STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

GRACE MEMORIAL GARDENS, INC., )

)

Petitioner, )

and )

) MEADOWLAWN MEMORIAL GARDENS, INC., )

)

Intervenor, ) CASE NO. 93-0857

)

vs. )

)

DEPARTMENT OF BANKING AND )

FINANCE and ABBEY HILLS )

MEMORY GARDENS, INC., )

)

Respondents. )

)

RECOMMENDED ORDER

Pursuant to notice, final hearing in the above-styled case was held in Tallahassee, Florida, on July 28-30, 1993, before Robert E. Meale, Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

The parties were represented at the hearing as follows: For Petitioner and Intervenor:

Kenneth G. Oertel Robert C. Downie, II Oertel, Hoffman

Post Office Box 6507 Tallahassee, Florida 32314-6507

For Respondent Abbey Hills:

James A. Peters Theodore E. Mack Cobb Cole & Bell

131 North Gadsden Street Tallahassee, Florida 32303

For Respondent Department of Banking and Finance:

Anthony F. DiMarco Assistant General Counsel Office of the Comptroller Suite 1302, The Capitol

Tallahassee, Florida 32399-0350

STATEMENT OF THE ISSUE

The issues in this case are whether the issuance of a license to Abbey Hills to operate a perpetual care cemetery would promote competition and whether Abbey Hills' application is complete and truthful.

PRELIMINARY STATEMENT

By application executed September 9, 1992, Abbey Hills Memory Gardens, Inc. requested that the Department of Banking and Finance issue a license to develop a new cemetery in Pasco County, Florida.

After supplemental information was received, the Department of Banking and Finance sent a letter dated December 31, 1992, to the attorney for Abbey Hills advising that the Department had tentatively approved the issuance of the license.

Following publication on December 24, 1992, of the Department's notice of intent to issue the license, Grace Memorial Gardens filed a Petition for Formal Administrative Hearing on January 8, 1993. On January 19, 1993, Meadowlawn Memorial Gardens filed a Petition to Intervene. Although a motion to dismiss the petition was denied, the undersigned inadvertently failed to enter an order granting the petition to intervene, which is hereby ordered nunc pro tunc.

At the hearing, Abbey Hills called four witnesses and offered into evidence

31 exhibits. The Department of Banking and Finance called no witnesses and offered into evidence three exhibits. Grace and Meadowlawn called six witnesses and offered into evidence 12 exhibits. All exhibits were admitted.

The transcript was filed August 17, 1993. Each party, except the Department of Banking and Finance, filed a proposed recommended order. The Department filed a memorandum of law. Rulings on proposed findings are in the appendix.

FINDINGS OF FACT

1. By application dated September 9, 1992, Willard I. Timmer and his wife, Marilyn Timmer, as "proponents," applied for a license to operate a new cemetery on Denton Avenue, Hudson, Pasco County, Florida. The Timmers filed the application on behalf of Abbey Hills Memory Gardens, Inc. (Abbey Hills).

   
   

2. By letter dated September 16, 1992, the Department of Banking and Finance (Department) requested additional information, including financial statements for Mr. and Mrs. Timmer and Abbey Hills and a copy of the sales contract for the real property on which the proposed cemetery would be located.

   
   

3. By letter dated November 12, 1992, the attorney for Mr. and Mrs. Timmer forwarded to the Department financial statements for the Timmers and Abbey Hills and a copy of the contract for the purchase of the cemetery property. The personal financial statements, which were identical, showed, among other things, a market value for all of the Timmers' funeral homes and cemeteries of

   $30,000,000 and a net worth of $30,691,111. The "company report" of Abbey Hills showed assets of an initial capitalization of $2000 cash and $5000 in organizational costs. The "company report," which disclosed no liabilities, listed the purchase and sale contract as an asset worth the sales price of

   $200,000.

4. The net worths of Mr. and Mrs. Timmers and Abbey Hills are overstated. The Timmers' net worth was based on gross retail sales values of all of the vacant cemetery lots in all of their cemeteries. The company's net worth treated the sales price of the land as an asset equal in value to the contract sales price. In fact, Abbey Hills is a new corporation without any net worth. In the case of Mr. and Mrs. Timmer, it is impossible to determine the extent of the overstatement, but they appear to have substantial net worth. Mr. Timmer owns and operates several well-established, profitable cemeteries in and out of Florida and has over 40 years' experience in the cemetery business.

   
   

5. The contract to purchase the property describes the site as consisting of about 58 acres. The contract lists Memory Gardens Acquisition, Inc. as the purchaser and contains a closing date of June 25, 1992. The closing date has since been duly extended to April 1, 1994. Memory Gardens is a corporation formed by the Timmers to acquire the cemetery property for Abbey Hills.

   
   

6. By memorandum dated December 1, 1992, Andrew Grosmaire, a Department financial specialist, informed his supervisor, W. T. Sims, a Department financial supervisor, that Pasco County contained three licensed cemeteries with a fourth "approved for licensure." After a discussion of various factors, the memorandum recommends that Mr. Sims waive the need survey. On December 8, 1992, Mr. Sims noted on a copy of the memorandum that he agreed to waive the need survey. On December 15, 1992, Mr. Grosmaire signed an internal Department form indicating his recommendation to approve the application. As a result, the Department, in approving Abbey Hills' application, waived the requirement of need based on a determination that the addition of Abbey Hills would promote competition.

   
   

7. On December 24, 1992, the Department published in the Florida Administrative Law Weekly a notice of intent to "approve an application for a new cemetery company to Mr. Willard Timmer, the majority owner of the following cemetery company: Abbey Hills Memory Gardens, Inc."

   
   

8. On December 31, 1992, the Department sent a letter to the attorney for the Timmers informing him that the Department has "tentatively approved the application of Abbey Hills Memory Gardens, Inc. . . . to establish a new cemetery company in Pasco County." The letter advises that, if no objections were received within 21 days of the date of publication of the notice of intent to issue, then the Department must receive, within 12 months of the date of the letter, 13 items: a legal description of the property including acreage; development plans for the cemetery; written approval from the governing zoning authority; a certified report from a registered testing laboratory concerning the water table at the site; written approval from the local board of health; designation of a general manager who must be of good moral character with not less than one year's experience in the Florida cemetery business; a trust agreement for perpetual care; evidence of a $25,000 deposit into the trust fund; a trust agreement for merchandise; certification that the real property is free and clear of any financial encumbrances; a copy of the recorded deed showing the notice required by Section 497.006(4)(f); documentation of the development of at least two acres including a paved road from a public highway; and a $250 license fee.

9. On the day before the beginning of the final hearing, Abbey Hills supplemented its application without objection. The new information indicated that Mr. Timmer had merely attended rather than graduated from Illinois Institute of Technology. The new information also included a soils report and site development plan. There is not yet any approval from the local zoning board or the local health department.

   
   

10. The soils report states that Geoscience & Materials Engineers, Inc. had conducted 10 standard percolation tests on the site on July 21, 1993, and reviewed other data sources. Finding a range of water table elevations on the property, which contains three lakes, the report states that the seasonal high water line at the test sites, which are characterized generally by rapidly draining soils, ranges from depths of 35" to 66". The average depth is about 52". The report concludes that the "majority of the area designated for ground burial is adequately drained and suitable for these purposes."

