                                                                                                                           Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


10-17-1994

PA Funeral Dir. Assn. v. FTC
Precedential or Non-Precedential:

Docket 94-3015




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              IN THE UNITED STATES COURT OF APPEALS
                      FOR THE THIRD CIRCUIT


                            No. 94-3015


        PENNSYLVANIA FUNERAL DIRECTORS ASSOCIATION, INC.,

                                                   Petitioner

                                v.

                     FEDERAL TRADE COMMISSION,

                                     Respondent


     Petition for Review of the Federal Trade Commission's
       Amended Funeral Industry Practices Regulation Rule


                      Argued August 2, 1994

        BEFORE:   STAPLETON and GREENBERG, Circuit Judges,
                  and ATKINS,* Senior District Judge

                     (Filed October 17, 1994)



                                T. Scott Gilligan (Argued)
                                Kepley, MacConnell & Eyrich
                                525 Vine Street Suite 2200
                                Cincinnati, OH 45202

                                          Attorney for Petitioner
                                          and Intervenor


                                Jay C. Schaeffer
                                Acting General Counsel
                                Ernest J. Isenstadt
                                Assistant General Counsel
                                Joanne L. Levine (Argued)
                                Federal Trade Commission
                                6th & Pennsylvania Ave., N.W.
                                Washington D.C. 20580
________________________________________
* Honorable C. Clyde Atkins, Senior United States District Judge
for the Southern District of Florida, sitting by designation.
                                 Of Counsel:
                                 Matthew Daynard
                                 Bureau of Consumer Protection
                                 Federal Trade Commission
                                 6th & Pennsylvania Ave., N.W.
                                 Washington D.C. 20580

                                         Attorneys for Respondent


                                Cathy Ventrell-Monsees
                                Steven S. Zaleznick
                                W. Kent Brunette
                                Deborah M. Zuckerman
                                American Association of Retired
                         Persons
                                601 E Street, N.W.
                                Washington D.C. 20049

                                 Of Counsel:
                                 Allen Larson
                                 Eugene Curry
                                 Larson & Curry
                                 Route 28-1185 Falmouth Rd.
                                 P.O. Box 2730
                                 Hyannis, MA 02601

                                         Attorneys for Amicus
Curiae



                      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. § 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 (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 initiate a rulemaking amendment

proceeding to determine whether the Funeral Rule was operating


    1Funeral service providers could still offer packages as an
option to consumers, but they had to offer each good and service
separately, as well.
    2
     Other provisions exist in the Funeral Rule, but they are not
relevant to our decision regarding the challenged amendment.
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.

           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.

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



    3
     Since many states require a person to be a licensed funeral
service provider in order to be able to sell a casket, it is in a
limited amount of states and areas that third parties were able
to enter the market.
    4
     Funeral service providers generally seek to recoup their
overhead costs and profits through the sale of caskets.     Thus,
the mark-up on caskets at funeral homes is substantial and is
often higher than a third party seller marks up his or her casket
price.
    5
     "Ship-ins" occur, for example, when the family resides in a
place other than where the deceased died.      In those cases, a
funeral home in the city where the person died will prepare the
body and provide a casket.    That funeral home then "ships" the
casket to the funeral home that will conduct the funeral.
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 fee
          for: (1) Services of funeral director and
          staff, permitted by § 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]. . .


16 C.F.R.§ 453.

           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 same judicial review as a rule.

Section 18(d)(2)(B) of the FTC Act, 15 U.S.C. § 57a(d)(2)(B).

While the amendment may be related to "unbundling," which was

addressed by the original Funeral Rule, the amendment is not

merely a clarification.    Rather, the amendment at issue here

prohibits a practice that was not being used by funeral service

providers at the time the Funeral Rule was enacted.   Further,

nothing in the FTC Act indicates that amendments are entitled to

a presumption of validity.

