Heffner v. Murphy

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________
No. 12-3591
________________
ERNEST F. HEFFNER; HARRY C. NEEL; BART H.
CAVANAGH, SR.; JOHN KATORA; BRIAN LEFFLER;
REBECCA ANN WESSEL; MARK PATRICK
DOUGHERTY; CYNTHIA LEE FINNEY; NATHAN RAY;
TODD ECKERT; BEN BLASCOVICH; MATTHEW
MORRIS; WILLIAM SUCHARSKI; JOHN MCGEE;
AMBER M. SCOTT; ERIKA HAAS; NICOLAS
WACHTER; DAVID HALPATE; PATRICK CONNELL;
EUGENE CONNELL; MATTHEW CONNELL; JAMES J.
CONNELL, JR; JEFFERSON MEMORIAL PARK, INC;
JEFFERSON MEMORIAL FUNERAL HOME, INC.;
WELLMAN FUNERAL ASSOCIATES INC., doing business
as Forest Park Funeral Home; EAST HARRISBURG
CEMETERY COMPANY, doing business as East Harrisburg
Cemetery & Crematory; ROBERT LOMISON; CRAIG
SCHWALM; GREGORY J. HARVILLA; BETTY FREY
v.
DONALD J. MURPHY; JOSEPH A. FLUEHR, III;
MICHAEL J. YEOSOCK; BENNETT GOLDSTEIN;
JAMES O. PINKERTON; ANTHONY SCARANTINO;
BASIL MERENDA; MICHAEL GERDES; PETER
MARKS; C.A.L. SHIELDS,
Appellants
________________
Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. Civil Action No. 4-08-cv-00990)
District Judge: Honorable John E. Jones III
________________
Argued: June 11, 2013
Before: MCKEE, Chief Judge
AMBRO and GREENBERG, Circuit Judges
(Opinion filed: February 19, 2014)
2
James K. Kutz (argued)
Jason G. Benion
Post & Schell, P.C.
17 North Second Street, 12th Floor
Harrisburg, PA 17101
Counsel for Appellees
Kathleen G. Kane, Attorney General
John G. Knorr, III, Chief Deputy Attorney General (argued)
Maryanne M. Lewis, Senior Deputy Attorney General
Office of Attorney General
15th Floor, Strawberry Square
Harrisburg, PA 17120
Counsel for Appellants
________________
OPINION OF THE COURT
________________
McKEE, Chief Judge
Contents
I. Facts and Procedural History ...................................................................................... 6
II. Discussion ................................................................................................................. 10
A. Jurisdiction and Standard of Review ....................................................................... 10
B. Facial versus As-Applied Challenge ....................................................................... 10
C. Fourth Amendment .................................................................................................. 11
D. Dormant Commerce Clause .................................................................................... 18
1. Restrictions on Ownership and Alienability of
Funeral Establishments ............................................................................................. 19
2. Preparation Room Requirement ........................................................................... 28
3. Place of Practice and Full-Time Supervisor
Requirement .............................................................................................................. 30
E. Substantive Due Process .......................................................................................... 31
1. “One-and-a-Branch” Limitation ........................................................................... 32
3
2. Licensing Restrictions .......................................................................................... 33
3. “Place-of-practice” and Full-Time Supervisor
Requirement .............................................................................................................. 35
4. The Preparation Room Requirement .................................................................... 36
5. Restriction on Serving Food ................................................................................. 37
6. Trusting Requirement ........................................................................................... 39
F. First Amendment ...................................................................................................... 42
1. Restriction on Use of Trade Names ..................................................................... 42
2. Payment on Commissions to Unlicensed Salespeople ......................................... 45
G. Contract Clause ....................................................................................................... 47
III. Conclusion............................................................................................................... 48
The Pennsylvania Board of Funeral Directors (the
“Board”) appeals the grant of summary judgment that the
District Court awarded based upon its conclusion that several
provisions of Pennsylvania’s Funeral Director Law (“FDL”),
63 Pa. Stat. Ann. § 479.1 et seq., violate various provisions of
the U.S. Constitution. The suit was brought by individuals
and entities who are either involved in, or wish to be involved
in, Pennsylvania’s “death care industry.” 1 In relevant part,
the Plaintiffs challenged statutory provisions that: (1) permit
warrantless inspections of funeral establishments by the
Board; (2) limit the number of establishments in which a
funeral director may possess an ownership interest; (3)
restrict the capacity of unlicensed individuals and certain
entities to hold ownership interests in a funeral establishment;
(4) restrict the number of funeral establishments in which a
funeral director may practice his or her profession; (5) require
every funeral establishment to have a licensed full-time
supervisor; (6) require funeral establishments to have a
“preparation room”; (7) prohibit the service of food in a
funeral establishment; (8) prohibit the use of trade names by
funeral homes; (9) govern the trusting of monies advanced
pursuant to pre-need contracts for merchandise; and (10)
prohibit the payment of commissions to agents or employees.
1
The Plaintiffs-Appellees are collectively referred to as the “Plaintiffs.”
4
As a threshold matter, we surmise that much of the
District Court’s conclusions regarding the constitutionality of
the FDL, enacted in 1952, stem from a view that certain
provisions of the FDL are antiquated in light of how funeral
homes now operate. That is not, however, a constitutional
flaw. Thus, for the reasons that follow, we reverse the
District Court’s judgment striking down the FDL’s
warrantless inspection scheme on Fourth Amendment
grounds. We also reverse the District Court’s judgments
concerning the Plaintiffs’ dormant Commerce Clause
challenges to certain provisions of the FDL. We reverse as
well the District Court’s conclusions that the disputed FDL
provisions violate the substantive component of the Due
Process Clause. We also reverse the District Court’s ruling
that the Board’s actions unconstitutionally impair the
Plaintiffs’ private contractual relations with third parties in
violation of the Constitution’s Contract Clause. We will
affirm the District Court’s ruling that Pennsylvania’s ban on
the use of trade names in the funeral industry runs afoul of
First Amendment protections, but reverse its ruling that the
ban on the payment of commissions to unlicensed salespeople
violates the Constitution. Finally, we remand to the District
Court to modify its order in accordance with this opinion.
5
I. Facts and Procedural History
The FDL was enacted in 1952 to “provide for the
better protection of life and health of the citizens of
[Pennsylvania] by requiring and regulating the examination,
licensure and registration of persons and registration of
corporations engaging in the care, preparation and disposition
of the bodies of deceased persons . . . .” 63 Pa. Stat. Ann. §
479.1. The FDL created the Board, it entrusts the Board with
enforcing the FDL, and “empower[s] [it] to formulate
necessary rules and regulations not inconsistent with [the
FDL] for the proper conduct of the business or profession of
funeral directing and as may be deemed necessary or proper
to safeguard the interests of the public and the standards of
the profession.” Id. § 479.16(a); see also id. § 479.19.
The FDL requires individuals to obtain a license to be
a funeral director or own funeral homes in Pennsylvania. 2 Id.
§ 479.13(a). Generally, only licensed funeral directors or
partnerships of two or more licensed funeral directors may
own funeral homes. Id. § 479.8(a). The statute also restricts
the types of individuals and entities that may obtain such
licenses. However, upon the death of a licensee, the FDL
authorizes the Board to issue a license to the licensee’s estate
2
The FDL defines “funeral director” as
includ[ing] any person engaged in the
profession of a funeral director or in the care
and disposition of the human dead, or in the
practice of disinfecting and preparing by
embalming the human dead for the funeral
service, burial or cremation, or the
supervising of the burial, transportation or
disposal of deceased human bodies, or in the
practice of funeral directing or embalming
as presently known, whether under these
titles or designation or otherwise. The term
“funeral director” shall also mean a person
who makes arrangements for funeral service
and who sells funeral merchandise to the
public incidental to such service or who
makes financial arrangements for the
rendering of such services and the sale of
such merchandise.
63 Pa. Stat. Ann. § 479.2(1).
6
for a period of three years or to the licensee’s surviving
spouse while s/he remains unmarried. Id. The statute
authorizes restricted corporations (“RBCs”) to obtain
licenses, provided that they are formed for the sole purpose of
conducting a funeral directing practice. Id. § 479.8(b). 3 The
FDL prohibits an RBC from having an ownership interest in
any other funeral establishment and requires that at least one
of its principal officers be a licensed funeral director. Id.
Upon the death of a shareholder funeral director, shares or
stock of an RBC may be transferred to members of the
decedent’s immediate family. Id.
The FDL also codifies Pennsylvania’s prohibition of
general business corporations owning funeral directing
licenses. See id. § 479.8(d). Prior to 1935, Pennsylvania
issued funeral directing licenses to individuals as well as
corporations. However, in 1935 the General Assembly
imposed restrictions. Consistent with a 1936 decision of the
Pennsylvania Supreme Court, see Rule v. Price, 185 A. 851
(Pa. 1936), the legislature eventually allowed a total of
seventy-seven “pre-1935” licenses to be “grandfathered” into
the new law. Currently, any person or entity—including
general business corporations—may own an interest in one of
these licenses and own and operate a funeral establishment
pursuant to the authority granted by that license.
Licensed funeral directors are limited to operating at
one principal place of business with no more than one branch
location. 63 Pa. Stat. Ann. § 479.8(e). These establishments
must be conducted under the name of a licensed principal or
that of a predecessor establishment. Id. §§ 479.8(a)-(c). In
addition, the FDL requires that each establishment retain a
licensed funeral director as a “full-time supervisor,” id., and
include a “preparation room . . . for the preparation and
embalming of human bodies,” id. § 479.7. Food service is
generally prohibited inside a funeral establishment. Only
“non-intoxicating” beverages may be served, and they may
3
As defined by § 479.8(b), “[a] restricted business corporation is . . . a
corporation formed by one or more licensed funeral directors specifically for the
purpose of conducting a funeral directing practice and whose shareholders are
licensed funeral directors or members of the immediate family of a licensed
funeral director.” H.P. Brandt Funeral Home, Inc. v. Commonwealth of
Pennsylvania, et al. 467 A.2d 106, 107 (Pa. Cmwlth 1983).
7
only be served in rooms “not used for the preparation and
conduct of [] funeral service[s].” Id.
As the administrative entity entrusted with enforcing
the FDL, the Board’s inspectors are authorized to conduct
warrantless and unannounced inspections of funeral
establishments. Specifically, Section 16(b) of the FDL
authorizes the Board to appoint inspectors who have:
[T]he right of entry into any
place, where the business of
funeral directing is carried on, or
advertised as being carried on, for
the purpose of the inspection and
for the investigation of complaints
coming before the board and for
such other matters as the board
might direct.
Id. § 479.16(b).
Finally, the FDL also contains two provisions relating
to the “pre-need” sale of funeral arrangements that are at
issue here. 4 First, Section 11(a)(8) of the FDL provides that a
funeral director or funeral home’s license may be suspended
or revoked if a licensed funeral director pays unlicensed
employees commissions on sales. See id. § 479.11(a)(8)
(“The board . . . may refuse to grant, refuse to renew, suspend
or revoke a license of any applicant or licensee . . . for . . . (8)
paying a commission . . . to any person . . . for . . . business
secured. . . .”). Second, the FDL requires that a funeral
director who enters into a pre-need contract to provide funeral
services deposit 100% of any advance payments into an
escrow or trust account. Id. § 479.13(c).
In May 2008, the Plaintiffs initiated this suit against
the Board, asserting claims under 42 U.S.C. § 1983 and 28
U.S.C. § 2201 for alleged violations of their rights under the
U.S. Constitution. Specifically, the Plaintiffs’ amended
complaint asserted that the above-referenced FDL provisions
4
“‘Preneed’ services are what their name implies: a customer makes his or her
funeral arrangements and pays for them, either in a lump sum or over time with
the idea that, at the time of death, the services are fully paid for.” In re Forest
Hill Funeral Home & Mem’l Park, 364 B.R. 808, 811 (Bankr. E.D. Okla. 2007).
8
violated several constitutional provisions, including the
Commerce Clause, the Contract Clause, the First
Amendment, the Fourth Amendment, and the substantive
component of the Fourteenth Amendment’s Due Process
Clause.
By way of stipulation, the parties dismissed one of the
counts in the amended complaint with prejudice. 5 Thereafter,
the Board and Plaintiffs both moved for summary judgment.
The District Court largely agreed with the Plaintiffs
that the challenged FDL provisions violated various
constitutional provisions. See Heffner v. Murphy, 866 F.
Supp. 2d 358 (M.D. Pa. 2012). The Court struck down FDL
provisions that: (1) permit warrantless inspections of funeral
establishments by the Board; (2) limit the number of
establishments in which a funeral director may possess an
ownership interest; (3) restrict the capacity of unlicensed
individuals and certain entities to hold ownership interests in
a funeral establishment; (4) restrict the number of funeral
establishments in which a funeral director may practice
his/her profession; (5) require every funeral establishment to
have a licensed full-time supervisor; (6) require funeral
establishments to have a “preparation room”; (7) prohibit the
service of food in a funeral establishment; (8) prohibit the use
of trade names by funeral homes; (9) govern the trusting of
monies advanced pursuant to pre-need contracts for
merchandise; and (10) prohibit the payment of commissions
to agents or employees. 6
This appeal followed.
5
The parties agreed to dismiss Count X, which claimed that the Board had
arbitrarily and unreasonably restricted licensed funeral directors from securing
continuing education credits online.