    
    

11. The site development plan, which is tentative, shows initial development only for the northern two-thirds of the property, of which only five acres will be used at first for interments. The cemetery entrance and some of the space reserved for ground burials, covers, among other areas, a relatively small area characterized by a relatively high seasonal water table and poorly drained soils that may be under standing water for 6-9 months annually.

    However, there is no reason why this problem cannot be managed through the use of fill and careful selection of actual burial sites.

    
    

12. The proposed cemetery would be landscaped in a garden style with numerous plantings, featuring indigenous vegetation and low density burials at a rate of no more than 900 units per acre as opposed to the more typical 1200 units per acre. The proposed cemetery would highlight the lakes and use treated wastewater effluent from a nearby source in order to irrigate the vegetation and maintain the cemetery's aesthetic appeal.

    
    

13. Initially at least, Mr. Timmer does not plan to operate either a funeral home or a crematorium on-site, but he would sell a full range of funeral merchandise, such as caskets, vaults, and markers. Mr. Timmer owns Parklawn Cemetery in Pinellas County about 29 miles south of Abbey Hills. He intends to reduce operating expenses at Abbey Hills by sharing the sales and maintenance staff between the two cemeteries as much as possible. He is willing and able to fund the investment without short- or medium-term returns.

    
    

14. Abbey Hills would be located about 1.5 miles east of US Rte. 19 in the northwest corner of Pasco County about 3.5 miles east of the Gulf of Mexico and 10-11 miles north of New Port Richey. US Rte. 19 is the main north-south artery through west Pasco County. Abbey Hills would be only about three to four miles south of the Hernando County line.

    
    

15. Grace Memorial Cemetery is owned by Cemetery Investments, Inc. The closest licensed cemetery to the proposed Abbey Hills, Grace is one to two miles from Abbey Hills and is located directly on US Rte. 19 about two miles south of Hernando County. Encompassing 52 acres, Grace has 42 acres developed for cemetery use.

16. Just over 12 miles in a direct line from Abbey Hills' proposed location, but considerably further via roads, is Florida Hills Cemetery, which is the only licensed cemetery in Hernando County. Florida Hills is located near the Hernando County Airport about two miles west of US Rte. 41, which, when it passes through Pasco County, is, with I-75, one of the two major north- south arterials running through the central part of the County.

    
    

17. Florida Hills, which was started in 1974, consists of 84 acres, of which only 13 acres are developed for cemetery use. Florida Hills contains 54,000 unused spaces. Florida Hills markets largely in the Spring Hill area, which consists of a number of residential subdivisions mostly in south Hernando County.

    
    

18. Meadowlawn, which is in New Port Richey, is just over 12 miles in a direct line from the proposed location of Abbey Hills and somewhat further via road. Started in 1965, Meadowlawn consists of 51 acres, of which 24 acres are developed. It has roughly a 63-year supply of burial spaces. The aesthetic appeal of Meadowlawn and, to a lesser extent, Grace is less than that planned by Mr. Timmer for Abbey Hills.

    
    

19. Meadowlawn is presently owned by SCI Funeral Services of Florida, Inc., which is the largest owner and operator of cemeteries in Florida. The corporate parent of SCI Funeral Services of Florida, Inc. is one of the largest owners and operators of cemeteries and funeral homes in the United States.

    
    

20. A new licensed cemetery known as Trinity is to be located about six miles east of Meadowlawn. Trinity will serve a residential subdivision known by the same name. The record does not clearly disclose the size or scope of Trinity's planned cemetery operations.

    
    

21. The only other licensed cemetery in Pasco County is Chapel Hills, which is south of Dade City in southeast Pasco County. Chapel Hills is over 27 miles from the proposed Abbey Hills location. The cemetery market in Pasco County is divided into west and east Pasco County, so Chapel Hills does not affect, and will not be affected by, the cemeteries located in west Pasco County.

    
    

22. More important to the west Pasco County cemetery market are cemeteries in north Pinellas County. Cycadia, which is nearly 18 miles south in a direct line from the proposed Abbey Hills location, is about two miles south of the Pinellas County line on US Rte. 19. Cycadia is a Greek cemetery and captures much of the Greek business in Pinellas and Pasco counties.

    
    

23. Almost three miles south of Cycadia on US Rte. 19 is Curlew Hills. Two miles south of Curley Hills is Mr. Timmer's Parklawn. Sylvan Abbey, which is in Safety Harbor, is about six miles in a direct line southeast of Parklawn.

    Each of these cemeteries does some business in west Pasco County, especially the southern end of west Pasco County.

    
    

24. National Cemetery is about 45 miles northeast of Abbey Hills' proposed location, via State Road 52 and I-75. Located in Bushnell, which is in Sumter County, National Cemetery is limited to military veterans and their immediate families. Although distant from the cemeteries in this case, National Cemetery has a significant impact upon their market due to the inexpensiveness of its goods and services, as described below.

25. Less significant competition to licensed cemeteries comes from unlicensed cemeteries operating in the area. These are operated by religious or private organizations or municipalities.

    
    

26. Funeral homes are a more important source of competition for licensed cemeteries. Funeral homes market the same goods and services marketed by cemeteries. Funeral homes even broker burial spaces that they purchase from customers who have bought them from cemeteries.

    
    

27. There are 16 funeral homes in west Pasco County. SCI Funeral Services of Florida, Inc. owns six of them, including the funeral home located directly in front of Grace. However, two of Grace's minority owners each owns a funeral home in the area. And the funeral home located in front of Florida Hills is owned by a minority owner of Florida Hills.

    
    

28. Licensed cemeteries also face serious competition from crematoria. Cremations are performed by some funeral homes, such as one owned by SCI Funeral Services of Florida, Inc. near Hudson, as well as cemeteries. Cremations without a service cost about $700-$800, but, with a service, may run $1600-

    $2000. Direct-disposers perform cremations for even less--about $500-- because they have relatively little capital tied up in equipment. By contrast, a funeral often costs over $3000.

    
    

29. The demand for cemetery services is influenced by population growth. Pasco County has grown from 36,785 persons in 1960 to 281,131 persons in 1990. From 1980 to 1990, the County's population increased 45 percent, while the population of the entire state increased only 33 percent during the same time period.

    
    

30. Pasco County's population is concentrated at older age levels than is the statewide population, and Pasco's growth during the past 30 and especially

    10 years has been most dramatic in the age groups over 69 years old. In 1960, residents over 69 years of age in Pasco County constituted 1.34 percent of the total population of these age groups residing in Florida. By 1980, the figure had risen to 3.07 percent, and by 1990, the figure had risen to 3.77 percent. Residents aged 65 years and over are projected to be the second fastest-growing age group in Pasco County through 2010, and Pasco's share of Florida's residents over 65 years of age is projected to continue to grow through 2010.

    
    

31. Correspondingly, the average number of deaths in Pasco County has risen from 463 in 1960 to 2835 in 1980 to 4206 in 1990, with a death rate significantly higher than the statewide death rate for each of these years. About 4500 residents of Pasco County are projected to die in 1993. Applying the same projected average death rates to projected populations, Pasco County will experience over 5200 deaths in 2000 and 6200 deaths in 2010.

