The business of funerals is never pleasant, but a new lawsuit claims the business practices of the industry's leading companies are downright dirty.
The Funeral Consumers Alliance filed a class action suit in San Francisco federal court May 2 against the three largest U.S. funeral home companies and the largest casket maker. The complaint alleges anticompetitive behavior, including price fixing and sham discounting, as well as a conspiracy among the defendants.
Plaintiffs accuse the three funeral home defendants--Service Corp. International, Alderwoods Group Inc., and Stewart Enterprises Inc.--and the casket maker, Batesville Caskets of Hillenbrand Inc., of conspiring to boycott independent casket sellers and artificially inflate casket prices.
The funeral home defendants only offer the Batesville brand of caskets, and Batesville only sells to licensed funeral home owners. Batesville refuses to supply retailers that are willing to sell caskets at a lower profit margin.
The lawsuit seeks damages against funeral homes that charged six families between $2,200 and $7,395 for caskets. If the court certifies the suit as a class action, the damages for all consumers affected by the alleged price inflation could be in the billions of dollars.
Gordon Schnell, one of the lawyers representing industry watchdog Funeral Consumers Alliance and a partner at Constantine Cannon, says the average overcharge is $1,000 on each of the roughly 40,000 caskets the defendants sell each year. As an antitrust class action suit, the damages would be tripled.
"This has been simmering for some time and I think it just reached a head," Schnell says. "The funeral home chains, the largest ones in particular, are taking advantage of the consumers who are grieving and in a vulnerable state."
Service Corp., the largest funeral provider in North America, said in a statement that the company would investigate, but that the allegations are "contrary to the company's longstanding written policies and training concerning this subject" and that the company "will vigorously contest these allegations." Hillenbrand declined to comment on the issue.
This is the first class action suit of its kind in the funeral industry, but it is part of a 20-year history of concerns over prices and practices in the industry.
A Nail In The Coffin
This lawsuit isn't the first time the funeral industry has been nailed for inflating prices. In 1984 the FTC enacted the Funeral Rule in response to complaints that funeral homes were overcharging customers. The rule requires funeral homes to disclose the price of every item or service they provide, and to sell these goods and services separately.
Before the rule, casket sales often were tied to funeral services, and caskets provided much of the profit. The new regulations allowed independent casket sellers to break into the market and compete for business.
The progress was short lived, however, as many funeral homes got around the rule by tacking on "handling fees" to the bill for anyone using an outside casket seller. Effectively, the funeral homes were making money from the casket even if they didn't sell it.
In 1994 the FTC banned handling fees, but Schnell says the defendants found another way to exclude independent sellers--such as Costco and Internet retailers--from the casket market, leaving them free to jack up prices once again.
Batesville, which manufacturers about 50 percent of caskets sold in the U.S. each year, established a company policy that their caskets only can be sold by licensed funeral home directors, thus excluding independent casket discounters (ICDs). The company claims funeral home directors alone have the ability and training to properly sell the caskets.
"The rationale they offer for the policy is that selling a casket requires special skills, but that has been rejected by the courts [in the past] and rejected by common sense because it doesn't take any special skills," Schnell argues.
Scott Gilligan is general counsel for the National Funeral Directors Association, which was named as a co-conspirator in the lawsuit. Gilligan says the Batesville policy is legitimate.
"Every business has the right to determine who they are going to sell to," Gilligan says. "There is healthy competition in the industry, probably more so now than ever."
A Matter Of Trust
Competition or not, the suit alleges the defendants deliberately trapped consumers into buying high-priced caskets. Selling package deals of services and caskets to dissuade customers from buying caskets elsewhere is a common funeral home strategy. But the prices of the separate items the defendants are selling are set so artificially high, the complaint says, that the customer has no choice but to buy the package, making it impossible for independent retailers to compete.
In addition, the suit claims the funeral home defendants threatened to stop buying from Batesville if the casket maker sold to ICDs. And Batesville allegedly threatened to cut off any "rouge" funeral home that acted against this exclusive agreement and supplied caskets to ICDs for resale.
The allegations of coordination have the potential to be the most damaging says Jesse Markham, a partner in the San Francisco office of Morrison Foerster and an antitrust law expert.
"A lot of antitrust cases involve conduct that is not denied so the plaintiff has to prove the conduct is illegal," Markham says. "The biggest hurdle in a case like this is whether they did it. If [the plaintiff] proves there was a conspiracy, then that is per se illegal regardless of the market effect."
It's usually legal for a company to independently create a sales policy that excludes some retailers or suppliers if it has a legitimate business reason to do so Markham says. He says similar suits have had a high success rate and that when it comes to anticompetitive behavior, all industries have the potential for trouble.
"There are industries that have a long history of attracting antitrust fire, like the automobile and newspaper industries." Markham says. "But there isn't any industry that is comfortably out of harm's way."