6
The District Court found in the Board’s favor on Count XI of the amended
complaint, which alleged that certain restrictions that the FDL places on
cremation violated the Plaintiffs’ rights under the Commerce Clause, the First
Amendment, and the Due Process Clause. See Heffner, 866 F. Supp. 2d at 408-
18. The Plaintiffs have not appealed the District Court’s ruling on this issue.
9
II. Discussion
A. Jurisdiction and Standard of Review
We have jurisdiction to review a district court’s order
granting an injunction under 28 U.S.C. § 1292(a). The
District Court had federal question jurisdiction over this case
pursuant to 28 U.S.C. §§ 1331 and 1343.
We exercise plenary review over a district court’s
grant or denial of summary judgment. Carter v. McGrady,
292 F.3d 152, 157 (3d Cir. 2002). “To prevail on a motion
for summary judgment, the moving party must demonstrate
that ‘there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.’”
Interstate Outdoor Adver., L.P. v. Zoning Bd. of Twp. of
Mount Laurel, 706 F.3d 527, 530 (3d Cir. 2013) (quoting Fed.
R. Civ. P. 56(a)). Moreover, “where, as was the case here,
the District Court considers cross-motions for summary
judgment ‘the court construes facts and draws inferences in
favor of the party against whom the motion under
consideration is made.’” J.S. ex rel. Snyder v. Blue Mountain
Sch. Dist., 650 F.3d 915, 925 (3d Cir. 2011) (quoting Pichler
v. UNITE, 542 F.3d 380, 386 (3d Cir. 2008) (internal
quotation marks omitted)).
B. Facial versus As-Applied Challenge
Before we proceed to the merits of the Plaintiffs’
constitutional claims, we need to address the threshold matter
of whether we are reviewing a facial or an as-applied
challenge to the disputed FDL provisions. The difference
between the two is significant. “A party asserting a facial
challenge ‘must establish that no set of circumstances exists
under which the Act would be valid.’” United States v.
Mitchell, 652 F.3d 387, 405 (3d Cir. 2011) (quoting United
States v. Salerno, 481 U.S. 739, 745 (1987)). This is a
particularly demanding standard and is the “most difficult
challenge to mount successfully.” Salerno, 481 U.S. at 745.
By contrast, “[a]n as-applied attack . . . does not contend that
a law is unconstitutional as written but that its application to a
particular person under particular circumstances deprived that
person of a constitutional right.” United States v. Marcavage,
609 F.3d 264, 273 (3d Cir. 2010).
10
In granting summary judgment to the Plaintiffs on all
but one of their asserted counts, the District Court only
engaged in a facial analysis. Confusingly, however, the
District Court’s subsequent order invalidated those same FDL
provisions both on their face and as-applied to the Plaintiffs.
When confronted with this kind of ambiguity in the
past, our inquiry has examined whether the challenged
statutes survive either type of challenge. See Mitchell, 652
F.3d at 405-06; Marcavage, 609 F.3d at 273. However, in
those cases, the parties themselves disputed the nature of the
challenges. Here, the amended complaint is generally
consistent with a facial challenge and Plaintiffs’ briefs
exclusively advance facial challenges. This is consistent with
the position Plaintiffs’ counsel took at oral argument. On
appeal, counsel relies on several grounds in continuing to
argue that the FDL is invalid on its face. Accordingly, we
will limit our inquiry to whether the challenged provisions of
the FDL are facially invalid. 7
C. Fourth Amendment
Section 16(b) of the FDL gives board inspectors “the
right of entry into any place, where the business or profession
of funeral directing is carried on or advertised as being
carried on, for the purpose of inspection and for the
investigation of complaints coming before the board and such
other matters as the board may direct.” 63 Pa. Stat. Ann.
§ 479.16(b). Count I of the Plaintiffs’ amended complaint
charged that this authority to conduct warrantless searches of
funeral establishments violates the Fourth Amendment.
The Supreme Court has recognized that “warrantless
searches are generally unreasonable, and [] this rule applies to
commercial premises as well as homes.” Marshall v.
Barlow’s, Inc., 436 U.S. 307, 312 (1978). Therefore, the
7
As noted above, a finding that the FDL’s provisions are facially invalid negates
any need to conduct an as-applied challenge. See Salerno, 481 U.S. at 745. If
the FDL is determined to be unconstitutional as written, it is irrelevant whether
the statute’s application to a particular person under particular circumstances
deprived that person of a constitutional right. See Marcavage, 609 F.3d at 273.
Moreover, given the arguments asserted by Plaintiffs and the record before us,
we conclude that an “as applied challenge” is not supported by this record.
11
government must secure a warrant before searching or
inspecting private premises absent certain narrow
circumstances that are not alleged here. Showers v. Spangler,
182 F.3d 165, 172 (3d Cir. 1999). The Board defends its
authority to conduct warrantless searches by relying on the
“well recognized exception” to the warrant requirement that
applies to highly regulated industries. See id.; see also Free
Speech Coal., Inc. v. Att’y Gen. of U.S., 677 F.3d 519, 544
(3d Cir. 2012) (“Certain industries have such a history of
government oversight that no reasonable expectation of
privacy could exist.”).
In New York v. Burger, 482 U.S. 691 (1987), the Supreme Court
rejected a Fourth Amendment challenge to a New York statute that authorized
warrantless inspections of vehicle- dismantling businesses. The Court reasoned
that the authority to inspect such businesses without a warrant came within the
narrow exception to the warrant requirement for administrative inspections of
closely regulated businesses. Id. at 703. The state had a substantial interest in
regulating industries associated with motor vehicle theft, and warrantless
administrative inspections advanced that interest. Id. at 708. The Court held
that the challenged statute provided a “constitutionally adequate substitute” for
warrants by informing operators of a vehicle-dismantling business that
inspections will be made on a regular basis and by limiting discretion of
inspection officers. Id. at 711.
Accordingly, we begin our Fourth Amendment inquiry
by determining whether the FDL is a “closely regulated
industry.” Free Speech Coal., Inc., 677 F.3d at 544. “Factors
to consider when determining whether a particular industry is
closely regulated include: duration of the regulation’s
existence, pervasiveness of the regulatory scheme, and
regularity of the regulation’s application.” Id.
The funeral “industry” in Pennsylvania is clearly
subjected to extensive regulations. 8 The FDL and its
supporting regulations prescribe a broad range of standards
that funeral directors in Pennsylvania have long been required
to comply with. These include licensing requirements, health
standards, and funeral services that funeral homes must
provide. See, e.g., 63 Pa. Stat. Ann. §§ 479.6 (issuance of
licenses), 479.7 (health restrictions); see also Guardian Plans
v. Teague, 870 F.2d 123, 126 (4th Cir. 1989) (describing
8
Indeed, one need look no further than the breadth of the regulations being
challenged by the Plaintiffs to understand the breadth of Pennsylvania’s
regulations of the funeral industry.
12
similar requirements governing funeral service professionals
in Virginia as “extensive”); Toms v. Bureau of Prof’l and
Occupational Affairs, 800 A.2d 342, 349 (Pa. Cmwlth. 2002)
(“The [FDL] . . . impose[s] rules and restrictions on funeral
directors not only to protect the bereaved . . . , but also to
provide a framework with which to help the bereaved address
each of the issues that arise when making final arrangements
for a deceased loved one.”). The funeral industry is also
subject to significant federal regulation. Not only does the
Federal Trade Commission require funeral homes to disclose
pricing information prior to all transactions, see 16 C.F.R.
453.2, funeral establishments must also comply with several
health and safety standards imposed by the Occupational
Safety and Health Administration, see, e.g., 29 C.F.R.
1910.1030 (Blood borne Pathogen Standard).
Since we have no difficulty concluding that
Pennsylvania’s funeral industry is a “closely regulated
industry,” our Burger inquiry proceeds to determining if the
searches authorized by the FDL are reasonable. Free Speech
Coal., Inc., 677 F.3d at 544 (“Once a business is determined
to be part of a closely regulated industry, then we must decide
whether the alleged warrantless search was reasonable.”).
That inquiry requires us to focus on three criteria:
First, there must be a substantial
government interest that informs
the regulatory scheme pursuant to
which the inspection is made. . . .
Second, the warrantless
inspections must be necessary to
further the regulatory scheme. . . .
Finally, the statute’s inspection
program . . . must provide a
constitutionally adequate
substitute for a warrant.
Burger, 482 U.S. at 702-03 (internal quotation marks and
citations omitted); Free Speech Coal., Inc., 677 F.3d at 544.
The Plaintiffs argue that the searches authorized by the
FDL are not supported by a sufficient governmental interest
to withstand Fourth Amendment scrutiny under Burger.
However, Pennsylvania obviously has a substantial interest in
13
public health, safety, and consumer protection. See, e.g.,
Grime v. Dep’t of Public Instruction, 188 A. 337, 381 (Pa.
1936) (noting that the General Assembly has a legitimate
interest in regulating the licensing of funeral directors in order
“to protect the public health from the dangers attendant upon
the inexpert conduct of undertaking by those not qualified by
the necessary knowledge of principles of sanitation and
disease prevention.”); Brown v. Hovatter, 561 F.3d 357, 368
(4th Cir. 2009) (“[A] State has ‘a legitimate interest in
protecting the health, safety and welfare of its citizens
through regulation of the funeral profession.’” (quoting
Guardian Plans, Inc., 870 F.2d at 126)); Toms, 800 A.2d at
346 (“‘[T]he General Assembly has a legitimate interest in
regulating the funeral industry to safeguard the interests of the
public and the standards of the profession.’” (quoting
Ferguson v. Pa. State Bd. of Funeral Dirs., 768 A.2d 393,
397-98 (Pa. Cmwlth. 2001))).
The Plaintiffs claim that Section 16(b) of the FDL does
not satisfy Burger because a warrantless search is not
necessary to further the regulatory objectives. The Plaintiffs
support that argument by highlighting differences between
funeral homes on the one hand, and searches of premises
involved in the rapid exchange of fungible items—e.g., the
“chop shops” at issue in Burger—on the other. According to
the Plaintiffs, inspectors’ searches of funeral establishments
are likely to focus on compliance with such regulations as
building standards, and the need for surprise inspections is
therefore attenuated to such an extent that it cannot justify a
warrantless intrusion under Burger.
Although that may be true, it is neither outcome
determinative nor does it advance our inquiry. Although the
need for unannounced inspections of funeral parlors may not
be as great as for other kinds of businesses, that does not
negate the need for surprise inspections of funeral parlors.
The Board need not show that warrantless searches are the
most necessary way to advance its regulatory interest. See
Contreras v. City of Chicago, 119 F.3d 1286, 1290 (7th Cir.
1997) (“The pertinent inquiry is whether the [government’s]
objectives would be frustrated by requiring a warrant or
notice.”) (internal quotation marks and alterations omitted).
14
The Board persuasively explains that if inspectors are
barred from entering funeral homes without a search warrant
or advance notice, unscrupulous funeral practitioners could
bring their establishments into regulatory compliance prior to
an inspection, only to let them fall below prescribed standards
when the threat of detection passes. We agree. Thus,
Pennsylvania’s warrantless search regime is not qualitatively
different from various other administrative inspection
schemes that depend on the element of surprise to both detect
and deter violations. See, e.g., Lesser v. Espy, 34 F.3d 1301,
1308 (7th Cir. 1994) (upholding statutory regime authorizing
warrantless searches of businesses that supplied rabbits to
research laboratories).
Plaintiffs also argue that Section 16(b) cannot survive
the third prong of the Burger inquiry because it does not
sufficiently limit inspectors’ discretion and therefore cannot
be a constitutionally adequate substitute for a warrant. The
Plaintiffs base that claim on the statutory text which allows
inspection for any complaints or “other matters as the board
may direct[.]” 63 Pa. Stat. Ann. § 479.16(b). According to
the Plaintiffs, this gives inspectors nearly absolute discretion
and infringes upon the privacy interests of funeral directors.
Plaintiffs stress, for example, that “no regulation or policy
specifies what will be inspected or when,” and they claim that
the “frequency, nature, and extent of an inspection” appear to
be left to an inspector’s discretion. Plaintiffs’ Br. at 11.
The third prong of the Burger test requires that a
regulatory statute authorizing warrantless searches both (1)
advise the owner of the premises that a search is pursuant to
the law, and (2) limit the discretion of the officers conducting
the search. See Burger, 482 U.S. at 703. “Inspectors, in other
words, cannot barge into an establishment any time they want
and inspect the place however they please.” Contreras, 119
F.3d at 1291.
We agree that a delegation of authority as broad as that
which Plaintiffs describe could not satisfy Burger. However,
Plaintiffs mischaracterize Section 16(b). Their argument
ignores other aspects of the statutory regime that place
restrictions on warrantless searches under the FDL as
required by Burger. The statute plainly states that any
15
business that engages (or represents itself as engaging) in the
practice of funeral directing is subject to search by Board
inspectors. Notice that inspections of private premises may
take place “pursuant to the law” is sufficient under Burger, so
long as limits are placed on the discretion of the inspecting
officer. See id. at 703, 711; see also LeSueur-Richmond Slate
Corp. v. Fehrer, 666 F.3d 261, 265 (4th Cir. 2012) (“[T]he
Burger Court meant that a statute permitting warrantless
administrative searches must clearly indicate that the
[relevant] property is subject to search, whether or not any
government official actually conducts one.”).
Section 16(b) provides that only Board-appointed
inspectors may search private premises used in the funeral
business. Accordingly, the FDL more closely circumscribes
who may conduct searches than the statutory regimes that the
Supreme Court upheld in Burger. See Burger, 482 U.S. at
704, 711 (discussing scheme authorizing inspections “by the
police or any agent of the Department of Motor Vehicles”);
see also Tart v. Commonwealth of Mass., 949 F.2d 490, 497
(1st Cir. 1991) (upholding scheme authorizing “any
authorized person” to inspect fishing permits).
