Request By:
Mr. Lonnie Cox
Cox Monument Company
P.O. Box 123
Morehead, Ky 40351
Opinion
Opinion By: David L. Armstrong, Attorney General; Susan N. Mastin, Assistant Attorney General
This Opinion is being written in response to your inquiry regarding cemeteries' rules relating to third party foundation installers. You first ask if a cemetery can have a policy disallowing any third parties from installing cemetery markers 1 in their cemetery.
KRS 367.175 states:
(1) Every contract, combination in the form of trust and otherwise, or conspiracy, in restraint of trade or commerce in this Commonwealth shall be unlawful.
(2) It shall be unlawful for any person or persons to monopolize, or attempt to monopolize or combine or conspire with any other person or persons to monopolize any part of the trade or commerce in this Commonwealth.
Kentucky's law, as stated above, parrots Sections One and Two of the Sherman Antitrust Act. Section 1 of the Sherman Antitrust Act (15 U.S.C. § 1) provides:
Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. . . .
Section 2 of the Sherman Antitrust Act (15 U.S.C. § 2) provides:
Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony. . . .
Because of the similarity in the two Acts, the Kentucky Court of Appeals in Mendell v. Golden-Farley of Hopk insville, Inc., Ky. App., 573 S.W.2d 346 (1978) examined the restrictive covenant before it in light of the federal cases construing Section 1 and 2 of the Sherman Antitrust Act. The Court in Mendell explained further:
The Sherman Antitrust Act is based in large part upon the common law principle that only unreasonable restraints of trade are illegal. However, some trade practices are considered to be per se unreasonable under the Sherman Antitrust Act. In
Klor's v. Broadway-Hale Stores, 359 U.S. 207, 210-11, 79 S. Ct. 705, 708, 3 L. Ed. 2d 741 (1959), the Court stated:
Section 1 of the Sherman Act makes illegal any contract, combination or conspiracy in restraint of trade, and § 2 forbids any person or combination from monopolizing or attempting to monopolize any part of interstate commerce. In the landmark case of
Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 31 S. Ct. 502, 55 L. Ed. 619, this Court read § 1 to prohibit those classes of contracts or acts which the common law had deemed to be undue restraints of trade and those which new times and economic conditions would make unreasonable. Id., at pages 59-60, 31 S. Ct. at pages 515-516. The Court construed § 2 as making the "prohibitions of the act all the more complete and perfect by embracing all attempts to reach the end prohibited by the 1st section, that is, restraints of trade, by any attempt to monopolize, or monopolization thereof * * *" Id., at page 61, 31 S. Ct. at page 516. The effect of both sections, the Court said, was to adopt the common-law proscription of all "contracts or acts which it was considered had a monopolistic tendency * * *" and which interfered with the "natural flow" of an appreciable amount of interstate commerce. Id., at pages 57, 61, 31 S. Ct. at page 514;
Eastern States Retail Lumber Dealers' Ass'n. v. United States, 234 U.S. 600, 609, 34 S. Ct. 951, 953, 58 L. Ed. 1490.
A cemetery's policy or a rule which requires purchasers of plots to have their purchased marker installed exclusively by the cemetery is an illegal "tying" which offends the antitrust laws. In a landmark private antitrust case, which came before the Ninth Circuit three different times,
Moore v. Jas. H. Matthews & Co., 682 F.2d 830 (9th Cir., 1982), the court explained tying claims:
The tying claims stemmed from the cemeteries' requirements that a purchaser of a cemetery lot buy a grave marker only from the cemetery where the lot is purchased (sales tie) and that the marker be installed only by the cemetery where the lot and marker are purchased (installation tie).
Id. at p. 832. In footnote 2 the court added:
Briefly summarized, tying involves a seller's use of a dominant position in one product market to enhance its position in a separate product market by tying products from the two markets together for sale as a single unit at a single price.
Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5-6, 78 S. Ct. 514, 518-519, 2 L. Ed. 2d 545 (1958). Tying offends antitrust values because it denies competitors' free access to the tied product market as well as limiting buyers' choices in the tied product market. This occurs not because the seller imposing the arrangement is offering a superior product, but solely due to the leverage exerted by the tying product.
Siegel v. Chicken Delight, Inc., 448 F.2d 43, 47 (9th Cir. 1971), cert. denied, 405 U.S. 955, 92 S. Ct. 1172, 31 L. Ed. 2d 232 (1972).
The Moore case began in 1969 when Eugene & Marble Works (EGM), Oregon's oldest retailer and installer of grave markers sued eight large cemeteries. The second time the Moore case came before the
Ninth Circuit (Moore v. Jas. H. Matthews & Co., 550 F.2d 1107 (9th Cir. 1977)) the court, after lengthy analysis, upheld both the sales tying claim and the installation tying claim.
