Pennsylvania Funeral Directors Ass'n, Inc. v. F.T.C.

• Decision Date: 17 October 1994
• Docket Number: No. 94-3015,94-3015
• Citation: 41 F.3d 81
• Parties: , 1994-2 Trade Cases P 70,748 PENNSYLVANIA FUNERAL DIRECTORS ASSOCIATION, INC., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Third Circuit

Page 81

41 F.3d 81

63 USLW 2272, 1994-2 Trade Cases P 70,748

PENNSYLVANIA FUNERAL DIRECTORS ASSOCIATION, INC., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 94-3015.

United States Court of Appeals, Third Circuit.

Argued Aug. 2, 1994.

Decided Oct. 17, 1994.

T. Scott Gilligan (argued), Kepley, MacConnell & Eyrich, Cincinnati, OH, for petitioner and intervenor.

Jay C. Shaffer, Acting Gen. Counsel, Ernest J. Isenstadt, Asst. Gen. Counsel, and Joanne L. Levine (argued), F.T.C., Washington DC; Matthew Daynard, Bureau of Consumer Protection, F.T.C., of counsel, for respondent.

Cathy Ventrell-Monsees, Steven S. Zaleznick, W. Kent Brunette, and Deborah M. Zuckerman, American Ass'n of Retired Persons, Washington DC; Allen Larson and Eugene Curry, Larson & Curry, Hyannis, MA, of counsel, for amicus curiae.

Before: STAPLETON and GREENBERG, Circuit Judges, and ATKINS, ^* Senior District Judge.

OPINION OF THE COURT

ATKINS, Senior District Judge:

The Pennsylvania Funeral Directors Association, Inc. and the National Funeral Directors Association of the United States, Inc. as intervenor (collectively "PFDA"), have petitioned this court, pursuant to Section 18(e) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. Sec. 57a(e), for review of the Federal Trade Commission's ("FTC") amended Funeral Industry Practices Rule. The PFDA specifically asks this court to invalidate an amendment to the original Funeral Industry Practices Rule ("Funeral Rule") which prohibits all funeral service providers from charging consumers a "casket handling fee" in instances where the consumer has purchased a casket from a party other than the funeral service provider--i.e., from

a third party casket vendor. The PFDA contends that the FTC's decision to implement a ban on casket handling fees was arbitrary and capricious and that the factual findings underlying that decision were unsupported by substantial evidence in the rulemaking record taken as a whole. For the reasons set forth below, we will affirm the amended Funeral Rule, and in particular the ban on casket handling fees.

PROCEDURAL HISTORY

On September 24, 1982, the FTC promulgated the Funeral Rule, which prohibited certain unfair and deceptive practices in the funeral service industry. Trade Regulation Rule; Funeral Industry Practices, 16 C.F.R. Part 453 (1982). The FTC's decision to issue the Funeral Rule was appealed to the Fourth Circuit, and was affirmed in Harry & Bryant Co. v. FTC, 726 F.2d 993 (4th Cir.1984), cert. denied, 469 U.S. 820, 105 S.Ct. 91, 83 L.Ed.2d 37 (1984). The Funeral Rule became effective on April 30, 1984.

One section of the Funeral Rule required the FTC to initiate rulemaking proceedings within four years of the effective date of the Funeral Rule to determine whether the Funeral Rule should be amended or repealed. Pursuant to this provision, the FTC issued an Advanced Notice of Proposed Rulemaking on May 31, 1988, which included the proposed language for the amendment under challenge in this case.

In January, 1994, after comprehensive rulemaking proceedings, the FTC adopted the amendment to the Funeral Rule which is at issue here; that amendment bans casket handling fees. On January 14, 1994, the PFDA petitioned this court for review of the amendment. The National Funeral Directors Association of the United States, Inc., of which Pennsylvania Funeral Directors Association, Inc. is a member, sought and was granted permission to intervene.

FACTS

The Funeral Rule

The Funeral Rule was enacted on September 24, 1982, after extensive rulemaking proceedings and became fully effective on April 30, 1984. The Funeral Rule was premised on evidence that consumers are uniquely disadvantaged when they purchase funeral services after the death of a loved one, due to grief, time constraints, and inexperience. Additionally, the evidence showed that funeral service providers often sold only preselected packages of goods and services such that consumers were forced to purchase goods and services they did not want.

