Can Tennessee legally stop funeral homes from discounting prepaid funeral contracts, or does that violate antitrust or commerce laws?

Subject

Opinion No. 12-06, Prearranged Funeral Contracts, January 13, 2012

Plain-English summary

Tennessee has banned discounts on prepaid funeral merchandise and services since 1959 (1959 Tenn. Pub. Acts 293). The current version of the prohibition is codified at Tenn. Code Ann. § 62-5-409(c): it is unlawful to enter into any contract conditioned on a person's death that promises a rebate, discount, or price reduction on funeral merchandise, expenses, or services to the person or the person's representatives. Representative Haynes asked the AG whether this prohibition runs afoul of federal antitrust law or the Commerce Clause.

The AG said no on every front.

State authority. The General Assembly exercises its inherent power to protect Tennessee citizens (Brundage v. Cumberland County) and has unlimited power to enact such laws except as expressly or impliedly restrained by the state or federal constitutions (Dennis v. Sears, Roebuck). The 1959 ban arose from real consumer protection concerns: prepaid funeral contracts often target vulnerable populations and present fraud opportunities. State ex rel. Long v. Mynatt (1960). The current Tennessee Prepaid Funeral Benefits (TPFB) Act creates a comprehensive regulatory scheme requiring trust accounts for prepaid funeral money (Tenn. Code Ann. §§ 62-5-406 to 408), with the discount ban as one piece. Garrett v. Forest Lawn Memorial Gardens (Tenn. Ct. App. 1979) and prior AG opinions (Op. 96-017; Op. 86-52) read the discount ban together with the broader TPFB to allow prearranged sales as long as consumer protections are met.

Federal antitrust law. The Sherman Act does not reach state regulatory action. Parker v. Brown, 317 U.S. 341, 350-51 (1943), established that antitrust laws do not apply to states acting in their sovereign capacity through legislation. Hoover v. Ronwin (1984) confirms the doctrine. State legislation is "ipso facto" exempt under state action immunity. Forrest City Grocery (Tenn. Ct. App. 1995). The TPFB's discount ban is straightforward legislation, so it carries that exemption.

Commerce Clause. The dormant Commerce Clause prevents states from adopting regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors. New Energy Co. of Indiana v. Limbach (1988). But the Commerce Clause does not preclude legitimate local regulation, even with incidental interstate effects, as long as the regulation is evenhanded and the local benefits are not clearly outweighed by burdens on interstate commerce. United Haulers Assn. (2007); American Trucking Assns. (2005); Bean v. McWherter (Tenn. Ct. App. 1999). The TPFB applies the same rules to in-state and out-of-state funeral providers. No protectionism. No Commerce Clause violation.

The opinion is essentially a clean validity check. The 1959 Tennessee policy is a constitutional exercise of state power: it is consumer-protective in purpose, evenhanded in application, immune from antitrust attack as state action, and not protectionist in design.

Currency note

This opinion was issued in 2012. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The constitutional doctrines (state action immunity, dormant commerce clause) remain stable. The Tennessee statutory framework may have been amended; verify current text.

Background and statutory framework

The TPFB Act. Tenn. Code Ann. §§ 62-5-101 to 417. Establishes qualifications, registration procedures, and general regulatory requirements for the sale of prepaid funeral benefits. § 62-5-402.

The discount prohibition. Tenn. Code Ann. § 62-5-409(c): "It is unlawful for any person, firm or corporation to enter into any contract, conditioned to take effect on the death of any person, wherein the person, or the personal representative, heirs or next of kin of the person, is promised any rebate, discount or reduction in price for or on account of funeral merchandise, expenses or services by virtue of the person being issued the policy or certificate, or being designated as beneficiary in the policy, or by the virtue of the person entering into the contract or being designated in the policy as the recipient of any such rebate, discount or reduction in price."

Trust account requirement for prepaid funeral money. Tenn. Code Ann. §§ 62-5-406 to 408.

Origin of the prohibition. 1959 Tenn. Pub. Acts 293. Tennessee's policy concern with pre-need funeral fraud, especially against vulnerable buyers.

Sherman Antitrust Act. 15 U.S.C.A. §§ 1-40.

