitutional Claim
• First Amendment
“Commercial Speech”
 Unless commercial
speech is unlawful
or misleading, the
government cannot
prohibit it without a
substantial reason
Funeral Home Names – After
• Name restrictions
violate the First
Amendment.
• The Board is enjoined
from prohibiting any
lawful and nonmisleading name.
Food – Before
“No food or intoxicating beverages shall be
served in any funeral establishment …”
“Beverages, if served, must be restricted to a
separate room not used for the preparation
and conduct of a funeral service.”
vs.
CT, MA, NJ, and NY also prohibit food
Constitutional Claim
• Substantive Due Process
 Beverage but not food makes no sense
 Experts: no health risk
 Board admitted “there is no reason”
 Customers can bring food?
Food – After
• Food prohibition violates the Due Process
Clause.
• Board is enjoined from prohibiting the service of
food in a funeral establishment.
Inspections – Before
“Inspectors … shall have the right of entry into any
place, where the business or profession of funeral
directing is carried on or advertised as being
carried on, for the purpose of inspection and for
the investigation of complaints coming before the
board and for such other matters as the board
may direct.”
38 states address funeral home
inspections, but many impose limits
Constitutional Claim
• Fourth Amendment
 Prohibits warrantless
searches
 Even of businesses
 No need: stolen car
parts vs. prep room
 No limits on time,
place, or scope
Inspections – After
• Warrantless inspections under the FDL violate
the Fourth Amendment.
• The Board is enjoined from conducting
warrantless inspections of
funeral homes.
Place of Practice & Supervisor – Before
• A funeral director may practice at only one
principal location and one branch.
 But may “assist” others, so long as it is not
“excessive.”
• A funeral director may supervise only one
funeral home.
 But every location must have its own full-time
supervisor.
23 states place some restriction on
supervisors/managers
Constitutional Claims
• Dormant Commerce Clause
 Denies out-of-state competitors the
competitive advantage of clustering
 Board admits: “not economically feasible”
Constitutional Claims
• Due Process Clause
 Applies regardless of call volume
 Goldstein’s Philadelphia locations vs.
Heffner’s “Northern Tier” locations
 Board’s legislative initiative
 “Not economically feasible” for many locations
 One supervisor for principal and branch locations
Place of Practice & Supervisor – After
• Restrictions violate the Commerce Clause and Due
Process Clause.
• The Board may not restrict the number of funeral
establishments at which a funeral director may
engage in the profession of funeral directing.
• The Board may not restrict the number of funeral
establishments at which a funeral director may
serve as a supervisor.
Preparation Room – Before
• “[E]very establishment in which the profession
of funeral directing is carried on shall include a
preparation room.”
26 states have some prep room requirement
Constitutional Claims
• Dormant Commerce Clause
 Denies out-of-state competitors the
competitive advantages of clustering and
centralized embalming
 Audit Report: $40,000 to $50,000 in 1994
Constitutional Claims
• Due Process Clause
 No requirement to use your own prep room
 Board admits: “Significant trend in the industry to
consolidate embalming operations, resulting in
many funeral establishments never actually using
the preparation room.”
 Audit Report
 “Burdensome” and “unnecessary”
 Results in higher costs for consumers
 All parties agree: get rid of it
Preparation Room – After
• Requirement violates the Commerce Clause and
Due Process Clause.
• The Board may not require every funeral
establishment to have a preparation room.
• But embalming must still occur in a preparation
room. See 49 Pa. Code § 172(a).
Cremation – Before
• For decades, cemeteries and crematories
provided cremation directly to the public.
• As cremation rates rose, the Board began
prosecuting for the unlicensed practice of
funeral directing.
• Wholesaler only rule
30 states have some
restriction on direct
disposition
Constitutional Claims
• Commerce Clause
 Pennsylvania funeral homes have monopoly
• First Amendment
 Cemeteries and crematories can perform cremation,
but can’t talk about it
• Due Process Clause
 Funeral directors are not required to know cremation
(they use cemeteries and crematories!)
Cremation – After
Meet the new boss,
same as the old boss
• Cemeteries and
crematories may
not sell cremation
directly to the
public.
• A funeral director
must act as the
middle-man.
Merchandise Companies – Before
• The Future Interment Act permits anyone to sell preneed
merchandise, if 70% of the sale price is placed in trust.
• The Funeral Director Law provides that a funeral director
who enters into a preneed contract “to render funeral
services” must place 100% of money accepted in trust.
•
PFDA v. State Board of Funeral Directors, 494 A.2d 67
(Pa. Commw. Ct. 1985).
Merchandise Companies – Before
• Can a funeral director own and operate a merchandise
company which trusts at 70%?
 1991:
“Grossman Memo”
 1996:
Model Incorporation Kit
 2000s: Investigations and prosecutions
 2007:
Proposed regulation 16A-4815
For example, in NJ, cemeteries cannot sell
monuments
Constitutional Claims
• First Amendment
 Prohibition on the corporate form
• Due Process
 Funeral directors can’t, but everyone else can?
• Contract Clause
 Outlaws contracts that were legal when made
Merchandise Companies – After
• Prohibition violates the First Amendment, Due
Process Clause, and Contract Clause.
• The Board is enjoined from prohibiting a funeral
director or funeral home from owning an entity
which operates and trusts pursuant to the FIA.
Payment of Salespersons – Before
•
Walker v. Flitton, 364
F. Supp. 2d 502 (M.D.
Pa. 2005)
Payment of Salespersons – Before
• Prohibited from “paying a commission … to any person
or persons for soliciting or for business secured, or
paying any gratuity to any person with intent to have
such person aid in securing business.”
• Unprofessional conduct includes, “Paying … a
commission or a valuable consideration for the
solicitation or procurement of clientele.”
Constitutional Claims
• First Amendment
 Walker is meaningless if salespeople can’t be paid
 Right to be paid for honest speech
 Not just commissions; but what’s so bad about
commissions anyway?
Payment of Salespersons – After
• Prohibition on payment to salespeople violates
the First Amendment.
• The Board is enjoined from prohibiting a funeral
director or funeral establishment from paying a
commission or other gratuity to an employee or
agent for soliciting or securing business or for
business secured.
What Does This Mean?
What Does This Mean?
What Does This Mean?
• New opportunities, but no new requirements
• A new Funeral Director Law?