    
    

32. Overall, there will be considerable, ongoing demand for cemetery services in Pasco County for the foreseeable future. Pasco ranks sixth among counties in Florida for population aged over 65 years, eighth for projected increase in population aged over 65 years from 1990 to 2010, and seventh for projected population aged over 65 years in 2010.

33. However, the strong demand for cemetery services driven by favorable population increases, demographics, and death rates is tempered by several factors. Not all persons dying in Pasco County are interred or entombed there. Many County residents are from elsewhere and wish to be returned after death to their homes in the north or midwest. As many as 20-25 percent of the Pasco County corpses are shipped out of the County. On the other hand, "ship-ins" of corpses into the County evidently are not statistically significant.

    
    

34. Another factor limiting demand for cemetery services is the increasing popularity of cremation. For various cultural and personal reasons, more persons or their survivors are choosing the alternative of cremation.

    Increasing at the rate of 1-2 percent points annually for the past five years, the cremation rate presently is about 35 percent. It is difficult to predict where the cremation share of the market will plateau, but market shares of as much as 55-60 percent may someday be reached. Sarasota County, where only 900 burials took place in 1992, presently experiences about a 60 percent cremation rate, and Pinellas County's cremation rate is in the 50-59 percent range.

    
    

35. Thus, after taking into consideration the 35 percent of the deaths cremated and 25 percent shipped out of Pasco County, only 40 percent of Pasco County deaths remain available for the existing cemeteries to inter or entomb.

    
    

36. In 1991, about 14 percent of the full-casket burials in Pasco and Hernando Counties went to the National Cemetery. The National Cemetery is a federally operated cemetery offering veterans and their immediate families free burial spaces, openings and closings, vaults, and markers. Operating only since 1988, the impact of National Cemetery upon cemeteries in Pasco and Hernando counties will unlikely lessen in the foreseeable future.

    
    

37. The effect of National Cemetery, which has been expressed as a percentage of full-casket burials, will leave something less than 40 percent of the Pasco County entombments and interments for the remaining cemeteries. After also factoring in the increasing rate of cremations, it may be estimated that about 33 percent of the deaths in Pasco County will yield interments or entombments for area cemeteries between 1990 and 2010. One-third of 4500 deaths for 1993 means 1500 local interments or entombments; one-third of 5200 deaths in 2000 means 1733 local interments or entombments; and one-third of 6200 deaths in 2010 means 2067 local interments or entombments.

    
    

38. From 1988-92, Grace Memorial respectively had, for each year, 353, 389, 365, 378, and 426 entombments and interments. Grace Memorial performed 581, 661, 666, and 658 cremations each year, respectively, from 1989-92.

    
    

39. From 1988-92, Meadowlawn respectively had, for each year, 811, 707, 682, 701, and 721 entombments and interments. Meadowlawn performed 151, 154, 169, and 139 cremations each year, respectively, from 1989-92. Annualizing six months' figures for entombments and interments, on the one hand, and cremations, on the other hand, Meadowlawn projects 810 entombments and interments and 226 cremations for 1993.

    
    

40. The record does not disclose interment and entombment figures for Chapel Hills cemetery in east Pasco County, although there is a 4:1 ratio of funeral homes in west Pasco County versus east Pasco County (16 versus 4) and there would be a 4:1 ratio of licensed cemeteries in west Pasco County versus east Pasco County if Abbey Hills were approved. Given its proximity to Polk and Hillsborough Counties, Chapel Hills probably does not capture more than 20 percent of Pasco County deaths.

41. In south Hernando County, Florida Hills performed 210 entombments and interments in 1990, 233 entombments and interments in 1991, and 236 entombments and interments in 1992. The majority of these entombments and interments are of residents of Hernando County, whose favorable demographics and population growth assure that it will be a fertile source of cemetery business in years to come. It is very unlikely that Florida Hills' capture of Pasco residents approaches in absolute numbers the number of out-of-county residents captured by Meadowlawn and Grace.

    
    

42. It is impossible to project the market share of Trinity Cemetery, which has been approved but has not yet begun operating. The record does not disclose the scope of Trinity planned operations, but a significant part of Trinity's market will consist of a large Pasco County residential subdivision known as Trinity.

    
    

43. Only a very rough approximation of the number of entombments and interments available to local cemeteries can be calculated. The record permits only imprecise assumptions: the number of interments and entombments of Pasco County residents performed by Florida Hills will not be greater than the number of interments and entombments performed by licensed cemeteries in Pasco County for out-of-county residents, Chapel Hills will capture 20 percent of the interments and entombments of Pasco County residents, and unlicensed cemeteries will have no significant impact on the number of available interments or entombments.

    
    

44. Combined, Grace and Meadowlawn accounted for 1147 entombments and interments in 1992. The projected number of available deaths in 1993 is 1500. After taking away Chapel Hills' 20 percent, this would leave 53 deaths for Trinity and Abbey. As the number of projected deaths not lost to ship-outs, cremation, or National Cemetery grows to 1733 in 2000 and 2067 in 2010, the number of deaths available to Grace, Meadowlawn, Trinity, and Abbey would be correspondingly greater.

    
    

45. From 1988-1992, the total number of entombments and interments at Meadowlawn and Grace declined 1.4 percent. If the number of entombments and interments remained unchanged at Grace and Meadowlawn through 2010, there would be, after eliminating Chapel Hills' 20 percent share, 239 available deaths in 2000 and 507 deaths available in 2010.

    
    

46. Given the necessarily rough nature of the assumptions, it is difficult to conclude much from the figures of available deaths and projections of each licensed cemetery's share of this business. It appears, though, that the addition of Abbey Hills would have some economic impact upon Grace, Meadowlawn, and Florida Hills because there does not appear to be an oversupply of deaths available to the licensed cemeteries.

    
    

47. However, the existing licensed cemeteries could increase their business by capturing some of the fairly large number of ship-outs. The existing licensed cemeteries could also increase business by intensifying their marketing efforts in selling new preneed contracts and reloading existing preneed customers with more goods and services.

    
    

48. Aggressive marketing may be able to slow down, though probably not reverse, the rising numbers of cremations, and licensed cemeteries may be able to capture a greater share of cremations. Grace already performs a large number of cremations. Although Meadowlawn performs substantially fewer, an SCI-owned

    funeral home in west Pasco County performs a large number of cremations. Although not as profitable as interments or entombments, cremations nonetheless represent a profit center for licensed cemeteries that can likely be more fully exploited.

    
    

49. In addition to available marketing strategies still available to the existing licensed cemeteries, any assessment of the economic impact of a new cemetery upon existing licensed cemeteries must take into consideration their current financial health. Grace's total revenue has increased in all but one year between 1988 and 1992. The approximate figures (and annual percentage increases) are: 1988--$763,000; 1989--$740,000 (-3 percent); 1990--$775,000 (5 percent); 1991--$871,000 (12 percent); and 1992--$1,268,000 (46 percent). Meadowlawn's total revenue has increased each year between 1988 and 1992. The approximate figures (and annual percentage increases) are: 1988--$1,008,000; 1989--$1,074,000 (7 percent); 1990--$1,493,000 (39 percent); 1991--$1,742,000 (17 percent); 1992--$1,940,000 (11 percent).