Three criteria must be satisfied to demonstrate an illegal tying arrangement: First, there must in fact be a tying arrangement between two distinct products or services. Second, the defendant must have sufficient economic power in the tying market to impose significant restrictions in the tied product market. Third, the amount of commerce in the tied product must not be unsubstantial.
Moore II, 550 F.2d at 1212. When the Moore case came before the Ninth Circuit for the final time in 1982, the court reiterated that in Moore II it had unequivocally concluded that the installation service of a marker was a separate and distinct service from the sale of a plot and again upheld the installation tying claim and the sales tying claim.
The Eighth Circuit considered an exclusive foundation installation rule in
Rosebrough Monument Co. v. Memorial Park Cemetery Association, 666 F.2d 1130 (8th Cir., 1981) cert. den., 457 U.S. 1111 (1982), which is known as Rosebrough II, . The Court similarly held that a cemetery's rule that required purchasers of grave plots to also purchase from that cemetery the cemetery's marker installation service unreasonably restrained trade or commerce in violation of § 1 of the Sherman Act and that the tying arrangement was illegal.
The Federal Court Decisions leave little doubt that a cemetery will be subject to liability under federal and state antitrust laws for imposing any rule or policy which requires that a purchaser of a cemetery lot but a grave marker only from the cemetery where the lot is purchased. Likewise, a rule that requires a purchaser of a cemetery lot have his or her cemetery marker, regardless of where it was purchased, installed only by the cemetery constitutes an illegal tie-in which violates the antitrust laws.
In your inquiry, you ask us to review a set of regulations from a local cemetery with respect to foundation preparation and installation by third parties. Even though it is clearly prohibitive for cemeteries to adopt an exclusive right to install cemetery markers in the cemetery, they may adopt reasonable rules and guidelines with respect to the foundation preparation and installation of markers by third party installers. The leading case which discusses cemetery rules governing memorial foundations prepared by third parties is
Rosebrough Monument Co. v. Memorial Park Cemetery Association, 736 F.2d 441 (8th Cir, 1984). This case is known as Rosebrough III. The case is a result of an injunction entered by the District Court enjoining St. Louis area cemeteries from conditioning the sale of grave plots on the buyer's purchase of the cemetery's memorial foundation preparation service. Also the District Court approved certain cemetery rules governing memorial foundations by third parties. The cemetery rules which were approved by the District Court and were being reviewed by the court in Rosebrough III were as follows:
(1) the cemetery may establish specifications for the foundation of each type memorial which it permits in the cemetery. These specifications shall be the same as the cemetery itself utilizes in preparing foundations for particular type memorials;
(2) the cemetery may schedule, upon reasonable notice, all installations, taking into account weather and ground conditions, cemetery burial services, availability of personnel, etc.;
(3) the cemetery may require that the foundation site be laid out by cemetery personnel;
(4) the cemetery may supervise the foundation and installation process and require the installation meet specifications after inspection and prior to placement of a memorial;
(5) the cemetery may require removal of excavated dirt and cleanup of the installation site;
(6) the cemetery may require
(a) evidence that the installer's employees are covered by workman's compensation insurance and that the installer carries adequate public liability insurance in which the cemetery is a named insured, and
(b) a bond to insure compliance with the rules and regulations;
(7) the cemetery may charge a fee based on its actual labor costs in connection with the third party memorial foundation services;
(8) if the cemetery contributes separately to a fund for the care of memorials, it may require the third party installer to contribute to such fund the same percentage of the charge by said installer as is contributed by the cemetery from its own installation charge;
(9) the cemetery may require that the installer expeditiously correct any deviations from the specifications. If, after notice, any deviation is not corrected, the cemetery may make such corrections at the installer's expense. All such rules and regulations which the cemetery may hereinafter adopt are to be reasonable in nature and application.
In reviewing the rules, the Eighth Circuit reiterated "the need to reconcile the goal of open competition in the foundation preparation market with the cemeteries' property interests and statutory obligations." Id. at p. 445. The Eighth Circuit struck down rules 3 and 4 above, which required cemetery personnel to prepare the foundation site and required cemetery supervision at a fee.
By requiring that foundation sites be laid out by cemetery personnel and that the work of third party installers be supervised at a fee, both of which are permitted by the injunction, the cemeteries could gain an unfair competitive advantage over the third party installers and thus maintain the market control which was achieved through the illegal tying arrangements. As we noted in Rosebrough II, 666 F.2d at 1139 n. 5 and 1146, there is no evidence in the record to indicate that third party installers cannot lay out the foundation sites and perform their work without cemetery supervision. We therefore hold that rules (3) and (4) be deleted from the injunction.
