Canadian COMPETITION LAW

March 21, 2013

In a somewhat unusual but interesting case released yesterday, a U.S. appeals court in Louisiana upheld the ability of Benedictine monks to sell caskets in competition with and more cheaply than state funeral homes (for a copy of the decision see: here).

According to Wall Street Journal background (see: here), the monks had been attempting to supplement their incomes following Hurricane Katrina by selling simple wooden caskets more cheaply than Louisiana state funeral homes despite legislative restrictions on casket sales to state-licensed funeral directors (and by licensed funeral homes).  The casket sale restrictions in this case had been established by the Louisiana Board of Funeral Directors, which, perhaps not surprisingly, included mostly funeral directors and embalmers.

The funeral directors board had argued that under state law, intrastate sales of caskets could only be made by state-licensed funeral directors and only in licensed funeral homes with requirements including a funeral parlor for 30 people, casket display room, embalming facilities and a full-time funeral director.

Seems rather like overkill to sell a casket.

The board also argued that the challenged rules, which insulated funeral directors from competition, were rationally related to Louisiana’s legitimate interest in regulating the funeral profession and specifically consumer protection and public health.

In reality, the board’s challenge appears to have been purely price driven and a challenge of the monks’ two economical casket models: – the “monastic” and the “traditional” – priced at $1,500 and $2,000 (both of which were priced significantly lower than those offered by Louisiana funeral homes).

The court in this case ruled that Louisiana violated the monks’ constitutional rights by preventing them from competing in a casket market dominated by state regulated funeral homes (in particular, based on equal protection and due process under the Fourteenth Amendment based as the court held that the rules had no rational relationship to any valid governmental interest).  The court also described existing federal regulation (the FTC’s so-called Funeral Rule) intended to mitigate unfair or deceptive practices, which have historically included failures to disclose price information, bundling products and services and a concern that state licensing boards could not be relied on to adequately protect consumers given that funeral boards were dominated by funeral directors, which had organized themselves into lobbying groups to pressure state legislatures to incorporate industry related restraints into “codes of ethics”.

While I have no particular interest in caskets or U.S. constitutional law, the case caught my eye as a mixture of antitrust, associations and something of a cautionary tale about the potentially anti-competitive effects of over-zealous and biased regulation.

The case, while based perhaps based on rather odd (and morbid) facts, also seemed rather timely given the various debates and developments in Canada over the anti-competitive effects of regulation, including in the mobile sector (see e.g.: here), recent initiatives by the Competition Bureau to increase its advocacy efforts in regulated sectors including the digital economy, health and potentially liquor licensing (see e.g.: here), as well as seemingly increasing policy criticism of the adverse competitive effects of regulation (see e.g.: C.D. Howe – Putting the Market Back in Dairy Marketing and C.D. Howe – Closing the Back Door Route to Cartels: The Need to Clarify the Regulated Conduct Doctrine).  The C.D. Howe Institute also released today a new shadow budget that coincides with the release of the new Federal Government budget.  It recommends, among other things, tariff reductions to make Canadian firms more competitive and benefit consumers.

The case also made me think about how similar restraints might be challenged in Canada.  While legislative restraints can be immune from direct competition challenges based on the regulated conduct defence (RCD) (and have been held to be so in a number of challenges to professional regulations, including perhaps most memorably advertising restraints promulgated by law society benchers in the Jabour case), there are also a number of potential grounds of challenge to anti-competitive legislative restrictions.

These include, like the U.S., potential constitutional challenges (e.g., on division of powers arguments), legislative interpretation arguments (e.g., that a regulator does not have authority for its actions) or a failure to meet the requirements of the RCD itself.  Such arguments can include that legislation is not valid, that conduct has not been mandated or authorized by the legislation or, perhaps a more novel basis given relatively little case authority, that a regulatory scheme has been used as a “shield” to engage in unauthorized anti-competitive conduct.

There is as well something of an open question in Canada the extent to which the RCD can be invoked to insulate conduct from the civil provisions of the Competition Act (e.g., in a challenge involving allegations of abuse of dominance) and whether the RCD should apply equally to so-called “regulates” (i.e., those subject to regulation) as to a regulator itself.

Finally, even where there is solid and clear legislative authority for anti-competitive conduct, the Competition Bureau appears to have a renewed appetite to strategically challenge anti-competitive regulation, which is a positive trend indeed given the number of regulated industries that still remain in Canada.

In any event, I thought this Louisiana funeral directors case was quite interesting and worth a read.

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