ORDERS:
ORDER
STATEMENT
OF THE CASE
The
above-captioned matter is before this Court pursuant to S.C. Code Ann. §
40-19-160 (2001) and S.C. Code Ann. § 1-23-600(D) (Supp. 2005) for an
administrative appeal. In this matter, Appellant Port Elsewhere II, a
corporation licensed to retail funeral merchandise at four locations in South
Carolina, appeals the May 18, 2005 Final Order issued by Respondent South
Carolina Department of Labor, Licensing and Regulation, State Board of Funeral
Service (Board), in which the Board revoked Appellant’s four retail sales
outlet permits. By an Order dated June 10, 2005, this Court stayed the Board’s
Final Order from taking effect during the pendancy of this appeal. After
timely notice to the parties, oral arguments in this matter were held on
January 24, 2006, at the South Carolina Administrative Law Court in Columbia,
South Carolina. Based upon the briefs filed and arguments made by the parties
in this matter and upon the record on appeal, I find that the Board’s May 18,
2005 Final Order revoking Appellant’s four retail sales outlet permits must be
reversed.
BACKGROUND
Appellant
Port Elsewhere II is a Delaware corporation that sells caskets to the general
public at retail at four locations in South Carolina. Each of these four
retail outlets is located at a cemetery and is separately licensed by the Board
with a retail sales outlet permit. The retail sales outlet
permits for these locations are numbered 654, 655, 656, and 657, and the
locations operate under the name “Funeral Merchandise.” At these locations,
Appellant sells caskets and cemetery plots, but does not offer or perform
funerals, embalming of dead bodies, cremation, or other funeral services.
As
noted above, Appellant sells its caskets at retail. Under Appellant’s sales
practices, a casket may be purchased with a lump-sum payment or pursuant to an
installment contract. In either event, upon payment of the full purchase
price, the purchaser is the owner of the casket and may either take immediate
delivery of the casket by taking the casket into his or her possession or allow
Appellant to store the casket in its warehouse to be delivered upon the
purchaser’s demand. When a customer allows Appellant to store a casket,
Appellant has the customer execute a warehouse receipt that identifies the
casket to be stored and indicates that the customer is the owner of the casket.
However, Appellant also reserves the right, in its sales contract, to
substitute a comparable casket for the casket purchased if “the exact
merchandise set forth in [the] Contract . . . [is] not available at the time of
need and delivery.” (R. at 393.)
In November
2004, an examiner for the State Board of Financial Institutions inspected
Appellant’s five cemetery locations in South Carolina.
As a result of his investigation, the examiner found that Appellant had 222
caskets in its inventory (although Appellant’s records indicated that it was
storing 232 caskets) and that Appellant had actually delivered 27 caskets to
customers, 26 of which were delivered to funeral homes for burials and one of
which was delivered to a customer’s residence. Also, in late 2004, an
eighty-five-year-old gentleman who had purchased a casket from Appellant at its
Graceland Cemetery location was involved in a dispute with Appellant.
Specifically, the customer, who had been assisted in making his purchase by his
daughter, complained that Appellant had misrepresented that the casket he
purchased was a government-issued veterans’ casket, when, in fact, it was not
such a casket. Based upon this misunderstanding, the customer sought to have
the contract for the sale of the casket cancelled, but Appellant refused to cancel
the contract and refund the purchase price.
The
Board’s enforcement action against Appellant began in March 2004, when it
ordered Appellant to cease and desist from making any “preneed” sales of
funeral merchandise under its retail sales outlet permits.
Subsequent enforcement investigations led to the issuance of formal complaints
against Appellant in October 2004 and January 2005, in which the Board alleged
that Appellant had engaged in unlicensed preneed sales of funeral merchandise
and committed other related violations at its four permitted retail sales
outlets. An independent panel appointed by the Board conducted a hearing on
the complaints on February 17, 2005, and, by an Panel Report dated April 13,
2005, found that Appellant had violated (1) S.C. Code Ann. § 40-19-110(1) (2001)
by making misrepresentations or committing fraud in its sales contracts; (2)
S.C. Code Ann. § 40-19-110(7) by aiding or abetting in the unlicensed practice
of funeral service through its sales at the Graceland Cemetery; and (3) S.C.
