Title: Memorial Trusts, Inc. v. Berry
Citation: 356 P.2d 884
Docket Number: 19360
State: Colorado
Issuer: Colorado Supreme Court
Date: November 14, 1960

356 P.2d 884 (1960) MEMORIAL TRUSTS, INC., Plaintiff In Error, v. Sam N. BEERY, Commissioner of Insurance of the State of Colorado, Defendant In Error. No. 19360. Supreme Court of Colorado, En Banc. November 14, 1960. Rothgerber, Appel &amp; Powers, Ira C. Rothgerber, Jr., William P. Johnson, Denver, for plaintiff in error. Duke W. Dunbar, Atty. Gen., Frank E. Hickey, Deputy Atty. Gen., John W. Patterson, Asst. Atty. Gen., Robert G. Pierce, Asst. Atty. Gen., for defendant in error. *885 Tull, Hays &amp; Thompson, Denver, amici curiae. MOORE, Justice. Plaintiff in error, Memorial Trusts, Inc., to whom we will refer as Memorial, commenced this declaratory judgment action against defendant in error, hereinafter referred to as the commissioner. The complaint sought a decree invalidating, upon constitutional grounds, C.R.S.1953, 72-17-1 et seq., and an adjudication that a rule adopted by the commissioner purporting to regulate the business of Memorial is of no legal force or effect. The commissioner joined in the prayer for declaratory judgment; alleged that the statute was constitutional and that the regulation was a valid exercise of rule-making power by the commissioner conferred upon him by statute. He further sought an injunction and "liquidation" against Memorial under the provisions of C.R.S.1953, 72-17-6. The trial court held the statute to be constitutional; upheld the regulation in dispute; found that Memorial had been violating the act and granted the injunctive relief prayed for by the commissioner. For a full comprehension of the questions presented by the record in this case, one should read the statute in its entirety (C.R.S.1953, 72-17-1 to 72-17-7). Generally it deals with the subject of prearranged funerals or so-called "Burial Insurance." Pertinent provisions of the act to which we direct attention are the following: Section 6 of the act generally provides for the granting of injunctive relief against those who do not obey the statute, and for "liquidation" of assets. Violation of the act is made a misdemeanor and is punishable by fine or imprisonment, or both. The commissioner, on July 28, 1958, placed in effect a regulation which was given the form of "Bulletin No. 30" as follows: "Now, Therefore, it is hereby ordered: There is no disagreement in the evidence. It appears without dispute that Memorial is engaged in the business of entering into written agreements with various residents of Colorado, by which Memorial promises to arrange for Moore Mortuary in Denver to provide a casket selected by the contract purchaser and services incident to funerals, as set forth in the written contract. For the specified merchandise and specified services, the contract purchaser agrees to pay a certain price, not subject to escalation. The contract provides that 25 per cent of the purchase price is to be retained by Memorial as compensation for its sales, collection and administrative expenses. After the first 25 per cent of the purchase price is paid by the purchaser, the remaining 75 per cent is put in an irrevocable trust in the First National Bank of Denver, to be paid out by the Bank only upon termination of the contract by virtue of the contract purchaser's death, or other termination at purchaser's option. The evidence showed that selling, collection and administrative expense, including premiums for credit life insurance on the lives of most of the purchasers of contracts, cost approximately 25% of the purchase price. The 75% in trust is invested by the First National Bank of Denver, pursuant to the provisions of the Prudent Man Investment Statute. Uncontroverted evidence of a qualified accountant and a qualified actuary, as well as the Trust Officer of the First National Bank of Denver, demonstrated that as a result of the investment of the irrevocable trust and normal rates of return thereon (the return goes to Memorial as provided in *887 the contract) with normal death rates calculated according to accepted actuarial means, there is adequate guarantee that all merchandise and services promised by Memorial to the contract purchaser will be delivered and performed. The uncontroverted evidence, as well as the express provisions of the contract, and the trust indenture shows that such trust funds are beyond the reach of anyone but the trustee except to provide the contracted services or to make a refund under the terms of the contract. Additional safeguards provided the contract purchaser, as set forth in the contract, are that if at the time of death the promised services and merchandise cannot be rendered or delivered, the entire purchase price is to be refunded to the personal representative of the deceased contract purchaser, e. g. if the family of the contract purchaser desires that the services be performed by a mortuary other than Moore Mortuary, or if the death of the contract purchaser occurs in a distant city and the family does not wish to return the remains to Denver. The commissioner testified in justification of his Bulletin No. 30 that the Insurance Department "* * * should avail themselves of the law and should probably either expand on or clarify for the purpose of the industry what we believed the intent of the law was. * * *" That portion of the statute which the commissioner attempted to "expand on or clarify" by promulgation of Bulletin No. 30, reads as follows: The commissioner, by a regulation adopted by him alone, "expanded" upon the language of the statute to require that all funds received from contracts shall be placed in trust "until the funeral contemplated has been performed or refund has been made in full of all moneys thus received." Counsel for Memorial set forth numerous grounds for reversal of the judgment, among which we find the following: Question to be Determined Where a statute purporting to regulate the sale of prepaid funeral benefits provides that all funds received from contracts covered by the act "shall be invested, until properly expendable, in securities or trust companies approved by the insurance department," and violations of the act are made punishable by fine or imprisonment and the administrator of the act is authorized to seek injunction against offenders continuing in business, and to "liquidate" the assets of such offenders; will such statutory provision be upheld against the objection that it is vague and indefinite and furnishes no legislative standards as to what expenditures are proper and gives no notice of the particular acts which may subject an offender to fine, imprisonment or other penal sanctions? The question is answered in the negative. In Flank Oil Co. v. Tennessee Gas Transmission Co., 141 Colo. 554, 349 P.2d 1005, this court cited with approval from 62 Harvard Law Review 77. At page 78 of that volume we find the following which adequately states the contention of Memorial: "* * * To the extent that a statute places a penalty upon completed *888 acts, concepts of fairness require that it be sufficiently definite to give notice as to what conduct is necessary to avoid those penalties. Thus, any statute which subjects those who violates its terms to criminal prosecution or to an action for damages must give such notice. Even a statute subjecting violators merely to injunction or to deprivation of a prospective gain should give notice where the secondary effect of such a sanction is to destroy the value of an existing investment of time or money." The test to which the statute in question must be subjected under this record is made clear by the Supreme Court of the United States in the case of Connally v. General Construction Co., 269 U.S. 385, 46 S. Ct. 126, 127, 70 L. Ed. 322. From the opinion in that case we quote the following: The rule announced in the above quotation is applicable to statutes imposing civil liabilities as well as those which define criminal offenses. Cline v. Frink Dairy Co., 274 U.S. 445, 47 S. Ct. 681, 71 L. Ed. 1146; A. B. Small Co. v. American Sugar Refining Co., 267 U.S. 233, 45 S. Ct. 295, 69 L. Ed. 589; Parks v. Libbey-Owens-Ford Glass Co., 360 Ill. 130, 195 N.E. 616. The regulation adopted by the commissioner is a nullity. The statute in the particulars hereinabove mentioned is violative of due process and is unconstitutional. The judgment accordingly is reversed. DOYLE, J., not participating.