    
    

50. These revenues are important indicia of profitability given the relatively high markups that prevail in the cemetery industry, as described below. In fact, Grace has enjoyed net profits, as a percentage of revenue, of 7 percent in 1988, 11 percent in 1989, 11 percent in 1990, 16 percent in 1991, and

    24 percent in 1992. Meadowlawn has, for the same years, had profits of 23 percent, 33 percent, 22 percent, 28 percent, and 30 percent. During the same time period, Grace has averaged a return on investment of 11.8 percent (with a high of 24 percent in 1992) and a return on net worth of 58 percent (with a high of 80 percent in 1992). Meadowlawn has, for the same years, averaged a return on investment of 9 percent (with highs of 11 percent and 10 percent in 1991 and 1992, respectively) and a return on net worth of 13.2 percent (with highs of 15 percent and 16 percent in 1991 and 1992, respectively).

    
    

51. The situation is different for Florida Hills in Hernando County. Its total revenue has dropped 6 percent from about $478,000 in 1988 to about

    $450,000 in 1992. With net profits of 12 percent and 11 percent, respectively, in 1988 and 1989, Florida Hills' profitability exceeded that of Grace for the same period. But Florida Hills' profits were 4 percent in 1990, 3 percent in 1991, and 5 percent in 1992. And Florida Hills may face a net loss in 1993.

    
    

52. Florida Hills' return on investment has deteriorated in the past five years, and especially the past three years: 20 percent in 1988, 12 percent in 1989, 4 percent in 1990, 3 percent in 1991, and 5 percent in 1992. A similar pattern exists in Florida Hills' return on net worth: 29 percent in 1988, 20 percent in 1989, 8 percent in 1990, 5 percent in 1991, and 8 percent in 1992. Florida Hills enjoys a low debt-to-equity ratio, which allows it to withstand a certain amount of financial adversity.

    
    

53. Florida Hills is the closest of the subject licensed cemeteries to National Cemetery, and its losses have been exacerbated by the fact that Florida Hills is a veterans-oriented park. Florida Hills' profits have been eroded by its failure to control rising costs, which is especially troublesome during a period of flat or declining revenues. Although it might face less financial pressure in a market with less competition, Florida Hills's problems concerning National Cemetery, the trend toward cremation, and, perhaps to a lesser extent, spiraling costs would remain, even if Abbey Hills' application were denied.

54. The key fact in this case is that, although the relevant cemetery market displays a certain degree of competitiveness through advertising and marketing campaigns, there is a clear practice among existing licensed cemeteries to refrain from price competition.

    
    

55. The current ownership of Grace inherited its prices from its predecessor and has found no need to revisit these prices significantly in the

    20 months following the acquisition. Grace sells over 90 percent of its goods and services at list price.

    
    

56. Insensitivity to price is even more marked at Meadowlawn. Representatives of Meadowlawn, which is the price leader in the area, disclaim any knowledge of competitors' prices. Although SCI Funeral Services of Florida, Inc. insists that its funeral homes perform two annual reviews of competing funeral home prices, it does not require any review of its competitors' cemetery prices.

    
    

57. Refusing to acknowledge the importance even of market share, Florida Hills' ownership shares the unwillingness of its more successful competitors to compete by reduced pricing. Despite its financial troubles, the ownership of Florida Hills declines to sell caskets, so as to leave such potentially lucrative business to funeral homes, as long as area funeral homes decline to sell markers to Florida Hills' customers, so as to leave such business to Florida Hills.

    
    

58. By declining to sell caskets, Florida Hills fails to take advantage of an important profit center. Running from $1300 on up, caskets are marked up by three or four times cost. Vaults and markers are typically marked up somewhat less, but cemetery lots may be marked up by a factor of 10. When the customer is living and making pre-need arrangements, the mark-up is somewhat less, but when the customer is dead and the subject of at-need arrangements, the mark-up is greater.

    
    

59. It is unclear to what extent Trinity will pose serious competition to Meadowlawn, which is its nearest Pasco County neighbor. Due to its superior size, location, and common ownership of six local funeral homes, Meadowlawn will unlikely be forced to redirect substantially its marketing efforts northward due to the competitive presence of Trinity.

    
    

60. Abbey Hills would likely have a greater impact on Grace than Trinity will have on Meadowlawn due to the smaller size of Grace when compared to Meadowlawn and the closer proximity of Abbey Hills to US Rte. 19 when compared to Trinity's distance from US Rte. 19. It is likely that the addition of Abbey Hills would cut into sales in Pasco and Hernando Counties by Grace and, to a lesser extent, Florida Hills. However, Grace is in a relatively strong position to meet this competition, and Florida Hills, although lately less profitable than Grace, relies less on Pasco County business where the impact of Abbey Hills would be greatest.

    
    

61. If the licensed cemetery market had already undergone significant price competition, the relatively greater economic impact upon the stronger Grace and relatively slighter economic impact upon the weaker Florida Hills would militate against a finding that the addition of Abbey Hills would promote competition. But, thus far, existing licensed cemeteries have not even reviewed their pricing structures in the face of the twin threats of National Cemetery and cremation, even though the appeal of both of these competitive forces lies largely in their much lower cost when compared to the prevailing costs of

    interment and entombment. The existing licensed cemeteries have thus far responded to the competition of National Cemetery, as well as cremation, by increasing advertising. But, at least in the case of Florida Hills, this strategy has not been enough.

    
    

62. The record does not support any inference that reducing the cost advantage of National Cemetery would be futile. After all, National Cemetery suffers from the serious disadvantages of distance from local family and friends and unavailability of interment for members of the nonimmediate family. The same is true if the cost difference between interments or entombments and cremations were lessened. More people would likely choose the more traditional interment or entombment if it were less costly than it is at present, even though it will remain more costly than cremation.

    
    

63. Abbey Hills has shown that the relevant market can support the presence of four licensed cemeteries in west Pasco County. The demographic data, together with the high prevailing markups, historic profitability of the local cemetery industry, and opportunity for more aggressive marketing of cemetery goods and services through lower pricing, establish that competition is best promoted and the public interest best served by approving Abbey Hills' application.

    
    

64. Although Florida Hills is, at present, clearly more sensitive than Grace (and obviously Meadowlawn) to the introduction of new competition, Abbey Hills would have less impact on Florida Hills because fewer of Abbey Hills' sales would be in Hernando County and fewer of Florida Hills' sales are in Pasco County. Also, Florida Hills has only recently suffered reduced profits and is able to absorb a few down years due to its strong capitalization.

    
    

65. In addition, the evidence suggests that Florida Hills may not have fully responded to the challenges of National Cemetery and cremation. Recent reductions in revenue and profits suggest that, with or without the introduction of Abbey Hills,

    
    

66. Florida Hills probably cannot continue to conduct business as usual. Thus, even if the evidence were to have shown a greater economic impact upon Florida Hills than is likely, competition would not be promoted nor the public interest served by allowing the financial pressures presently experienced by Florida Hills to preclude the approval of a new licensed cemetery into a price- insensitive market. This is especially true when, consistent with the prevailing anticompetitive market conditions, Florida Hills resists analyzing its market share, expanding its limited product offerings to include caskets, and, most importantly, revising its pricing structure to meet the competition of, first, National Cemetery and cremations and, second, other licensed cemeteries in the area.

