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Porter v. State

Supreme Court of Wisconsin

June 27, 2018

E. Glenn Porter, III and Highland Memorial Park, Inc., Plaintiffs-Appellants-Petitioners,
v.
State of Wisconsin, Laura Gutierrez and Wisconsin Funeral Directors Examining Board, Defendants-Respondents.

          ORAL ARGUMENT: April 19, 2018

          Circuit Court Waukesha County, L.C. No. 2014CV1763 Patrick C. Haughney, Judge

         REVIEW OF DECISION OF THE COURT OF APPEALS Reported at 378 Wis.2d 117, 902 N.W.2d 566');">902 N.W.2d 566 PDC No: 2017 WI.App. 65

          For the plaintiffs-appellants-petitioners, there were briefs filed by Thomas C. Kamenick, Richard M. Esenberg, Michael Fischer, Clyde Taylor, and Wisconsin Institute for Law & Liberty, Milwaukee. There was an oral argument by Richard M. Esenberg.

          For the defendants-respondents, there was a brief filed by Ryan J. Walsh, chief deputy solicitor general, with whom on the brief were Brad D. Schimel, attorney general, and Sopen B. Shah, deputy solicitor general. There was an oral argument by Ryan J. Walsh, chief deputy solicitor general.

          An amicus curiae brief was filed on behalf of Institute for Justice by Lee U. McGrath, Anthony B. Sanders, and Institute for Justice, Minneapolis, Minnesota, with whom on the brief were Erica Smith and Institute for Justice, Arlington, Virginia.

          SHIRLEY S. ABRAHAMSON, J.

         ¶1 This is a review of a published decision of the court of appeals affirming a judgment of the Circuit Court for Waukesha County, Patrick C. Haughney, Judge.[1]

         ¶2 The plaintiffs-appellants-petitioners, E. Glenn Porter, III, and Highland Memorial Park, Inc., [2] challenge the constitutionality of two statutes: Wis.Stat. §§ 157.067(2)[3] and 445.12(6)[4] (2015-16).[5] The parties refer to these two statutes as the "anti-combination laws." Generally, these laws prohibit the joint ownership or operation of a cemetery and a funeral home. Porter argues that the anti-combination laws violate his rights to equal protection and substantive due process under the Wisconsin and United States constitutions.[6]

         ¶3 In the circuit court, the State moved for summary judgment. It argued that rational basis scrutiny applied to Porter's claims because he had not alleged the creation of a suspect class or the violation of a fundamental right. See Aicher ex rel. LaBarge v. Wis. Patients Comp. Fund, 2000 WI 98, ¶56, 237 Wis.2d 99, 613 N.W.2d 849. The State asserted that the anti-combination laws survived rational basis review because they were rationally related to three legitimate government interests: (1) preserving competition in the death care services industry; (2) protecting consumers from higher prices and poor services; and (3) reducing the potential for abuses from commingling of cemetery and funeral revenues.

         ¶4 The circuit court granted the State's motion for summary judgment. It concluded that the anti-combination laws are constitutional because they are rationally related to a number of legitimate government interests, namely "preserving competition, avoiding commingling of funds, preserving consumer choices, avoiding higher prices, fostering personal service, [and] avoiding undue pressure on consumers . . . ." The circuit court explained that it was "satisfied . . . that if there are arguments over whether some of this works or some of that doesn't work, it stands as proof then that there is a basis for the law . . . ."

         ¶5 Porter appealed. The parties disagreed on the proper scope of rational basis review and whether the anti-combination laws have a rational basis.

         ¶6 The court of appeals held that regardless of the scope of rational basis review employed, the anti-combination laws were not unconstitutional on either equal protection or substantive due process grounds.[7] The court of appeals explained that the anti-combination laws were rationally related to the legitimate government interests of protecting consumers and limiting the possibility for abuse of trusting requirements.

         ¶7 Applying the standard set forth in Mayo v. Wisconsin Injured Patients & Families Compensation Fund, 2018 WI 78, Wis.2d, N.W.2d, we conclude that the anti-combination statutes do not violate the equal protection or due process clauses of the Wisconsin and United States constitutions. The anti-combination statutes are rationally related to the legitimate government interests of protecting the welfare of particularly vulnerable consumers and limiting or minimizing the manipulation of funds required to be held in trust by funeral directors and cemetery operators.

