National Funeral Services, Inc. v. Rockefeller

• Decision Date: 01 June 1989
• Docket Number: No. 88-3945,88-3945
• Citation: 870 F.2d 136
• Parties: , 1989-1 Trade Cases 68,472 NATIONAL FUNERAL SERVICES, INC., a West Virginia corporation, Plaintiff-Appellant, v. John D. ROCKEFELLER, IV, Governor of the State of West Virginia; State of West Virginia; the West Virginia Department of Labor, a department of the State of West Virginia; Lawrence Barker, Commissioner of the Department of Labor of the State of West Virginia, Defendants-Appellees, and Amos Quesenberry, an individual; Richard Quesenberry, an individual; Rose & Quesenberry Funeral Home, Inc., a West Virginia Corporation; Thomas Seavers, an individual; Seavers Funeral Home, Inc., a West Virginia Corporation; The WV Funeral Directors Association, a West Virginia Association; Roger Price, Executive Director of the West Virginia Funeral Directors Association, a West Virginia Association; Joseph Christian, an individual; Melvin T. Strider Company, Incorporated; Colonial Funeral Homes; Eackles Funeral Home, Incorporated; Robert Spencer, an individual, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 136

870 F.2d 136

57 USLW 2546, 1989-1 Trade Cases 68,472

NATIONAL FUNERAL SERVICES, INC., a West Virginia corporation, Plaintiff-Appellant, v. John D. ROCKEFELLER, IV, Governor of the State of West Virginia; State of West Virginia; the West Virginia Department of Labor, a department of the State of West Virginia; Lawrence Barker, Commissioner of the Department of Labor of the State of West Virginia, Defendants-Appellees and Amos Quesenberry, an individual; Richard Quesenberry, an individual; Rose & Quesenberry Funeral Home, Inc., a West Virginia Corporation; Thomas Seavers, an individual Seavers Funeral Home, Inc., a West Virginia Corporation The WV Funeral Directors Association, a West Virginia Association; Roger Price, Executive Director of the West Virginia Funeral Directors Association, a West Virginia Association; Joseph Christian, an individual; Melvin T Strider Company, Incorporated; Colonial Funeral Homes; Eackles Funeral Home, Incorporated; Robert Spencer, an individual, Defendants.

No. 88-3945.

United States Court of Appeals, Fourth Circuit.

Argued Nov. 3, 1988.

Decided March 7, 1989.

Rehearing In Banc Denied June 1, 1989.

Robert Stephen Kiss (John A. Hutchinson, Earl Kent Hellems, Gorman, Sheatsley & Hutchinson, L.C., on brief) for plaintiff-appellant.

Ann Adair Spaner, Sr. Asst. Atty. Gen (Charles G. Brown, Atty. Gen., Thomas L. Hindes, Deputy Atty. Gen., and Mark D. Kindt, Asst. Atty. Gen., on brief) for defendants-appellees.

Before HALL, Circuit Judge, BUTZNER, Senior Circuit Judge, and KISER, United States District Judge for the Western District of Virginia, sitting by designation.

K.K. HALL, Circuit Judge:

In this declaratory judgment action, National Funeral Services ("NFS") appeals the district court's judgment, which upheld the constitutionality of W.Va.Code Sec. 47-14-1 et seq. (1983) and found that the Act's provisions were not preempted by the Federal Trade Commission's ("FTC") Funeral Rule, 16 C.F.R. 453. On somewhat different reasoning, we affirm.

I.

This case revolves around the State of West Virginia's attempt to regulate preneed funeral contracts, codified at W.Va.Code Sec. 47-14-1 et seq. (1983). ¹ These contracts have been tightly regulated in the state since 1955, when the West Virginia legislature found them to be void and against public policy unless all of the contract proceeds were placed in trust, pending the contract beneficiary's time of need. W.Va.Code 47-14-1 (as amended in 1965, 1983). Unlike other states that have chosen to regulate these contracts through regulation of the funeral service profession, see Guardian Plans v. Teague, 870 F.2d 123 (4th Cir., Mar. 7, 1989) (Virginia), West Virginia's regulatory scheme focuses on the methods of sale and the terms of the contracts themselves.

The statute establishes a comprehensive regulation of all preneed sales of burial goods, funeral goods, or funeral services, ² and declares preneed contracts void unless they are drafted, solicited, and executed according to its dictates. W.Va.Code Sec. 47-14-1 (1983). It regulates all sellers of such goods and services and requires that they be licensed by the state. Id. Sec. 47-14-3. Likewise, all agents or employees of a seller, who participate in the sale of these contracts, must be state certified. Id. Sec. 47-14-4.

While the general advertisement of these contracts is not restricted, in an attempt to reduce fraud and preserve privacy, the statute prohibits in-person and telephonic solicitation of prospective purchasers in nursing homes, hospitals, and private residences, as well as the solicitation of relatives of persons near death. Id. Sec. 47-14-10. Once a sale is made, the statute establishes elaborate procedures for entrusting the proceeds of the sale ³ and for the disposition of the trust income. Id. Sec. 47-14-5, 8. Also, the Act requires that a seller provide the promised services at the contract price, regardless of whether the price of the services at the time of need exceeds the trust corpus. Id. Sec. 47-14-7. This price guarantee also requires that if the goods and services cost less than the proceeds, the difference must be refunded to the purchaser. Id. Finally, a contract must be revocable at all times by a purchaser, while only revocation for nonpayment is available to a seller. Id. Sec. 47-14-6.

