STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MASTERS MEMORIAL GARDENS, INC., ) d/b/a PALATKA MEMORIAL GARDENS, )

)

Petitioner, )

)

vs. ) CASE NO. 91-1754

)

DEPARTMENT OF BANKING AND ) FINANCE, DIVISION OF FINANCE, ) and CEDAR WOOD MEMORIAL PARK, )

)

Respondents. )

)

RECOMMENDED ORDER

Pursuant to notice, the above matter was heard before the Division of Administrative Hearings by its duly designated Hearing Officer, Donald R. Alexander, on April 21 and 22, 1992, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Kenneth G. Oertel, Esquire

Robert C. Downie, II, Esquire

P. O. Box 6507

Tallahassee, Florida 32314-6507

For Respondent: Paul C. Stadler, Jr., Esquire (Agency) Bridget L. Ryan, Esquire

The Capitol, Suite 1302 Tallahassee, Florida 32399-0350

For Respondent: William J. Peebles, Esquire (Cedar Wood) P. O. Box 1169

Tallahassee, Florida 32302 STATEMENT OF THE ISSUE

The issue is whether Cedar Wood Memorial Park's application to establish a new cemetery company in Putnam County should be approved.

PRELIMINARY STATEMENT

This proceeding began on January 24, 1991, when respondent, Department of Banking and Finance, Division of Finance (Division), advised respondent, Cedar Wood Memorial Park (Cedar Wood), that its application to establish a new cemetery company in Putnam County had been preliminarily approved. Thereafter, on February 21, 1991, petitioner, Masters Memorial Gardens, Inc., which operates a licensed cemetery in the same county under the name of Palatka Memorial Gardens, 1/ filed a request for a formal hearing to contest the proposed agency action. The matter was referred by the agency to the Division of

Administrative Hearings on March 19, 1991, with a request that a hearing officer be assigned to conduct a formal hearing. On May 6, 1991, petitioner filed an amended petition.

By notice of hearing dated April 3, 1991, a final hearing was scheduled on August 6, 1991, in Tallahassee, Florida. At petitioner's request, the matter was rescheduled to August 9, 1991. On July 26, 1991, the case was transferred from Hearing Officer William F. Quattlebaum to the undersigned. Thereafter, petitioner's unopposed motion for continuance was granted and the final hearing was rescheduled to September 9, 1991. The matter was then abated pending efforts to settle the case. When these efforts were unsuccessful, the case was rescheduled to April 21 and 22, 1992, in Tallahassee, Florida.

At final hearing, petitioner presented the testimony of Quincy Masters, Jr., James T. Stephens, accepted as an expert in cemeteries and the statewide cemetery industry, and Gregory Brudnicki, accepted as an expert in the operation of cemeteries and cemetery finances. Also, it offered petitioner's exhibits 14, 15, 20, and 22-24. All exhibits were received into evidence. Respondent Cedar Wood presented the testimony of Charles L. Overturf, Jr., Charles L. Overturf, III, Lonnie Stanley, accepted as an expert in public accounting, Dr. Robert G. Turner, accepted as an expert in economics, and Quincy Masters, Jr. Also, it offered respondent's exhibits 1-8. All exhibits were received into evidence.

The transcript of hearing (three volumes) was filed on May 5, 1992.

Proposed findings of fact and conclusions of law were filed by petitioner and Cedar Wood on May 15, 1992. A ruling on each proposed finding has been made in the Appendix attached to this Recommended Order. In addition, the Division filed a memorandum of law on May 14, 1992, which has been considered in the preparation of this Recommended Order.

FINDINGS OF FACT

Based upon all of the evidence, the following findings of fact are determined:

1. Background

   
   

   1. Respondent, Department of Banking and Finance, Division of Finance (Division), is the state agency charged with the responsibility of administering and enforcing the Florida Cemetery Act, as amended, which regulates the operation of cemetery companies in the State of Florida. Among other things, the Act prohibits, with certain exceptions, any person from operating a cemetery company in this State without first obtaining a license from the Division.

      
      

   2. On August 1, 1990, respondent, Cedar Wood Memorial Park (Cedar Wood or applicant), a partnership consisting of Charles L. Overturf, Jr. and C. Ben Bates, Jr., filed an application with the Division for a license to organize a new cemetery company to be located on State Road 20 in Palatka, Florida. The application was deemed to be complete on October 9, 1990. Although the application was initially denied by the Division on December 28, 1990, on the ground the existing facilities were adequate to meet all reasonable needs, on January 24, 1991, the Division reversed its earlier action and gave notice of its intention to approve the application. Thereafter, on February 21, 1991, petitioner, Masters Memorial Gardens, Inc., d/b/a Palatka Memorial Gardens (PMG), which holds a license to operate a cemetery company in Putnam County (County), filed its protest and request for hearing. In its protest, as amended, PMG contended that the addition of a new cemetery company in the County

      would be harmful to the cemetery industry and not benefit the public. The parties agree that PMG has standing to initiate this action.