         ¶8 Accordingly, we affirm the decision of the court of appeals.

         I

         ¶9 E. Glenn Porter is the president and one of the principal owners of Highland Memorial Park, a cemetery located in New Berlin, Wisconsin. Porter would like to expand his business by operating a funeral establishment in conjunction with his existing cemetery operations. However, the anti-combination laws prevent him from doing so.

         ¶10 As a result, Porter filed the instant lawsuit, asserting the anti-combination laws are facially unconstitutional on both equal protection and substantive due process grounds.

         ¶11 In support of his equal protection challenge, Porter alleged that the anti-combination laws create anticompetitive, irrational, and arbitrary distinctions between classes of Wisconsin citizens in that only cemetery operators are prohibited from operating or obtaining ownership interests in funeral establishments, and only funeral directors are prohibited from obtaining ownership interests in cemeteries.

         ¶12 In support of his substantive due process challenge, Porter alleged that the anti-combination laws arbitrarily and irrationally prevent cemetery operators from owning an interest in a funeral establishment and owners and operators of funeral establishments from having an ownership interest in a cemetery.

         ¶13 As relief, Porter sought (1) a declaratory judgment that the anti-combination laws violate the equal protection and due process clauses of the Wisconsin and United States constitutions; (2) an order permanently enjoining the State from enforcing the anti-combination laws; and (3) reasonable costs and attorney fees.

         ¶14 The State moved for summary judgment. It argued that rational basis scrutiny applied to both of Porter's claims because he had not alleged the creation of a suspect class or the violation of a fundamental right. The State asserted that the anti-combination laws were rationally related to three legitimate government interests: (1) preserving competition in the death care services industry; (2) protecting consumers from higher prices and poor service; and (3) reducing the potential for abuses from commingling of cemetery and funeral revenues.[8]

         ¶15 Porter argued that even if he has not definitively established that the anti-combination laws are unconstitutional, he has raised a genuine issue of material fact with regard to whether the anti-combination laws actually advance the State's asserted interests.

         ¶16 In support of its motion, the State submitted a report authored by economics professor Jeffrey Sundberg, who rendered an opinion to a reasonable degree of professional certainty that the anti-combination laws serve the State's claimed interests.

         ¶17 Sundberg opined that the anti-combination laws "protect the interest of consumers" by "encourag[ing], or prevent[ing] the discouragement of, competition." Sundberg explained that combination firms, if permitted, would "have an opportunity to significantly reduce the amount of competition they face" through a process called "foreclosure." According to Sundberg:

[A] cemetery with a financial interest in a funeral home could easily create an advantage by charging a normal or perhaps lower price for burials from its partner home, and a higher price for burials from other funeral homes. This would allow the combination to achieve a higher market share and create a disadvantage for rival firms, as long as the number of cemeteries was limited. This at least appears to be a consumer-friendly result, as long as it lasts. However, as the combination captures more market share, the amount of competition will decline and the firm can then charge full prices that include the artificially higher cost of the burial plot previously charged to other firms. Prices faced by consumers will rise.

         ¶18 Although Sundberg conceded that foreclosure is "not a common result," he asserted that it is "most likely to work in a case where one part of the integrated firm is a special resource, one that cannot easily be replicated by others." Sundberg explained that "[t]his is likely to be the case with cemeteries" because there are far fewer cemeteries in the United States than funeral homes. Sundberg continued:

Given the land, capital, and regulatory requirements, it is reasonable to believe that entering the cemetery industry is much more difficult than starting a new funeral home.
As a result, a funeral home that is owned by, or owns, a cemetery has access to a scarce resource, one that gives it an advantage over other funeral homes. As other firms exit the market it becomes advantageous for the combination to use its market power to extract more money from consumers, perhaps by charging higher prices or perhaps by simply encouraging distraught consumers with few alternatives to add more features to their loved one's service.
The small number of cemeteries and the barriers to creating new ones, especially in urban areas, give a special advantage to well-capitalized large firms that can afford to purchase multiple funeral homes. With enough funeral homes, it may be profitable for a cemetery to completely exclude burials from funeral homes owned by others.

