The opinion of the court was delivered by: HOWARD MUNSON, Senior District Judge
New York State Association of Cemeteries, Inc., and Mount Calvary
Cemetery, Inc. ("plaintiffs") instituted this declaratory judgment action
under 42 U.S.C. § 1983 against various state officials in their official
and individual capacities, and the New York State Cemetery Board ("the
Board") to challenge the constitutionality of Chapter 560 of the Laws of
1988 ("Chapter 560").
Plaintiffs are seeking an order and judgment: (1) declaring the Chapter
unconstitutional because it deprives them of their rights under the Equal
Protection and Due Process Clauses of the United States and New York
State Constitutions and the Commerce and Contract Clauses of the United
States Constitution, (2) enjoining defendants from enforcing Chapter 560;
and (3) awarding plaintiffs' attorneys fees pursuant to 42 U.S.C. § 1988.
State supervision of cemeteries is not a new phenomenon. Cemeteries
have been regulated since ancient times. See, P. Jackson, The Law of
Cadavers and of Burial Places 187-94 (2d Ed. 1950), and courts have long
recognized the right of a state to enact cemetery regulatory legislation
reasonably related to its police power, even though such laws may
interfere with the contractual relations and commercial freedoms of
private parties. Home Building & Loan v. Blaisdell, 290 U.S. 298, 54
S.Ct. 231, 78 L. Ed 413 (1934).
New York public cemetery corporations are regulated under Article 15 of
the State's N-FPL. § 1504 of the statute created the New York State
Board of Cemeteries ("the Board") within the Division of Cemeteries in
the Department of State ("DOCS"). The Board is comprised of the New York
Secretary of State, the Attorney General and the Commissioner of Health
or their appointed representative(s). The Board's purpose is to ensure
that state regulated cemeteries are operated in a not-for-profit
capacity, and to make sure that these cemeteries are managed for long
term financial stability and perpetuity. The Board's responsible to one
of public interest and public care particularly with families and
individuals that may be dealing with issues at a distinctly sensitive and
troubling part of their lives.
In the late 1980s, the Board became concerned that plans were being
prepared to develop a number of cemetery and funeral entity combinations,
and began reviewing these proposals. Combinations were a threat to
undermine the not-for-profit natures of cemeteries and to financially
impair neighboring cemeteries by capitalizing on the distinctions between
cemetery and funeral entity corporate and regulatory structures.
Additionally, the development of management agreements between cemetery
corporations and for-profit corporations was weakening the not-for-profit
status of cemeteries where such agreements were in place, was shriveling
the cemetery corporations' fiscal resources and jeopardizing the
performance of its perpetual care obligations.
The Board's combinations review intensified in 1994, and, on March 6,
1996, the Board convened a public meeting and took testimony and written
cemeteries/funeral homes combinations in New York State. A sizeable
majority of the presenters were strongly opposed to combinations. The
Board also examined the experience of other states where combinations
were more common. On February 14, 1997, the Board issued a comprehensive
report regarding the combinations issues. The report entitled, Policy
Issues Impacting New York State Cemeteries, included the following
Generally defined, combinations include any legal relationship between
a cemetery and one or more components of the death care industry. The
death care industry consists of monument retailers, wholesale suppliers
to the retail monument industry, cemetery operators and funeral entities.
Most combinations take place between not-for-profit cemeteries and
for-profit funeral homes. Until the mid 1990s, the only combinations in
New York State were a few where for-profit funeral homes operated
not-for-profit crematories. At that point, two multi-national for-profit
funeral corporations took control of several not-for-profit cemeteries,
and several other types of combinations have been proposed.
One of the proposed combinations would have a funeral home corporation,
or other business corporation, buying the certificates of indebtedness of
a not-for-profit cemetery corporation, thereby obtaining virtual control
over the election of the cemetery corporation's board of directors. After
gaining control, representatives of the funeral home are elected to the
board of directors. The cemetery corporation then enters into contractual
agreements with the for-profit business or its related parties. The
cemetery is then operated in a manner that allows the for-profit
corporation to withdraw funds from the cemetery, as profit, that
otherwise would have been used to improve operations of the cemetery or
invested to insure future financial
Two other proposed combinations were also proposed The first would have
a cemetery creating a for-profit subsidiary and then building a funeral
home on the cemetery's property. The second would take place by a funeral
home corporation creating a not-for-profit subsidiary that later opens a
cemetery. In the aftermath of these combinations, various contractual
arrangements, essentially beneficial to the for-profit operation, would
Combinations promise increased services and lower prices, but they
actually reduce competition, service levels and higher prices.
