Statutory/Regulatory and Litigation Update

1. Statutory/Regulatory and Litigation Update

2. Background • Original Funeral Directors Law – 1895 • PFDA v. State Board – 1985 • PFDA sues State Board re 100% trusting provision for funeral directors. Court says funeral directors are held to a higher standard – must trust 100%. • Givnish v. State Board – 1990 • Givnish revoked for trusting less than 100% on merchandise. • Court held: Regulation which requires funeral director to trust 100% of funds collected for pre-need services and merchandise incidental thereto must be placed in trust. • Buxton Bill – 1993 • Legislation introduced by AARP to deal with pre-need. • Catholic Funeral Plan – 1998 • Catholic Funeral Plan using unlicensed individuals to sell funerals to families to select funeral homes participating in the plan. • Ferguson v. State Board – 2001 • Unlicensed persons cannot sell or offer to sell preneed services in PA. • Stetler Bill – 2002 • Rep. Stetler from York County introduces legislation to re-write the funeral law which exempts all prior infractions. • Cornerstone v. BPOA – 2002 • Only licensed funeral directors can sell cremation services directly to the public.

3. background • Bean v. State Board – 2004 • There is no portability in pre-need contracts. • Walker v. State Board – 2005 • Unlicensed persons can “interact” with consumers but under no circumstances can they act as a funeral director or sell funeral services. • Pre-Need Family Services – 2006 • Only licensed funeral directors can sell pre-need cremation services. • Leibensperger – 2007 • Consent Agreement with State Board where FD was required to replace “arrangement fee” and pay civil penalty. He replaced $56,997 and paid civil penalty of $89,000. • “Project 89” Theory • PFDA v. Cremation Society • PFDA sued Cremation Society to stop them from marketing direct cremation services to the public. Settlement allowed consumers to move from Cremation Society and get the 30% plus interest at time of death. • Rae v. State Board and Eirkson– 2010 • Defamation and International Interference with Contractual Relations claim that settled for $825,000.

4. Yogi Berra “It’s like deja vu all over again.”

5. Heffner v. MurphyOriginal complaint • Challenged 13 sections of the Funeral Directors Law and Insepctions. • Count X – challenging failure to provide online CE and scope of topics approved. Withdrawn with prejudice by stipulation- July, 2011.

6. The plaintiffs • Originally 31 named Plaintiffs • 3 dropped out • Really only 6: • Heffner • Neel Jefferson • Cavanaugh, Sr. • Sucharski (Delaware Valley Cremation) • Connell • Wellman (Lomison) E. Harrisburg Crematory

7. What we have done… • Hired outside counsel • Filed a Motion to Intervene • This was denied by the court • Attended almost all Depositions • Read tens of thousands of pages of Depositions and Discovery documents • Filed Amicus Brief in the Third Circuit Court of Appeals

8. Kathleen K. Ryan PFDA, General Counsel

9. Procedural history • Original Complaint filed May 2008 • Motion for Summary Judgment filed • Summary Judgment granted May 2012 • Final Order August 2012 • Appeal to Third Circuit Court of Appeals • Oral Arguments in June 2013 • Third Circuit Reversal February 2014 • Request for ReargumentMarch 2014 • Third Circuit Denied Petition for Reargument March 2014

10. PLANTIFFS’ SUMMARY JUDGEMENT FILING

11. U.s. Constitution

12. Sections of funeral law declared unconstitutional 1. Inspections 2. Ownership limited to two locations 3. Ownership by licensed person only 4. Restriction on place or practice 5. Requirement of full time supervisor 6. Requirement that every FH have a prep room

13. Unconstitutional sections – Contd. 7. Restriction of the service of food 8. Restriction on names of funeral homes 9. Restriction on ownership of merchandise company 10. Restriction on payment of commissions to unlicensed salespeople

14. Inspections • Jones’ ruling held that routine, random inspections are unconstitutional and unreasonable • Inspectors were resigned to “office duty” since the ruling in August but for new businesses • There were/are no “routine” inspections going on

15. Inspections • Third Circuit reversed • “The Board persuasively explains that if inspectors are barred from entering funeral homes without a search warrant or advance notice, unscrupulous funeral practitioners could bring their establishments into regulatory compliance before inspections, only to let them fall below prescribed standards when the threat of detection passes.”