CONCLUSIONS OF LAW

1. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties. Section 120.57(1), Florida Statutes. (All references to Sections are to Florida Statutes. All references to Rules are to the Florida Administrative Code.)

   
   

2. Abbey Hills must prove by a preponderance of the evidence that its application is truthful and complete and approval of its application would promote competition. Department of Transportation v. J. W. C. Company, Inc., 396 So. 2d 778 (Fla. 1st DCA 1981).

3. Section 497.006 provides:

   
   

   1. No person shall operate a cemetery without first obtaining a license from the department . . . .

   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 $5000;

      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.

   4. If the department finds that the applicant meets the criteria established in subsection

      1. and determines that a need for the new cemetery in the community exists, the department shall notify the applicant that a license shall be issued when:

         1. The establishment of a care and maintenance trust fund containing not less than $25,000 has been certified by a trust company, a state or national bank, or a savings and loan association licensed in this state.

         2. The applicant has filed with the department development plans which are sufficient to assure the department that the cemetery will provide adequate service to the community and which have been approved by the appropriate local government agency regulating zoning in the area of the proposed cemetery.

         3. The applicant holds unencumbered fee simple title to at least 15 contiguous acres of land.

         4. The applicant has designated as general manager a person who has integrity, 1 year

            of cemetery experience, and the ability to operate a cemetery.

         5. The applicant has fully developed not less than 2 acres for use as burial space, such development to include a paved road from a public roadway to the developed section.

         6. The applicant has recorded, in the public records of the county in which the land is located, a notice [requiring the prior written approval of the department for the

      conveyance, lease, or mortgaging of the subject property].

      (5) The department shall issue a license to Operate a cemetery company to any applicant who, within 12 months after notice that a license may be issued, meets the criteria of subsection (4). . . .

      
      

4. Pursuant to Section 497.018(2)(a) and (1)(e), the Department may deny an application for licensure if the applicant "attempt[s] to procure, or procur[es], by bribery or fraudulent misrepresentations, a license to operate a cemetery company."

   
   

5. Rule 30D-30.015(1) requires that an applicant for licensure to operate a cemetery submit an application, historical sketch of the "proponents," and "current financial statement," create a legal entity to conduct the cemetery business, describe the proposed financial structure for the cemetery, submit a map showing the location of the proposed site and other cemeteries in the area, and pay a nonrefundable application fee of $5000.

   
   

6. Rule 30D-30.015(1)(g) explains that, upon completion of the above- described tasks, the Department will "conduct an investigation to determine the need for a new cemetery."

   
   

7. Rule 30D-30.015(2) adds that, if the Department determines that a need exists for a new cemetery, the applicant will be notified and must submit a legal description of the property including acreage, development plans for the proposed cemetery, written approval from the governing zoning authority, written approval from the local board of health, a certified report from a registered testing laboratory establishing the water table of the property, and designation of a general manager of good moral character with not less than one year's experience in the cemetery business in Florida.

   
   

8. Once these criteria have been met, Rule 30D-30.015(3) contemplates the issuance of a "certificate of authorization." (In practice, the Department does not issue such certificates.) The certificate of authorization, if in practice it were to be issued, requires the establishment of a $25,000 care and maintenance trust fund, establishment of a merchandise trust fund, certification that the property is free and clear of any encumbrances, full development of at least two acres including a paved road from a public highway, and completion of an application to transact cemetery business with payment of a $250 fee.

   
   

9. Rule 30D-30.015(3)(g) provides that, upon completion of the above- described requirements, the Department, after investigating the cemetery grounds, will issue a cemetery license good for one year.

10. Rule 30D-30.015(4) describes the need survey to be used by the Department where it does not waive the need criteria in order to promote competition. Rule 30D-30.015(4)(a) provides that, in such cases, 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 the application." Rule 30D- 30.015(4)(b)1 provides the basis for the Department's use of a specified area around the proposed location of the new cemetery in determining the area of competition.

    
    

11. The only other rule arguably relevant to this case is Rule 3D-30.005. This rule, which predates the above-cited rules, provides:

    
    

    No application for authority to organize a cemetery may be considered until proponents furnish the Department of Banking and Finance evidence that in the opinion of the local health authorities the proposed site is suitable for the intended use. . . .

    
    

12. The Department construes the statutes and rules to allow a multi-part approval process. Although Rule 3D-30.005 contemplates the submission of written approval from the local health board prior to consideration of the application, the Department has consistently interpreted its rules to defer this requirement until the Department has determined the existence of need (or presumably that a new licensed would promote competition, where the Department has waived need), as provided in Rule 30D-30.015(2). See In Re: Eastern Gate Memorial Gardens, Inc., Case #85-18-DOF (Dept. of Banking and Finance, December 16, 1985). This is a reasonable interpretation of a derelict rule, until it is formally repealed.

    
    

13. Setting aside for the moment the issue whether the approval of the application would promote competition, Abbey Hills has proved, for the reasons set forth in the findings of fact, that its application is truthful and, based on the Department's reasonable interpretation of its own rules, complete. It is unnecessary to address, at this time, the argument of the Department that existing licensed cemeteries do not have the standing to challenge the remainder of the license- approval process involving the 13 items described above.

    
    

14. By waiving the need survey, the Department dispenses with the process under which the need formula is used to determine automatically, based in part on a specified 30-year timeframe and a formulaic calculation of market area, whether a new cemetery should be licensed. After waiving need, the Department frames the issue as whether a new cemetery would promote competition.

    
    

15. To determine whether competition is promoted necessarily requires consideration of a number of factors, including such matters as the supply of and demand for cemetery- type services within the relevant market and timeframe. Competition may be promoted in a situation where, based on the need formula or in actuality, there is no need for the new cemetery. However, the economic impact upon existing licensed cemeteries must be assessed. Masters Memorial Gardens, Inc., d/b/a Palatka Memorial Gardens v. Department of Banking and Finance and Cedar Wood Memorial Park, Case No. 91-1754, DOF #2133-F-3/91 Dept. of Banking and Finance, July 16, 1992). Excessive competition does not promote healthy competition. The public interest is ill-served by the approval of new

    cemeteries in a market that presents such relatively limited business opportunities that, despite the best efforts of the licensed cemeteries, one or more of them will fail.

    
    

16. The evidence in this case does not suggest that the addition of Abbey Hills would be a material cause of Florida Hills' failure. In any event, Masters Memorial Gardens does not hold that competition is never promoted when an existing licensed cemetery is jeopardized by the addition of a new licensed cemetery. The Masters Memorial Gardens final order merely determines that competent, substantial evidence supported the hearing officer's determination that, under the facts of that case, "if an existing licensee was forced out of business, no net increase in competition would result as the existing cemetery would be forced out of business."

