1994 Decisions

Opinions of the United

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Precedential or Non-Precedential: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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Recommended Citation

"PA Funeral Dir. Assn. v. FTC" (1994). 1994 Decisions. Paper 155.

http://digitalcommons.law.villanova.edu/thirdcircuit_1994/155
 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. 

 

2Other 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 

 

 

3Since 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. 

 

4Funeral 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 

 

 

6The 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 

 

 

7The 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. 

 

8The PFDA argues that the FTC relied exclusively on the PreArrangement 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 

 

 

9The 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 

 

 

10For 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 markup 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 procompetitive. 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. 

 

 

11The 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.