            On the other hand, to the extent that some bases for

the original Funeral Rule apply here, this court can look to the

Fourth Circuit's findings in Harry & Bryant Co., 726 F.2d 993 for

guidance.    Therefore, the court will consider the amendment as it

would any FTC regulation rule, taking into consideration that the

Fourth Circuit has already sustained the FTC's findings that

bundling and tying provisions harm consumers, that consumers

cannot avoid such injury, and that the benefits of regulating

bundling practices outweigh the costs.
          Congress established a hybrid standard for judicial

review of FTC regulation rules.   Essentially, a court may set

aside the FTC conclusion if it is not supported by substantial

evidence in the rulemaking record taken as a whole, 15 U.S.C. §

57a(e)(3), American Home Products Corp. v. FTC, 695 F.2d 681, 686

(3d Cir. 1982), or if it is arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law.    American

Financial Services v. FTC, 767 F.2d 957, 985 (D.C. Cir. 1985),

cert. denied, 475 U.S. 1011 (1986);    American Optometric

Association v. FTC, 626 F.2d 896, 904-906 (D.C. Cir. 1980).       The

substantial evidence standard is applied only to the FTC's

factual determinations, while the arbitrary and capricious

standard is applied to all other determinations and conclusions.

American Financial Services, 767 F.2d at 985.

          A factual finding is supported by substantial evidence

if the record contains "such relevant evidence as a reasonable

mind might accept as adequate to support a conclusion."       American

Textile Mfrs. Inst., Inc. v. Donovan, 452 U.S. 490, 522 (1981);

American Home Products Corp., 695 F.2d at 686;     American
Financial Services, 767 F.2d 957.     A court is not permitted to

reweigh the evidence when determining whether the record contains

substantial evidence to support the FTC's conclusion.     Steadman

v. SEC, 450 U.S. 91, 98-99, 100 n.20 (1981), reh'g. denied, 451

U.S. 933 (1981);   Limerick Ecology Action, Inc. v. Nuclear

Regulatory Commission, 869 F.2d 719, 753 (3d Cir. 1989);

American Home Products Corp., 695 F.2d at 686.
          The arbitrary and capricious standard is very

deferential.   Environmental Defense Council v. Costle, 657 F.2d

275, 283 (D.C. Cir. 1981);   see Monsour Medical Center v.

Heckler, 806 F.2d 1185, 1190-91 (3d Cir. 1986), cert. denied, 482

U.S. 905 (1987).   When considering agency conclusions under the

arbitrary and capricious standard, the court must determine

whether the decision was based on consideration of relevant

factors and whether there has been a clear error of judgment.

Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416

(1971);   see Davis Enterprises v. EPA, 877 F.2d 1181, 1186 (3d

Cir. 1989), cert. denied, 493 U.S. 1070 (1990).   Additionally,

the court may not substitute its judgment for that of the agency.

Arkansas v. Oklahoma, 112 S. Ct. 1046, 1061 (1992);   Moats v.

United Mineworkers of America Health & Retirement Funds, 981 F.2d

685 (3d Cir. 1992).


                             ANALYSIS

          The PFDA argues that the FTC has imposed on itself a
five-part test, each part of which must be satisfied in order to

promulgate a regulation rule.6   In turn, the PFDA wants this
    6
     The five-part test includes:    (1) a statement as to the
prevalence of the practice the FTC seeks to regulate;       (2) a
finding or conclusion that the practice causes substantial
consumer injury;   (3) a finding or conclusion that the rule or
regulation would reduce such consumer injury; (4) a finding or
conclusion that the benefits to be derived from the rule or
regulation outweigh the costs imposed by the rule or regulation;
and, (5)     a finding or conclusion that consumers cannot
reasonably avoid the injury that the practice causes. Ophthalmic
Practice Rules, 54 Fed. Reg. 10285, 10287, 16 C.F.R. § 456 (1989)
(citing American Financial Services Ass'n., 767 F.2d at 971;
Rule on Sale of Used Motor Vehicles, Statement of Basis and
court to apply that five-part test in assessing whether the ban

on casket handling fees should be affirmed.   Nothing in the FTC

Act requires a reviewing court to rigidly adhere to this test

which the FTC merely suggests to itself as a means of ensuring

that its regulation rules are justified.   Yet, since the FTC has

essentially made findings and conclusions in the context of those

five inquiries, the court will use the five-part test as a guide

to determine whether the findings are supported by substantial

evidence and/or are arbitrary and capricious.
The FTC's Finding as to the Prevalence of Casket Handling Fees


          What the PFDA appears to complain of most is that the

FTC did not make an adequate finding as to the prevalence of

casket handling fees.   The PFDA contends that the FTC finding

that "substantial 'casket handling fees' are imposed on consumers

by a significant portion of providers wherever third-party casket

sellers exist," Funeral Industry Practices;   Final Amended Trade

Regulation Rule, 59 Fed. Reg. 1592, 1604, 16 C.F.R. § 453 (1994),

was based on flawed or insubstantial evidence and is not an

adequate statement as to the prevalence of casket handling fees.