Moreover, while the FDL permits officers to inspect
for “such . . . matters as the Board may direct,” it exclusively
restricts the Board’s enforcement duties to matters pertaining
to the FDL. See 63 Pa. Stat. Ann. § 479.16(a). As the Board
correctly notes, under Burger we have upheld significantly
broader grants of authority. See Watson v. Abington Twp.,
478 F.3d 144, 152 (3d Cir. 2007) (recognizing that
Pennsylvania’s liquor board is authorized to inspect for “‘any
violation of the Liquor Code or any law of the
Commonwealth’” (quoting In re Catering Club Liquor
License No. CC-4837 Issued to Fulton Post, Inc., 438 A.2d
662, 663 (1981))); see also LeSueur-Richmond Slate Corp.,
666 F.3d at 266.
Plaintiffs’ Burger challenge also relies on the absence
of appropriate temporal limitation on searches of funeral
establishments. The point is well taken, but we believe the
absence of such restrictions is not fatal to the FDL. Time
limitations, along with those related to the scope and location
of a search, are key to restricting inspectors’ discretion. See
Burger, 482 U.S. at 703. Accordingly, courts reviewing
16
regulatory search schemes under Burger generally look to
whether the statutes and regulations at issue place adequate
temporal limits on government officers’ ability to conduct
searches of private property. Here, neither Section 16(b) of
the FDL nor relevant Board regulations establish any such
limitations—e.g., by requiring that officers conduct
inspections during normal business hours.
However, context matters and courts have consistently
upheld statutes permitting administrative searches in the
absence of time restrictions where such limitations would
frustrate the underlying governmental interest. See United
States v. Vazquez-Castillo, 258 F.3d 1207, 1212 (10th Cir.
2001) (upholding regulatory inspection scheme on
commercial carriers and noting that “trucks operate twenty-
four hours a day”) (internal quotation marks omitted); Crosby
v. Paulk, 187 F.3d 1339, 1347 (11th Cir. 1999) (upholding
statute authorizing inspections of properties where alcohol
was sold and permitting Georgia officers to “enter upon the
licensed premises . . . at any time” (emphasis omitted)
(quoting O.C.G.A. § 3-2-32)); United States v. Dominguez-
Prieto, 923 F.2d 464, 470 (6th Cir. 1991) (noting “limitation
[on searches of commercial carriers] would . . . render the
entire inspection scheme unworkable and meaningless”).
Obviously, the concerns that lead to the regulation of
funeral facilities do not disappear at the close of business, nor
is the need for regulatory compliance restricted to business
hours. In fact, just the opposite may be true. It is quite
reasonable for the state to assume that owners of funeral
businesses will be particularly careful to avoid disturbing or
offending visitors and family members who are already
grieving the loss of a loved one. However, the health
concerns that underlie much of the FDL’s regulatory scheme
do not dissipate when those visitors and family members
leave the funeral home. Death is obviously not restricted to
normal business hours and a funeral facility must continually
maintain the corpse until it is finally removed. Therefore the
state has a strong interest in ensuring that the funeral business
complies with applicable regulations 24 hours a day, 7 days a
week. Limiting regulatory inspections to business hours
would not advance that interest.
17
In mounting a facial challenge to the FDL, Plaintiffs
must persuade us that “there is no set of circumstances” under
which the FDL’s inspection scheme may be applied
constitutionally. See Mitchell, 652 F.3d at 415-16. Plaintiffs
have failed to do so. As we have just explained, the very fact
that death is not restricted to normal business hours or
workdays belies any suggestion that administrative searches
of funeral parlors should be so restricted. Given the totality
of the FDL’s warrantless administrative inspection scheme,
we hold that the statute adequately limits the discretion of
government officers. 9
D. Dormant Commerce Clause
The Commerce Clause of the U.S. Constitution grants
Congress the power to “regulate Commerce . . . among
the several States.” U.S. Const. Art. I, § 8, cl.3. “This
clause has an implied requirement—the Dormant
Commerce Clause—that the states not ‘mandate
differential treatment of in-state and out-of-state
economic interests that benefit the former and burdens
the latter.’” Keystone Redev. Partners, LLC v. Decker,
631 F.3d 89, 107 (3d Cir. 2011) (quoting Granholm v.
Heald, 544 U.S. 460, 472 (2005)). Accordingly, it is
“[a]xiomatic . . . that a state cannot impede free market
forces to shield in-state businesses from out of state
competition.” Cloverland-Green Spring Dairies, Inc.
v. Pa. Milk Mktg. Bd., 298 F.3d 201, 210 (3d Cir.
2002) (“Cloverland I”).
Our dormant Commerce Clause inquiry begins with
determining whether the FDL discriminates against interstate
commerce in either purpose or effect. See Am. Trucking
Ass’n, Inc. v. Whitman, 437 F.3d 313, 319 (3d Cir. 2006). If
so, the discriminatory restrictions must then survive
heightened scrutiny to survive the Plaintiffs’ Commerce
Clause challenge. Am. Exp. Travel Related Servs., Inc. v.
Sidamon-Eristoff, 669 F.3d 359, 372 (3d Cir. 2012).
9
In addition, we note that nothing in the record suggests that Board officers
have conducted inspections of funeral homes outside of normal business hours.
Indeed, the Board asserts—and the Plaintiffs concede—that because government
inspectors are only paid for work performed between 8:30 a.m. and 5:00 p.m.,
administrative inspections have exclusively taken place during those hours.
18
Heightened scrutiny requires the State to “‘demonstrate (1)
that the statute serves a legitimate local interest, and (2) that
this purpose could not be served as well by available
nondiscriminatory means.’” Freeman v. Corzine, 629 F.3d
146, 158 (3d Cir. 2010) (quoting Am. Trucking Ass’n, Inc.,
437 F.3d at 319).
If we determine that heightened scrutiny is
inappropriate because the FDL’s provisions do not
discriminate in favor of in-state interests, we then must
balance interests pursuant to Pike v. Bruce Church, Inc., 397
U.S. 137 (1970). Pike balancing is necessary because
“[s]tates may not impose regulations that place an undue
burden on interstate commerce, even where those regulations
do not discriminate between in-state and out-of-state
businesses.” United States v. Lopez, 514 U.S. 549, 579-80
(1995). The Pike balancing inquiry requires that we
determine “whether the [law’s] burdens on interstate
commerce substantially outweigh the putative local
benefits.’” Freeman, 629 F.3d at 158 (quoting Cloverland-
Green Spring Dairies, Inc. v. Pa. Milk Mktg. Bd., 462 F.3d
249, 258 (3d Cir. 2006) (alterations omitted) (“Cloverland
II”)). Here, the District Court concluded that several of the
FDL’s provisions unconstitutionally shielded Pennsylvania
funeral establishments from out-of-state competition in
violation of the Commerce Clause. In explaining why we
disagree with that conclusion we will separately discuss each
of the allegedly discriminatory provisions.
1. Restrictions on Ownership and Alienability of Funeral
Establishments
The Plaintiffs first argue that FDL’s limits on the
ownership of funeral establishments in Pennsylvania
violate the dormant Commerce Clause. The first
challenged restriction that we will discuss is referred to
as the “one-and-a-branch” limitation. It restricts
licensees to possessing an ownership interest in one
funeral establishment with only a single “branch”
location. 63 Pa. Stat. Ann. §§ 479.8(a)-(e).
The second limitation that is challenged under the
dormant Commerce Clause arises from a set of provisions
governing funeral licensing requirements in Pennsylvania.
19
These provisions generally restrict ownership of an interest in
funeral establishments to individuals and entities that had a
license before 1935. See id. §§ 479.8(a)-(c). However, as we
explained earlier, notwithstanding this limitation, these
ownership provisions allow the estate of a deceased licensee
or surviving spouse to receive a license to continue the
business of the deceased licensee. Similarly, immediate
family members may hold a deceased funeral director’s stock
in a restricted corporation upon death of the licensee.
The District Court did not independently analyze the
one-and-a-branch limitation in concluding that these
“ownership restrictions” violated the dormant Commerce
Clause. We will nevertheless examine the constitutionality of
each of the ownership restrictions.
a. One-and-a-Branch Provision
The one-and-a-branch provision states that “[l]icensees
authorized to conduct a funeral practice . . . may practice at
one principal place and no more than one branch place of
business.” Id. § 479.8(e). Other provisions, in Section 8 of
the FDL, similarly restrict business entities’ ownership
interests. See id. §§ 479.8(a), (b), (d). The Plaintiffs allege
that these provisions unconstitutionally prohibit out-of-state
interests from operating a funeral business at more than two
locations. Plaintiffs claim that the unconstitutionality results
from the resulting inability to “cluster” 10 facilities so that they
can more effectively compete with in-state funeral directors.
We begin our analysis by asking “whether [the State
law] discriminates on its face against interstate commerce.”
United Haulers Ass’n, Inc. v. Oneida-Herkimer Solid Waste
Mgmt. Auth., 550 U.S. 330, 338 (2007). The answer to that
question is as obvious as it is straightforward. Despite
Plaintiffs’ attempt to conjure up a discriminatory impact on
out-of-state funeral owners, it is clear from the text of the
10
Plaintiffs define “clustering” as the sharing of employees and equipment
between multiple locations. Plaintiffs’ Br. at 26. Plaintiffs contend that the
prohibition on clustering -- i.e., limiting the extent to which the services of a
funeral director can be shared across a cluster of funeral homes -- means that a
firm attempting to cluster in Pennsylvania is required to hire more personnel at
greater expense. See Heffner, 866 F. Supp. 2d at 396.
20
statute that the challenged provisions impose the same
limitation on out-of-state funeral directors and those in
Pennsylvania. There is simply no distinction under the FDL
between in-state and out-of-state interests or impact. The
restriction burdens both to the same extent. Any burden that
results from these limitations affects all licensed individuals
who possess an ownership interest in a funeral business
operated in Pennsylvania regardless of the state of residency
of any of its owners.
Our dormant Commerce Clause inquiry only considers
whether the impact of the limitation falls equally upon in-
state and out-of-state funeral directors; if so, there is clearly
no discrimination in favor of Pennsylvania operators. See
Sixth Angel Shepherd Rescue, Inc. v. West, 477 F. App’x 903,
907 (3d Cir. 2012) (noting that, under the dormant Commerce
Clause analysis, “we ask whether a challenged law
discriminates against interstate commerce . . . [but a]bsent
discrimination for the forbidden purpose . . . the law will be
upheld unless the burden imposed on interstate commerce is
clearly excessive in relation to the putative local benefits.”)
(quoting Dep’t of Revenue of Ky. v. Davis, 553 U.S. 328, 338-
39 (2008) (internal quotations and citations omitted).
By way of example, a Pennsylvania resident who is a
licensed funeral director in Pennsylvania and a Maryland
resident who is a licensed funeral director in Pennsylvania are
similarly barred from owning an interest in more than two
funeral establishments in Pennsylvania. In-state funeral
parlor owners who want to achieve an economy of scale
through “clustering” face the same obstacles as out-of-state
owners who want to cluster. 11
We realize, of course, that the vast majority of individuals who apply
for and obtain a Pennsylvania funeral directing license will probably reside in-
state in order to practice their trade. Indeed, like the one-and-a-branch
provision, many of the FDL’s requirements may render that choice all but
inevitable. However, that does not elevate the resulting choice to the level of
unconstitutional coercion under the dormant Commerce Clause. The funeral
11
The Plaintiffs describe clustering as “the primary competitive advantage of []
out-of-state competitors.” Plaintiffs’ Br. at 25. Although the record contains
evidence that supports the alleged consumer benefits flowing from an economy
of scale business model, the record does not support the contention that the
FDL’s interposition of an obstacle to clustering unilaterally advances the interest
of Pennsylvania funeral establishments.
21
service “industry,” involving the internment and cremation of consumers’ loved
ones, is by nature a highly localized enterprise. So long as a State’s regulation
operates evenhandedly as to both in-state and out-of-state actors seeking to enter
such an industry, we do not subject it to heightened scrutiny under dormant
Commerce Clause analysis. See Am. Trucking Assocs., Inc., 545 U.S. at 437 (in
upholding Michigan’s annual fee assessed on trucks engaged in intrastate
commercial freight, the court noted the disputed provision “taxe[d] purely local
activity; it does not tax an interstate truck’s entry into the State nor does it tax
transactions spanning multiple States”); CTS Corp. v. Dynamics Corp. of Am.,
481 U.S. 69, 87 (1987) (holding Indiana statute regulating acquisition of
corporation stock did not merit heightened scrutiny because it had “same effects
on tender offers whether or not the offeror is a domiciliary or resident of
Indiana”).
Accordingly, we hold that the one-and-a-branch
restriction does not discriminate against out-of-state interests,
and we thus reject the Plaintiffs’ contention that we should
subject the applicable provisions of the FDL to heightened
scrutiny. See McBurney v. Young, 133 S. Ct. 1709, 1719
(2013) (noting dormant Commerce Clause jurisprudence “is
driven by a concern about ‘economic protectionism—that is,
regulatory measures designed to benefit in-state economic
interests by burdening out-of-state competitors’” (quoting
New Energy Co. of Ind. v. Limbach, 486 U.S. 268, 273-74
(1988)).
Having determined that the one-and-a-branch
limitation does not discriminate against out of state interests,
we need only determine whether it can withstand scrutiny
under the Pike balancing test. See Dep’t of Revenue of Ky. v.
Davis, 553 U.S. 328, 353 (2008). We believe that it does.