Code Ann. § 40-19-110(12), (15) (2001 & Supp. 2005) and S.C. Code Ann. §
40-19-290(E) (Supp. 2005) by selling funeral merchandise on a preneed basis
without complying with the requirements for such sales. Based upon these
violations, the panel recommended that Appellant’s four retail sales outlet
permits be revoked. The full Board took up the Panel Report at a hearing on
May 5, 2005, and, by a Final Order dated May 18, 2005, the Board adopted the
panel’s findings without changes and ordered the revocation of Appellant’s
permits. This appeal followed.
STANDARD
OF REVIEW
This
Court’s review of a final decision in a contested case decided by a
professional or occupational licensing board within the South Carolina
Department of Labor, Licensing and Regulation is governed by the provisions of
S.C. Code Ann. § 1-23-380(A) (2005). See S.C. Code Ann. §§ 1-23-380(B)
(2005), 1-23-600(D) (Supp. 2005). Under the standard of review laid out in
Section 1-23-380, this Court “shall not substitute its judgment for that of the
[Board] as to the weight of the evidence on questions of fact.” S.C. Code Ann.
§ 1-23-380(A)(6) (2005). However, this tribunal
may
reverse or modify the decision if substantial rights of the appellant have been
prejudiced because the administrative findings, inferences, conclusions or
decisions are:
(a)
in violation of constitutional or statutory provisions;
(b)
in excess of the statutory authority of the [Board];
(c)
made upon unlawful procedure;
(d)
affected by other error of law;
(e)
clearly erroneous in view of the reliable, probative and substantial evidence
on the whole record; or
(f)
arbitrary and capricious or characterized by abuse of discretion or clearly
unwarranted exercise of discretion.
Id.; see
also Lark v. Bi-Lo, Inc., 276 S.C. 130, 276 S.E.2d 304 (1981).
Substantial evidence, as referenced in Section 1-23-380(A)(6)(e), is relevant
evidence that, considering the record as a whole, a reasonable mind would
accept to support the Board’s decision. See, e.g., Daisy Outdoor
Adver. Co. v. S.C. Dep’t of Transp., 353 S.C. 113, 117, 572 S.E.2d 462, 464
(Ct. App. 2002). It exists when, if the case were presented to a jury, the
court would refuse to direct a verdict because the evidence raises questions of
fact for the jury. Id. Substantial evidence is more than a mere
scintilla of evidence, but is something less than the weight of the evidence. Id.
Furthermore, the possibility of drawing two inconsistent conclusions from the
evidence does not prevent this tribunal from concluding that substantial
evidence supports the Board’s findings. Id.
DISCUSSION
Appellant
raises a number of grounds for its appeal of the Board’s Final Order in this
matter. These grounds for appeal can generally be resolved into three broad
categories: (1) claims related to the facial validity of certain aspects of the
statutory retail sales outlet permitting scheme, (2) claims related to the
Board’s jurisdiction and composition in this disciplinary matter, and (3)
claims related directly to the merits of the Board’s disciplinary findings
themselves. Each of these claims will be addressed in turn.