16. inspections • “Time limitations, along with those related to the scope and location of a search, are key to restricting inspectors’ discretion.” • New Statement of Policy Effective Nov. 2, 2013. • Frequency: • Routine – no more than once every 270 consecutive days and no less than 540 consecutive days • New funeral establishments – within 30 days of request of Board Administrator

17. Inspections • Follow-up: • Where there is a deficiency noted, a follow up inspection will be done no sooner than 7 days and no later than 30 days. This can be extended. Time: - Monday-Friday between 8am and 5pm Scope: - Routine inspections will be limited to forms designed by the Bureau and approved by Board.

18. inspections • Inspectors cannot demand production of documents or demand entrance to a part of the premises that is not within the scope of the approved inspection form. • Follow-up inspections are limited to prior deficiency. • No prior notice will be given on routine and follow up inspections . • Advance notice will be given for new inspections and closing inspections.

19. Inspections • Exceptions: • Prior notice will be given at inspector’s discretion on routine or follow up inspections: • When FH is geographically remote and it would consume an unreasonable amount of time if the person is not available. • The FH is not open Monday-Friday, 8am – 5pm.

20. Inspections • Inspectors are authorized to issue Citations, or refer for further investigation, or formal disciplinary action for actual, or suspected violations that are observed and part of the scope of the inspection report. • Observed actual violations not within the scope of the inspection report – Inspectors can issue a citation or report for further action. • Observed suspected violations not within scope of inspection report – Inspector may report for further action.

21. Ownership of main / branch • Court ruling held that limiting ownership to two locations was unconstitutional. • Under Jones’ ruling an individual could own as many funeral homes as they wish.

22. Ownership of main / branch • Third Circuit reversed: • “Despite Plaintiffs’ attempt to conjure up a discriminatory impact on out-of-state funeral owners, it is clear from the text of the statute that the challenged provisions impose the same limitation on out-of-state funeral directors and those in Pennsylvania. There is simply no distinction under the FDL between in-state and out-of-state interests or impact.”

23. Ownership by licensed individual • Court held that limiting ownership to licensed funeral directors was unconstitutional. • Now, anyone can own a funeral home. • One widow has successfully obtained an entity license for a FH.

24. Ownership by Licensed individual • Third Circuit reversed:“the vast majority of funeral directors who obtain a license to practice in Pennsylvania will no doubt choose to reside in the commonwealth…this does not evidence any burden on interstate commerce nor discrimination against out-of-state operators. Rather, there is nothing on the record to suggest that this is a reflection of anything other than the nature of the funeral business. ‘The practice of mortuary science is, after all, inherently a local profession.’”

25. Restriction on place of practice • Court held that provision in the FDL which requires a licensee to practice only at the location where license hangs is unconstitutional. • Now, a licensee may practice at any location.

26. Restriction on place of practice • Third Circuit reversed: • “Limiting licensees to one primary location and one branch, each with its own licensed supervisor, clearly helps to protect against funeral directors being ‘spread too thin’ to provide personal, caring, and sensitive services to those who are mourning the loss of a loved one. Funeral businesses clearly must operate with a sensitivity and personalized service unlike few other businesses we can think of, and Pennsylvania’s legislature can hardly be faulted for imposing restrictions that are intended to address the unique concerns in that industry.”

27. Full-Time supervisor • Court held provision requiring a full-time supervisor at all locations unconstitutional. • Now, FD’s can supervise multiple locations upon approval of the Board. There have been quite a few requests granted in the window.

28. Full-time supervisor • Third Circuit reversed: • “The place of practice requirement is a rational means of advancing accountability by ensuring that a funeral director is more readily accessible to answer questions from grieving and particularly vulnerable consumers. The requirement of a full-time supervisor is so obviously reasonable as to negate the need for in-depth discussion or inquiry.”

29. Requirement for a prep room in every establishment • Court held requirement for prep room in every establishment to be unconstitutional. • August decision worded differently such that there is not a requirement for any funeral home to have a prep room. This may have been an inadvertent error or intentional. • During the window – the only requirement to have a funeral home is a room for viewing and a bathroom 49 Pa. Code § 13.94.