Id. at p. 445.
The Eighth Circuit also rejected rule 8 which required the installer to contribute to a separate care fund.
A cemetery is not statutorily required to set aside any amount from the price of its installation service. Whether a cemetery chooses to do so should not obligate a third party installer to contribute to a fund to cover the costs of which remains the cemetery's responsibility, i.e., care and maintenance of the cemetery.
The rule which allowed the cemetery to require a bond from third party installers to insure compliance with the cemetery's specifications was upheld. However, the court added that in order for the bond requirement to be allowable, it must not "appreciably add to the third party installer's cost." If the cost of a bond was appreciable or prohibitive, then requiring the same would have an anti-competitive effect and therefore be disallowable.
The court modified rule 7 to read as follows:
"the cemetery may charge a fee based on its actual labor costs to inspect the finished work product of third-party memorial foundation services." This would be a fair accommodation to the cemetery's legitimate concern and need for quality control. Because the cemetery itself would incur labor costs in connection with the inspection of foundations prepared and installed by its own employees, the anti-competitive effect of charging third party installers similar costs should be minimal.
Id. at p. 445. (emphasis added).
The court concluded at p. 455:
We believe that the rules permitting the cemetery to require a bond to ensure compliance with the cemetery's installation specifications, to inspect, at a fee, the finished work product of third party installers, and to require correction of any deviations adequately protect a cemetery against incurring care and maintenance costs resulting from third party installations.
Most of the regulations discussed in Rosebrough III are the same regulations which you have asked us to review. The set of regulations you sent has one additional requirement not discussed in Rosebrough III. The set of regulations you sent us requires the third party installer to obtain extensive bronze analysis reports and granite analysis reports on all markers being installed by third parties. It requires that third party installers provide affidavits from manufacturers concerning a breakdown on the bronze alloy content and requires that the granite be verified as having a certain bulk density (PCF) average absorption (% .07), average compression strength (PSI) 26.670 and average modulus of rupture (PSI) 1615.
Such verifications required of third party installers would seem to be not only expensive, but, many times, impossible to obtain. Since the court concluded that those certain rules adequately protected the cemetery, it is uncertain whether or not a cemetery could impose rules in addition to those approved in the Rosebrough III case. Assuming other rules could be imposed, each rule imposed must be examined on a case by case basis trying to strike a balance between the cemetery's property interest and the goal of open competition in the foundation preparation market. A cemetery's rule would be deemed unreasonable if their interest could be protected by a less onerous yet effective approach. Likewise, no rule would be allowable if it was so prohibitive in cost to the installer as to have an anti-competitive effect.
The Federal Court of Appeals in South East Coal Co. v. Consolidation Coal, 434 F.2d 767 (1970) cert. den. 91 S. Ct. 1662 stated "to find a violation of the Sherman Act, the restraint must result from unreasonable acts; however, even if restraints are reasonable on their face, if they are accompanied with the intent to reach a forbidden result, there is a violation." The stringent verification requirements relating to the content of granite and bronze would appear to have an anticompetitive effect. In addition, the cemetery could devise a less restrictive way to protect their property interest.
In your last question, you ask if a cemetery being hired to pour a foundation is required to put any of the income received from the same into a maintenance fund. The answer to your question is no. Kentucky law provides that every cemetery establish an irrevocable perpetual care and maintenance trust fund account. KRS 367.952. Cemeteries are required by law to put twenty percent of the gross sale price of the lot into this trust fund. There is no requirement to put any percentage of the price received for foundation installation into this fund or any fund. It is envisioned that the 20% of the lot gross sale price will be adequate to cover for maintenance required of foundations and markers when the warranty on these items has expired.
In summary, a cemetery's rule that requires a grave plot purchaser to also purchase from that cemetery the cemetery's marker installation service unreasonably restrains trade and is an illegal tying arrangement in violation of the state and federal antitrust laws. The rules permitting the cemetery to require a bond to ensure compliance with the cemetery's installation specifications, to inspect, at a fee, the finished work product of third party installers, and to require correction of any deviations adequately protect a cemetery against incurring care and maintenance cost resulting from third party installations. Finally, none of the income received from foundation installation must go into a perpetual care and maintenance trust fund account.
I trust this letter will be of some assistance to you. This response has been restricted to the applicable law based on the facts.
Footnotes
Footnotes
1 The term "marker" is used in this opinion; however, it also applies to the installation of "memorials, " "monuments" and other cemetery merchandise.