    
    

17. Although the evidence in this case does not indicate that Florida Hills would fail by the approval of Abbey Hills' application, the Masters Memorial Gardens final order properly allows the evidence in each case to establish if competition may be promoted despite the elimination of an inefficient competitor. Stated differently, nothing in the Masters Memorial Gardens final order embraces the fallacy that competition can somehow be promoted by the protection of inefficient cemetery companies from further competition, even if due to their inefficiency such companies are struggling financially and the public, for whose benefit the market-entry barriers have been erected, is paying too much for cemetery goods and services.

    
    

18. The facts of the present case justify the addition of a new licensed cemetery to promote competition due to the existence of a price-insensitive market. In the Eastern Gate Memorial Gardens final order, the Department determined that there was no need for a new licensed cemetery, but considered evidence of inflexible pricing for cemetery services in the relevant market. Reviewing the application under the waiver to promote competition, the final order states that the "evidence must demonstrate that insufficient competition exists and/or that the proposed cemetery will foster and encourage competition." The final order finds that both alternative criteria were met in the case, so it approved the application, subject to completion of various items, such as submittal of approvals from the local health board and zoning authority, site development plans, and certified report concerning the water table of the property.

    
    

19. The salutary effects of competition may justify the addition of a new licensed cemetery, even where no need exists, in order to serve the public with respect to matters arguably of less importance than price. In In Re: Memory Park, Inc., DOAH Case No. 85-0643, 85-1-DOF (Dept. of Banking and Finance, November 25, 1985), the final order approving the application determines that there is no need because there are more than enough available cemetery spaces. The findings note that the mere application has "already had a positive impact on competition in the service area, because . . . [the existing licensed cemetery] has cleaned its fences, planned to provide additional services, employed new personnel and has begun actively advertising . . ., [all of which the existing licensed cemetery] has not done . . . in the past."

    
    

20. Competition that is beneficial to the public interest clearly is not promoted by encouraging price wars in which predatory pricing by a dominant force in the market or depressed prices jeopardize the survival of one or more licensed cemeteries. But Abbey Hills has shown that these concerns do not

presently apply. To the contrary, for the reasons set forth in the findings of fact, the licensing of Abbey Hills would promote competition and serve the public interest.

RECOMMENDATION

Based on the foregoing, it is hereby

RECOMMENDED that the Department of Banking and Finance enter a final order dismissing the petitions of Grace and Meadowlawn.

ENTERED on August 30, 1993, in Tallahassee, Florida.

ROBERT E. MEALE

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 30th day of August, 1993.

ENDNOTE

1/ By letter dated March 16, 1993, Mr. Grosmaire sent Mr. Sims another memorandum noting that a miscalculation had been made on certain death rate calculations. Substituting for an alarming death rate of 14.8 percent, the new memorandum used the more reassuring rate of 1.48 percent.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-857

Treatment Accorded Proposed Findings of Abbey Hills

1-6 (first two sentences): adopted or adopted in substance. 6: third sentence rejected as irrelevant.

7-13: adopted or adopted in substance.

14-15: rejected as subordinate and recitation of evidence. 16-25: adopted or adopted in substance.

26: rejected as subordinate.

27-29 (first sentence): adopted or adopted in substance. 29: second sentence rejected as irrelevant.

30: adopted or adopted in substance. 31-33 and 35: rejected as subordinate. 34: adopted or adopted in substance.

36: first sentence adopted. Second sentence rejected as irrelevant. 37: rejected as largely irrelevant.

38-41: adopted or adopted in substance. 42-43: rejected as irrelevant.

44: rejected as recitation of evidence. 45: adopted or adopted in substance.

46: rejected as subordinate.

47-49 and 51: rejected as irrelevant. 50: adopted or adopted in substance.

52-56: adopted or adopted in substance. 57: rejected as unclear.

58-59: adopted or adopted in substance.

1. and 62: rejected as unnecessary.

2. and 64: rejected as recitation of evidence.

63 and 65-68: adopted or adopted in substance. 69: rejected as irrelevant.

70: adopted.

71-73: rejected as unnecessary.

74-78: adopted or adopted in substance. 79-80: rejected as subordinate.

81: rejected as recitation of evidence. 82-84 and 86-90: adopted in substance. 85: rejected as subordinate.

91: adopted except as to 54 unused platted "spaces." 92: rejected as irrelevant.

93: adopted or adopted in substance except for implication that Florida Hills' owners will necessarily have to make additional capital contributions in order for Florida Hills to survive.

94: rejected as incomplete picture of financial activity over more relevant period--i.e., five years.

95-97: adopted or adopted in substance.

98: adopted except that nature of situation has been described in recommended order. "Agreement" is too strong a word to describe the situation.

99-103: adopted or adopted in substance.

104: more accurately, until Florida Hills analyzes its market share, expands its product offerings to include caskets, and revises its price structure, it is impossible to conclude that its financial pressures are due to other causes.

105-06: rejected as irrelevant. 107: adopted in substance.

108: rejected as irrelevant. 109: adopted.

110-12: rejected as irrelevant. 113: rejected as subordinate.

114-20 and 122: adopted or adopted in substance. 121: rejected as unnecessary.

123-28: rejected as subordinate and recitation of evidence. 129: rejected as irrelevant.

130: rejected as subordinate.

131: adopted or adopted in substance ("east" Pasco County presumably intended to mean "west" Pasco County).

132-34: adopted or adopted in substance. 135: rejected as unnecessary.

136-38: adopted or adopted in substance.

139: adopted. However, the evidence does not suggest that the addition of Abbey Hills would have a material effect on Florida Hills' ability to survive financially, and, therefore, the evidence does not support the conclusion that the addition of Abbey Hills would cause Florida Hills to fail.

140: adopted or adopted in substance. 141-43: rejected as subordinate.

144-46: adopted or adopted in substance.

147: rejected as not necessarily supported by the appropriate weight of the evidence.

148: adopted or adopted in substance.

149: adopted in substance as to the garden-style landscape style.

Rejected as unnecessary as to the effluent irrigation.

150: adopted or adopted in substance.

151 and 154: rejected as legal argument. 152: adopted.

153: rejected as recitation of evidence. 155-56: rejected as irrelevant.

157-58: adopted, although unnecessary as to effluent irrigation. 159: adopted.

Treatment Accorded Proposed Findings of Grace and Meadowlawn 1-3: adopted or adopted in substance.

4: first, third, and fourth sentences adopted. Second sentence rejected

as unsupported by the appropriate weight of the evidence.

5: adopted.

6-7: rejected as unsupported by the appropriate weight of the evidence.

The financial statement accurately identified assets, although it, and Mr. Timmer, left something to be desired in assessing the value of the assets. However, a preponderance of the evidence shows that he and his wife own a number of well- established cemeteries with a significant value. Mr. Timmer's repeated unwillingness to state precise values for assets is not tantamount to fraud, which would be the case if the evidence had showed that he had omitted the disclosure of mortgages or other liens against these properties.

8: first sentence adopted. Second sentence rejected as legal argument. 9: rejected as unsupported by the appropriate weight of the evidence.

10-11: adopted in substance.

12-16 and 21: rejected as subordinate and unnecessary. The recommended order finds only that Mr. Timmer plans to make Abbey Hills more aesthetically appealing than Grace or Meadowlawn.

17-18: adopted or adopted in substance.

19-20: rejected as unsupported by the appropriate weight of the evidence. 22-27: rejected as unsupported by the appropriate weight of the evidence.

