As a pastor, Reverend Nathaniel Craigmiles counsels his parishioners through many tough times, including the deaths of loved ones. But when he tried to help his parishioners and the rest of Chattanooga simply by offering caskets at a retail store for a fraction of what funeral establishments charge, he met an unexpected foe. The state of Tennessee threatened him with criminal prosecution because he is not a licensed funeral director. Under similar duress, enterprising entrepreneurs Angela Brent and Jerry Harwood were forced to curtail operation of their new Knoxville-based business, The Casket Store.
On September 16, 1999, the Institute for Justice filed a lawsuit on behalf of Reverend Craigmiles, Tommy Wilson, Angela Brent, and Jerry Harwood challenging the constitutionality of Tennessee's anti-competitive funeral merchandise laws. Tennessee's legislature and its Board of Funeral Directors and Embalmers ("Funeral Board") protect the state's funeral home cartel by requiring anyone who simply sells funeral merchandise, such as caskets and urns, to become licensed as a funeral director. This requirement creates a steep and unreasonable barrier for entrepreneurs who desire only to sell caskets from retail locations, without engaging in other funeral-related activities, such as handling the deceased or performing funerals.
In the last few months, the state has ordered independent casket retailers in Tennessee to stop selling caskets or risk being shut down, fined, and possibly even arrested. While this harms the entrepreneurs who are denied the right to earn an honest living, it also hurts the public. By forcing the public to purchase caskets at significantly inflated prices charged by funeral homes, the licensing requirements enrich the funeral home cartel while taking advantage of consumers at their most vulnerable moments.
The ramifications of this lawsuit extend far beyond Tennessee and the parties involved. At least a dozen states require casket retailers to become licensed as funeral directors or embalmers. No legitimate health or safety concerns justify this requirement. The retail customers simply pick out a casket (often identical to those sold by licensed funeral directors), and then the retailer ships the casket to the funeral home. The sole purpose of the licensing requirements is to protect the funeral home industry from competition.
Anti-competitive licensing requirements, unfortunately, are not unique to the funeral industry. More than 500 occupations-approximately ten percent of all jobs-require that you have permission from the state, in the form of a license, before you can pursue your chosen occupation. For many of these occupations, from shorthand reporter to fence installer, the rationale for licensing is non-existent. Thus, the resolution of this lawsuit could dramatically impact the ability of states to require licensure in a number of other fields as well.
This lawsuit seeks to establish constitutional limits on government's authority to condition entry into a chosen occupation. At a minimum, there must be a legitimate public health and safety purpose for the regulation limiting entry and then there must be a fit between that end and the regulatory means adopted to achieve it. This case takes on additional constitutional significance because it is one of the first to urge the court to protect the right to earn an honest living through the Privileges or Immunities Clause of the Fourteenth Amendment since the U.S. Supreme Court reinvigorated the clause in Saenz v. Roe.
The Funeral Industry in Tennessee and the Nation: BIG Business
Each year, Americans arrange over two million funerals for family and friends-for most of us, that means about once in every 14 years. Most of those two million funerals are handled by the estimated 22,000-plus funeral establishments across America. In Tennessee, 400 establishments handle arrangements for the over 50,000 citizens who die each year there. Nationwide, the funeral industry is a $25 billion per year business.
Sadly, the cost of dying has risen three times as much as the cost of living in the past five years. By the time a family adds together funeral and cemetery costs, the final bill for the death of a loved one averages almost eight thousand dollars. For many poorer families, a funeral is the third-largest purchase of a lifetime, after a home and a car. In Tennessee, the average funeral costs about $4,800, not including the cemetery plot and grave. The national average is about $4,700.
Several factors contribute to the high costs of funerals. Most important is the vulnerable position of consumers. Decisions about funerals for loved ones are made in the midst of grief, discomfort, and sometimes guilt. Rational calculations, such as shopping for the best price, can feel cold-hearted. Some people may feel like their affection for the deceased is measured in dollars spent on their funeral. As the Federal Trade Commission (FTC) has noted, funeral customers, unlike others, can be "unusually susceptible. . .because of the unique combination of emotional stress, lack of experience and information, and tight time constraints."