The Facial
Validity of the Retail Sales Outlet Permitting Scheme
Appellant
raises several challenges to the facial validity of certain aspects of South
Carolina’s retail sales outlet permitting scheme. In particular, Appellant
contends that the statutes regulating the preneed sale of funeral merchandise
are unconstitutionally vague under both the state and federal constitutions,
that certain requirements for sales of funeral merchandise were enacted in
legislation that violated the “one subject” rule of the South Carolina
Constitution, and that the entire retail sales outlet permitting scheme is an
unlawful restraint upon free trade that should be preempted by the Sherman Anti-trust
Act. However, as the South Carolina Supreme Court has made abundantly clear,
this Court, as an executive branch agency, cannot consider such facial
challenges to the validity of statutes or regulations and must follow the law
as written. See Video Gaming Consultants, Inc. v. S.C. Dep’t of
Revenue, 342 S.C. 34, 38, 535 S.E.2d 642, 644 (2000); Great Games, Inc.
v. S.C. Dep’t of Revenue, 339 S.C. 79, 85, 529 S.E.2d 6, 9 (2000).
Therefore, this Court cannot address Appellant’s challenges to the facial
validity of the retail sales outlet permitting scheme.
The
Jurisdiction and Composition of the Board
Appellant
also asserts several challenges related to the Board’s authority to consider
whether Appellant had violated its permits by engaging in the preneed sale of
funeral merchandise and the Board’s authority to revoke Appellant’s permits for
any such violations. For the reasons discussed below, I find that these
challenges cannot be sustained.
Appellant
first argues that the Board does not have subject-matter jurisdiction to
consider violations related to preneed sales of funeral merchandise by retail
sales outlets, because such jurisdiction is vested with the State Board of
Financial Institutions, and that, even if it could consider such violations,
the Board does not have statutory authority to revoke Appellant’s retail sales
outlet permits. These arguments must fail. The State Board of Funeral Service
was created to administer the provisions of Chapter 19 of Title 40, which
regulates the practice of funeral service, see S.C. Code Ann. §§ 40-19-5 et seq. (2001 & Supp. 2005). In carrying out the provisions of
Chapter 19, the Board, like the other regulatory boards governed by Title 40,
is specifically authorized to, among other things, determine the eligibility of
applicants for the permits and licenses it administers, establish criteria for
the issuance of such permits and licenses, conduct hearings on alleged
violations of its practice act, and discipline permittees and licensees found
to be in violation of the practice act. See S.C. Code Ann. §§ 40-19-70
(2001), 40-1-70 (2001). The Board’s jurisdiction in this respect extends to
the actions committed or omitted by current or former holders of the permits
and licenses authorized under Chapter 19 for the entire period of licensure. See S.C. Code Ann. §§ 40-19-115 (2001), 40-1-115 (2001).
In
the case at hand, there is no question that the sale of funeral merchandise,
including caskets, constitutes the practice of funeral service that falls
squarely within the regulatory authority of the Board, see S.C. Code
Ann. § 40-19-20(12), (18) (Supp. 2005), and it is clear that the Board is the
entity responsible for considering applications for and issuing retail sales
outlet permits, which allow the sale of funeral merchandise by establishments
other than funeral homes, see S.C. Code Ann. §§ 40-19-265(C) (Supp.
2005), 40-19-270(A) (Supp. 2005); see also 40-19-20(19) (Supp. 2005).
In short, the Board has jurisdiction to regulate Appellant’s activities under
its retail sales outlet permits. Therefore, while the State Board of Financial
Institutions does have narrow regulatory authority to enforce the provisions of
Title 7 of Chapter 32, which provide the technical requirements for “preneed
funeral contracts,” see S.C. Code Ann. §§ 32-7-110 (Supp. 2005),
40-19-290(E) (Supp. 2005), the Board of Funeral Service retains concurrent
jurisdiction to discipline the persons it licenses to practice funeral service,
even where such violations are related to preneed sales of funeral services. See,
e.g., S.C. Code Ann. § 32-7-50(A)(1) (Supp. 2005) (requiring, in Chapter 7
of Title 32, that the Board of Funeral Service revoke the license of a funeral
home or funeral director that accepts funds for a preneed funeral contract
without a license or that fails to put such funds in trust); S.C. Code Ann. §
40-19-110(12) (2001) (specifically authorizing the Board of Funeral Service to
discipline a funeral service licensee for “violating applicable state laws
relating to the prearrangement or prefinancing of a funeral”). That is, while
the Board of Funeral Service does not have authority to directly enforce the
technical requirements for preneed funeral contracts, the Board does have
jurisdiction to sanction a person it has licensed under its practice act where
that licensee has violated the basic terms of its funeral service license by
engaging in preneed sales. See S.C. Code Ann. § 40-19-20(19) (Supp.