The “incidental burdens” that we must assess under Pike
consist of “the degree to which the state action incidentally
discriminates against interstate commerce relative to
intrastate commerce.” Norfolk S. Corp. v. Oberly, 822 F.2d
388, 406 (3d Cir. 1987). As we have just explained, the
FDL’s one-and-a-branch restriction imposes the very same
burdens on Pennsylvania funeral directors as it imposes on
out-of-state interests. Thus, the regulation here is a burden on
commerce without discriminating against interstate
commerce. See Instructional Sys., Inc. v. Computer
Curriculum Corp., 35 F.3d 813, 826-27 (3d Cir. 1994)
(“[W]here the burden on out-of-state interests rises no higher
than that placed on competing in-state interests, it is a burden
on commerce rather than a burden on interstate commerce.”)
(emphasis in original).
22
b. Licensing Restrictions
The Plaintiffs contend that the FDL’s restrictions on
who may obtain a funeral director license violate the dormant
Commerce Clause. Usually, a funeral establishment in
Pennsylvania may be owned by a licensed funeral director
who, in turn, may operate the business as a sole
proprietorship, a partnership (with one or more licensed
funeral directors), or a restricted business corporation
established for the sole purpose of providing funeral services.
General business corporations are barred from owning a
funeral home in Pennsylvania unless they are able to obtain
one of 76 existing “pre-1935” licenses issued before the ban
on corporations went into effect. The law carves out limited
exceptions and allows certain unlicensed individuals and
entities—namely, the spouses, children, grandchildren,
surviving spouse, or estate of a deceased licensed funeral
director—to own and operate funeral homes in Pennsylvania.
However, they may only do so if they employ a full-time
licensed funeral director as supervisor. 63 Pa. Stat. Ann. §
479.8(a).
The District Court agreed with the Plaintiffs’ contention that this
scheme effectively bans out-of-state entities from owning funeral homes within
Pennsylvania and subjected the ownership restrictions to heightened scrutiny.
The Court then ruled that the restrictions could not survive the resulting inquiry.
Alternatively, the Court found that even if heightened scrutiny was not
appropriate, the FDL’s licensing restrictions could not survive Pike balancing.
See Heffner, 866 F. Supp. 2d at 387. We disagree with both conclusions.
Any individual or entity can obtain the required license
to operate a funeral home in Pennsylvania as long as certain
requirements are satisfied. None of those requirements
mandate state residency or citizenship. See id. at 388 (noting
“an out-of-state individual may obtain a Pennsylvania funeral
license by complying with the requirements for applicants”).
Similarly, the statutory exceptions to the rule that only
licensed individuals may own funeral homes in Pennsylvania
provide that surviving family members of a deceased funeral
director may own interests in a restricted business corporation
regardless of their state of residency.
Concomitantly, a general business corporation that
does not own a “pre-1935” license is ineligible for a license
23
regardless of where it is domiciled. Therefore, we cannot
agree that the FDL’s ownership provisions “erect a barrier”
protecting in-state interests from out-of-state competition that
would trigger heightened scrutiny. See Dean Milk Co. v. City
of Madison, 340 U.S. 349, 354 (1951); see also Keystone
Redev. Partners, LLC, 631 F.3d at 108.
The limitation on licensing also survives the Pike
balancing test. As noted above, when we engage in Pike
balancing, we consider whether any incidental burdens that
the FDL’s ownership and license restrictions place on the
flow of interstate commerce outweigh the statute’s putative
local benefits. See Norfolk S. Corp., 822 F.2d at 405-06.
Here, Plaintiffs again posit that the FDL’s ownership
restrictions burden interstate commerce by requiring out-of-
state interests to be licensed in order to own or operate funeral
homes in Pennsylvania while excepting deceased licensed
funeral directors’ families from that obligation. The Board
articulates three countervailing benefits of these restrictions:
(1) disfavoring ownership of funeral homes by unlicensed
individuals or corporations; (2) advancing the public interest
in the continued operation of a funeral home after the
licensee’s death; and (3) alleviating the financial loss to
survivors who, on the death of a licensed director, might find
themselves with a funeral home which they could neither
operate nor sell at a fair price.
The situation here is analogous to that which
confronted the Court of Appeals for the Fourth Circuit in
Brown v. Hovatter, 561 F.3d 357 (4th Cir. 2009). There, the
court rejected a dormant Commerce Clause challenge to
Maryland’s Morticians and Funeral Directors Act. That
statute, like the FDL, required all individuals who desired to
practice mortuary science in Maryland be licensed by the
State’s Board of Morticians. Md. Health Occ. Code § 7-
301(a). Only the surviving spouses or executors of the estates
of deceased licensed individuals could own a funeral
establishment without a license. Id. §§ 7-310(c)(2), 7-308, 7-
308.1. Maryland’s law also prohibited licensing corporations
but carved out an exception for corporations grandfathered
under an earlier version of the statute. Id. § 7-310. The
plaintiffs in Brown also argued that they should be able to
own and operate funeral establishments without being
24
individually licensed or going through general purpose
corporations. Brown, 561 F.3d at 360.
In rejecting that argument, the Court explained:
Any person—out-of-state or in-
state—may obtain a license to
practice mortuary science and
own and operate a funeral
establishment in Maryland, and
there is no limit on the number of
licenses that the State may issue.
Likewise, with respect to the []
grandfathered corporations
owning licenses, any person or
corporation, out-of-state or in-
state, may own the stock.
Id. at 364. After surveying the alleged restrictions that
Maryland placed on licenses, the Brown Court concluded that
“entry into the Maryland funeral services market is limited
only by the choices of the individual as to how best to
allocate his or her time and resources.” Id.
Were we to substitute “Pennsylvania” for “Maryland”
in the above-quoted text, we could easily adopt the Fourth
Circuit’s description of the operation of Maryland’s
Morticians Act as our analysis of the corresponding
provisions of the FDL. Contrary to the Plaintiffs’
characterization of the effect, the FDL’s licensing and
ownership restrictions affect in-state and out-of-state players
equally.
The Plaintiffs highlight four alleged “significant differences” between
the Maryland Morticians Act and the Pennsylvania FDL in an attempt to
distinguish Brown. They argue: (1) Maryland does not allow ownership by
unlicensed spouses, children, and grandchildren of funeral directors and their
trusts; (2) unlike Maryland, Pennsylvania allows corporate ownership of funeral
homes through RBCs; (3) Maryland does not limit the number of funeral homes
that may be owned, whereas Pennsylvania’s one-and-a-branch restriction limits
ownership to two locations; and (4) Maryland does not allow the “Pinkerton
rule,” a well-recognized (and Board-acknowledged) way to circumvent the
FDL’s limitations that allows a licensee to “own” more than two locations by
ceding his or her stock in other homes to third parties while retaining ownership
over the establishments’ assets.
25
These purported differences are neither significant nor persuasive. The
first claim is only partially correct—Maryland allows the executors and
surviving spouses of deceased licensed funeral directors to own and operate a
funeral establishment. See Md. Health Occ. Code §§ 7-310(c)(2), 7-308, 7-
308.1. The fact that Maryland does not extend similar benefits to the children
and grandchildren of licensed funeral directors is of little import. The second
distinction is no less relevant to our analysis. We do not agree with the level of
importance that the Plaintiffs ascribe to Pennsylvania’s choice to allow restricted
business corporations to own funeral homes within the State because that
provision of the FDL applies equally to in-state and out-of-state interests.
Indeed, the provision appears to expand access to the relevant market rather than
contracting it as the Plaintiffs claim. Moreover, we have already explained why
the third purported distinction (Pennsylvania’s one-and-a-branch limitation)
does not excessively burden interstate commerce. Finally, that licensees—
whether they reside in-state or out-of-state—may avail themselves of the
“Pinkerton rule” or other existing “end-runs” to circumvent the FDL’s express
requirements says nothing about the constitutional validity of those provisions
for purposes of a dormant Commerce Clause analysis. The fact that some
potential owners of funeral homes can circumvent the goals of the FDL through
the Pinkerton mechanism also fails to establish a scheme that favors
Pennsylvania businesses and residents. The Pinkerton end-run operates the
same way for in-state and out-of-state businesses and residents.
Under the FDL, any individual—out-of-state or in-
state—may apply for and obtain the applicable license as long
as they satisfy general requirements relating to citizenship,
professional education, and experience. See 63 Pa. Stat. Ann.
§§ 479.3(a)-(f). Once an applicant satisfies these
requirements, that individual—whether he or she resides in
Pennsylvania or elsewhere—may be licensed as a
“Pennsylvania funeral director” and is entitled to the same
benefits that the FDL grants all other licensees regardless of
state of residence. The unlicensed surviving spouse of a
deceased funeral director who resides in Ohio but routinely
commutes to Pennsylvania to operate a funeral establishment
that s/he owned, for example, is statutorily entitled to the
same license under Section 479.8(a) as the surviving spouse
of a funeral director residing in-state.
To be sure, this scenario likely represents the
exception and not the norm; as this record attests, the vast
majority of funeral directors who obtain a license to practice
in Pennsylvania will no doubt choose to reside in the
Commonwealth because of convenience or economic
necessity. However, this does not evidence any burden on
interstate commerce nor discrimination against out-of-state
operators. Rather, there is nothing on this record to suggest
that this is a reflection of anything other than the nature of the
26
funeral business. “The practice of mortuary science is,” after
all, “inherently a local profession.” Brown, 561 F.3d at 363.
Moreover, as we have explained, “virtually all state
regulation involves increased costs for those doing business
within the state, including out-of-state interests doing
business in the state . . . . In this absolute sense, virtually all
state regulation ‘burdens’ interstate commerce.” Norfolk S.
Corp., 822 F.2d at 406. Thus, our examination of a statute’s
burden on interstate commerce must focus on whether
regulatory scheme results in an excessive burden on interstate
commerce. That inquiry is informed by whether a State has
“unjustifiably [] discriminate[d] against or burden[ed] the
interstate flow of articles of commerce.” Or. Waste Sys., Inc.
v. Dep’t of Envi. Quality of State of Or., 511 U.S. 93, 98
(1994).
We do not believe that the licensing requirements of
the FDL run afoul of that limitation. The State has made a
rational decision that consumers in need of funeral services
are better served by licensed individuals who, in the usual
case, are not shielded by the cloak of corporate ownership.
Cf. N.D. State Bd. of Pharma. v. Snyder’s Drug Stores, Inc.,
414 U.S. 156, 166-67 (1973) (“‘A standing criticism of the
use of corporations in business is that it causes such business
to be owned by people who do not know anything about it.’”
(quoting Louis K. Liggett Co. v. Baldridge, 278 U.S. 105,
114-15 (1928))); see also Brown, 561 F.3d at 367. We cannot
“accept [the] notion that the Commerce Clause protects the
particular structure or methods of operation in a retail market
. . . . [T]he Clause protects the interstate market, not
particular interstate firms, from prohibitive or burdensome
regulations.” Exxon Corp. v. Governor of Md., 437 U.S. 117,
127-28 (1978); see also McBurney v. Young, 667 F.3d 454,
469 (4th Cir. 2012) (rejecting dormant Commerce Clause
challenge where state law “prevent[ed] [plaintiff] from using
his ‘chosen way of doing business,’ but [did] not prevent him
from engaging in business in the [State]”).
Similarly, although Pennsylvania has carved out
limited exceptions to its own rule by allowing unlicensed
family members to participate in the ownership of a funeral
home, those exceptions—enacted with the twin purposes of
27
ensuring that a funeral establishment continues to serve the
community after the death of a licensed funeral director and
protecting the deceased’s director’s family—do not impose
burdens (excessive or otherwise) on the flow of interstate
commerce. We therefore conclude that the District Court
erred in ruling that that the FDL’s licensing and ownership
restrictions violate the dormant Commerce Clause.
2. Preparation Room Requirement
Section 7 of the FDL provides that “every
establishment in which the profession of funeral directing is
carried on shall include a preparation room, containing
instruments and supplies for the preparation and embalming
of human bodies.” 63 Pa. Stat. Ann. § 479.7. The Plaintiffs
claim that this provision violates the dormant Commerce
Clause by protecting established in-state funeral homes at the
expense of out-of-state interests seeking to enter the market.
According to Plaintiffs, the preparation room requirement
deprives out-of-state competitors of any competitive
advantage that they could otherwise gain from consolidating
embalming operations in one centralized facility from which
they could service other locations. 12
Here again, the Plaintiffs’ challenge ignores the fact
that any impediments arising from the preparation room
requirement burden all funeral directors operating in
Pennsylvania. Out-of-state entities are not specifically
targeted, deprived of a competitive advantage, nor afforded a
competitive advantage compared to Pennsylvania businesses.
See Cloverland II, 462 F.3d at 263; see also Town of Southold
v. Town of E. Hampton, 477 F.3d 38, 49 (2d Cir. 2007).
Indeed, to the extent that the preparation room requirement
has an effect on interstate commerce, it is incidental at most.
Consequently, the provision will only violate the dormant
Commerce Clause if it does not survive Pike balancing—i.e.,
if its burdens on interstate commerce “clearly outweigh” its
putative local benefits. See Dep’t of Revenue of Ky., 553 U.S.
at 353.
12
The Plaintiffs do not allege that the FDL’s preparation room requirement is
discriminatory on its face, but in its operation.
28
The “burden” that the preparation room requirement
imposes on interstate commerce consists of the cost of
equipping each funeral establishment with a preparation room
and the resulting impediment that arises from requiring
“centralized” embalming facilities. We do not doubt that
these burdens can be significant. 13 However, they are not so
significant as to “clearly outweigh” the State’s asserted
interests in minimizing the time between death and
embalming, reassuring customers that the remains of their
loved ones will be in the funeral home’s custody at all times,
minimizing the possibility of accidents in-transit between
embalming facilities, and ensuring accountability.
