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Ban on funeral home/cemetery joint operation upheld as pro-competitive licensing rule

The Supreme Court of Wisconsin, in a June 27 decision, upheld the state's law prohibiting joint operation of funeral homes and cemeteries, holding that the state had sufficient motivation to prohibit anti-competitive behavior to support the law's prohibition on otherwise lawful economic activity.

(Porter v. State of Wisconsin)

Wisconsin statues prohibit joint ownership of a cemetery and a funeral home and licensed funeral directors from operating in conjunction with a cemetery. Glenn Porter, a cemetery owner who wanted to incorporate a funeral home into his business, brought suit against the Wisconsin Funeral Directors Examining Board seeking to have a court declare the “anti-combination laws,” as they are known, declared unconstitutional as violations on grounds of due process and equal protection.

To defend the laws, the state enlisted a Lake Forest College economics professor, Jeffrey Sundberg, as an expert witness, who explained that the laws have the purpose of preventing the anti-competitive tendencies of cemetery-funeral home conglomerates, which would have outsized bargaining power in the funeral home market due to the relative scarcity of cemeteries.

After using that power to force competing funeral homes out of business, Prof. Sundberg explained, the potential existed for the remaining conglomerate to rise prices for consumers, now that it faced no competition.

In addition, the professor explained that the anti-combination laws prevent abuses that can arise from the commingling of cemetery and funeral revenues. Cemeteries are required to keep a certain amount of customer money in trust for future expenses; the professor opined that the combination firms would be able to manipulate the prices of funerary goods to artificially decrease the amount of money that customers paid directly to the cemetery, artificially lowering the amount of money required to be held in trust.

A Wisconsin circuit court granted summary judgment for the state and Porter appealed, eventually reaching the Supreme Court of Wisconsin which upheld the laws.

The Supreme Court agreed with the state’s arguments as elucidated by Prof. Sundberg, citing the anticompetitive potential of combination firms and the potential for price manipulation of additional products to circumvent the cemetery fund trust laws.

“Both funeral establishment directors and cemetery operators serve a particularly vulnerable class of consumers: those who have suffered the loss of a loved one,” wrote Justice Shirley Abrahamson.

“Both funeral establishment directors and cemetery operators are subject to trusting requirements for the products and services they sell. The unique characteristics of funeral establishment directors and cemetery operators ‘reasonably suggest’ that the anti-combination laws serve the public good by protecting vulnerable consumers and making it more difficult for funeral directors and cemetery operators to disguise the commingling of funds with different trusting requirements.”

These motivations of the state, the court concluded, were sufficient to support the imposition of the law.

Two justices, disagreeing with the decision wrote a long dissent citing Thomas Jefferson, James Madison, and the Roman philosopher Cato, among others, to argue that Wisconsin had no rational basis to believe that cemetery-funeral home combinations could lead to anti-competitive behavior and that the laws thus impinged on the economic freedom of Porter without cause.

The dissent seemed to focus on the lack of evidence that combination would not affect competition between cemeteries as opposed to funeral homes and thus failed to address the anti-competitive effects that preferential access to cemeteries could cause in the funeral home industry, the basis of the majority’s decision.

The real purpose of the laws, the two dissenters wrote, citing evidence that the funeral director industry was directly involved in the drafting of the laws, was anti-competitive protection of the funerary industry.

Having rejected Porter’s arguments, the justices ruled the laws constitutional and upheld the summary judgment order of the lower court.