For-profit corporation or business control of statutory prescribed
not-for-profit cemetery corporations will result in the syphoning off,
through direct and indirect means, of cemetery revenues, in the pursuit
of management strategies that benefit individuals or stockholders. This
is contrary to the philosophy underlying the not-for-profit corporation
By diverting cemetery funds from operations and from trust fund
accumulation, combinations will deplete cemeteries assets until the
cemeteries cannot sustain themselves. At that point, the cemeteries will
be abandoned and become a burden on the local taxpayers though conveyance
of fiscal and operational responsibility to the towns and villages, as
mandated under Town Law § 291.
Combinations threaten the financial viability of other cemeteries,
funeral homes and monument companies by drawing business away from these
other businesses. This is expected to drive some cemeteries into
insolvency and, thus, into becoming a burden on towns and villages.
The rights of lot owners and potential lot owners will be jeopardized
as combinations would create multiple avenues and unsavory marketing and
sales techniques such as high pressure telephone and door-to-door
solicitation and bait and switch techniques. Up until now, these methods
have been foreign to bona fide cemetery operators who are sensitive to
the nature of their business and their interaction with people at a time
of personal loss.
Cemetery personnel could be used to fraudulently practice funeral
directing without a license, depriving the public of the protections
assured by the training and licensure of funeral directors.
The Board was also concerned about its continued ability to protect the
public and cemeteries through audit of cemeteries' books and records.
Combinations would result in corporate assets and business relationships
becoming commingled with for-profit funeral homes, whose books and
reports are not subject to audit. This would create opportunities for
deceptive and fraudulent practices.
The Board concluded that immediate legislation was needed prohibiting
the creation of combinations in New York State. As a result, Chapter 560
implementing the Board's positions, was introduced and passed in both
houses of the New York State Legislature. § 1 of the statute recites
the Legislature's reasons for its enactment.
" § 1. Legislative findings and declarations. The legislature finds
and declares that the state has a vital interest in the oversight of its
cemeteries and in their viability as not-for-profit entities, as well as
the protection of its citizens when making important and difficult
decisions regarding the burial of loved ones. The combination of profit
making ventures with not-for-profit
ventures often raises conflicting business interests. The combinations of
interests in the management of not-for-profit cemeteries are ordinarily
threatening to vital state interests and should be prohibited. New York
courts have repeatedly held that the regulation of cemeteries is a valid
exercise of the state police power, and that the operation of a cemetery
is imbued with a public purpose, and that therefore any contract or
business activity in relation to the operation of a cemetery is subject
to changes in the state law. The regulation of the sale of monuments is
also a concern and interest of the state because of its relationship to
the not-for-profit status of cemeteries.
Chapter 560 prohibits not-for-profit, religious, municipal, private and
family cemetery corporations from engaging in certain activities with a
funeral entity. New York Not-For-Profit Law ("N-FPL") § 1502 defines
a cemetery corporation as " . . . any corporation formed under a
general or special law for the disposal or burial of deceased human
beings, by cremation or in a grave, mausoleum, vault, columbarium or
other receptacle but does not include a family cemetery corporation or a
private cemetery corporation." Chapter 560 defines a funeral entity as,
"[a] person, partnership, corporation, limited liability company or other
form of business organization providing funeral home services, or owning
or controlling, conducting or affiliated with a funeral home, any
subsidiary thereof or an officer, director or stockholder having ten per
centum or greater proprietary, beneficial, equitable or credit interests
in a funeral home."
Chapter 560 of the Laws of 1998 ("Chapter 560") amended several New
York State statutes concerning the ownership, operation and
administration of cemeteries, including the Not-For-Profit ("N-FPL"),
N.Y. Religious Corporations Law, N.Y. Village Law General Municipal ...