Moreover, although the Plaintiffs make much of the
State’s apparent admission that the preparation room
requirement is either unnecessary or unduly burdensome,
Plaintiffs fail to realize that the concession is without
constitutional significance. Specifically, the Plaintiffs point
to a 2008 legislative initiative in which the Board advocated
for the repeal of the preparation room requirement because of
the economic benefits of dispensing with the policy. The
Plaintiffs also highlight a 1994 Audit Report, which said that
requiring each funeral home to have its own preparation room
was “burdensome and unnecessary” and noted the resulting
additional costs to funeral directors and consumers. J.A. 846.
There are two reasons why this concession lacks the
constitutional significance that Plaintiffs attach to it. First,
the recommendation that the preparation room requirement be
repealed appears to have resulted from the requirement’s
intrastate economic impact. The Report is therefore not
particularly helpful to our focus on the burdens on interstate
commerce as required under Pike. See C&A Carbone, Inc. v.
Town of Clarkstown, N.Y., 511 U.S. 383, 430 (1994)
(“[L]ocal burdens are not the focus of the dormant Commerce
Clause . . . .”). Second—and more importantly—neither the
Board’s views in the above-referenced 2008 legislative
initiative nor the Audit Report’s recommendation to repeal
the preparation room requirement were enacted into law.
Thus, notwithstanding any reservations that some
13
The Plaintiffs estimate the costs of establishing a preparation room to be
approximately $220,000 to a funeral home during its first year.
29
Pennsylvania officials might have expressed in the past, the
preparation room requirement remains the law of
Pennsylvania. 14
3. Place of Practice and Full-Time Supervisor
Requirement
Section 7 of the FDL provides that a “license shall
authorize the conduct of the [funeral directing] profession at
the particular place of practice thereon and no other.” 63 Pa.
Stat. Ann. § 479.7. Somewhat confusingly, this section also
provides that a funeral director is free to “assist another duly
licensed person, partnership or corporation[.]” Presumably,
this applies to assisting at another branch location. Id. In
addition, Section 8(e) mandates that each branch location
must retain a licensed funeral director as a “full-time
supervisor.” Id. 479.8(e). However, a funeral director may
not supervise more than one location. Id. § 479.2(11). In
Counts V and VI of the amended complaint, the Plaintiffs
alleged that both the FDL’s “place-of-practice” restrictions
and full-time supervisor requirement violate the dormant
Commerce Clause. Once again, the District Court agreed.
See Heffner, 866 F. Supp. 2d at 397-99.
The Plaintiffs claim that these provisions facially
discriminate against out-of-state interests and must therefore
be subjected to heightened scrutiny. They allege that, under
the place-of-practice provision, a funeral director who
practices at one location in another state would be precluded
from practicing in Pennsylvania because that would constitute
practicing at a second location. According to the Plaintiffs, a
14
In addition, the opinions that the Board may have expressed in the past in its
capacity as an administrative arm of the Commonwealth may inform judicial
inquiry into whether the full-time supervisor requirement excessively burdens
interstate commerce, but it does not end it. The 2008 legislative initiative
simply does not have the force of Commonwealth law. Unlike a statute or
Board-issued regulation, it does not embody official Commonwealth policy, but
only the views that the Board saw fit to communicate to the Pennsylvania
legislature at a particular time. See Shannon v. United States, 512 U.S. 573, 584
(1994) (“‘[C]ourts have no authority to enforce a principle gleaned solely from
legislative history that has no statutory reference point.’” (quoting Int’l Bhd. of
Elec. Workers, Local Union 474 v. NLRB, 814 F.2d 697, 712 (1987) (alterations
omitted))); see also Abrego v. Dow Chem. Co., 443 F.3d 676, 686 (9th Cir.
2006) (per curiam) (discounting importance of legislative silence “coupled with
a sentence in a legislative committee report untethered to any statutory
language”).
30
funeral director who manages a location in another state
would be similarly barred from obtaining a funeral supervisor
license in Pennsylvania. Plaintiffs’ argument is supported by
a letter from the Board denying a New Jersey applicant’s
request for a funeral supervisor license on these grounds. J.A.
1455.
We decline to adopt Plaintiffs’ reasoning as to these
provisions. We recognize that the FDL’s place-of-practice
restriction and full-time supervisor requirement compel a
funeral director to relinquish one operating license in favor of
another, should he or she wish to supervise another location.
§ 479.2(11). However, we disagree that this provision
facially discriminates against out-of-state interests. Having to
surrender an out- of-state license to practice in Pennsylvania
is simply the result of the operation of the one-and-a-branch
rule, and the limits it places on being an owner and/or
supervisor of a funeral home. Moreover, Pennsylvania
residents also have to surrender an existing license in order to
operate more than the two establishments allowed under the
restriction. Thus, it makes no difference where the funeral
homes or owners are located.
E. Substantive Due Process
The Fourteenth Amendment Due Process Clause prohibits the states
from “depriv[ing] any person of life, liberty, or property, without due process of
law.” U.S. Const. Amend. XIV, § 1. The prohibition has both a procedural and
substantive component. See Planned Parenthood of S.E. Pa. v. Casey, 505 U.S.
833, 846 (1992); Troxel v. Granville, 530 U.S. 57, 65 (2000). The Plaintiffs
have continually alleged that several of the FDL’s provisions violate their right
to substantive due process.
Unless a legislative enactment abridges “certain fundamental rights and
liberty interests,” Washington v. Glucksberg, 521 U.S. 702, 720 (1997), we
apply a more lenient “rational basis” inquiry, Roe v. Wade, 410 U.S. 113, 173
(1973), in determining the statute’s constitutionality. Here, Plaintiffs concede
that we should apply rational basis review to their substantive due process
challenge.
Under rational basis review, “‘a statute withstands a substantive due
process challenge if the state identifies a legitimate state interest that the
legislature could rationally conclude was served by the statute.’” Alexander v.
Whitman, 114 F.3d 1392, 1403 (3d Cir. 1997) (quoting Sammon v. N.J. Bd. of
Med. Exam’rs, 66 F.3d 639, 645 (3d Cir. 1995)). We have repeatedly warned
that rational basis review is by no means “toothless”—“[a] necessary corollary
to and implication of rationality as a test is that there will be situations where
proffered reasons are not rational.” Doe v. Pa. Bd. of Prob. & Parole, 513 F.3d
95, 112 n.9 (3d Cir. 2009); see also Murillo v. Bambrick, 681 F.2d 898, 905 n.15
31
(3d Cir. 1982). Nevertheless, rational basis review allows legislative choices
considerable latitude. See FCC v. Beach Commc’ns, Inc., 508 U.S. 307, 315
(1993). A governmental interest that is asserted to defend against a substantive
due process challenge need only be plausible to pass constitutional muster; we
do not second-guess legislative choices or inquire into whether the stated motive
actually motivated the legislation. See United States R.R. Ret. Bd. v. Fritz, 449
U.S. 166, 179 (1980) (“Where . . . there are plausible reasons for Congress’
action, our inquiry is at an end. It is . . . ‘constitutionally irrelevant whether this
reasoning in fact underlay the legislative decision’ . . . .” (quoting Flemming v.
Nestor, 363 U.S. 603, 612 (1960))).
Thus, as we recently explained, “‘the rationality requirement [is]
largely equivalent to a strong presumption of constitutionality.’” Connelly v.
Steel Valley Sch. Dist., 706 F.3d 209, 213 (3d Cir. 2013) (quoting Laurence H.
Tribe, American Constitutional Law § 16-2, at 1442-43 (2d ed. 1988)).
1. “One-and-a-Branch” Limitation
In addition to the dormant Commerce Clause challenge discussed
above, the Plaintiffs also attack the one-and-a-branch limitation on substantive
due process grounds. The Board argues that the limitation advances five
legitimate state interests. Those interests are: (1) diversifying the ownership of
funeral establishments; (2) preventing a single firm from dominating a local
market through “clustering”; (3) limiting the damage to consumers and a
community from the possible failure of a single firm; (4) promoting familiarity
and accountability between funeral directors and their consumers; and (5)
preventing licensees from being “spread too thin.” We perceive no substantive
difference in the first three goals and will treat them as the same legislative
objective for purposes of our analysis. 15
These goals are clearly legitimate. “[A] state has a ‘legitimate interest
in protecting the health, safety and welfare of its citizens through regulation of
the funeral profession[;]’” Brown, 561 F.3d at 368 (quoting Guardian Plans,
870 F.2d at 126), and the Pennsylvania legislature could have reasonably
concluded that these objectives advance those interests. Accordingly, the one-
and-a-branch limitation will survive rational basis review unless the State
legislature could not rationally conclude that the provision furthered these ends.
The Plaintiffs make several arguments to support their contention that
the one-and-a-branch restriction does not reasonably advance the State’s stated
objectives. For example, they claim that restricting the number of locations that
a licensee may own (to two) does not rationally prevent a funeral director from
being “spread too thin,” since s/he may still have to perform thousands of
funerals a year at the locations that are licensed. The Plaintiffs also note that a
funeral director could effectively own a potentially unlimited number of homes
by employing loopholes like the so-called “Pinkerton rule,” thereby allowing a
single firm to de facto dominate a local market and thus undermine the goal of
limiting the damage to consumers when a firm that is “too big to fail” does, in
fact, fail. 16
15
Diversification is merely one of the ways that the Commonwealth is trying to
advance the second and third objectives.
16
As we explained above, the “Pinkerton rule” refers to the practice of allowing
a licensee to circumvent the one-and-a-branch restriction by transferring his or
her stock in a funeral establishment to another entity or individual while
32
However, the one-and-a-branch limitation is not constitutionally infirm
merely because its response to legitimate governmental concerns is imprecise
and imperfect. “[U]nder the deferential standard of review applied in
substantive due process challenges to economic legislation there is no need for
mathematical precision in the fit between justification and means.” Concrete
Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Trust for S. Cal., 508
U.S. 602, 639 (1993). Therefore, the one-and-a-branch limitation can survive
our substantive due process inquiry even though it neither targets all applicable
threats nor succeeds in preventing all of them. Despite the limitation’s
imperfection, the State could have rationally concluded that limiting licensees to
owning funeral businesses at no more than two locations would limit the number
of consumers that a director could service and avoid the problems that could
arise when a funeral director is “spread too thin.” All that is necessary is that
the selected means is rationally linked to the stated ends. See Stretton v.
Disciplinary Bd. of Supreme Court of Pa., 944 F.2d 137, 146 (3d Cir. 1991) (“A
state is permitted to take steps . . . that only partially solve a problem without
totally eradicating it.”).
Similarly, the fact that Pennsylvania’s current statutory and regulatory
scheme does not prevent licensees from sidestepping the limitation by seizing
upon loopholes such as the “Pinkerton rule” is not constitutionally fatal. “‘A
legislature need not . . . risk [] losing an entire remedial scheme simply because
it failed, through inadvertence or otherwise, to cover every evil that might
conceivably have been attacked.’” Parker v. Conway, 581 F.3d 198, 202 (3d
Cir. 2009) (quoting McDonald v. Bd. of Election Comm’rs, 394 U.S. 802, 809
(1969)). We therefore conclude that the FDL’s one-and-a-branch limitation
easily weathers scrutiny under rational basis review.
2. Licensing Restrictions
The Plaintiffs also raise a substantive due process challenge to the other
restrictions in the FDL that we have discussed above as part of our dormant
Commerce Clause discussion. Specifically, the Plaintiffs argue that the State
acted irrationally in limiting ownership of funeral homes to licensed funeral
directors while barring general business corporations from obtaining the
required license. 63 Pa. Stat. Ann. § 479.8(a). Here, as before, the Plaintiffs
highlight the FDL’s “exceptions,” which allow the administrators of a deceased
licensee’s estate and his or her surviving spouse and family members to possess
an ownership interest in a funeral establishment under specific circumstances,
whether or not they possess a funeral directors’ license. 17 Plaintiffs contend that
these exceptions belie the Board’s asserted interest in promoting consumer
protection, accountability, competency, trust, and accessibility. Rather,
retaining ownership over the establishment’s assets. Since the Board has
recognized that the FDL does not restrict who may own or lease the assets
necessary to operate a funeral home, this “loophole” would presumably allow a
licensee to de facto “own” an unlimited number of funeral homes within the
Commonwealth.
17
As explained, administrators of a licensee’s estate may possess an ownership
interest for a maximum of three years. Widows and widowers may own an
interest in a funeral home for an indefinite period so long as they remain
unmarried. Section 8(b)(4) of the FDL allows immediate family members of a
deceased licensed funeral director or shareholder to own shares of an RBC.
33
according to Plaintiffs, these exceptions demonstrate that the licensing
requirement is not rationally related to those objectives.
The argument incorrectly presupposes that Pennsylvania’s response to
its stated objectives had to be limited to addressing a single objective at a time.
An otherwise rational legislative response to a given concern cannot be
invalidated under the Due Process Clause merely because the chosen solution
creates other problems while addressing the original concern. Rather,
legislatures are generally free to consider and balance several interests in
carrying out their legislative responsibilities. See, e.g., Salazar v. Buono, 130 S.
Ct. 1803, 1817 (2010) (noting “Congress’s prerogative to balance opposing
interests”); Dennis v. United States, 341 U.S. 494, 539-40 (1951) (“How best to
reconcile competing interests is the business of legislatures . . . .”); see also Pace
Res., Inc. v. Shrewsbury Twp., 808 F.2d 1023, 1035 (3d Cir. 1987) (noting
“process of democratic political decision-making often entails [] accommodation
of competing interests”). Accordingly, where, as here, a State does not infringe
upon fundamental rights or interests, it may address multiple or even competing
objectives as long as its actions are rationally related to legitimate legislative
objectives.