      
      

2. Statutory Criteria

   
   

   1. To demonstrate entitlement to a license, an applicant must first create a legal entity to operate the cemetery, propose a site containing not less than fifteen contiguous acres, and demonstrate that it possesses the ability, experience, financial stability, and integrity to operate the company. In this regard, Cedar Wood proposes to establish a cemetery site containing not less than fifteen contiguous acres. Also, Cedar Wood has created a legal entity to operate the cemetery site, and the parties agree that the applicant has demonstrated that it possesses the ability, experience, financial stability, and integrity to operate a cemetery.

      
      

   2. Besides the above criteria, the Division also considers other factors to determine need, including the adequacy of existing licensed and unlicensed facilities, the solvency of trust funds of existing facilities, and certain statistics concerning population, death rates, and rate of growth. However, the Division may waive these criteria in order to "promote competition" so that each county may have at least "six cemeteries operated by different licensees." In this case, the Division has proposed to waive these criteria in order to promote competition. It is noted that at the present time, there are three licensed cemeteries in the County, including PMG, Evergreen Cemetery (Evergreen), and Resthaven Cemetery and Memorial Park (Resthaven). In addition, there are a number of unlicensed cemeteries in the County, including two operated by the City of Palatka.

      
      

3. Applicant's Proposed Cemetery

   
   

   1. Applicant's partnership was formed two years ago for the purpose of establishing a new cemetery in the community. According to Overturf, who also operates a funeral home, he views the venture as a good investment, particularly since the community now has only three licensed cemetaries, two of which are used primarily by the black community. The facility will be fifteen acres in size and contain an estimated 18,000 burial spaces. It will also offer substantially the same services and charges as PMG.

      
      

   2. Neither partner has had any prior experience in operating a cemetery. However, the parties have stipulated that the applicant has sufficient experience to satisfy the statutory criteria of "ability" and "experience".

      
      

   3. The applicant intends to make an initial capital investment of

      $500,000, of which $149,200 will be kept in reserve. After the venture is ten years old, the applicant expects to make a profit on its investment. However, this projection is based on several incorrect assumptions. First, the partners have assumed that every lot sale will be a cash transaction for the full amount. Most sales, though, are financed and this will significantly reduce the projected cash flow. Second, after year five, it will be necessary to deduct ten percent of all lot sales revenues for maintenance and trust fees which will further reduce the projected income. Third, although the new cemetery plans a mausoleum, no expense for this item has been set aside. Fourth, the cemetery intends to hire an experienced cemetery operator but has set aside only $22,500 in commissions and management fees for this purpose. Finally, because of these protracted proceedings, certain recurring expenses such as legal and accounting expenses have been underestimated. After making the foregoing corrections to the pro forma statement, it is clear that the new cemetary would not be

      profitable during its first decade of operations, and contrary to applicant's projection, would not achieve a profit in the tenth year.

      
      

4. Existing Facilities in the Community

1. For purposes of determining the need for a new cemetary, the Division is obliged to consider the existing facilities in the community to be served, or the area from which 75% of sales of burial spaces are expected to be derived.

   In this case, the parties have agreed that the "community" is a fifteen mile radius around the City of Palatka. As noted above, there are presently three licensed cemeteries in the community. From a geographical perspective, all are within six miles of the proposed cemetary. More specifically, PMG and Evergreen are three and two miles, respectively, from the proposed site of Cedar Wood's cemetery while Resthaven is approximately six miles away in the small community of San Mateo.

   
   

2. Besides the licensed cemetaries, there are also a number of unlicensed cemeteries within the community. They are operated by various cities, towns, churches and families. Two of them, Oakhill and Westview Cemeteries, are operated by the City of Palatka and are open to the general public. Conversely, several church and family-operated cemetaries are restricted to family or church members while one is dedicated primarily to members of the Masons and their families. Even so, the unlicensed cemetaries have the potential to take customers away from licensed cemeteries, and all have the ability to expand without the Division's approval.