Therefore, the Funeral Rule set forth several requirements and prohibitions to remedy the unfair practices. Specifically, the Funeral Rule required funeral service providers to disclose prices over the telephone and to supply each customer with an itemized price list with every service and good that the provider sold. Additionally, the Funeral Rule required funeral service providers to "unbundle" their price packages, forbidding them from requiring the purchase of a casket for direct cremations and from conditioning the purchase of funeral goods or services on the purchase of any other goods or services; ¹ the purpose was to prevent funeral service providers from forcing customers to purchase goods or services they did not want. ² However, recognizing that each funeral requires the service of a funeral director and staff, the Funeral Rule permitted funeral service providers to charge a non-declinable fee for their professional services.

Several groups challenged the promulgation of the Funeral Rule in 1982 on evidentiary, policy, procedural, statutory, and constitutional bases. However, the Fourth Circuit rejected the challenge and affirmed the Funeral Rule. Harry & Bryant, 726 F.2d 993.

The Amendment Procedures

The Funeral Rule specified that, four years after it took effect, the FTC would In May, 1988, the formal rulemaking proceedings began when the FTC issued a Notice of Proposed Rulemaking. This notice informed recipients that the issue of banning casket handling fees would be considered by the FTC. More comments were submitted (189), public hearings were held in three cities, and evidence, including surveys, was presented to a presiding officer. After the testimony of 83 witnesses was presented, interested groups submitted rebuttal statements and proposed findings, as well as comments on later reports filed by the FTC staff.

initiate a rulemaking amendment proceeding to determine whether the Funeral Rule was operating effectively, whether any amendments to the Funeral Rule were needed, and whether the entire rule should be repealed. The FTC started the rulemaking proceedings in December, 1987, when it solicited comments on the Funeral Rule from consumers and funeral service providers. More than 350 comments were submitted. The majority of the comments came from people and entities which favored retaining and/or strengthening the Funeral Rule. Most funeral service providers, however, favored repealing or weakening the Funeral Rule.

The Casket Handling Fee Amendment

Prior to the enactment of the Funeral Rule, funeral service providers (i.e., funeral homes) were virtually the only parties selling funeral goods. However, after the implementation of the Funeral Rule, the way was paved for third parties to provide various funeral goods--namely caskets. Because funeral service providers could no longer require a consumer to purchase a casket in order to receive any other funeral services, third parties stepped into the markets, but only in some areas. ³ The third parties began selling caskets, primarily on a pre-need basis and usually at a substantially lower price than did the funeral homes. ⁴

In reaction to the increased competition in the area of casket sales, funeral service providers began charging customers a "casket handling fee." This fee averages $300.00 to $500.00, but can be as high as $1,000.00. Funeral service providers charge this fee to customers who have purchased a casket from a third party, but who want to have the remainder of the funeral services conducted at the funeral home. The casket handling fee is non-declinable, but funeral service providers do not charge this fee for "ship-ins," among other select customers. ⁵ Additionally, funeral service providers admit that there is absolutely no additional labor or service or handling involved when a customer provides a casket from a third party to justify such a fee. Rather, the casket handling fee is imposed solely to recover income from the "lost sale" of the casket.

The casket handling fees often negate any savings the consumer might have realized by buying a third party, less expensive casket. In fact, sometimes the imposition of the casket handling fee results in a higher overall "price" for a third party casket as opposed to the caskets sold by funeral homes. As a result, some consumers cancel their third party casket purchases since they would end up paying more overall than if they simply bought the casket from the funeral home. Increased cancellations have evidently caused third party casket sellers to be forced out of the market. Therefore, the FTC promulgated the following as amended Section 453.4(b)(1)(ii) of the Funeral Rule which makes it an unfair practice for a funeral service provider to:

Charge any fee as a condition to furnishing any funeral goods or funeral services to a person arranging a funeral, other than a 16 C.F.R. Sec. 453.

fee for: (1) Services of funeral director and staff, permitted by Sec. 453.2(b)(4)(iii)(C); (2) other funeral services and funeral goods selected by the purchaser; and (3) other funeral goods or services required to be purchased [by law] ...

The FTC did not intend the amended Funeral Rule to prohibit funeral service providers from recouping overhead costs or making profits. Rather, the amendment was intended to make clear that only one non-declinable fee could be charged (the one for the professional services of the funeral director), and that funeral service providers could not seek to recoup overhead and make profits by only charging a casket handling fee to those people who chose to purchase their casket from a competitor.

STANDARD OF REVIEW

The FTC asserts that the amendment at issue here is entitled to a presumption of validity because it merely closes a loophole in the original Funeral Rule, and clarifies the ban on "bundling." However, any substantive amendment to an FTC trade regulation rule is subject to the...