Consistent with its purpose of protecting consumers, the Act creates a civil remedy, complete with attorney fees, for any breach of its provisions. Further, criminal penalties are available for anyone who mishandles contract proceeds. Id. 47-14-8.

It is obvious from this exhaustive regulatory scheme, as well as the express language of the statute itself, that the West Virginia legislature considers these contracts to be a threat to the consuming public. Id. Sec. 47-14-10(e). Through its police powers, it has allowed them to exist only under carefully circumscribed conditions. It is from this perspective that we must view NFS's challenges.

NFS entered the preneed funeral service market in West Virginia in 1980. At that time, the trust requirements ⁴ of the statute had been ruled unconstitutional by an inferior state court. Consequently, NFS began its sales operation without having to comply with the statute's current measures. However, in 1982, the West Virginia Supreme Court of Appeals reinstated the statute's trust requirements, finding them fully constitutional. Whitener v. W.Va. Bd. of Embalmers and Funeral Directors, 169 W.Va. 513, 288 S.E.2d 543 (1982).

In the wake of this decision, the West Virginia legislature, in 1983, substantially overhauled the statute to create the comprehensive regulatory framework present today. Prior to these amendments, many aspects of the regulation were not present, including the solicitation restrictions. Shortly after this overhaul, NFS filed suit.

In the court below, NFS contended that the statute was preempted by federal regulation, challenged several aspects of the statute's constitutionality, and sought a preliminary injunction against its implementation. NFS also alleged various antitrust claims against the West Virginia Funeral Director's Association and several individual funeral directors. Finding the potential for irreparable injury to NFS, the lower court granted a temporary restraining order and a preliminary injunction pending the final adjudication of the constitutional claims.

After a long period of posturing and negotiation, the antitrust claims were eventually settled and the case proceeded to a bench trial on the challenges to the statute. The district court upheld the statute in all respects. ⁵ This appeal followed.

II.

NFS's first contention is that the Funeral Rule, promulgated by the FTC, so pervasively regulates the funeral industry that it preempts West Virginia's extensive regulation of preneed funeral contracts. NFS's alternate contention is that the statute's prohibition of unrequested, in-home personal and telephonic solicitation violates its right to free commercial speech. ⁶ We address the preemption question first.

Beginning in 1972, the FTC conducted an extensive, nationwide investigation into funeral practices. What the investigation revealed was widespread fraudulent sales practices and a general reluctance of funeral directors to disclose the individual prices of the goods and services they marketed as packages. Harry and Bryant Co. v. FTC, 726 F.2d 993, 999-1001 (4th Cir.1984), cert. denied 469 U.S. 820, 105 S.Ct. 91, 83 L.Ed.2d 37. In response to this national problem, the FTC promulgated the Funeral Rule, found at 16 C.F.R. Sec. 453. The goal of the rule "is to lower existing barriers to price competition in the funeral market and to facilitate informed consumer choice." 47 Fed.Reg. 42260 (Sept. 24, 1982). It proscribes several fraudulent sales practices and mandates the pre-sale disclosure of prices to consumers. Specifically, it requires the disclosure of prices to consumers who request such information over the telephone. 16 C.F.R. Sec. 453.2(b)(1)(i). Notably, the rule does not focus on the preneed funeral market, but on the much larger at-need market.

The gist of appellant's preemption argument is that the trusting requirements of the Act, coupled with its prohibitions on solicitation, make it impossible for appellant to profitably stay in business. Thus, the argument goes, this regulation insulates the marketplace from NFS's competition and, consequently, restricts the widespread dissemination of funeral price and product information mandated by the FTC's Funeral Rule. Appellant maintains that the Act's prohibition of door-to-door and telephone solicitation is particularly opposed to the strong public policy behind the Funeral Rule. We find this argument unpersuasive.

In determining whether federal regulation preempts concurrent state regulation, three inquiries are relevant: (1) whether the federal regulation is so pervasive that it is reasonable to assume that Congress did not intend for state regulation; (2) whether the field regulated is an area of such dominant federal interest that preclusion of state regulation must be assumed, and; (3) whether simultaneous enforcement of the state regulation raises the serious danger of conflict with the federal program. Commonwealth of Pennsylvania v. Nelson, 350 U.S. 497, 502-05, 76 S.Ct. 477, 480-82, 100 L.Ed. 640 (1956). This test, applied to the case at hand, clearly shows that West Virginia's regulation is not preempted.

First, we note that the Funeral Rule is a limited regulation focusing on fraudulent sales practices and price disclosure. 47 Fed.Reg. 42260-61 (Sept. 24, 1982). It simply does not attempt a comprehensive regulation of the funeral industry. Furthermore, there is no language in the Funeral Rule that even alludes to an intent to preempt state regulation in the area it does cover. In fact, the Rule expressly states that where a state law is applicable to any transaction that the Rule covers, and...