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NEW YORK STATE ASSOCIATION OF CEMETERIES v. FISHMAN

January 27, 2004.

NEW YORK STATE ASSOCIATION OF CEMETERIES, INC. and MOUNT CALVARY CEMETERY, Plaintiffs, INTERNATIONAL CEMETERY AND FUNERAL ASSOCIATION, Amicus Curiae
v.
RICHARD FISHMAN, Individually and as Director, New York State Division of Cemeteries; ALEXANDER I. TREADWELL, Individually and as Secretary of State for the State of New York; ELIOT SPITZER, Individually and as Attorney General of the State of New York; ANTONIA C. NOVELLO, Individually and as Commissioner of Health of the State of New York, and THE NEW YORK STATE CEMETERY BOARD, Defendants, NEW YORK STATE FUNERAL DIRECTORS ASSOCIATION, INC. Amicus Curiae



The opinion of the court was delivered by: HOWARD MUNSON, Senior District Judge

BACKGROUND

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 Page 3 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 comments regarding Page 4 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 findings: Combination formats:

  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 Page 5 viability.

  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 be entered.

 Impact of combinations:

  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 law.

  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. Page 6

  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.

  Chapter 560 Laws of 1988

  " § 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 Page 7 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 ...


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