2005) (prohibiting retail sales outlets from “offer[ing] or execut[ing] preneed
funeral contracts, except as authorized by Chapter 7, Title 32”).
Further,
in exercising this disciplinary jurisdiction, the Board is authorized to revoke
the permit of a retail sales outlet for a violation of the provisions of
Chapter 19 of Title 40 or the provisions of its permit. Section 40-19-110
specifically authorizes the Board to suspend or revoke a funeral service
license for a violation of its provisions. See S.C. Code Ann. §
40-19-110 (2001). And, the catch-all
sanction provision of Chapter 19 of Title 40 empowers the Board to discipline a
licensee by imposing any of the sanctions available under Section 40-1-120,
which allows for the permanent revocation of a license, among other sanctions. See S.C. Code Ann. §§ 40-19-120 (2001), 40-1-120 (2001).
Appellant
secondly argues that, even if it had jurisdiction over this matter, the Board
should have recused itself from hearing Appellant’s violation matter because
the Board was demonstrably prejudiced and biased against Appellant. Appellant
contends that, in issuing a cease and desist order against Appellant and
conducting other preliminary enforcement matters, the Board had already reached
a conclusion regarding Appellant’s alleged violations prior to the hearing.
And, in particular, Appellant notes that, at a March 30, 2005 Board meeting, a
certain Board member, Larry Strom, stated that he had “always been against the
retail casket stores.” I find, however, that the Board properly removed any
taint in these proceedings by appointing an independent panel to hear
Appellant’s case.
Basic
principles of due process entitle a person involved in a dispute with an
administrative agency to an adjudication of the dispute by a fair, impartial,
and unbiased administrative body. See S.C. Const. art. I, § 22; Ross
v. Med. Univ. of S.C., 328 S.C. 51, 492 S.E.2d 62 (1997); Garris v.
Governing Bd. of S.C. Reinsurance Facility, 333 S.C. 432, 511 S.E.2d 48
(1998). In the instant case, in order to avoid the appearance of any such
taint, the Board impaneled an independent panel, on which no Board members sat,
to conduct the hearing regarding Appellant’s alleged violations. (R. at 2.)
Upon receiving the panel’s report, the Board adopted the panel’s recommendations
without reservation (R. at 178) and the Board’s Final Order revoking
Appellant’s permits restated the panel’s findings and conclusions without
change (R. at 3-5, 6-9). Moreover, Mr. Strom, the Board member that had
previously stated his opposition to retail sales outlets generally, did not
participate in the Board’s consideration of the panel report. Therefore, I
find that Appellant’s case was heard by a fair, impartial, and unbiased
administrative body and that any taint of the Board was removed by the
constitution of an independent panel to hear Appellant’s case. I further
conclude that the mere fact that the Board retained authority to approve the
panel’s report does not re-establish any taint that may have been present in
the first instance.
The Merits
of Appellant’s Alleged Violations
Reaching
the merits of the alleged violations, Appellant further contends that the
Board’s decision in this matter is clearly erroneous in light of the reliable,
probative, and substantial evidence in the record. I agree. The Board found
that Appellant had made misrepresentations or committed fraud in its retail
sales contracts, had committed unlicensed retail sales at its Graceland
Cemetery location, and had conducted preneed sales of funeral merchandise on
unapproved contracts and without properly placing the proceeds from such sales
in trust. There is no substantial evidence in the record to support the
Board’s conclusion on each of these allegations.