To the extent that a high water table may pose a problem for party of the property, the evidence indicated that fill and careful siting could overcome such a problem.

28-32: rejected as unnecessary and subordinate. No weight was given to the Herfindahl-Hirschman index due to obviously unreliable data inputs and model assumptions.

33-34 (first sentence): adopted or adopted in substance.

34: second sentence rejected as unsupported by the appropriate weight of the evidence. Third sentence rejected as irrelevant.

35: first and second sentences adopted or adopted in substance. Third sentence rejected as unsupported by the appropriate weight of the evidence. Fourth and fifth sentences rejected as subordinate and unsupported by the appropriate weight of the evidence.

36: first sentence rejected as unsupported by the appropriate weight of the evidence. Second sentence, first clause, adopted. Second sentence, second clause, and third sentence rejected as irrelevant and unnecessary. The final order in Eastern Gate Memorial Gardens states that the "evidence must demonstrate that insufficient competition exists and/or that the proposed cemetery will foster and encourage competition." Presumably, the "and/or" means that these requirements are intended to be applied in the alternative. In this case, the main finding is that there is insufficient competition in the relevant market. However, the second alternative is also met. Based on Mr. Timmer's plan to beat or meet his competition in price, Abbey Hills might not in fact

emerge as the Sam's or Greater Orlando Auto Auction of west Pasco County licensed cemeteries. But the addition of Abbey Hills would increase the likelihood that one or more of the soon-to-be four licensed cemeteries in west Pasco County or Florida Hills in Hernando County would begin to inject a healthy degree of price consciousness and price competition into the relevant market.

Thus, the approval of Abbey Hills' application would, by this means, also foster and encourage competition, even though the first company to revise its prices may not in fact be Abbey Hills.

37: rejected as legal argument.

38-51: adopted or adopted in substance, although for the reasons set forth in the findings of the recommended order, the number of available Pasco County deaths appears to be somewhat higher than proposed by Grace and Meadowlawn.

52: rejected as unsupported by the appropriate weight of the evidence. 53-54: adopted or adopted in substance.

55: adopted to the extent that Grace and Florida Hills are competitors and otherwise generally adopted.

56-57 (except for last sentence): adopted or adopted in substance.

57 (last sentence): rejected as unsupported by the appropriate weight of the evidence.

58-59: adopted or adopted in substance. 60: rejected as recitation of evidence.

61: adopted in substance as to Grace and Meadowlawn. Rejected as unsupported by the appropriate weight of the evidence as to Grace and Florida Hills.

62: adopted except as to implication that Florida Hills has adequately engaged in price competition.

63: first sentence adopted. Second, third, and fourth sentences rejected as unsupported by the appropriate weight of the evidence.

64: first sentence adopted. Remainder rejected as unsupported by the appropriate weight of the evidence.

65: adopted.

66: adopted except as to the proposed finding that Trinity will force Meadowlawn substantially north.

67: rejected as unsupported by the appropriate weight of the evidence. 68: adopted.

69: rejected as legal argument.

70: rejected as unsupported by the appropriate weight of the evidence. 71: adopted.

72: first sentence adopted. Second and third sentences rejected as recitation of evidence.

COPIES FURNISHED:

Honorable Gerald Lewis Comptroller

The Capitol, Plaza Level Tallahassee, Florida 32399-0350

William G. Reeves General Counsel

Department of Banking and Finance The Capitol

Plaza Level, Room 1302 Tallahassee, Florida 32399-0350

Kenneth G. Oertel Robert C. Downie, II Oertel, Hoffman

Post Office Box 6507 Tallahassee, Florida 32314-6507

James A. Peters Theodore E. Mack Cobb Cole & Bell

131 North Gadsden Street Tallahassee, Florida 32303

Anthony F. DiMarco Assistant General Counsel Office of the Comptroller Suite 1302, The Capitol

Tallahassee, Florida 32399-0350

NOTICE OF RIGHT TO JUDICIAL REVIEW

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE DIVISION OF ADMINISTRATIVE HEARINGS AND A SECOND COPY, ACCOMPANIED BY FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY RESIDES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA DEPARTMENT OF BANKING AND FINANCE

GRACE MEMORIAL GARDENS, INC.,

Petitioner,

and

MEADOWLAWN MEMORIAL GARDENS, INC.,

Intervenor, DBF # 2721-F-1/93

(DOAH # 93-857)

vs.

DEPARTMENT OF BANKING AND FINANCE; ABBEY HILLS MEMORIAL GARDENS, INC.,

Respondent.

/

FINAL ORDER AND NOTICE OF RIGHTS

This matter has come before the State of Florida Department of Banking and Finance (hereinafter the Department) for an entry of a final order in the above- referenced proceeding based upon a review of the entire record and upon the following grounds:

BACKGROUND

This matter arose when the Department's Division of Finance noticed it's intent to approve the license application of Abbey Hills Memory Gardens, Inc. (hereinafter Abbey Hills) to establish a new cemetery in Pasco County, Fla. The Department published notice of its notice of intent to issue the license in the Florida Administrative Weekly, to which Grace Memorial Gardens, Inc. (hereinafter Grace) and Meadowlawn Memorial Gardens, Inc. (hereinafter Meadowlawn) filed petitions for an administrative hearing. A formal hearing was held in Tallahassee, Fla., on July 28-30, 1993. On August 30, 1993, the Hearing Officer issued a Recommended Order (hereinafter RO), Exhibit A, which concluded that "the licensing of Abbey Hills would promote competition and serve the public interest." RO para. 85. Subsequent to the entry of the RO, Grace and Meadowlawn jointly filed exceptions. Exhibit B. The Department also filed exceptions. Exhibit C. Abbey Hills has filed a response to the exceptions of Grace and Meadowlawn. Exhibit D. There appears to be pending a motion to remove James A. Peters as co-counsel for Abbey Hills which shall be granted.

RULING ON EXCEPTIONS OF GRACE AND MEADOWLAWN

Introduction

This cause may generally be viewed as including questions regarding the following issues: the applicability of Rule 3D-30.005, F.A.C., to these proceedings; the financial stability of the proponent of Abbey Hills, Willard I. Timmer; the feasibility of the plan of Abbey Hills to operate a new cemetery; the profitability of Florida Hills (included in this issue is the impact of cremations on profitability and whether Florida Hills is responsible for its present financial condition due to certain management decisions); whether there is adequate price competition; and whether there needs to be additional aesthetic competition in Pasco County. The exceptions raised by Grace and Meadowland will be addressed in the order presented above.

The applicability of Rule 3D-30.005, F.A.C., to these proceedings The exceptions assert on pages 9-11 that Rule 3D-30.005, F.A.C.

(hereinafter the Rule) should be applied to these proceedings, that Grace and

Meadowlawn have standing to raise the issue, and that the Rule has not been satisfied by Abbey Hills. These exceptions are rejected for the following reasons. First, the suitability of the cemetery site "is more properly a concern of local ... authorities." Boca Raton Mausoleum, Inc. v. Department of Banking and Finance, 511 So.2d 1060, 1066 (Fla. 1st DCA 1987). Second, the exceptions correctly point out that the Rule should be harmonized with other rules and statutory provisions. Accordingly, in order to be consistent with Section 497.006(4), Florida Statutes, and Rule 3D-30.015(2)(d), F.A.C., the Rule should be interpreted as not requiring approval from health authorities until after Abbey Hills has received preliminary approval pursuant to Section 497.006(2 & 3). Third, assuming that the Rule is to be read as applying to these proceedings, it is in apparent conflict with Rule 3D-30.015(2)(d).