         ¶19 As to whether the anti-combination laws limit or minimize the manipulation of funds required to be held in trust by funeral directors and cemetery operators, Sundberg opined that the anti-combination laws "reduce[] the potential for abuses from commingling of cemetery and funeral revenues." He explained:

[T]here is some potential for abuse when combinations exist. The amount of money set aside is supposed to be 15% of the value of [a cemetery] plot. By providing funeral services as well as cemetery plots, a firm could potentially exploit [the trusting requirement for cemetery plots] by increasing the price of something like burial vaults and reducing the price of the plot itself, collecting the same amount of revenue while being required to set aside less money for perpetual care, without actually reducing the actual expenses of perpetual care.

         Sundberg opined that having a single firm selling more categories of merchandise "makes the commingling potentially easier to disguise, if a firm were interested in doing so." At a minimum, Sundberg asserted, "detecting such activity would be more difficult" without the anti-combination laws. Sundberg also explained, without contradiction, that having more categories of merchandise makes the commingling of funds with different trusting requirements easier to disguise and more difficult to detect.

         ¶20 In response, Porter submitted a report and affidavit authored by economics professor David Harrington, who opined to a reasonable degree of professional certainty that the anti-combination laws do not actually advance the State's claimed interests.

         ¶21 Harrington opined that the anti-combination laws actually increase the cost of death care services to Wisconsin consumers. Harrington explained that it is less costly to produce funeral services at combination firms because those firms are able to benefit from economies of scale and scope. Harrington also disputed Sundberg's assertion that permitting combination firms would lead to foreclosure:

Perhaps the best evidence for this point is [the] fact that combination firms already exist and do business in almost all of the states. Although I have not deliberately investigated the possibility, I can say that over the many years I have studied the industry I have not seen any evidence that combination firms actually engage in the kind of exclusionary behavior that [Sundberg] says that he fears. If they did so, their conduct would likely have been the subject of a challenge under the antitrust laws. I am not aware that any such case has ever been brought in the states where combination firms are permitted to do business.

         ¶22 Harrington further opined:

Wisconsin has a state statute (Wis. Stat. § 157.11[9]) designed to ensure that cemeteries are cared for in perpetuity. This statute applies to cemeteries operated by combination firms to the same extent that it applies to any cemetery. Abuse or misuse of funds is no more or less likely simply because a cemetery firms [sic] operates a funeral establishment. By defendant's logic, a cemetery should be precluded from operating a flower shop because of the possibility that funds could be comingled [sic]. Wisconsin law does not prohibit cemeteries from engaging in the flower business or from selling any other complementary goods other than funeral services.

         ¶23 The circuit court granted the State's motion for summary judgment. It concluded that the anti-combination laws are constitutional because they are rationally related to the legitimate government interests of "preserving competition, avoiding commingling of funds, preserving consumer choices, avoiding higher prices, fostering personal service, [and] avoiding undue pressure on consumers." The court explained that it was "satisfied . . . that if there are arguments over whether some of this works or some of that doesn't work, it stands as proof then that there is a basis for the law . . . ." The circuit court concluded that it did not "need to go beyond summary judgment and to have a trial on the matter, because . . . there's enough information before the court that the court finds the law is constitutional."

         ¶24 Porter appealed. He argued that the anti-combination laws must be examined under the "rational basis with teeth" standard that this court applied in Ferdon ex rel. Petrucelli v. Wisconsin Patients Compensation Fund, 2005 WI 125, 284 Wis.2d 573, 701 N.W.2d 440. Under this standard, Porter argued, the State must demonstrate that the anti-combination laws bear a "real and substantial connection" to a legitimate government purpose.

         ¶25 The court of appeals held that regardless of the standard of review employed (i.e., traditional rational basis or "rational basis with teeth"), the anti-combination laws were not unconstitutional on either equal protection or substantive due process grounds. The court of appeals explained that the anti-combination laws were rationally related to the legitimate government interests of protecting consumers and limiting the possibility for abuse of trusting requirements.