Throughout this litigation, the Board has consistently reasoned that the
exceptions to the FDL’s licensing requirement address Pennsylvania’s distinct
interest in protecting the livelihood of a licensed director’s surviving family
members and the interests of the community in a funeral home’s continued
operation following the death of the owner. It is not at all difficult to see how
the licensing exceptions that the Plaintiffs have chosen to attack address that
legitimate governmental interest – albeit imperfectly. In upholding Maryland’s
Mortician’s Act against a similar Due Process challenge in Brown v. Hovatter,
the Court explained “exemptions” to Maryland’s licensing requirement that
allowed unlicensed surviving spouses and executors of deceased licensed
morticians to possess an ownership in funeral establishments as follows:
[C]orporations that historically held
licenses in the funeral business were allowed
to continue to hold licenses because the
General Assembly wanted to protect
reliance interests of family members. For a
similar reason, spouses of deceased
licensees are exempted from being licensed
to allow the spouse, who presumably was
already involved in the affairs of the
business, to continue the business. The Act
also provides an exemption for executors of
licensees, allowing the temporary operation
of the funeral establishment to wind down
the affairs of the business. The fact that the
General Assembly created these rational
exemptions does not undermine the overall
rationality of the Morticians Act based on its
relationship to a legitimate government
purpose.
561 F.3d at 369.
We agree. As in Brown, the Pennsylvania legislature was free to
consider the reliance interests of communities throughout the state as well as
34
those of the deceased funeral directors’ family in crafting the limitations
contained in the FDL. The means chosen is a rational (though perhaps
imperfect) means of achieving those ends, and Section 8(a) of the FDL does not
violate substantive due process. 18
3. “Place-of-practice” and Full-Time Supervisor
Requirement
As explained above, a license issued pursuant to the FDL only
authorizes a licensee to practice at one primary location and one branch location;
each location must have its own full-time and licensed supervisor. 63 Pa. Stat.
Ann. §§ 479.7, 479.8(e). The District Court concluded that both provisions
denied Plaintiffs’ right to substantive due process because the Board’s asserted
interests in ensuring “competency, public health, accountability, and
competition [were] not rationally related to the [FDL’s] restrictions . . . .”
Heffner, 866 F. Supp. 2d at 400.
On appeal, the Plaintiffs concede the State has a legitimate concern in
safeguarding these interests, but they argue that the legislature could not have
rationally believed that the place-of-practice restriction and full-time supervisor
requirement would serve that purpose. 19 Once again, we disagree.
We haven repeatedly stressed the obvious; Pennsylvania clearly has a
legitimate interest in protecting consumers who must venture into the potentially
exploitative market for funeral services. See Brown, 561 F.3d at 368. As the
Court explained in Kleese v. Pa. State Bd. Of Funeral Dirs , 738 A.2d 523, 526
(Pa. Cmwlth. 1999), “[g]enerally, the time in which the consumer seeks the
services of a funeral establishment is a very emotional and vulnerable time as a
loved one has most likely just passed away leaving the consumer vulnerable and
more susceptible to being deceived or cheated.” Limiting licensees to one
primary location and one branch, each with its own licensed supervisor, clearly
helps to protect against funeral directors being “spread too thin” to provide
personal, caring, and sensitive services to those who are mourning the loss of a
loved one. Funeral businesses clearly must operate with a sensitivity and
personalized service unlike few other business we can think of, and
Pennsylvania’s legislature can hardly be faulted for imposing restrictions that
are intended to address the unique concerns in that industry.
18
For the same reasons, we also reject the Plaintiffs’ claim that Section 8(e) of
the FDL is unconstitutional. That provision provides that a licensed shareholder
of an RBC may bequeath his or her shares or stock in the restricted corporation
to immediate family members.
19
The Plaintiffs correctly note that the Board has not articulated benefits or
legitimate purposes that specifically underlie the place-of-practice restriction in
its briefing to us. Plaintiffs’ Br. at 35. However, the Board’s brief does assert
that the FDL’s “operational provisions”—which it defines to include the FDL’s
place-of-practice restriction, full-time supervisor requirement, preparation room
requirement, and restrictions on food service—are all in place to further “a
variety of legitimate interests such as quality assurance, accountability, and
health and safety.” Appellant’s Br. at 16. In any case, we note that, as the party
challenging the Commonwealth’s statute, the Plaintiffs bear the burden of
refuting “‘every conceivable basis which might support it,’” Beach Commc’ns,
Inc., 508 U.S. at 315 (emphasis added), not just those that the Commonwealth
may assert, see Connelly, 706 F.3d at 216.
35
Likewise, the place-of-practice requirement is a rational means of
advancing accountability by ensuring that a funeral director is more readily
accessible to answer questions from grieving and particularly vulnerable
consumers. The requirement of a full-time supervisor is so obviously reasonable
as to negate the need for in-depth discussion or inquiry. We merely note that the
Pennsylvania General Assembly could have rationally believed that requiring a
licensed funeral director to oversee each funeral home advances the goal of
maintaining professional standards at funeral establishments, and, by extension,
safeguards public health, safety, and welfare. It also increases the likelihood
that vulnerable consumers will be able to readily communicate with someone
who is responsible for providing services for a deceased loved one. It is
reasonable to assume that the individuals who have met the State’s licensing
requirements are much better equipped to supervise funeral home operations
than an unlicensed entrepreneur would be. Cf. Guardian Plans Inc., 870 F.2d at
126 (noting legislature “could have rationally determined that keeping the
arrangement of funerals in the hands of licensed funeral professionals would
benefit the public by ensuring competence in funeral arrangement”).
We are similarly unpersuaded by the Plaintiffs’ suggestion that a
funeral home that routinely performs 1,000 funerals each year and another that
performs only twenty-five would each comply with the requirement so long as
they hired a single supervisor. That reality does not alter the result of our
rational basis review. The State could have adopted a different scheme that
would have required funeral homes that routinely perform a high volume of
funerals each year to retain multiple supervisors. However, as we explained
above, “[a] legislative policy decision about where [] line[s] should be
drawn . . . ‘[is] not legally relevant under substantive due process
jurisprudence.’” Alexander, 114 F.3d at 1406 (quoting Sammon, 66 F.3d at
647)).
4. The Preparation Room Requirement
The Plaintiffs also argue that requiring each funeral home to include a
preparation room for on-site embalming is irrational because neither the FDL
nor the Board’s regulations require that a funeral establishment actually use this
room. 20 According to Plaintiffs, the preparation room requirement is not
practical and it hinders funeral directors’ ability to prepare bodies in a more
cost-effective centralized location. Plaintiffs explain that centralizing this
service would achieve economies of scale that would benefit consumers and
allow funeral directors to service other locations as part of a “cluster.” Plaintiffs
contend that requiring each funeral home to have its own preparation room
(which may not even be used) thus imposes significant expense on consumers
with little (if any) corresponding benefit. The District Court agreed that “there
is no rational relationship between providing access to preparation rooms and
requiring that funeral homes expend unnecessary funds on the same when the
Board [has] recognize[d] that many existing preparation rooms remain []
20
Pennsylvania law does not require that all deceased remains be embalmed.
Instead, families can choose whether or not to embalm a deceased person. See,
e.g., 49 Pa. Code § 13.201(6)(i) (“Human remains held 24 hours beyond death
shall be embalmed or sealed in a container that will not allow fumes or odors to
escape or be kept under refrigeration, if this does not conflict with a religious
belief or medical examination.”).
36
unused, and . . . costs are merely passed on to consumers.” See Heffner, 866 F.
Supp. 2d at 402.
The Board once again asserts several purportedly legitimate interests
that support this requirement. The Board claims that this requirement: (1)
minimizes the time between death and embalming, leading to better results; (2)
reassures families regarding the safeguarding of their loved ones; (3) minimizes
the possibilities for accidents in transit and mix-ups at separate embalming
facilities; and (4) ensures that the funeral director with whom the family
communicates is directly accountable for the results of his/her work.
The record contains an uncontested expert report which shows that
Pennsylvania’s requirement of an on-site embalming preparation room at each
funeral establishment is consistent with the regulatory scheme of at least
eighteen other states – each of which had a similar requirement as of the latter-
half of 2010. 21 See J.A. 635; see also Powers v. Harris, 379 F.3d 1208, 1212-13
(10th Cir. 2004) (noting Oklahoma had similar preparation room requirement as
of date case decided). Although a majority of states have chosen not to adopt
this approach and either allow funeral directors to “cluster” embalming
operations under an economy of scale model or exempt certain funeral
establishments from having a preparation room, the costs or benefits of these
approaches are beyond the parameters of our due process inquiry. A chosen
legislative scheme need not be the most efficient or even the most practical to be
reasonable under the Due Process Clause. See Williamson v. Lee Optical of
Okla., 348 U.S. 483, 487-88 (1955) (“[A] law need not be in every respect
logically consistent with its aims to be constitutional. It is enough that there is
an evil at hand for correction, and that it might be thought that the particular
legislative measure was a rational way to correct it.”). Moreover, the
rationale advanced by the Board to support the preparation room requirement
seems so patently reasonable as to eliminate the need for much discussion. See
Ferguson v. Skrupa, 372 U.S. 726, 729 (1963). As long as the State has chosen
a rational method of addressing its concerns, our inquiry is at an end. See id.
(“[I]t is up to legislatures, not courts, to decide on the wisdom and utility of
legislation.”).
Indeed, even if we credit the Plaintiffs’ assertion—and the Board’s
concession in the 2008 legislative materials that many preparation rooms built to
comply with the FDL are never actually used for embalming—the result of our
rational basis review would be the same. The Constitution does not protect
against inefficient, wasteful, or meaningless legislation. “[A] law may exact a
needless, wasteful requirement in many cases. But it is for the legislature, not
the courts, to balance the advantages and disadvantages of the [] requirement.”
Id. at 487. Consequently, we hold that the District Court erred in concluding
that the separate embalming room requirement violates the Plaintiffs’ right to
substantive due process.
5. Restriction on Serving Food
21
According to the Board’s submissions, the following states, in addition to
Pennsylvania, all required funeral homes to each contain a preparation room as
of late 2010: Alabama, Arizona, Connecticut, Delaware, Georgia, Idaho,
Massachusetts, Mississippi, Minnesota, Nevada, New Hampshire, New Jersey,
New Mexico, New York, North Carolina, South Dakota, Tennessee, and
Wyoming. J.A. 635.
37
In addition to the preparation room requirement, Section 7 of the FDL
also prohibits funeral establishments from serving “food or intoxicating
beverages.” 63 Pa. Stat. Ann. § 479.7. The provision does allow funeral
establishments to serve customers non-alcoholic beverages, but only in “a
separate room not used for the preparation of funeral service.” Id.
The District Court concluded that this restriction also violated
substantive due process. See Heffner, 866 F. Supp. 2d at 403-04. The Court
based its ruling, in part, on a proposed 2009 regulation in which the Board
recommended repeal of these restrictions. The District Court explained its
rejection of the Board’s argument that the food prohibition furthered the
government’s legitimate interest in promoting public health as follows: “[the
Board] fail[ed] to explain how the use of [] chemicals in one part [of the facility]
. . . would necessarily contaminate other areas of the establishment providing
food service . . .” Id. at 404. The Court relied on the fact that bodies are
prepared in one area of a funeral establishment and food is served elsewhere.
Ultimately, the District Court concluded that the restriction did not survive
rational basis review because: (1) the fact that non-alcoholic beverages could be
served but food could not presented a “distinction without a difference,” id., and
(2) it was irrational for the FDL to allow food to be served in certain areas
within the same structure so long as those areas were not designated as parts of a
“funeral establishment,” id.
On appeal, the Board reiterates its position that “public health” is a
legitimate government interest justifying the FDL’s ban on food service at
funeral establishments. The Board argues that the legislature could have
reasonably concluded that food should not be served where the embalming of
human bodies is occurring. The Board also argues that the ban on serving food
furthers the government’s interest in upholding the unique nature and solemnity
of funeral services.
Whether one agrees with the Board’s position, and assuming arguendo
that the Board’s reasoning is erroneous, it is exceedingly difficult to understand
how it could be viewed as unreasonable. The first prong of the rational basis
test is easily satisfied by the Board’s asserted interest in public health. 22 See
Watson v. Maryland, 218 U.S. 173, 176 (1910) (“It is too well settled to require
discussion . . . that the police power of the states extends to the regulation of
certain trades and callings, particularly those which closely concern the public
health.”). We fail to see anything irrational in the legislative decision to prohibit
the service of food and alcoholic beverages in areas designated as “funeral
establishments” under the FDL. 23 It may well be that the legislature’s concern
22
Because we believe that the Commonwealth’s asserted interest in protecting
public health is legitimate, we do not pass judgment on whether the Board’s
second asserted interest—i.e., “preserving the unique nature and solemnity of
the funeral service”—also qualifies as a legitimate government interest under
substantive due process review. See N.J. Retail Merchs. Ass’n, 669 F.3d at 398
(noting statute “will pass rational basis examination” where one of several stated
purposes was not legitimate “as long as it was not the only legitimate purpose
underlying the legislation”).
23
Indeed, the authority of states to regulate and tightly restrict the availability of
alcohol is far too evident to require either citation or discussion, and
Pennsylvania’s restrictions on the availability of alcohol are particularly strict.
See generally 47 Pa. Stat. §§ 4-491– 494. However, such tight controls (of
38
had more force in an earlier time when refrigeration and sanitation were not as
developed as they are today, outdoor temperatures could more readily affect
sanitation as well as food storage and preservation, and attitudes about serving
and consuming alcohol were nowhere near as liberal. Thus, the passage of time,
and the advanced technology used in modern air conditioning and ventilation
systems suggest that the Pennsylvania General Assembly may want to revisit the
need for some of these restrictions as the Board has suggested.