          However, contrary to what the PFDA asserts -- that

methodologically sound quantitative data must show that the

practice sought to be regulated occurs with some frequency -- a

"finding as to prevalence" requires neither that substantial,


Purpose, 49 Fed. Reg. 45692, 45703, 16 C.F.R. § 455 (1984);
Credit Practices Rule, Statement of Basis and Purpose, 49 Fed.
Reg. 7740, 7742, 16 C.F.R. § 444 (1984);      Letter from FTC to
Senators Wendell H. Ford and John C. Danforth (Dec. 17, 1980)).
rigorous, quantitative studies be done, nor that the practice

occurs in a certain percentage of transactions throughout the

country.   In fact, the FTC's Rulemaking and Investigatory

Procedures merely require that the FTC make a "statement as to

the prevalence of the acts or practices treated by the rule."

Organization Changes in the Commission's Rulemaking and

Investigatory Procedures, 46 Fed. Reg. 26284, 26289, 16 C.F.R. §§

0-5 (1981) (emphasis added).

           "Prevalence" has never been strictly defined by the FTC

or the courts.   The FTC has stated, though, that a statement as

to prevalence (as well as answers to the other four inquiries)

will "vary depending on the circumstances of each rulemaking and

the characteristics of the industry involved."     Ophthalmic

Practice Rules, 54 Fed. Reg. at 10287, 16 C.F.R. § 456 (citing 49

Fed. Reg. 7740, 7742 n.4).     Indeed, "[n]either the statutory

language nor the legislative history of the [FTC] Act suggests

that in 1975 Congress intended to require the [FTC] to find as a

pre-condition to rulemaking that acts or practices to be

regulated are prevalent."    Trade Regulation Rule, Mail or

Telephone Order Merchandise, 58 Fed. Reg. 49096, 49100 n.61, 16

C.F.R. § 435 (citing 15 U.S.C. section 57a(d)(1)(A);     Joint H.R.

and S. Conf. Rep. No. 1408, 93rd Cong., 2d Sess., reprinted in

1974 U.S. Code Cong. & Admin. News 7764).     Further, even where

there is a limited record as to the prevalence of a practice on a

nationwide basis or where the data reviewed only relates to a few

states, the practice can be found to be prevalent enough to

warrant a regulation.   Trade Regulation Rule;    Credit Practices,
49 Fed. Reg. at 7752, 16 C.F.R. § 444, affirmed by American

Financial Services Ass'n., 767 F.2d 957 (limited record evidence

existed with respect to the prevalence of the practice; evidence

showed that practice occurred in just a few states and only in a

small percentage of transactions, but despite the inability to

precisely quantify the evidence, the FTC found that the practice

was probably more widespread than the data indicated and at any

rate was prevalent enough to warrant promulgating a regulation

rule);   see also Amendment to Trade Regulation Rule Concerning

Care Labeling of Textile Wearing Apparel and Certain Piece Goods,

48 Fed. Reg. 22733, 22743, 16 C.F.R. § 423 (1983) (record did not

permit a determination of how widespread the practice was, just

that it did occur and FTC adopted amendment). Additionally,

studies upon which a finding as to prevalence is based need not

be projected to the entire nation where the practice is limited,

prohibited, or regulated in many areas anyway by state law.

Trade Regulation Rule;   Credit Practices, 49 Fed. Reg. at 7752,

16 C.F.R. § 444, affirmed by American Financial Services Ass'n.,

767 F.2d 957 (because practice sought to be regulated was

forbidden by state law in many areas, practice did not need to

occur throughout nation in order to be subject to regulation).

Overall, then, there appears to be no mandate that a practice be

prevalent (i.e., occur in a certain number of transactions) in

order for the FTC to adopt a rule regulating the practice.     See
Mail Order or Telephone Merchandise Rule, 58 Fed. Reg. 49096,

49100 n.61, 16 C.F.R. § 435 (1993);   Trade Regulation Rule;

Credit Practices, 49 Fed. Reg. at 7753, 7757, 16 C.F.R. § 444.
           Taking all of this into account, the FTC's finding as

to the prevalence of casket handling fees is supported by

substantial evidence in the rulemaking record taken as a whole.