   
   

3. All cemeteries offer the public the option of buying their burial spaces "pre-need". This means that a lot can be sold to a customer prior to his or her death. Money from pre-need sales must be deposited into a perpetual trust account and cannot be used by the licensed cemetery company for day-to-day operations. In addition, pre-need sales are generally at low, discount prices which are substantially below the price charged for an "at-need" sale, which is made at the time of death. The evidence establishes that PMG offers discounted, pre-need spaces, and while its other charges are higher than those of its two licensed competitors, they are not unreasonable or excessive in relation to the charges at other cemetaries around the state.

   
   

   1. Projected Need and Unused Spaces

      
      

4. As a part of its preliminary investigation, the Division prepared a need survey in accordance with Rule 3D-30.015(4), Florida Administrative Code. The purpose of the survey was to ensure that there is sufficient space available for burials in the community for the next thirty years or conversely to determine if no need is projected. In developing the need survey, the Division used data from the three licensed cemetaries in the community, the two cemetaries operated by the City of Palatka, and one by a small church in the community of Peniel, which lies three miles from applicant's property. The parties have stipulated to the accuracy of the survey. It reflects that during the next thirty years, a total of 23,270 burial spaces will be needed for the community, assuming that 100% of all people cremated are buried in cemetery lots. However, if only 15% of the cremations are buried in cemetery lots, the projected need is reduced to 18,823 burial spots.

   
   

5. The three licensed cemeteries in the community have a combined total of 35,889 unused burial spaces, some of which are already sold. However, there are currently 28,052 and 2,740 unsold spaces at PMG and Resthaven, respectively. It is noted that in November 1989 PMG purchased an additional 8.6 acres of land

   adjacent to its facility and in August 1991 dedicated that property to the cemetary business. The new property is included in the Division's need survey. Evergreen has 495 total unused spaces, of which the number of unsold spaces is not of record. In addition, Oakhill Cemetery, which is operated by the City of Palatka, has 1,004 unused spaces of which 746 are unsold. PMG considers Oakhill to be its primary competitor. However, at its current rate of sales, Oakhill will have no more unsold spaces within the next four and one-half years to six years. The other city-operated cemetary is now virtually filled. Although Peniel Baptist Church has only four unsold spaces, two other unlicensed facilities within the community but not counted in the Division's survey, Pinelawn and Pineview Cemetaries, which are thirteen and fifteen miles from Cedar Wood, respectively, have approximately 31,000 unused spaces. Thus, the amount of space currently unsold and available far exceeds the projected need in the community during the thirty year period from the date of Cedar Wood's application. Despite this lack of need, the Division proposes to grant the application for the purpose of promoting competition. If the application is approved, Cedar Wood intends to add 18,000 more spaces to the community's already existing inventory.

   
   

   1. Will the New Cemetery "Promote Competition"?

   
   

6. The term "promote competition" is not defined by statute, and there are no agency rules which clarify the term or provide guidance in making this determination. However, three experts presented testimony on the existence or lack of competition in the Putnam County area and whether the addition of a new cemetary in the community would promote the same. As might be expected, the experts reached different conclusions regarding this issue. In resolving this conflict, the undersigned has accepted the more credible and persuasive testimony and this accepted testimony is embodied in the findings below.

   
   

7. Despite its dominance in the community in terms of unsold spaces, PMG is only burying approximately twenty percent of the people interred in the County in a given year. Thus, around eighty percent of the people interred in the County are buried in other cemetaries. Some of this may be attributable to "heritage", which means that once someone is buried in a cemetary, that person's relatives will likely want to be buried within the same cemetary. Because of heritage, all of the cemetaries in the community compete with PMG.

   
   

8. For the years 1987 through 1990, PMG sold only 65, 71, 216 and 202 spaces, respectively. The increase in sales during the last two years may be the result of an aggressive sales campaign recently initiated by PMG. Indeed, PMG is the only cemetary company in the County that actively advertises for new business. Since Cedar Wood will offer the same services as PMG, this will undoubtedly cause PMG to lose some of its sales. A loss of even one-half of its business to a competitor would have a serious financial impact on PMG.

   
   

9. Petitioner's experts established that it would not be financially feasible to establish a new company in the Palatka area given that area's population of around 60,000, the number of existing licensed and unlicensed competitors, and the fact that several cemetary companies have recently failed in other areas of the state. These findings are corroborated by the applicant's own financial projections.

   
   

10. The balance sheet of PMG as of December 31, 1990, reflected that it had only $2,500 in the bank as of that date. In addition, after receiving a

    $60,000 refund from the Internal Revenue Service and reclassifying certain items on the balance sheet, PMG's retained earnings approximated only $125,000 after

    fifteen years of operation. It is also noted that since the business was purchased by its present owners in 1977, no dividends have been paid to the stockholders of the corporation.