State action immunity doctrine. Parker v. Brown, 317 U.S. 341, 350-51 (1943) ("We find nothing in the language of the Sherman Act or in its history which suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature."). Hoover v. Ronwin, 466 U.S. 558, 567-68 (1984). Tennessee application: Forrest City Grocery Co. v. Tennessee Dep't of Revenue, 917 S.W.2d 247, 248-49 (Tenn. Ct. App. 1995).

Commerce Clause. U.S. Const. art. I, § 8. Dormant Commerce Clause framework: American Trucking Assns. v. Michigan Pub. Serv. Comm'n, 545 U.S. 429, 433 (2005); Oklahoma Tax Comm'n v. Jefferson Lines, 541 U.S. 175, 179 (1995); New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 273-74 (1988); United Haulers Assn. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 346 (2007); Northville Downs v. Grandholm, 622 F.3d 579, 588 (6th Cir. 2010); Bean v. McWherter, 24 S.W.3d 325, 331 (Tenn. Ct. App. 1999).

Presumption of constitutionality. McCarver v. Ins. Co. of State of Pennsylvania, 208 S.W.3d 380, 384 (Tenn. 2006).

State's plenary power. Dennis v. Sears, Roebuck & Co., 223 Tenn. 415, 426, 446 S.W.2d 260, 265-66 (1969). Brundage v. Cumberland County, No. E2010-00089-SC-R11-CV, 2011 WL 6326094, at *5 (Tenn. December 19, 2011).

Earlier policy background. State ex rel. Long v. Mynatt, 207 Tenn. 319, 324-325, 339 S.W.2d 26, 28-29 (1960).

Prior AG opinions. Op. Tenn. Att'y Gen. 96-017 (February 15, 1996); Op. Tenn. Att'y Gen. 86-52 (March 6, 1986).

Common questions

Can a funeral home offer any discount to a prepaid customer?

The statute bans discounts that are conditioned on the prepaid arrangement (the death-triggered contract). A general sale advertised to all customers, with no death-condition tie-in, is not what the statute targets. The line can get blurry; funeral homes consult their counsel before structuring promotional pricing.

Why does state action immunity apply to a statutory prohibition?

Because the doctrine asks whether the restraint is the act of a sovereign state (legislation) or the act of private parties seeking to use the state to insulate themselves. Direct legislation is the cleanest case. Parker v. Brown.

Does this analysis apply to other consumer-protection price floors?

The structure does. Other state-imposed price-floor regulations enacted by legislation (alcohol minimum pricing, some agricultural marketing orders) get the same state action immunity treatment, assuming clear articulation by the legislature and (where applicable) active supervision.

What about FTC review?

The opinion analyzed the Sherman Antitrust Act and the Commerce Clause. FTC Act review (using state action immunity in FTC enforcement) follows a similar structure, but the opinion did not directly analyze it. The 1985 Funeral Rule (16 C.F.R. Part 453) regulates funeral practices at the federal level on disclosure and offer-of-services grounds; it does not federally preempt state pricing rules.

Did the legislature later amend or repeal this ban?

The opinion was issued in 2012 and the underlying statute originated in 1959. Subsequent legislative changes are possible. Anyone working in this area should check the current text of Tenn. Code Ann. § 62-5-409(c).