First, the FTC noted that third party casket sellers only number

approximately 150-200 in the whole United States.7    Additionally,

those sellers are concentrated primarily in three states --

Pennsylvania, Ohio and Michigan -- because many states prohibit

anyone but a licensed funeral service provider from selling

caskets.   Since casket sales by third parties is prohibited in

most areas by state law, most funeral service providers have no

need to impose casket handling fees.    Therefore, the practice of

charging casket handling fees could not be widespread nationwide.

See Trade Regulation Rule;     Credit Practices, 49 Fed. Reg. at

7752, 16 C.F.R. § 444.

           Second, the FTC relied on several things in making its

finding as to prevalence:8    a study done by the Pre-Arrangement

Association ("PAA");    corroborative testimony and statements by

other witnesses;    and other surveys of casket handling fees in

local markets.     The FTC admits that the PAA study was not the

most statistically rigorous or comprehensive survey.    However,

conducting or relying on statistically rigorous and comprehensive


    7
     The small number of documented third party casket sellers is
probably due, in part, to the fact that third party casket
sellers   were   literally  non-existent   prior   to  the   1982
implementation of the original Funeral Rule.
    8
     The PFDA argues that the FTC relied exclusively on the Pre-
Arrangement Association study, which the PFDA argues was not
statistically rigorous and was conducted in a biassed manner.
studies is not necessary in making a finding as to prevalence.

See Mail Order or Telephone Merchandise Rule, 58 Fed. Reg. at

49108, 49109, 16 C.F.R. § 435;   Trade Regulation Rule;   Credit

Practices, 49 Fed. Reg. at 7742, 16 C.F.R. § 444.   Nevertheless,

the court does recognize that some basis or evidence must exist

to suggest that the practice the FTC rule seeks to regulate does

indeed occur, and, with respect to the incidence of casket

handling fees, substantial evidence supports a finding that the

practice exists.9

           The PAA evaluated 31 responses from third party casket

sellers to a survey about whether casket handling fees are

imposed.   All 31 respondents said that casket handling fees were
    9
     The PFDA, in addition to attacking the results of the PAA
study, complains that the survey itself was conducted in a
biassed manner.    So, not only were the results on their face
woefully inadequate -- according to the PFDA -- to support a
finding as to prevalence, but the results may even have been
skewed.   The PFDA asserts that because a cover letter that
accompanied the PAA survey stated that the results would be used
"to present to the FTC testimony on the impact that casket
handling fees have had on the third party sale of funeral
merchandise,"   Letter from Dayne Sieling, Executive Director of
the PAA to Members of all State Cemetery Associations dated
October 12, 1988, the survey itself was injected with bias.

     While not claiming to be experts on statistical analysis,
the court finds that the cover letter did not infect the PAA
study so as to render it unusable or unreliable.     For example,
the cover letter did not state that the PAA would use the survey
to get the FTC to ban casket handling fees, and, without
responses indicating that such fees are imposed, the ban would
never occur. Rather, the cover letter just stated that the issue
of casket handling fees would be addressed at upcoming FTC
hearings.   Moreover, the FTC reviewed the PAA survey before it
was distributed in order to ensure that it was valid. Therefore,
the court rejects the PFDA's argument that the cover letters sent
with the PAA survey so infected the survey with bias that it was
arbitrary and capricious for the FTC to rely on it.
imposed in their market areas.   Eighty-six percent of respondents

said that at least 60% of the funeral homes in their market areas

assessed such fees;   66% indicated that the fees were imposed by

at least 80% of the funeral homes;   48% of respondents stated

that at least 90% of the funeral homes in their areas assessed

casket handling fees;   and 24% of respondents indicated that 100%

of the funeral homes in their market area used such a fee.

Testimony of Duke Radovich.

          Additionally, most of the witnesses who testified at

the rulemaking hearings indicated that where third party casket

sellers exist, a significant number of funeral service providers

imposed casket handling fees.    The other informal surveys the FTC

relied on were surveys conducted by a journalist, by a third

party casket seller, who surveyed funeral homes, and a third done

by asking funeral customers questions.   Once again, all of these

"studies" indicated that where third party casket sellers exist,

substantial casket handling fees are imposed by funeral service

providers.   In fact, the results showed that many customers of

the third party casket sellers ended up canceling their third

party contracts to avoid paying more overall than if they had

purchased their casket at the funeral home.   This corroborative

testimony and anecdotal evidence buttresses the FTC's finding as

to the prevalence of casket handling fees.