    
    

11. At the present time, there are several factors which indicate the presence of an oligopoly in the Putnam County cemetary business. First, there are a small number of sellers (existing licensed cemetaries) in the community. Of the three, PMG is clearly the most dominant for it now controls around 89.7 percent of the unused spaces among licensed cemetaries. This degree of dominance has enabled PMG to set a price for its services without regard to the prices charged by the two other licensees. In making this finding, however, it should be remembered that PMG considers Oakhill, a city-owned, unlicensed cemetary as its chief competitor. At the same time, there are a number of barriers to entry into the cemetary business. These include a requirement for governmental approval (a license) to enter the market, a $25,000 initial fee for the perpetual care and maintenance fund, and a minimum of fifteen acres of unencumbered, contiguous land. Where such barriers as these exist, the effect is to lessen the potential competition. However, even if an oligopoly or pure monopoly exists, this does not mean that the community can support another cemetary. Indeed, the evidence shows that if Cedar Wood's projected lot sales over the next decade are achieved, it would still operate at a loss. In addition, most, if not all, of such sales would be made at the expense of PMG. Given these circumstances, it is found that competition will not be promoted by granting the application.

    
    

    CONCLUSIONS OF LAW

    
    

12. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties hereto pursuant to Subsection 120.57(1), Florida Statutes (1991).

    
    

13. As the applicant in this case, Cedar Wood is obligated to prove by the preponderance of the evidence that it is entitled to a license. Pershing Industries, Inc. v. Department of Banking and Finance, 591 So.2d 991, 994 (Fla. 1st DCA 1991).

    
    

14. The following statutory and rule provisions are relevant to this controversy. First, Subsections 497.006(1)-(3), Florida Statutes (1991), provide as follows:

    
    

    1. No person shall operate a cemetery without first obtaining a license from the department, unless specifically exempted from this chapter.

    2. Any person desiring to establish a cemetery company shall first:

       1. File an application, which shall state the exact location of the proposed cemetery, which site shall contain not less than 15 contiguous acres, and pay an application fee of $5,000;

       2. Create a legal entity; and

       3. Demonstrate to the satisfaction of the department that he possesses the ability, experience, financial stability, and integrity to operate a cemetery.

    3. The department shall determine the need for a new cemetery in the community by considering the adequacy of existing cemetery facilities, licensed and unlicensed, within the county; the solvency of the trust funds of the existing facilities; and the relationship between population, rate of population growth, death rate, and ratio of burials to deaths to meet the projected need for burial spaces for a period of 30 years. In order to promote competition, the department may waive the criteria of this subsection so that each county may have at least six cemeteries operated by different licensees. (Emphasis added)

       
       

       In addition, Section (4) of Rule 3D-30.015, Florida Administrative Code, reads as follows:

       
       

    4. Criteria for licensing a new cemetery.

       1. In making its determination as to the need for an additional cemetery company for the general benefit of the public, the Department shall not increase the available inventory of burial spaces beyond the expected need for a period of 30 years from the date

          of application.

       2. In the investigation to determine need for a new cemetery, the Department shall consider the following criteria:

       1. The community in which the cemetery is to be located shall be defined for the purpose of seeking authority to organize a cemetery pursuant to Chapter 497, F.S., as the smallest area contiguous to the proposed cemetery from which approximately seventy-five percent of sales of burial spaces are expected to be derived.

       2. After the community area is determined, the Department shall consider the adequacy of the existing facilities by obtaining from all profit, non-profit, religious, and municipal cemeteries that would also derive the majority of their sales from the same community as the applicant, the number of burial spaces available in ground burials, lawn crypts, mausoleums, including contemplated mausoleum structures in which sales have been made, requiring construction within five years from the date of sale, plus unplatted reserve acreage as stated on the annual report of cemetery estimated at 1200 burial spaces per acres.

       3. The population, its rate of growth, the death-rate, and the ratio of burials to deaths shall be determined from latest statistical

       information available for the community in which the proposed cemetery is to be located.