The
record does not substantially support the contention that Appellant made
misrepresentations or committed fraud in its sales contracts, such that it
violated Section 40-19-110. See S.C. Code Ann. § 40-19-110(1) (2001)
(prohibiting a funeral service licensee from “making misrepresentations or
committing fraud while engaging in the practice of funeral service”). Section
40-19-110(1) seems to encompass the legal concepts of negligent
misrepresentation and fraud. See, e.g., Armstrong v. Collins,
366 S.C. 204, 220, 621 S.E.2d 368, 376 (Ct. App. 2005) (stating that the “key
difference between fraud and negligent misrepresentation is that ‘fraud
requires the conveyance of a known falsity, while negligent misrepresentation
is predicated upon transmission of a negligently made false statement’”). In
order to sustain a claim for either negligent misrepresentation or fraud, one
must demonstrate that a false representation has been made. See, e.g., id. at 218-19, 621 S.E.2d at 375. The record in the case at hand does not support a
finding that Appellant made such a false representation such that it made a
negligent misrepresentation or committed fraud. Appellant’s sales contracts,
while no clearer than any other commercial contracts, do not on their face
contain any misrepresentations. And, outside of the ambiguous evidence
presented regarding a single transaction between Appellant and one dissatisfied
customer, there is nothing in the record to demonstrate that, as actually used,
these contracts have been the source of false statements that would support a
finding of negligent misrepresentation or fraud. Upon reviewing the record
presented in this matter, I find that the Board’s determination that Appellant
made negligent misrepresentations or committed fraud in its retail sales of
caskets is not supported by substantial evidence, but is founded more on
surmise and speculation regarding Appellant’s sales practices. Accordingly,
that determination must be reversed. See, e.g., Coleman v. Palmetto
State Life Ins. Co., 241 S.C. 384, 128 S.E.2d 699 (1962) (holding that a factual
finding may not rest upon surmise or speculation, but must be based upon
probative evidence); see also S.C. Code Ann. § 1-23-320(i) (2005)
(requiring that findings of fact in administrative proceedings be “based
exclusively on the evidence and on matters officially noticed”).
The
record also does not substantiate the Board’s finding that Appellant engaged in
or abetted the unlicensed sale of funeral merchandise at its Graceland Cemetery
location in Greenville. While the evidence in the record clearly establishes
that Appellant engaged in the sale of caskets at its Graceland Cemetery
location in 2004, no evidence was produced to establish that Appellant did not
have a permit to engage in such sales at that location, and Appellant has not conceded
that it did not have a permit for the Graceland location. This evidentiary
point is largely a technical one, but nonetheless a crucial one, and is a point
that could have readily been established by testimony from a custodian of
records or other Board official confirming that no permit had been issued to
Appellant for retail sales at the Graceland Cemetery. However, as the record
stands, there is no evidence to demonstrate that Appellant committed unlicensed retail sales of caskets at the Graceland location. In sum, because the Board
bore the burden of proof at the panel hearing of this administrative
enforcement matter, it was required to present sufficient evidence to support a
finding that Appellant committed the violation alleged in all particulars. The
Board failed to do so on this point, and its decision on this violation must be
overturned.
Lastly,
the record does not contain substantial evidence to support the Board’s
conclusion that Appellant engaged in preneed sales of funeral merchandise in
violation of certain statutory provisions governing such sales. As noted
above, a “preneed funeral contract” is defined by Section 32-7-10 as
a contract, which
has for its purpose the furnishing or performance of funeral services, or the
furnishing or delivery of personal property, merchandise, [or] services of any
nature in connection with the final disposition of a dead human body, to be
furnished or delivered at a time determinable by the death of the person whose
body is to be disposed of, but does not mean the furnishing of a cemetery
lot, crypt, niche, mausoleum, grave marker or monument.