          Finally, the study that the PFDA would like the FTC and

this court to rely on (exclusively) -- funeral transaction

records collected by the Federated Funeral Directors of America

("FFDA") -- is not entirely applicable because that study
indicated that a very small percentage of funeral service

transactions involve a casket handling fee (0.05%).    This result

occurred for probably two reasons.    First, the survey sampled

funeral transactions throughout the country.    As stated above,

third party casket sellers are concentrated in only a few areas

and a survey of the entire nation would obscure the prevalence of

the fees in the areas where third party casket sellers exist.

Second, the FFDA transaction sheets that were evaluated did not

specifically ask about casket handling fees.    Rather, the

transaction sheets merely asked for an itemized price list of

what was charged to a customer.    Because it is apparent that many

funeral service providers convince customers to cancel their

third party contracts and buy the casket from the funeral

director, a fee would not appear on a final bill.    Moreover,

because casket handling fees are not really a good or a service,

they might not show up as a separate item on a final bill.

Therefore, the FTC did not act arbitrarily in declining to rely

solely on the FFDA study.

            Overall, the PAA study, the informal surveys, the

testimony, and the anecdotal evidence all indicate that where

third party caskets are sold, a significant number of funeral

homes impose casket handling fees.    The PFDA does not contest

this conclusion, but merely argues that the FTC did not rely on

statistically sound studies and that the practice does not occur

often enough throughout the country to justify a ban on the

practice.   Therefore, the FTC's finding as to the prevalence of
casket handling fees was supported by substantial evidence in the

rulemaking record taken as a whole.
Whether Casket Handling Fees Cause Substantial Consumer Injury


            The FTC concluded that since the casket handling fees

are non-declinable and are tied to the purchase of a casket, they

frustrate the underlying principle of the original Funeral Rule's

anti-bundling provisions.    Funeral Industry Practices;   Final

Amended Trade Regulation Rule, 59 Fed. Reg. 1592, 1604, 16 C.F.R.

§ 453.    Therefore, the consumer is injured in that the right to

decline to purchase any item, including a casket, from a funeral

service provider "is illusory if funeral providers can condition

consumers' choice on the payment of an additional, non-declinable

fee."    Id. at 1604.   Further, consumer choice is restricted

because the casket handling fee operates as a penalty for

exercising that choice.

             At the outset, the court notes that the original

Funeral Rule's regulations were enacted, in large part, to

eliminate bundling.     The FTC concluded with respect to the

original Funeral Rule, and the Fourth Circuit agreed, that

bundling, or forcing a customer to pay for any item aside from

the one non-declinable professional service fee, injured

consumers.    With respect to the amendment at issue here, the FTC

concluded that casket handling fees constitute bundling insofar

as they are unfair conditions on a customer's right to decline an

unwanted item.10    That conclusion was neither arbitrary nor
    10
     For example, funeral service providers essentially say,
"either buy your casket here, or we'll charge you for it anyway."
capricious since bundling speaks of forcing consumers to pay for

items or services that they do not want.   Therefore, as discussed

above, the court will consider that the Fourth Circuit has

already determined that bundling causes consumers substantial

injury as part of the analysis of whether the FTC's conclusion

that casket handling fees cause substantial consumer injury is

supported by substantial evidence.

          The PFDA argues that because a casket handling fee is

only imposed to make sure that those customers buying caskets

from third parties pay their fair share of the funeral home's

overhead costs, no consumer injury occurs.   That argument is

interesting because the PFDA further argues that if no casket

handling fee is imposed, the customers who do buy their caskets

from the funeral home will be penalized by having to subsidize

the ones who purchase caskets elsewhere.   But blaming or

penalizing the consumer who had the wherewithal to purchase a

less expensive casket ahead of time from a third party is unfair

since who pays what to whom is merely a function of how the

funeral director chooses to recoup his or her overhead costs.     In

other words, the funeral director does not need to use the mark-

up on a casket to recoup those costs, especially knowing that

some casket sales may be lost to third parties;   that is what the

non-declinable service fee is for.   Every consumer using a

funeral home "uses" the overhead of the funeral director.     Yet,

because funeral service directors are unwilling to redistribute

costs and recoup overhead through the one fee they are permitted

to charge everyone, some consumers are penalized for exercising
choice in purchasing caskets.   Those consumers are forced to pay

for something they do not want -- the mark-up on the funeral

home's casket which the consumer did not even buy.