       
       

15. As noted in the findings, there is no statutory definition of the term "promote competition", and no agency rules have been promulgated which provide insight as to how the term should be construed. However, through final agency action issued in a prior application proceeding, the Division has held that in order to grant an application under this provision, "(t)he evidence must demonstrate that insufficient competition exists and/or that the proposed cemetary will foster and encourage competition." In re: Eastern Gate Memorial Gardens, Inc., Case No. 85-18-DOF (Dept. of Banking and Finance, December 16, 1985). At the same time, if all criteria are to be waived, as is proposed here, the Division construes the statute as requiring a consideration of the economic impact a new company will have on licensed cemetaries in the County. This is a reasonable interpretation of the statute and is hereby accepted. Pershing Industries at 993. In construing the statute in this fashion, the undersigned has rejected petitioner's contention that Rule 3D-30.015(4), Florida Administrative Code, precludes the Division from approving a cemetary license whenever no need exists. That rule reads in relevant part that in making its determination as to the need for an additional cemetary company, the Division "shall not increase the available inventory of burial spaces beyond the expected need for a period of thirty years from the date of application." Petitioner argues that if the application is granted, and applicant's property is added to the already adequate inventory for burial space, the Division will be ignoring its own rule, which in turn violates the rationale of Gadsden State Bank v. Lewis, 348 So.2d 343 (Fla. 1st DCA 1977). However, it is clear that the source of authority for the cited rule comes from the criteria found in subsection 497.006(3) and, like the statutory criteria, the rule may be waived in order to promote competition. Therefore, if the Division determines that the criteria should be waived and a license issued in order to promote competition, this action would not be inconsistent with the rule. To the extent the rule may arguably conflict with the terms of subsection 497.006(3), the statute obviously controls. See, e. g., State, Dept. of Business Regulation v. Salvation, Ltd., 452 So.2d 65 (Fla. 1st DCA 1984).

    
    

16. Applicant contends that if there are less than six licensees in a county, and competition would be promoted by approving an application, the Division is required to grant the application, irrespective of any financial harm that may be caused to the existing licensees. However, this construction of the law is contrary to the manner in which the Division construes the statute, and it overlooks the fact that if an existing licensee is forced out of business, there is no net increase in cemetaries, and thus competition would not be promoted. Therefore, the undersigned concludes that the economic impact on existing licensees must be taken into account in deciding whether to grant the application.

    
    

17. The more persuasive evidence supports a conclusion that competition will not be promoted by the granting of the application. While it is correct to say that the public would have another cemetary company to choose from, the public interest would be harmed by the adverse impact on the financial well- being of PMG, an existing licensee. In view of this, the application should be denied.

    
    

18. Applicant's request for attorney's fees and costs pursuant to Subsection 120.59(6), Florida Statutes (1991) is denied.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the agency enter a final order denying the application of

Cedar Wood Memorial Park.

DONE and ENTERED this 2nd day of June, 1992, in Tallahassee, Florida.

DONALD R. ALEXANDER

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 2nd day of June, 1992.

ENDNOTES

1/ The original petition was filed by Quincy Masters, Jr., a shareholder of Masters Memorial Gardens, Inc., which does business under the name of Palatka Memorial Gardens. The style of this case has been changed to reflect petitioner's correct name.

APPENDIX TO RECOMMENDED ORDER

Petitioner:

1. Accepted in finding of fact 15.

2. Accepted in finding of fact 5.

3. Accepted in finding of fact 2. 4-5. Accepted in finding of fact 4.

1. Accepted in findings of fact 3 and 4.

2. Accepted in findings of fact 8 and 12.

3. Accepted in findings of fact 9 and 12.

1. Accepted in findings of fact 5 and 8.

2. Accepted in findings of fact 5, 6 and 7. 22-27. Accepted in finding of fact 7.

28-29. Accepted in finding of fact 5.

30. Accepted in finding of fact 10. 31-34. Accepted in finding of fact 15.

35. Accepted in finding of fact 18.

Applicant:

1. Partially accepted in finding of fact 12. The remainder has been rejected as being irrelevant or unnecessary.

2. Partially accepted in finding of fact 18.

3. Rejected as being unnecessary.

4. Accepted in finding of fact 17.

5. Rejected as being a conclusion of law. See conclusion of law 5.

6. Accepted in finding of fact 7.

31-32. Partially accepted in finding of fact 7. 33-34. Accepted in finding of fact 17.

35-39. Partially accepted in finding of fact 15.

40-44. Rejected as being contrary to the more credible and persuasive evidence.

COPIES FURNISHED:

Honorable Gerald Lewis Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, FL 32399-0350

William G. Reeves, Esquire The Capitol, Room 1302 Tallahassee, FL 32399-0350

Kenneth G. Oertel, Esquire

P. O. Box 6507

Tallahassee, FL 32314-6507

Bridget L. Ryan, Esquire The Capitol, Suite 1302 Tallahassee, FL 32399-0350

William J. Peebles, Esquire

P. O. Box 1169 Tallahassee, FL 32302

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to the Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should consult with the agency that will issue the final order in this case concerning their rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 91-001754

Orders for Case No: 91-001754