The monopoly status of the funeral home industry also contributes to the high prices, by allowing funeral homes that would go out of business in a free market to charge above-market prices to stay in business. In Tennessee, for example, each funeral home averages two or three funerals a week. Because each funeral is not particularly time-consuming-consider, for example, that embalming a body takes only two to three hours, most ceremonies last around an hour, and it only takes a few hours total to make arrangements with the families, fill out the necessary certificates and paperwork, and so forth-many funeral homes are under-worked. In a free market, some of these homes would go out of business. But their monopoly allows them to stay in business by charging exorbitant prices to the few customers they do serve a week, enough to stay open. The state laws that protect the homes from competition by independent casket stores enable these homes to get away with charging these above-market prices. Thus, the monopoly allows the homes to receive, as one analyst put it, "full-time pay for part-time work."
These high prices affect all Americans, but hit some harder than others. For example, cremations are becoming more and more popular among white Protestants, and are expected to account for over 40 percent of all such funeral services by 2010. In contrast, Catholics and ethnic minorities favor traditional funerals, and are more impacted by higher casket prices. Cognizant of this fact, the funeral industry has begun targeting those groups. In particular, the African-American market is viewed as highly desirable by the industry, as African-Americans tend to favor more lavish funerals than other groups.
The Casket Purchase
By far the largest portion of these high funeral costs goes to the casket purchase, which provides funeral directors with the highest profit margins. According to the FTC, caskets are "frequently the single most expensive item you may have to buy if you are planning a traditional funeral." Caskets can often account for one-third to one-half the total cost of funerals that include burials.
Those lucky enough to have yet to face making funeral arrangements for close family members or friends may be astounded at the spectrum of caskets for sale, which can range from a few hundred dollars to more than $20,000. Higher-end caskets come with adjustable inner-spring mattresses and can have satin or velvet linings, sometimes with intricate designs sewn in. Another feature of higher-end caskets is the use of "protective sealers" which hermetically seal the caskets, ostensibly to protect the deceased by keeping out water, air, and insects-although in reality, they likely hasten the decomposition of the body.
Caskets come in a range of materials. Almost 75 percent of all caskets are made of steel, which comes in different gauges. The higher the gauge, the lighter the steel, the less expensive the casket, and the easier to carry it is. Some funeral directors try to steer customers away from lighter steel caskets, comparing them to an easily-dented car. More expensive metal caskets are made of bronze and copper, and these account for about three percent of all caskets sold.
Hardwood caskets of oak, walnut, cherry, and mahogany are also fairly common, comprising about 15 percent of all casket sales. Funeral directors emphasize the wood's beauty in selling wood caskets. Less expensive woods, such as particle board and plain pine (common in Jewish ceremonies) make up less than 10 percent of all casket sales. Plastic, aluminum, and fiberglass are occasionally used, but less than one percent of the time. Cardboard and fiberboard are used to ship bodies or for cremations.
A sampling of Tennessee funeral homes shows stainless steel caskets ranging from $2,195 to $3,650, with most in the $3,000 range. Bronze caskets range from $4,595 to $7,050; copper from $2,995 to $4,849, with most around $4,000. For wood caskets, mahogany caskets range from $3,995 to $10,050. Cherry caskets vary from $3,300 to $4,195, and oak caskets from $1,895 to $3,350.
Both nationally and in Tennessee, however, independent casket retailers offer caskets at substantial discounts. For example, a stainless steel casket with a blue crepe interior known as "Going Home" is sold by the Institute for Justice's clients for $1,499, compared to $3,495 at area funeral homes. The Institute's clients also sell an oak casket known as "Oakridge" for $2,099, compared to $3,350 at area funeral homes.
The History of the Funeral Industry in America
Until the last hundred years or so, American funerals were fairly simple affairs. Embalming and viewing were held at people's homes; doors to parlors were purposely built large enough to let a coffin pass through. Simple wooden caskets were favored. Coffins were manufactured as a side business by furniture makers, some of whom soon began serving as "undertakers," meaning one who would "undertake" to prepare a body for burial.