          Another indication that the casket handling fee is a

penalty is that no extra labor, liability, time, or other cost is

involved in "handling" a third party casket.   See Testimony of

Wendell Hahn.   If customers who purchase a third party casket are

not "costing" the funeral homes anything extra, there really is

no justification for charging them a several-hundred dollar fee

other than to penalize them for not buying a casket from the

funeral home.

          Additionally, funeral homes do not charge such handling

fees for ship-ins.   Even though the families of these deceased

have caused the funeral home to lose a sale on a casket, and even

though the families of these deceased are not "paying their fair

share of the funeral home's overhead costs," they are not charged

casket handling fees.   This shows that only those consumers who

make a conscious choice to purchase a casket from a third party

pay this fee.

          Such a fee can only be described as a penalty for

exercising choice in purchasing a good and as a method of forcing

consumers to purchase a casket from a funeral home, or at least

pay the funeral home the mark-up on a casket so that the consumer

may as well have bought it from the funeral home.    This

constitutes substantial consumer injury, especially in light of

the FTC's finding, sustained by the Fourth Circuit, that bundling

injures consumers.   Therefore, the FTC's conclusion that casket
handling fees cause substantial consumer injury is supported by

substantial evidence and was not arbitrary or capricious.
The FTC's Conclusion that a Ban on Casket Handling Fees Will
Reduce Such Consumer Injury


          The FTC implicitly found that a ban on casket handling

fees would reduce consumer injury.    The PFDA argues that the ban

will not reduce consumer injury because funeral service providers

can circumvent the ban by creating packages, all of which include

caskets, and offering discounts on those packages.    Since only

those people buying a casket from the funeral home would get such

a discount, the person who buys a third party casket would be

paying an indirect fee.    Thus, according to the PFDA, the

consumer injury still exists.

          On the other hand, the FTC distinguishes direct casket

handling fees from offering discounts to people who buy caskets

from the funeral home.    The former is an anti-competitive penalty

(the fee) and the latter is a method used to deal with

competition from third party casket sellers which is pro-

competitive.   The fee essentially requires consumers to buy their

caskets from funeral homes, or pay for it anyway.    The other

methods (e.g., discounts) represent a way to encourage consumers

to buy their caskets from funeral homes.

          As the FTC points out, the purpose of the ban is not to

prevent funeral service providers from recouping overhead costs

or making a profit.   Rather, the purpose is to encourage

consumers to exercise choice in the marketplace, especially with

the entrance of third party competitors, and to prevent funeral
homes from effectively prohibiting that choice.    The injury the

casket handling fees cause is not measured in terms of dollar

amounts the consumer pays, but in terms of prohibiting the

customer from choosing where he or she buys a casket.    Therefore,

the fact that people who buy caskets from third parties may end

up realizing a smaller savings as a result of not obtaining a

discount at the funeral home does not mean that they are still

being injured.

          While the "circumvention" methods of avoiding the ban

on casket handling fees does appear to weaken the FTC's position,

it does not destroy it.    First, it is evident that the FTC

considered this issue and determined that it was not a

significant enough factor to abandon the amendment.    Second,

although it does seem that customers who buy their caskets from

third parties still may end up paying some sort of indirect fee

as a result of exercising that choice, a likelihood exists that

funeral homes will simply restructure their prices such that the

overhead and profits are recouped somewhere other than in the

mark-up on a casket.    Moreover, the discounting method is not

anti-competitive like the direct casket handling fee.    For all of

these reasons, the FTC's conclusion that the ban on casket

handling fees will reduce consumer injury is supported by

substantial evidence and is not arbitrary or capricious.
The FTC's Conclusion that the Benefits to be Derived from the Ban
Outweigh the Costs


          There are several benefits to be realized by the ban on

casket handling fees.    Consumers will have increased choice in
the purchase of caskets.     Consumers will not be penalized for

exercising that choice. Additionally, competition in the market

for caskets can be expected to increase with the ban in effect,

given the fact that many third party casket sellers went out of

business as a result of casket handling fees.     Increasing

competition in the casket market is likely to drive the cost of

caskets down.     All consumers will benefit from this result.