30. Preparation room • The Third Circuit reversed: • “ The requirement for a prep room burdens all funeral directors, not just those from out-of-state. The burdens of having a prep room in all establishments ‘are not so significant as to ‘clearly outweigh’ the State’s asserted interests in minimizing the time between death and embalming, reassuring customers that the remains of their loved ones will be in the funeral home’s custody at all times, minimizing the possibility of accidents in-transit between embalming facilities and ensuring accountability.” “The rationale advanced by the Board to support the preparation room requirement seems so patently reasonable as to eliminate the need for much discussion.”

31. Restriction on service of food • Court held that it is unconstitutional not to allow service of food in funeral home. • During the window, food was permitted to be served or brought into funeral home. State Board has not made any rules or policies regarding health/safety. • Food should not be in prep room area.

32. food • The Third Circuit reversed: • “ We fail to see anything irrational in the legislation decision to prohibit the service of food and alcoholic beverages in areas designated as ‘funeral establishments’ under the FDL. * * * The Constitution is not a lever that we can use to overcome legislative inertia. This restriction, though perhaps antiquated, is nevertheless sufficiently reasonable to survive rational basis review.”

33. food • The Statute provides: • “No food or intoxicating beverages shall be served in any funeral establishment in which the profession of funeral directing is carried on. • Beverages, if served, must be restricted to a separate room not used for the preparation and conduct of a funeral services. • Funeral Directors can own/operate food service or catering facilities on the same parcel of land, or in a connected building but not where profession of funeral directing has been licensed.

34. Restriction on name of funeral home • Jones’ Court held that the restriction of names is unconstitutional. • Currently, fictitious names are permissible as long as they are not misleading. • Many have been approved (with a contingency pending the appeal) since ruling.

35. Restriction on name of funeral home • The Third Circuit upheld: • “The assignment of trade names to funeral homes is, at best, potentially misleading . . . And are so flawed that they cannot withstand First Amendment scrutiny.”

36. Restriction on ownership of merchandise company • Court held that it is unconstitutional to prohibit funeral directors from owning merchandise companies. • State Board said they never prohibited ownership and that funeral directors who had such contracts trusted at 70% have been “impaired”.

37. 100% trusting provision • The Third Circuit reversed Jones: • “The potential for consumer abuse and fraud in any scheme that allows merchants to accept payment for goods and services that will not be tendered until some future date is painfully obvious. * * * Requiring proceeds accepted under such an arrangement to be placed in trust is not only logical, but imperative if vulnerable consumers are to be protected from the unscrupulous (or financially ‘strapped’) vendor.”

38. How to trust now • If you are a FD all services and merchandise must be trusted at 100%.

39. Restriction on Payment of commissions to non-licensed persons • Jones’ Court held that prohibition on payment of commissions to non-licensees violates constitution. • Currently, a funeral director can pay anyone for the procurement of business including hospice workers, nurses, clergy, etc.

40. Payment of commissions • The Third Circuit reversed: • “ The potential for this evil to manifest itself in the context of sales personnel being rewarded for exploiting the need to afford a loved one a ‘proper’ or ‘respectful’ burial or memorial is too obvious to require elaboration.”

41. Selling of cremation services • Jones’ ruling upheld the constitutional challenge brought by Plaintiffs. • Despite the fact that “cemetery” is defined as “a place for the disposal or burial of deceased human beings, by cremation or in a grave, mausoleum, vault, columbarium or other receptacle” and the fact that only DEP regulates them now, the Appellate Courts of Pennsylvania have ruled that “cremation service providers fall within the scope of funeral directing.”

42. Procedural future • Decision on re-argument was denied. • Plaintiffs’ have until May 20, 2014 to Petition before the U.S. Supreme Court. • Judge Jones must re-write his Order consistent with Third Circuit ruling and lift injunction.

43. Attorneys Fees • Originally sought after $1.4 million • Prevailed – Fictitious Names • Recover – Mid 5 to Low 6 figures

44. Future for those who made changes • State Board has indicated that any pending or future requests will be tabled pending appeals and Jones’ new order. • Those already granted will be retracted but with a time frame.

45. WHAT NOW…?

46. Our Mission: “To preserve, protect and promote the independent family owned funeral home and to help PFDA members provide meaningful rituals surrounding death.”

47. JUST FOR FUN

48. Plaintiffs are not your friends

49. It’s Not about food!!

50. Pre-need, Not food!