Late last century, however, funerals started becoming more elaborate, and the participants more specialized. Companies sprang up that made only coffins, and undertakers sought to organize themselves as professionals. Funeral parlors started cropping up around the turn of the century, to serve city dwellers whose cramped apartments were unable to accommodate caskets. Not surprisingly, both groups soon formed influential trade associations. In 1881, coffin makers organized the National Burial Case Association, which set industry-wide prices that included a 40 percent average price increase. Undertakers also organized their trade, so that they could "control funeral prices and collectively bargain with manufacturers for funeral merchandise." The National Funeral Directors Association, founded in 1882, resolved in 1883 to keep prices as high as possible: "Resolved, that we, as funeral directors, condemn the manufacture of covered caskets at a price less than fifteen dollars for an adult size."
More recently, the funeral industry has been by marked by increasing corporatization. The three largest corporate funeral home chains are Service Corporation International (SCI), Loewen, and Stewart, which own 15 percent of the nation's funeral homes, handling one in every five funerals. The casket business in turn is dominated by two companies, York and Batesville, who comprise two-thirds of casket and urn sales.
The Rise of Independent Casket Retailers
Currently, more than 60 stores and mail-order houses nationwide sell directly to the public, either through showrooms, catalogues, or the Internet. Federal law requires funeral homes to accept delivery of these third-party caskets and not to charge extra for their use. Because the funeral home industry has been so successful in holding onto its cartel, even this limited bit of competition is relatively new, dating back generally to the mid-1980's.
Before that time, funeral establishments typically conditioned the provision of body-handling and other services that only they could provide upon the purchase of a casket, a practice known as "bundling." If a customer tried to purchase a casket elsewhere, many funeral directors would refuse to provide body-handling or funeral services.
In 1984, however, the FTC passed a set of rules governing the funeral industry generally that also required funeral directors to unbundle their services, that is, it prevented homes from conditioning the provision of funeral services upon the purchase of a casket and other items. Soon, a separate marketplace for funeral goods sprang up, in which independent casket retailers began offering caskets at prices much lower than those of the funeral homes. In response to this new competition, the funeral homes began charging "casket-handling fees" whenever a customer purchased a casket elsewhere, ostensibly to recoup overhead and other fixed costs. In reality, however, these fees were designed to stifle competition by removing a customer's incentive to price-shop, and then by penalizing those who did. Soon, these handling fees had the desired effect, driving independent casket-retailers out of business.
Although the FTC explicitly prohibited such handling fees in 1994, the funeral directors keep finding ways to impose them. For example, many funeral establishments have begun inflating their itemized prices so much that nobody would contemplate buying anything other than a package, and then offering discount packages that include coffins that essentially preclude the purchase of third-party caskets. Some funeral directors respond by lowering casket prices to be competitive with those of the independent retailers, but then raising prices elsewhere across the board. They can then blame the "increase" in funeral costs on the casket retailers.
The funeral establishment industry has creatively resisted the rise of independent casket retailers in other ways as well. For example, some homes engage in casket-vandalism: they damage third-party caskets and then tell the customers that they had arrived that way. To combat this practice, one national distributor has begun videotaping its caskets as they leave the store and requiring the deliverymen to sign for their condition upon drop-off at the funeral home. Sometimes the casket factories assist the homes in maintaining their monopolies, by refusing to sell to independent retailers.
In a new tack, many states now require anyone who simply sells caskets to the public to become licensed as a funeral director or mortician. Alabama, Delaware, Idaho, Louisiana, Maine, Minnesota, Mississippi, Oklahoma, South Carolina, Tennessee, Vermont, and Virginia all require some type of licensure to sell funeral merchandise. Because licensure is time-consuming and costly, this is merely another way of forcing consumers to buy caskets only at funeral homes. Incredibly, the funeral industry tries to justify this requirement on health and safety grounds. "If they start selling caskets on every street corner, it's possible that more people would start trying to do their own funerals," said the spokesman for the South Carolina Funeral Directors Association. "With some of the diseases that we have, it could become a public health problem." Another common argument is that "The need to ensure the accuracy of death statistics requires only funeral directors to sell caskets."