However, there is a fundamental difference between legislative
enactments that may be archaic and those that are irrational for purposes of our
substantive due process inquiry. These restrictions may now be overly cautious,
but excess caution does not rise to the level of a due process deprivation if it is
reasonably intended to advance a legitimate governmental interest. It is not up
to a court to determine if the State has struck the perfect balance of advantage
and disadvantage in addressing its interest, nor should we compel legislatures to
reexamine restrictions that may seem better suited for an earlier time. See
Heller v. Doe, 509 U.S. 312, 321 (1993) (“[C]ourts are compelled under
rational-basis review to accept a legislature’s generalizations even when there is
an imperfect fit between means and ends.”). The Constitution is not a lever that
we can use to overcome legislative inertia. This restriction, though perhaps
antiquated, is nevertheless sufficiently reasonable to survive rational basis
review.
6. Trust Requirement
Funeral directors in Pennsylvania routinely sell and provide “pre-need”
funeral services – i.e., services selected in advance of a person’s death. See
generally Walker v. Flitton, 364 F. Supp. 2d 503 (M.D. Pa. 2005). Because
these contracts require advance payment for goods and services associated with
funeral homes, Pennsylvania (like many other states) imposes trust requirements
on pre-need sellers. 24 Specifically, the FDL requires that a funeral director who
enters into a pre-need contract deposit 100% of the proceeds accepted for
“funeral services,” such as embalming, into an escrow account or trust. 63 Pa.
Stat. Ann. § 479.13(c). 25
which the FDL is but one example) do not rise to the level of a due process
violation.
24
See generally Judith A. Frank, Preneed Funeral Plans: The Case for
Uniformity, 4 Elder L.J.1, 7-8 (1996) (discussing trust arrangement as “most
common form of funding” in preneed funeral contract context and collecting
States’ statutes establishing trust requirement).
25
In relevant part, the FDL states:
No person other than a licensed funeral
director shall, directly or indirectly, or
through an agent, offer to or enter into a
contract with a living person to render
funeral services to such person when
needed. If any such licensed funeral director
shall accept any money for such contracts,
he shall . . . either deposit the same in an
escrow account in, or transfer the same in
trust to, a banking institution in
[Pennsylvania], conditioned upon its
withdrawal or disbursement only for the
39
This trust arrangement is confusing because another statute, the
Pennsylvania Future Interment Act (“FIA”), only requires that 70% of the sales
price of funeral-related property—e.g., caskets, vaults, or urns— be held in trust.
Id. § 480.1. This creates an obvious problem for funeral directors who provide
pre-need services. In an attempt to reconcile the tension in these statutes, the
Board took the position that funeral directors were only required to hold in trust
70% of the sales price customers paid for pre-need funeral merchandise, but that
they had to hold 100% of pre-need monies for other “funeral services” in trust.
In Pennsylvania Funeral Directors Ass’n v. Bd. of
Funeral Directors, 494 A.2d 67 (Pa. Cmwlth. 1985), aff’d
mem., 511 A.2d 763 (Pa. 1986) (“PFDA”), the
Commonwealth Court of Pennsylvania disagreed with the
Board’s position and held that the FIA “did not abrogate the
one hundred per cent trust requirement in . . . the [FDL].” Id.
at 72. The Board thereafter adopted the view that a
merchandising company that is not itself a licensee but is
nevertheless owned in part by a licensed funeral director may
trust at the FIA-prescribed rate of 70%, so long as the
company is not used to evade the FDL’s requirements.
In challenging the trusting provisions, Plaintiffs argue
that requiring licensed funeral directors to hold in trust 100%
of pre-need monies received does not further the State’s
asserted interest in consumer protection, and the District
Court agreed. See Heffner, 866 F. Supp. 2d at 423. However,
the fact that Pennsylvania’s statutory scheme restricts
individuals whom the State has certified as experts, while
exempting unlicensed merchants, does not necessarily result
in an irrational (and therefore unconstitutional) scheme. As
the Commonwealth Court explained in PFDA, Pennsylvania’s
legislature could have reasonably “believed that the public’s
perception of funeral directors as licensed professionals
necessitated stricter standards to protect consumers.” 494
A.2d at 71.
In addition, the Board correctly notes that the trust
requirements also pass constitutional muster under the
separate interpretation that it has adopted and endorsed. See
Skilling v. United States, 130. S. Ct. 2896, 2929 (2010)
(“‘[E]very reasonable construction must be resorted to, in
purposes for which such money was
accepted.
63 Pa. Stat. Ann. § 479.13(c).
40
order to save a statute from unconstitutionality.’” (quoting
Hooper v. California, 155 U.S. 648, 657 (1895))). As we
have just explained, after PFDA was decided, the Board
adopted the view that funeral directors with an ownership
interest in a merchandising company may sell pre-need
funeral property if their company is owned and operated
“separate and apart” from a funeral home or establishment.
Plaintiffs concede that the Board explained its position in a
1991 memorandum, which outlined a series of factors that
could be used to determine whether a merchandising
company’s operations are sufficiently separate from those of
a funeral establishment. J.A. 1144-45. 26
Moreover, the potential for consumer abuse and fraud
in any scheme that allows merchants to accept payment for
goods and services that will not be tendered until some future
date is painfully obvious. This is especially true where, as
here, the date for the vendor’s performance may well be
decades after accepting payment. Requiring proceeds
accepted under such an arrangement to be placed in trust is
not only logical, but imperative if vulnerable consumers are
to be protected from the unscrupulous (or financially
“strapped”) vendor. Cf. Nat’l Funeral Servs., Inc. v.
Rockefeller, 870 F.2d 136, 143 n.11 (4th Cir. 1989) (relying
upon attorney solicitation Supreme Court cases to uphold
West Virginia’s ban on door-to-door and telephone
solicitation for funeral pre-need contracts and noting that,
“[i]n both [contexts], an advocate trained in the art of
persuasion is trying to convince an emotionally vulnerable
layperson that he needs professional services”). The
requirements of the FDL and FIA are reasonable standing
alone. The Board’s attempt to resolve the tension between
26
Among the factors outlined in a memo authored by then-Board prosecutor
Kathleen Grossman are:
[A]re the pre-need sales merchandising
corporations . . . operated separate and apart
from the funeral business . . . .? Are there
two sets of bookkeeping records kept?
Separate advertising signs? Do the
corporations display signs for public view at
all? Which businesses display signs? Are
there separate entrances? How is the
building set up, i.e., a common vestibule
leading to separate suites?
J.A. 1145.
41
those two statutes may be awkward or even strained, but it is
not unreasonable and it is consistent with Pennsylvania’s
legitimate public interest. 27 Accordingly, we part with the
District Court’s conclusion that the trust requirement results
in a constitutional deprivation.
F. First Amendment
The Plaintiffs claim that the FDL’s restrictions on commercial speech
violate the First Amendment. It is long-settled that the First Amendment
protects commercial speech. See Va. Bd. of Pharma. v. Va. Citizens Consumer
Council, Inc., 425 U.S. 748, 765 (1976). Several arguments are subsumed in the
Plaintiffs’ First Amendment challenge, and we will discuss the merits of each of
these claims in turn.
1. Restriction on Use of Trade Names
Subject to limited exceptions, 28 Section 8 of the FDL requires that
funeral homes operate under the name of the current funeral director or that of a
predecessor. See 63 Pa. Stat. Ann. §§ 479.8(a), (b), (d), 479.9(a). 29 For
example, if a hypothetical funeral director named “Jane Smith” purchased the
“Johnson Funeral Home,” she would only be able to continue to operate the
establishment under its current name or as the “Smith Funeral Home.” The
Plaintiffs claim that this restriction on the use of trade names violates the First
Amendment.
a. Applicability of Central Hudson & Gas Electric Corp.’s
Test
At the outset, the parties dispute whether we should assess the merits of
the First Amendment claim under Central Hudson Gas & Electric Corp. v.
Public Service Commission, 447 U.S. 557 (1980), or whether Friedman v.
Rogers, 440 U.S. 1 (1979), controls.
In Friedman, the earlier of these two cases, the Supreme Court upheld a
Texas law that proscribed the practice of optometry under a trade name. See
Friedman, 440 U.S. at 3-4. The Court distinguished the use of trade names from
other types of “commercial speech” such as product or service advertisements
27
Indeed, although we do not hold that resolution of the tension between the
100% requirement in the FDL and the 70% requirement in the FIA necessitates
it, the Commonwealth could rationally have argued that the dangers inherent in
the deferral of performance that is endemic in pre-need contracts requires that
100% of the contract price be placed in trust to ensure performance under the
contract.
28
Section 9 of the FDL excepts funeral homes owned by “grandfathered” pre-
1935 corporations from this requirement. 63 Pa. Stat. Ann. § 479.9(a).
29
Even in that circumstance, funeral homes owned by a sole proprietor or
partnership that operate under the name of a predecessor funeral director must
disclose the name of the current owner in advertising. Id. § 479.8(a). Funeral
homes owned by an RBC or professional (pre-1935) corporation that operate
under a predecessor’s name must similarly disclose the name of the home’s
licensed supervisor. Id. §§ 479.8(b), (d).
42
by explaining that while the latter are “self-contained and explanatory,” a trade
name will generally have “no intrinsic meaning.” Id. at 12. The Court then
stated that because “ill-defined associations of trade names with price and
quality information can be manipulated by the users of trade names, there is a
significant possibility that trade names will be used to mislead the public.” Id. at
12-13. Given the State’s “substantial” interest in “protecting the public from the
deceptive and misleading use of [] trade names” and the Court’s conclusion that
the restriction only had “incidental effect on the content of the commercial
speech involved,” the Supreme Court rejected the plaintiffs’ challenge. Id. at
15-16. Not surprisingly, Pennsylvania urges us to apply Friedman because it is
more favorable to the State’s position than Central Hudson.
However, Friedman’s applicability and continued viability is not as
clear as the Commonwealth would have us believe because the Court
subsequently adopted a more detailed test for limitations on commercial speech
in Central Hudson. There, the Court explained that a court considering the
validity of a restriction on commercial speech must first ask whether the
commercial speech concerns unlawful activity or is misleading. 447 U.S. at
566. If the speech is neither, the reviewing court must then determine “whether
the asserted governmental interest is substantial.” Id. If it is, the third and
fourth prongs of the Central Hudson inquiry require a court to respectively
inquire “whether the regulation directly advances the governmental interest
asserted” and whether the regulation is “more extensive than is necessary to
serve that interest.” Id.
In subsequent cases, the Supreme Court has provided additional
guidance by explaining that—in the professional services context—commercial
speech that is actually misleading “may be prohibited entirely,” In re R.M.J.,
455 U.S. 191, 203 (1982), while potentially misleading speech may be regulated
but not entirely curtailed, id.
Although Pennsylvania does not urge us to wholly disregard the
Central Hudson test, it does suggest that Friedman is sufficiently on point to
resolve our inquiry in the Commonwealth’s favor and that we should avoid
parsing through the four prongs of Central Hudson. The State’s argument goes
too far.
As noted, Friedman predated the four-part Central Hudson test and the
latter distinction between commercial speech that is “actually misleading” and
that which is “potentially misleading.” See Wine & Spirits Retailers v. Rhode
Island, 481 F.3d 1, 8 (1st Cir. 2007) (“Since its decision in Friedman, the Court
has made a doctrinal refinement, distinguishing in the professional services
context between commercial speech that is inherently or actually misleading and
commercial speech that is only potentially misleading.”). Accordingly, even
where Friedman applies, federal courts commonly conduct an analysis within
the framework of the more “refined” and nuanced test set forth in Central
Hudson. See Alexander v. Cahill, 598 F.3d 79, 95-96 (2d Cir. 2010)
(considering Friedman’s applicability to challenge against certain New York
restrictions on attorney advertising as part of Central Hudson test); Wine &
Spirits Retailers, 481 F.3d at 8-9 (same). 30 Our inquiry will be thus be guided
by the more recent decision in Central Hudson.
30
Thus, the Central Hudson test would not apply if the Commonwealth could
show that the use of trade names in the funeral industry is either unlawful or
inherently misleading. See Wine & Spirits Retailers, 481 F.3d at 8 (“It is not
always necessary . . . to deal with each of the test’s four parts. In framing the
43
b. The Central Hudson Test
As noted, Central Hudson’s threshold requirement is that the regulated
speech concern lawful activity and not be misleading. Here, there is neither
evidence nor allegation that the use of trade names in the funeral industry would
either mask or facilitate illegal activity. Instead, Pennsylvania heavily relies on
Friedman to suggest that the use of trade names presents “numerous”
opportunities for deception of the public—e.g., by keeping a trade name despite
staff changes and freeing proprietors from relying on their personal reputation to
attract business.
We agree that Friedman underscored “the significant possibility that
trade names will be used to mislead the public” in the context of invalidating
Texas’s ban on trade names in the field of optometry. Friedman, 440 U.S. at 12.
However, the Board’s argument ignores the record that the Court’s analysis was
based on in Friedman. See Friedman, 440 U.S. at 13 (“The concerns of the
Texas Legislature about the deceptive and misleading uses of optometrical trade
names were not speculative or hypothetical, but were based on experience in
Texas with which the legislature was familiar . . . .”). Indeed, as other courts
have noted when considering challenges to an across-the-board ban on the use of
trade names, in Friedman Texas “marshaled substantially strong[] and []
specific evidence supporting its prohibition on trade names” in the field of
optometry. Alexander, 598 F.3d at 96. There has been no such showing here.