S.C. Code Ann. §
32-7-10(3) (1991) (emphasis added). That is, as specifically defined by
statute, a “preneed” sale of funeral merchandise would be a sale of such merchandise
under terms that provide for the delivery of the merchandise at the death of
the person for whom the merchandise is intended to be used. Id. Put
conversely, any sale of funeral merchandise that provides for the delivery of
the merchandise at a time unrelated to the death of the individual in question
would not, by definition, be a “preneed” sale of funeral merchandise. Thus,
while the Board would seek to read the definition of “preneed” more broadly to
include nearly any sale of funeral merchandise not intended for immediate use,
the more limited definition provided by the relevant statute is the controlling
definition for “preneed” sales of funeral merchandise in this matter.
The
record in the instant case does not support a finding that Appellant sells its
caskets to be delivered at a time determinable by the death of the person who
is to use the casket. Rather, under the plain terms of Appellant’s sales
documents—its sales contract, its delivery acknowledgement, and its warehouse
receipt—the person purchasing the casket takes legal delivery of the casket
upon the payment of the full purchase price of the casket. This delivery may
be actual, with the purchaser taking actual, immediate possession of the
casket, or constructive, with the casket remaining in the possession of
Appellant but with all incidents of ownership passing to the purchaser; in
either event, the casket has been legally delivered to the purchaser. See,
e.g., Lakeview Gardens, Inc. v. State ex rel. Schneider, 557 P.2d
1286, 1290-91 (Kan. 1976) (holding that the sale of a casket is not a preneed
sale where the casket is delivered to the purchaser at the time the sales
contract is executed, even though the casket is subsequently stored by the
seller, because “[t]here may be a completed delivery although the goods remain
in the possession of the seller if the seller’s possession is as an agent or at
the request of the buyer under an agreement to store or care for the property,
and nothing further remains to be done by either party to complete the sale”).
Courts have consistently held that, under similar regulatory schemes, the sale
of funeral merchandise is not a preneed sale if the merchandise is delivered
upon payment of the purchase price, rather than upon the death of an individual. See, e.g., Gracelawn Memorial Park v. State, 424 A.2d 36, 38
(Del. Super. Ct. 1980) (holding, under a definition of “preneed burial
contracts” identical to that in S.C. Code Ann. § 32-7-10(3), that where a sale
of a burial vault provided for delivery of the vault within a reasonable time
after final payment—and not at a time determined by the death of the person who
would use the vault—the sale was not a preneed sale and its proceeds need not
be put in trust).
In
sum, on the face of its sales documents, Appellant delivers its caskets to
purchasers upon payment of the purchase price, and not upon a time determinable
by the death of the person for whom the casket is intended, and the Board has
not shown, with substantial evidence, that Appellant’s actual delivery
practices deviate from its sales documents. Therefore, there is no evidence in
the record to support the Board’s finding that Appellant has engaged in preneed
sales of funeral merchandise. And, accordingly, the Board’s conclusion that
Appellant has impermissibly engaged in preneed sales and failed to satisfy the
requirements for such sales must, too, be overturned.
In
conclusion, while this Court cannot consider Appellant’s facial challenges to
the retail sales outlet regulatory scheme and rejects Appellant’s challenges to
the jurisdiction and composition of the Board with regard to this disciplinary
matter, the Court agrees with Appellant that the Board’s ultimate conclusions
on the merits of the alleged violations are not supported by substantial
evidence in the record as a whole and must be reversed.
ORDER
For
the reasons set forth above,
IT
IS HEREBY ORDERED that the Board’s May 18, 2005 Final Order revoking
Appellant’s four retail sales outlet permits is REVERSED and Appellant
shall retain its permits.
AND
IT IS SO ORDERED.
______________________________
JOHN D.
GEATHERS
Administrative
Law Judge
1205 Pendleton
Street, Suite 224
Columbia, South
Carolina 29201-3731
February 10, 2006
Columbia, South Carolina
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