More paternalistically, the director of Tennessee's Funeral Board argues that "Funeral directors have the best knowledge of the trade and can help buyers the most. A licensed funeral director is more educated about funeral merchandise than anyone else." The Institute for Justice's clients believe that consumers are capable of making such decisions on their own.
Casket Regulation in Tennessee
Tennessee law requires anyone who sells "funeral merchandise" such as caskets to become licensed as a funeral director. The seven-member Funeral Board oversees these rules, and is composed of six licensed directors and embalmers, with only one lay person on the board. Four members of the state legislature have or have had interests in funeral homes, including the deputy speaker (who is from Chattanooga, where two of the plaintiffs reside). The law, enacted in 1972, was introduced by a state senator with strong ties to the funeral home industry.
Becoming a licensed funeral director takes two years. One option is to attend an approved funeral directing school (which takes one year) and then work as an apprentice for another year under a licensed funeral director. In the alternative, one can work as an apprentice with a licensed funeral director for two years, participating in at least 25 funerals. Although the statutes and regulations do not specify the content of one's training, the curriculum for the certificate of funeral directing of the only approved school in Tennessee focuses on the natural sciences and on "funeral arts and sciences," including several required classes on embalming.
The Funeral Board has also ordered our clients to obtain funeral establishment licenses. In addition to having a licensed funeral director as a manager, a funeral establishment must "have available for its use a preparation room equipped with tile, cement or composition floor, necessary drainage and ventilation and necessary instruments and supplies for the preparation of embalming dead human bodies for burial, transportation or other disposition."
After the applicant's training, he or she must pass a licensing exam, which can be either the Tennessee Funeral Board's exam (administered twice a year in Nashville) or the National Conference exam. Applicants must also take a separate exam on state laws regulating the funeral industry and have an interview with the Funeral Board. There is only one approved school in Tennessee (located in Nashville), although one can attend an out-of-state school as well.
Violations of these provisions are criminal misdemeanors that carry possible jail time of at least 30 days and at least a $50 fine per casket.
Pastor Nathaniel Craigmiles of the Marble Top Missionary Baptist Church in Chattanooga has dealt with death often in the act of ministering to his parishioners. But last December, he was amazed to find the same casket he had recently purchased for his deceased mother-in-law for sale at a casket retailer in Manhattan for a quarter of what he had paid at a local funeral home. He had paid $3,200, but the retail store was offering it for only $800. After researching the industry, he quickly learned about the industry's astronomical markups, and concluded that the funeral home's cartel on caskets was "criminal."
So he rounded up a partner, a former funeral home worker named Tommy Wilson, who volunteers as a trustee at Marble Top. Mr. Wilson wanted to supplement his income as a janitor at a local school. Together, they opened the Craigmiles Wilson Casket Supply in Chattanooga last March. Reverend Craigmiles supplied the capital through his savings and by securing a loan; Mr. Wilson supplied his contacts and inside knowledge of the funeral industry.
Before opening the Casket Supply, Reverend Craigmiles contacted the city and county for the applicable business licenses and the state for a sales tax license. He was not directed to the Funeral Board nor told a special license would be required. After four months of business, on July 7, the Funeral Board ordered them to shut down. "We don't require you to buy a car from a mechanic," Reverend Craigmiles argues, so "why should you have to buy a casket from a funeral home?"
While it was open, the Casket Supply sold two caskets a month, enough to cover its $800 a month overhead. The owners cannot currently make ends meet while paying the store's overhead from their primary incomes as a preacher and a janitor, and face the imminent prospect of being forced to close the Casket Supply permanently.