          The FTC recognized some costs which will probably be

incurred by this ban.     Since funeral service providers who now

charge a casket handling fee will have to restructure their

prices, the most significant cost is that many funeral service

providers will probably raise the amount of their non-declinable

professional service fees in order to ensure that they recoup

overhead costs.    Therefore, every consumer may end up paying a

little bit more for that fee in the short run.     However, the FTC

concluded that the long-term effect of the ban will be increased

competition in the casket market such that prices will eventually

go down and all consumers will pay less.     Additionally, the FTC

found the cost to the funeral industry of having to restructure

their pricing methods in order to recoup overhead costs and make

profits was insignificant, especially in light of the fact that

the funeral service industry presented no evidence regarding the

costs it might incur in restructuring its pricing scheme.

          The PFDA's main contention with the FTC's cost-benefit

analysis is that it is not tied to any quantitative data.

However, quantitative data is not necessary in such an

evaluation.     See Mail Order Rule, 58 Fed. Reg. at 49108, 49109,
16 C.F.R. § 435;   American Financial Services, 767 F.2d at 986.

Additionally, much of a cost-benefit analysis requires

predictions and speculation, in any context.   An absence of

quantitative data here is not fatal to the FTC's analysis.

          Finally, the PFDA asserts that the FTC's conclusion

that the ban on casket handling fees will result in more

competitive prices was flawed.   The PFDA argues that since the

original Funeral Rule has not resulted in increased competition,

neither will this amendment.   However, evidence showed that while

casket fees had risen in the years since the Funeral Rule went

into effect, the retail price had increased less than the

wholesale price charged to funeral homes by distributors.    It

appears, then, that funeral service providers are responding as

expected to the Funeral Rule by not raising retail prices on

caskets to reflect the rise of wholesale prices;   since prices

have not risen as much as they could have to retain the same

profit margin, prices have, in effect, been lowered.

          Additionally, the advent of the casket handling fee as

a method of dealing with competition has precluded much true

competition from third parties which would ordinarily result in

prices charged being driven down.   Therefore, overall, the FTC's

cost-benefit analysis, which lead the FTC to conclude that the

benefits of the ban on casket handling fees outweigh the costs,

was supported by substantial evidence and was neither arbitrary

nor capricious.
The FTC's Conclusion that Consumers Cannot Reasonably Avoid the
Injury Caused by Casket Handling Fees
             The final prong of the five-part test involves whether

consumers can reasonably avoid the injury caused by casket

handling fees, thereby making the ban unnecessary.     The consumer

injury is the restriction of choice when it comes to buying a

casket and the fact that a penalty is imposed when a consumer

exercises that choice in favor of a third party casket seller,

but against a funeral home.     The PFDA argues that since there are

no consumer complaints in the record, consumers are obviously

avoiding the injury, or do not consider themselves "injured" by

the fee.11

             However, this argument is premised on the assumption

that consumers who wish to avoid the fee can shop around to find

a funeral provider who does not charge such a fee.     That is a

faulty assumption.     The reason the FTC promulgated the original

Funeral Rule was because of the particular vulnerability of

funeral service consumers.     Funeral consumers are forced to make

many of the choices involved in arranging a funeral in a bereaved

state and often do not have time to "shop around" at the time of

death of a loved one.     Consequently, those consumers are in no

position to seek out a funeral service provider who will not

charge them a casket handling fee, if one even exists in their

immediate geographic area.



    11
     The PFDA also argues that market forces will keep the
amount of casket handling fees down such that consumers can avoid
injury. This argument is irrelevant given that the FTC does not
define the consumer injury by the amount of the casket handling
fee, but rather as the fact that such a fee is imposed.
          Further, the studies discussed above show that where

third party casket sellers exist, a significant number of funeral

service providers charge casket handling fees.    This indicates

that most consumers who wish to and do purchase third party

caskets will pay a fee for exercising that choice.    If the

consumer cannot or will not pay the fee, he or she is forced to

buy the casket from the funeral home.    That is no choice.

Therefore, the injury, as defined by the FTC -- restriction on

choice and being penalized for exercising that choice -- cannot

be avoided by consumers.   The FTC's conclusion as to the

unavoidability of the injury is supported by substantial evidence

and is not arbitrary or capricious.


                            CONCLUSION

          After careful review of the entire record, it appears

that none of the conclusions the FTC reached was arbitrary or

capricious or unsupported by substantial evidence in the

rulemaking record taken as a whole.   Therefore, for all of the
reasons stated above, the petition for review will be denied.