         ¶26 The court of appeals also held that a remand for further proceedings would be inappropriate. It explained that although evidence, including expert opinions, had been presented in the instant case, "the court must determine the relative merit of that evidence during a constitutional challenge."[10]

         II

         ¶27 We begin by setting forth the general standards of review and principles of law applicable to Porter's constitutional challenges.

         ¶28 Porter raises facial challenges to the constitutionality of the anti-combination laws. "A facial constitutional challenge to a statute is an uphill endeavor." State v. Dennis H., 2002 WI 104, ¶5, 255 Wis.2d 359, 647 N.W.2d 851. To succeed, Porter must demonstrate that the anti-combination laws cannot be constitutionally enforced under any set of circumstances; that is, "a facial challenge is '[a] claim that a statute . . . always operates unconstitutionally[.]'" Voters with Facts v. City of Eau Claire, 2018 WI 63, ¶60, __Wis.2d__, N.W.2d__ (quoting Olson v. Town of Cottage Grove, 2008 WI 51, ¶44 n.9, 309 Wis.2d 365, 749 N.W.2d 211). The constitutionality of a statute presents a question of law that we review independently. Aicher, 237 Wis.2d 99, ¶18.

         ¶29 In assessing Porter's constitutional challenges, we presume the anti-combination laws are constitutional. Aicher, 237 Wis.2d 99, ¶18; Riccitelli v. Broekhuizen, 227 Wis.2d 100, 119, 595 N.W.2d 392 (1999) . "The court indulges every presumption to sustain the law if at all possible, and if any doubt exists about a statute's constitutionality, we must resolve that doubt in favor of constitutionality." Aicher, 237 Wis.2d 99, ¶18; State ex rel. Hammermill Paper Co. v. La Plante, 58 Wis.2d 32, 46-47, 205 N.W.2d 784 (1973). This strong presumption of statutory constitutionality "is the product of our recognition that the judiciary is not positioned to make the economic, social, and political decisions that fall within the province of the legislature." Aicher, 237 Wis.2d 99, ¶20; State ex rel. Carnation Milk Prods. Co. v. Emery, 178 Wis. 147, 160, 189 N.W. 564 (1922).

         III

         ¶30 We now turn to the merits of Porter's constitutional challenges. We first establish the scope of rational basis review applicable to Porter's claims. We then apply that standard to the anti-combination laws.

         A

         ¶31 Porter challenges the constitutionality of Wis. Stat §§ 157.067(2) and 445.12(6). Generally speaking, these statutes prohibit the joint ownership or operation of a cemetery and a funeral home.

         ¶32 The parties dispute how rational basis scrutiny is to be applied under the specific circumstances of the instant case.

         ¶33 Porter argues that the anti-combination laws must be examined under the "rational basis with teeth" standard that this court applied in Ferdon ex rel. Petrucelli v. Wisconsin Patients Compensation Fund, 2005 WI 125, 284 Wis.2d 573, 701 N.W.2d 440. Porter argues that under this standard, the State must demonstrate that the anti-combination laws bear a "real and substantial connection" to a legitimate government purpose. The State argues that Porter's constitutional challenges should be analyzed under the traditional rational basis test, but that the anti-combination laws pass constitutional muster under either traditional rational basis or "rational basis with teeth."

         ¶34 On the same day that we heard arguments in the instant case, we heard arguments in Mayo v. Wisconsin Injured Patients & Families Compensation Fund, 2018 WI 78, __Wis.2d__, __ N.W.2d .[11] Noting that "[t]he analysis under both the due process and equal protection clauses is largely the same[, ]"[12]the Mayo court disposed of an equal protection and due process challenge to Wis.Stat. § 893.55 under the following articulation of the rational basis standard:

A classification created by legislative enactment will survive rational basis scrutiny upon meeting five criteria:
(1) All classification[s] must be based upon substantial distinctions which make one class really different from another.
(2) The classification adopted must be germane to the purpose of the law.
(3) The classification must not be based upon existing circumstances only. [It must not be so constituted as to preclude addition to the numbers included within a class.]
(4) To whatever class a law may apply, it must apply equally to each member thereof.
(5) That the characteristics of each class should be so far different from those of other classes as to reasonably suggest at least the propriety, having regard to the public ...

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