Similar enforcement is happening in Knoxville. Inspired by seeing independent casket retailers while visiting her father in Florida, Angela Brent decided to open a casket store to supplement her family's income. So she and her father, Jerry Harwood, purchased an independent franchise of a Canadian chain called "The Casket Store." When deciding to open the store, she called the Funeral Board to ask what laws she would have to comply with, and the Board told her that Tennessee had adopted the federal funeral law in its entirety. That rule, as mentioned previously, protects the ability of consumers to purchase caskets from third-parties. The Funeral Board mentioned not a word about needing a license as a funeral director.
The Casket Store opened in early May with 15 caskets, and after a week the Funeral Board served them with an order to cease and desist selling caskets or risk being shut down, fined, and possibly sent to jail. Ms. Brent was forced to sell her casket inventory to a sister store in Florida, and act only as a showroom for that store. The Casket Store receives six or seven calls a day from interested potential customers. The Casket Store also continues to sell items such as markers, stationery, and pet burial items. These sales total less than $1,000, not enough to cover the store's monthly overhead of $6,000. In the meantime, her father has indefinitely postponed his plans to retire as a pilot and live off the store's income.
The Importance of Economic Liberty
After the Civil War, newly-emancipated slaves counted economic liberty as among the most cherished of their new civil rights. To protect entrenched white businessmen from competition, however, Southern governments soon suppressed economic opportunities for their newest citizens by heavily regulating entry into trades and business. The national government moved quickly to curtail these abuses by passing first the Civil Rights Act of 1866 and then the Fourteenth Amendment, both of which sought to protect the economic liberty of all Americans among the "privileges or immunities of citizenship" that states were prohibited from violating.
But in the 1873 Slaughter-House Cases, a sharply divided U.S. Supreme Court read the Privileges or Immunities Clause out of the Constitution by a 5-4 vote. That decision gave states a virtual carte-blanche to enact shameful Jim Crow era laws that restricted economic opportunities for black Americans. But states soon seized on this unchecked power to use regulation to protect all sorts of entrenched interests. Relying on Slaughter-House, states continue to regulate with impunity entry into trades and professions. These onerous restrictions often far exceed those necessary to protect public health and safety, thus revealing their real purposes-the protection of cartels.
After almost 130 years of ignoring the Privileges or Immunities Clause, however, the Supreme Court breathed new life back into this vital constitutional provision in May of 1999. In Saenz v. Roe, the Court used the clause to strike down a California law that limited welfare benefits for new residents. Although Saenz dealt specifically with the right to travel as being protected by the Privileges or Immunities Clause, the Court's use of the clause and the language of the decision cracks open the door for its reestablishment as the primary constitutional protection for economic liberty, as it was intended to be.
This challenge to Tennessee's funeral licensing laws presents the perfect opportunity after Saenz to ask courts to examine the full scope of the Privileges or Immunities Clause. Our aim is to restore the Privileges or Immunities Clause to its proper role as the foremost constitutional protection for the right to earn an honest living.
This lawsuit by the Institute for Justice goes to the very core of cherished constitutional values: the right of individuals to earn an honest living. The plaintiffs ask for nothing more than the opportunity to provide a necessary service for families in times of grief. Yet the laws of Tennessee erect arbitrary barriers to their aspiration.
Angela Brent, Jerry Harwood, Nathaniel Craigmiles, and Tommy Wilson ask the court to declare that, under the U.S. Constitution, those barriers violate their due process rights to earn an honest living, their right to equal protection, and the right to economic liberty protected by the Privileges or Immunities Clause.
The lead attorney in this case for the Institute for Justice is President and General Counsel William Mellor, who litigates economic liberty cases nationwide and whose work has opened the commuter van market in New York City and taxi markets in Denver, Indianapolis, and Cincinnati. He has also written features examining government-imposed barriers to entrepreneurship for The New York Times, The Wall Street Journal, USA Today, and other publications. He is joined in this work by Institute for Justice Staff Attorney Miranda Perry, who was part of the litigation team that successfully challenged California's onerous cosmetology laws on behalf of African hairbraiders. Joining the Institute for Justice as able local counsel is Hal North of the Chattanooga law firm of Shumacker and Thompson.
For more information contact:
Director of Communications
Institute for Justice
901 N. Glebe Road, Suite 900
Arlington, VA 22203