Moreover, while Friedman provides some support for the
Commonwealth’s position, the lack of record support for its parade of
hypothetical horribles suggests caution before concluding that trade names in the
funeral industry are sufficiently misleading to rest our analysis upon Friedman.
Instead, we conclude that the assignment of trade names to funeral homes is, at
best, potentially misleading, and we must therefore consider the remaining
prongs of the Central Hudson test.
Obviously the Board’s asserted government interest in providing
accurate information to the public is “substantial.” See Friedman, 440 U.S. at
15-16 (noting State’s interest in protecting public from deceptive and misleading
use of trade names in optometry industry is “substantial and well
demonstrated”). However, the FDL’s ban on the use of trade names in the
funeral industry cannot survive the limitations imposed under Central Hudson.
Under its requirements, “the government must demonstrate that the challenged
law ‘alleviates’ the cited harms ‘to a material degree.’” Pitt News v. Pappert,
379 F.3d 96, 107 (3d Cir. 2004) (quoting Fla. Bar v. Went For It, Inc., 515 U.S.
618, 624 (1995) (alterations omitted)).
That requirement is inconsistent with a statutory scheme that is fatally
“underinclusive.” See City of Ladue v. Gilleo, 512 U.S. 43, 52 (1994)
(“Exemptions from an otherwise legitimate regulation . . . . [m]ay diminish the
credibility of the government’s rationale for restricting speech in the first
place.”); see also Metro Lights, L.L.C. v. City of Los Angeles, 551 F.3d 898, 905
(9th Cir. 2009) (“To put it in the context of the Central Hudson test, a regulation
inquiry, the threshold question is whether ‘the commercial speech concerns
unlawful activity or is misleading.’ If so, the inquiry ends there: ‘the speech is
not protected by the First Amendment.’” (quoting Thompson v. W. States Med.
Ctr., 535 U.S. 357, 367 (2002))). The Board has not made such a showing.
44
may have exceptions that ‘undermine and counteract’ the interest the
government claims it adopted the law to further; such a regulation cannot
‘directly and materially advance its aim.’” (quoting Rubin v. Coors Brewing Co.,
514 U.S. 476, 489 (1995))).
The restrictions on commercial speech here are so flawed that they
cannot withstand First Amendment scrutiny. Indeed, the District Court correctly
identified the pivotal problem concerning the FDL’s proscription at Central
Hudson’s third step: by allowing funeral homes to operate under predecessors’
names, the State remains exposed to many of the same threats that it purports to
remedy through its ban on the use of trade names. See Heffner, 866 F. Supp. 2d
at 408. A funeral director operating a home that has been established in the
community, and known under his or her predecessor’s name, does not rely on
his or her own personal reputation to attract business; rather, the predecessor’s
name and reputation is determinative. Nor does a funeral home operating under
a former owner’s name provide transparency or insight into changes in staffing
that the Board insists is the legitimate interest that the State’s regulation seeks to
further.
Moreover, unlike in Friedman, there is nothing in the record here to
even suggest that the use of trade names in the funeral industry has either
mislead or deceived the public to a greater degree than using a predecessor’s
name, and the Board does not suggest otherwise. Thus, we agree with the
District Court that the FDL’s trade name ban is irrevocably “pierced” by the
type of “exemptions and inconsistencies” that the Supreme Court has in found
fatal to First Amendment scrutiny. 31 Greater New Orleans Broad. Ass’n, Inc. v.
United States, 527 U.S. 173, 190 (1999); see also Rubin v. Coors Brewing Co.,
514 U.S. 476, 488 (1995); Cincinnati v. Discovery Network, Inc., 507 U.S. 410,
424-26 (1993); Fla. Star v. B.J.F., 491 U.S. 524, 540 (1989).
2. Payment on Commissions to Unlicensed Salespeople
The second issue that the Plaintiffs attack on First Amendment grounds
concerns the constitutionality of Section 11(a)(8) of the FDL. In relevant part,
that section provides that a funeral director or funeral home’s license may be
suspended if a licensee pays unlicensed employees commissions on sales for
pre-need funeral arrangements. See 63 Pa. Stat. Ann. § 479.11(a)(8). The
Board has implemented this restriction by promulgating regulations prohibiting
payment of “any gratuity” or “valuable consideration” to unlicensed employees.
In Count XIII of the Plaintiffs’ amended complaint, they argue that this
restriction is unconstitutional because it prohibits anyone but a licensed funeral
director from communicating with customers about services or merchandise.
See Walker v. Flitton, 364 F. Supp. 2d 503, 503, 507 (M.D. Pa. 2005) (holding
that the First Amendment precludes a prohibition on unlicensed employees and
31
Because we conclude that the FDL’s proscription on the use of trade names
does not pass Central Hudson’s third step, we need not discuss the fourth
“narrow-tailoring” prong. We note, however, that the Supreme Court has
recognized that the third and fourth prongs of the test complement each other
and has observed that the four factors of the analysis are “not entirely discrete.”
See Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 556 (2001); Greater New
Orleans Broad. Ass’n, Inc., 527 U.S. at 183, 188; see also Metro Lights, L.L.C.,
551 F.3d at 904 (noting “[i]t has not always been clear how [inquiry into a
regulation’s ‘fit’] differs with respect to the last two steps of the Central Hudson
analysis”).
45
agents from interacting with customers). The Plaintiffs allege that this
restriction on commissions similarly violates the First Amendment under the
reasoning in Central Hudson. We disagree.
Here again, the Commonwealth’s articulated interest in consumer
protection is undoubtedly substantial. “The whole premise behind earning a
commission is that the amount of sales [] increase[s] the rate of pay.” Parker v.
NutriSys., Inc., 620 F.3d 274, 284 (3d Cir. 2010) (internal quotation marks and
citation omitted). It is therefore eminently reasonable for a legislature to want to
protect consumers from dealing directly with salespeople who have a financial
interest in “upselling” more expensive or unnecessary merchandise and services
than are appropriate for a given consumer’s situation or resources. See Walker,
364 F. Supp. 2d at 520 (recognizing “substantial governmental interest in
protecting the general public as it relates to the dissemination of information
regarding, and the purchasing of, preneed funerals.”).
The potential for this evil to manifest itself in the context of sales
personnel being rewarded for exploiting the need to afford a loved one a
“proper” or “respectful” burial or memorial is too obvious to require elaboration.
Customers looking to purchase funeral arrangements and services are clearly
among the most vulnerable consumers to be found in any marketplace.
We therefore have little difficulty in concluding that this restriction
easily satisfies the third Central Hudson prong. Section 11(a)(8) “directly and
materially” advances the State’s asserted interest by removing the financial
incentive that salespersons would have to oversell pre-need funeral services.
We realize that the consumer protection afforded by this statutory
scheme is imperfect. For example, it still allows salaries or bonuses to be
influenced by the volume or amount of sales, and this may still incentivize the
unscrupulous sales person to prey upon the unwary and vulnerable consumer.
However, this flaw does not suggest that the protection is so under-inclusive that
it imposes an unconstitutional restriction on commercial speech. Salespersons
in the funeral industry are obviously as entitled to compensation as any other
sales persons, and any compensatory scheme may favor those who sell more
goods and/or services than their colleagues. Perhaps because such realistic
considerations limit the potential effectiveness of any such scheme, the Supreme
Court has explained that “[its] commercial speech cases establish that localities
may stop short of fully accomplishing their objectives without running afoul of
the First Amendment.”). Discovery Network, Inc., 507 U.S. at 442; see also
Metromedia, Inc. v. San Diego, 453 U.S. 490, 511 (1981) (upholding San
Diego’s proscription on offsite billboard advertising and rejecting plaintiffs’
argument that ban was underinclusive because it did not also cover onsite
advertising). We therefore believe that the FDL’s ban on payment of
commissions to unlicensed sales people is a constitutional remedy that is
sufficiently tailored to satisfy Central Hudson. 32
32
The only alternative that would eliminate any room for upselling would be
mandating a flat compensation for all employees. Assuming such a scheme
would be legal, it would prevent businesses from rewarding those employees
who show extraordinary dedication to their jobs by doing the “little things” that
employers rarely require but nevertheless expect from employees.
46
G. Contract Clause
Finally, the Plaintiffs contend that the Board’s interpretation of the
FDL’s trust provisions violates the Constitution’s Contract Clause by impairing
pre-need contracts between the Plaintiffs and their customers.
The Contract Clause provides that “[n]o State shall . . . pass any . . .
Law impairing the Obligation of Contracts.” U.S. Const. art I, § 10, cl. 1. To
show a Contract Clause violation, a plaintiff must demonstrate that a change in
state law effectively altered a contractual obligation. Gen. Motors Corp. v.
Romein, 503 U.S. 181, 186 (1992). Our Contract Clause inquiry must consider
“[(1)] whether there is a contractual relationship, [(2)] whether a change in law
impairs that contractual relationship, and [(3)] whether the impairment is
substantial.” Id. If all three questions are answered affirmatively, we must then
“inquire whether the law at issue has a legitimate and important public purpose
and whether the adjustment of the rights to the contractual relationship was
reasonable and appropriate in light of that purpose.” Transp. Workers Union
Local 290 v. SEPTA, 145 F.3d 619, 621 (3d Cir. 1998).
The premise for the Plaintiffs’ Contract Clause
argument is that the post-PFDA regime, whereby funeral
directors who receive money in the sale of pre-need
merchandise may trust funds at the FIA rate of 70% if their
operations are separate from those of a funeral establishment,
is not the actual state of the law. According to the Plaintiffs,
the Board has recently reversed its stated position and
currently requires 100% of all pre-need sales of merchandise
to be held in trust if the corporation selling the goods is
owned in whole or in part by a licensed funeral director. The
Plaintiffs largely base their claim on a regulation that the
Board proposed in August 2007 but later withdrew and never
enacted. See 37 Pa. Bull. 4643, 4646 (Aug. 25, 2007) (“A
preneed funeral contract may not incorporate a contract for
funeral merchandise entered into by a person or entity other
than a funeral director.”).
The Plaintiffs argue that the Board’s proposed interpretation requiring
100% trust of all funds paid as compensation for pre-need funeral services be
put in trust impaired the Plaintiffs’ contractual obligations with existing
consumers. The Board initially allowed licensed funeral directors to own
corporations that sold pre-need merchandise as long as those corporations were
wholly separate from funeral homes. The Plaintiffs claim that they relied on that
interpretation only to have their expectations frustrated when the Board
proposed a regulation banning this practice in August 2007.
The Plaintiffs’ Contract Clause arguments fail as a matter of law for
two obvious reasons. First, the Plaintiffs have not even shown that there was a
change in state law. Just as we discussed earlier, the Plaintiffs’ articulation of
the current state of the law in Pennsylvania is based on a proposed regulation
47
that the Board never formally prescribed. See 37 Pa. Bull. 4643, 4646 (Aug. 25,
2007). Indeed, the record shows—and the Plaintiffs concede—that the Board
withdrew this proposal in December 2009, and it never took effect. Thus, the
Plaintiffs have not shown even a threshold action that could be characterized as
a burden on their contractual obligations with consumers.
Second, even if the Plaintiffs could show that the Board’s proposed
regulation had the force of law, the Board’s reinterpretation of the FDL would
not implicate the Contract Clause. “The Supreme Court has made clear that the
language of the Contract Clause (i.e., “pass any . . . law”) means that the clause
applies only to exercises of legislative power.” Mabey Bridge & Shore, Inc. v.
Schoch, 666 F.3d 862, 874 (3d Cir. 2012). While the Clause’s application is by
no means limited to the formal enactments of a State’s legislature, 33 “[t]he
Supreme Court has rejected the argument that the Contract Clause is violated
when there is a new interpretation of an antecedent state statute.” Id. at 875.
Here, the Plaintiffs accuse the Board of reversing its own interpretation
and application of longstanding FDL provisions. Such a reversal is simply not
the kind of “exercise of legislative authority” that the Contract Clause
proscribes. See id. (holding Pennsylvania Department of Transportation’s
interpretation and application of law that had been in force for over 30 years
“did not exercise legislative authority subject to scrutiny under the Contract
Clause”).
III. Conclusion
For the foregoing reasons, we reverse the District Court’s judgment
striking down the FDL’s warrantless inspection scheme on Fourth Amendment
grounds. We also reverse the District Court’s judgments concerning the
Plaintiffs’ dormant Commerce Clause challenges to certain provisions of the
FDL. We reverse as well the District Court’s conclusions that the disputed FDL
provisions violate the substantive component of the Due Process Clause. We
also reverse the District Court’s ruling that the Board’s actions
unconstitutionally impair the Plaintiffs’ private contractual relations with third
parties in violation of the Constitution’s Contract Clause. We will affirm the
District Court’s ruling that Pennsylvania’s ban on the use of trade names in the
funeral industry runs afoul of First Amendment protections, but reverse its
ruling that the ban on the payment of commissions to unlicensed salespeople
violates the Constitution. Finally, we remand to the District Court to modify its
order in accordance with this opinion.
33
We recently explained that “[t]here is no simple formula for determining
whether a government act is an exercise of legislative authority.” Mabey Bridge
& Shore, Inc., 666 F.3d at 874. However, Supreme Court cases offer some
guidance. A government act will “bear[] the hallmarks of legislative authority
when it ‘changes existing conditions by making a new rule to be applied
thereafter to all or some part of those subject to its power.’” Id. (quoting Ross v.
State of Oregon, 227 U.S. 150, 163 (1913)). Conversely, “an act is likely not
legislative when ‘its purpose was not to prescribe a new law for the future, but
only to apply to a completed transaction laws which were in force at the time.’”
Id. (quoting Ross, 227 U.S. at 163).
48