Citations

• Tenn. Code Ann. §§ 62-5-101 to 417
• Tenn. Code Ann. § 62-5-402
• Tenn. Code Ann. § 62-5-409(c)
• Tenn. Code Ann. §§ 62-5-406 to 408
• 15 U.S.C.A. §§ 1-40
• U.S. Const. art. I, § 8
• 1959 Tenn. Pub. Acts 293
• State ex rel. Long v. Mynatt, 207 Tenn. 319, 339 S.W.2d 26 (1960)
• Garrett v. Forest Lawn Memorial Gardens, Inc., 588 S.W.2d 309 (Tenn. Ct. App. 1979)
• Brundage v. Cumberland County, No. E2010-00089-SC-R11-CV, 2011 WL 6326094 (Tenn. December 19, 2011)
• Dennis v. Sears, Roebuck & Co., 223 Tenn. 415, 446 S.W.2d 260 (1969)
• McCarver v. Ins. Co. of State of Pennsylvania, 208 S.W.3d 380 (Tenn. 2006)
• Parker v. Brown, 317 U.S. 341 (1943)
• Hoover v. Ronwin, 466 U.S. 558 (1984)
• Forrest City Grocery Co. v. Tennessee Department of Revenue, 917 S.W.2d 247 (Tenn. Ct. App. 1995)
• American Trucking Assns., Inc. v. Michigan Pub. Serv. Comm'n, 545 U.S. 429 (2005)
• Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 541 U.S. 175 (1995)
• New Energy Co. of Indiana v. Limbach, 486 U.S. 269 (1988)
• United Haulers Assn., Inc. v. Oneida-Herkimer Solid Waste Management Authority, 550 U.S. 330 (2007)
• Northville Downs v. Grandholm, 622 F.3d 579 (6th Cir. 2010)
• Bean v. McWherter, 24 S.W.3d 325 (Tenn. Ct. App. 1999)
• Op. Tenn. Att'y Gen. 96-017 (February 15, 1996)
• Op. Tenn. Att'y Gen. 86-52 (March 6, 1986)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2012/op12-006.pdf

Original opinion text

January 13, 2012
Opinion No. 12-06
Prearranged Funeral Contracts

QUESTION

Do the provisions of Tenn. Code Ann. § 62-5-409(c) prohibiting a business from offering a discount to consumers on merchandise and services related to prearranged funeral contracts constitute an improper restraint on trade and competition or violate any state or federal law or regulations, including but not limited to the Commerce Clause of the United States Constitution or the federal Sherman Antitrust Act.

OPINION

No. The State of Tennessee's prohibition against the discounting of prearranged funeral contracts is a permissible exercise of state authority, is exempt from federal antitrust laws under the state action immunity doctrine and does not violate any other applicable federal or Tennessee law.

ANALYSIS

Since 1959, Tennessee has prohibited persons, firms and corporations from offering discounted pre-need funeral merchandise and services. See 1959 Tenn. Pub. Acts 293. Tennessee, like many states, regulates pre-need burial contracts because they present opportunities for fraud and frequently cater to vulnerable populations. See State ex rel. Long v. Mynatt, 207 Tenn. 319, 324-325, 339 S.W.2d 26, 28-29 (1960); E.S. Stephens, Annotation, Validity of Statutes Regulating Pre-need Contracts for the Sale of Furnishing of Burial Services and Merchandise, 68 A.L.R.2d 1251 (1959 & Supp.).

Tennessee, by the enactment of the Tennessee Prepaid Funeral Benefit Act ("TPFB"), has developed a comprehensive regulatory process designed to ensure that, when pre-need burial contracts are sold to consumers, sufficient funds are reserved so that any benefits provided under these contracts can be paid for when they come due. See Tenn. Code Ann. §§ 62-5-101 to 417. The TPFB establishes "the qualifications and procedures for registration and general regulatory requirements for the sale of prepaid funeral benefits in this state." Tenn. Code Ann. § 62-5-402.

The TPFB expressly prohibits a person, firm or corporation from offering a discount to consumers on prearranged funeral contracts for merchandise and services, stating as follows:

It is unlawful for any person, firm or corporation to enter into any contract, conditioned to take effect on the death of any person, wherein the person, or the personal representative, heirs or next of kin of the person, is promised any rebate, discount or reduction in price for or on account of funeral merchandise, expenses or services by virtue of the person being issued the policy or certificate, or being designated as beneficiary in the policy, or by the virtue of the person entering into the contract or being designated in the policy as the recipient of any such rebate, discount or reduction in price.

Tenn. Code Ann. § 62-5-409(c).

However, as recognized by the Tennessee Court of Appeals and this Office, this provision does not absolutely ban the sale of funeral services on a pre-need basis, but must be read in pari materia with other sections of the TPFB which allow funeral services to be purchased in advance so long as certain conditions designed to protect the public are met. Garrett v. Forest Lawn Memorial Gardens, Inc., 588 S.W.2d 309, 313-14 (Tenn. Ct. App. 1979); Op. Tenn. Att'y Gen. 96-017 (February 15, 1996); Op. Tenn. Att'y Gen. 86-52 (March 6, 1986). Thus the TPFB expressly allows funeral services to be purchased in advance so long as consumers purchasing such services are protected by requiring the money paid to be deposited in a trust account. Tenn. Code Ann. §§ 62-5-406 to 408.

In enacting such statutes, the General Assembly is exercising its inherent power to protect the health, safety and welfare of Tennessee's citizens. See Brundage v. Cumberland County, No. E2010-00089-SC-R11-CV, 2011 WL 6326094, at *5 (Tenn. December 19, 2011). The General Assembly has unlimited power to enact such laws, except as expressly or impliedly restrained by the Tennessee or United States Constitutions. Dennis v. Sears, Roebuck & Co., 223 Tenn. 415, 426, 446 S.W.2d 260, 265-66 (1969). When evaluating the constitutionality of a statute such as the TPFB, there exists a strong presumption that acts passed by the General Assembly are constitutional. McCarver v. Ins. Co. of State of Pennsylvania, 208 S.W.3d 380, 384 (Tenn. 2006).

Our review reveals no constitutional or legal impediment with the operation of the TPFB. Initially, the TPFB as a legislative act regulating prearranged funeral contracts is exempt from antitrust review under the Sherman Antitrust Act, codified at 15 U.S.C.A. §§ 1-40. The United States Supreme Court has recognized that the antitrust laws are not applicable to States acting in their sovereign capacity:

We find nothing in the language of the Sherman Act or in its history which suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature. In a dual system of government in which, under the constitution, the states are sovereign, save only as Congress may constitutionally subtract from their authority, an unexpressed purpose to nullify a state's control over its officers and agents is not lightly to be attributed to Congress.

Parker v. Brown, 317 U.S. 341, 350-51 (1943). Thus the adoption of legislation by a State constitutes state action which is ipso facto exempt from the operation of the federal antitrust laws, commonly referred to as the "state action immunity doctrine." Hoover v. Ronwin, 466 U.S. 558, 567-68 (1984); Forrest City Grocery Co. v. Tennessee Department of Revenue, 917 S.W.2d 247, 248-49 (Tenn. Ct. App. 1995).

Nor does the TPFB violate the Commerce Clause of the United States Constitution. The Commerce Clause provides that "Congress shall have the power to regulate commerce among the several states." U.S. Const. art. I, § 8. The United States Supreme Court also has recognized a negative command in the Commerce Clause, referenced as "the dormant Commerce Clause." American Trucking Assns., Inc. v. Michigan Pub. Serv. Comm'n, 545 U.S. 429, 433 (2005) (citing Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 541 U.S. 175, 179 (1995)). In essence the dormant Commerce Clause prohibits state "regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors." New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 273-74 (1988).

However the Commerce Clause does not preclude states from addressing matters of legitimate local concern even though interstate commerce may be affected. State legislation that regulates evenhandedly to effectuate a legitimate state purpose does not run afoul of the Commerce Clause, so long as any burden imposed on interstate commerce is not clearly excessive in relation to the local benefits. United Haulers Assn., Inc. v. Oneida-Herkimer Solid Waste Management Authority, 550 U.S. 330, 346 (2007); Northville Downs v Grandholm, 622 F.3d 579, 588 (6th Cir. 2010); Bean v. McWherter, 24 S.W.3d 325, 331 (Tenn. Ct. App. 1999).

Here the TPFB evenhandedly applies the regulatory requirements for the sale of prearranged funeral contracts and provides no benefit to in-state economic interests by burdening out-of-state competitors. The Commerce Clause accordingly imposes no bar to the General Assembly's enactment of the TPFB to protect consumers purchasing prearranged funeral contracts.

ROBERT E. COOPER, JR.
Attorney General and Reporter

WILLIAM E. YOUNG
Solicitor General

VICTOR J. DOMEN, JR.
Assistant Attorney General

Requested by:
The Honorable Ryan Haynes
State Representative
214 War Memorial Building
Nashville, Tennessee 37243