Therefore, Rule 3D-30.015 being the latter enactment should control over Rule 3D-30.005 which became effective 12 years earlier.

The financial stability of the proponent of Abbey Hills, Willard I. Timmer

Pages 1-2 and 10 of the exceptions contend that there is no basis for the conclusion that the proponent of Abbey Hills, Willard I. Timmer, has financial stability. Section 497.006(2)(c) requires that the person desiring to establish a cemetery company to demonstrate that he possesses the financial stability to operate a cemetery. On this issue Mr. Timmer testified that he has been in the cemetery business for about 40 years and owns six cemeteries and two funeral homes, transcript (hereinafter T) at 40, 107, owns rental properties and houses, T at 108, pays $80,000 in taxes, T at 108, receives about $270,000 of income from his corporations. T at 110. Accordingly, there is substantial evidence in the record to demonstrate that Mr. Timmer is financially stable.

The feasibility of the plan of

Abbey Hills to operate a new cemetery

Page 2 of the exceptions maintains that Abbey Hills has not demonstrated that it is a financially feasible in light of the operating costs likely to be incurred. Grace and Meadowlawn further state on page 27 of their proposed recommended order:

Additionally, Abbey Hills accepts without question that it will be unprofitable for many years. Where will the money come from to keep it running? Where will the money come from for initial development? Mr. Timmer claims not to care about making a profit, for a while at least. There is no law requiring him to keep the cemetery running, however, if it does not make money.

Essentially, Grace and Meadowlawn are contending that if Abbey Hills eventually does not financially succeed due to undercapitalization, competition will not be promoted. Although the Hearing Officer also correctly concludes that Mr. Timmer "is willing and able to fund the investment without short- or medium- term returns," paragraph 4 of the RO is supportive- of the above- noted concerns and states, "In fact, Abbey Hills is a new corporation without any net worth."

While the Department is confident that Mr. Timmer is genuinely committed to funding Abbey Hills in the future, it is certainly possible that severe illness or death could prohibit him from doing so.

The issue presented in this proceeding is similar to that presented in the case of Cedar Wood Memorial Park v. Masters Memorial Gardens, Inc. which was affirmed on July 16, 1993, by the District Court of Appeal, First District. In rendering a determination, the Hearing Officer in Cedar Wood considered numerous factors including: the applicant's potential for success, the economic viability of the competitor's cemetery, the prices charged by the competitor's cemetery, and the market dominance of the competitor's cemetery. On the issue of the applicant's probability for success, the Hearing Officer concluded:

The applicant intends to make an initial capital investment of $500,00, 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.... After making the foregoing corrections to the pro forma statement, it is clear that the new cemetery would not be profitable during its first decade of operations, and contrary to applicant's projection, would not achieve a profit in a tenth year. [1]

. . . .

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 cemetery companies have recently failed in other areas of the state. These findings are corroborated by the applicant's own financial projections. [2]

. . . .

. . . 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. [3]

Accordingly, the Hearing Officer in Cedar Wood concluded that approving the applicant's cemetery application would not promote competition, in part, because the applicant's proposal was not "financially feasible." Similarly, the testimony presented demonstrates that Abbey Hills will not succeed with its present capitalization. T. at 140-41, 217, 219, 222, 228, 246-47, 267, 271, 275, 775. Based upon the foregoing and in light of the evidence presented at the hearing 4/, it does not appear that Abbey Hills will promote competition as it does not appear to be "financially feasible" and will not survive in light of the assets it presently owns.

The Profitability of Florida Hills

The exceptions question many of the Hearing Officer's findings with respect to Florida Hills. Paragraph 53 of the exceptions takes exception to the finding that Florida Hills has failed to control costs. However there is evidence to support this finding. See T. at 328. Paragraphs 57-58 and 64-65 take issue with the proposition that casket sales can improve the profitability of Florida Hills. However, there is ample evidence that selling caskets is profitable. T. at 259, 652-53, 655. With respect to the Hearing Officer's observations regarding cremations, it appears that his findings are a fair characterization of the evidence. While the Hearing Officer noted the impact cremations had on the cemetery market, the Hearing Officer apparently gave great weight to the management decisions of Florida Hills. See RO para. 57-58. 5/

Price competition

Much of the evidence at the hearing pertained to whether there was adequate price competition. Contrary to the position taken on pages 6-9 and 11-12 in the exceptions, there is substantial evidence that the existing cemeteries are not actively competing with respect to prices. T. at 348, 520, 522, 657-59, 671, 831; Shipley deposition at 14-17; Curran deposition at 74-75. However, that there may not be active price competition among existing cemeteries does not necessarily mean that the competitive market would be improved by another entry to that market. On the question regarding what would be the pricing strategy of Abbey Hills, Mr. Timmer stated, "My price structure will be either the same as or below my competitor's prices." Accordingly, there does not appear to be any clear indication that Abbey Hills will necessarily reduce its prices below that of its competitors. In the absence of a bona fide plan to reduce prices below that currently charged in the cemetery market, it does not appear that price competition will be promoted. Therefore, as the evidence relating to pricing does not appear to be material to the outcome of this case, it would not be appropriate to conclude that "[t]he facts of the present case justify the addition of a new licensed cemetery to promote competition due to the existence of a price-insensitive market," RO para. 83, which conclusion is rejected.

Aesthetic competition

The conclusion that price competition would not be enhanced by granting the license of Abbey Hills does not end the inquiry, because past precedent indicates that aesthetic considerations may be considered in granting a cemetery license. See In re Memory Park, Inc., para. 12. Although Grace and Meadowlawn appear on pages 3-4 of their exceptions to dispute the Hearing Officer's

conclusion that Abbey Hills will be able to develop a more aesthetically pleasing cemetery in part through the use of treated water, there is substantial evidence to support the Hearing Officer's findings in this regard. T. at 47-48, 52-54, 57, 64-65, 68-69, 74, 83-85, 149-50, 281-83, 286-87, 360-61, 489, 644,

1. , 837; Sloan deposition at 16-17; Curran deposition at 50. Of possible concern is whether the Department has the authority to enforce the proposed development plans of Abbey Hills had the application been approved and, thereafter, Abbey Hills perceived a need to change the plans to a less aesthetically pleasing cemetery. 6/ However, in light of the determination regarding the failure of Abbey Hills to demonstrate financial feasibility, said issue need not be resolved at this time. 7/

   
   

   FINAL ORDER

   
   

   IT IS THEREFORE DETERMINED and ordered that:

   
   

   1. The motion for the approval of the withdrawal of co-counsel is GRANTED.

      
      

   2. The Recommended Order is adopted and incorporated by reference to the extent that it does not conflict with the conclusions contained herein.

      
      

   3. The application of Abbey Hills based upon the promotion of competition is DENIED.

      
      

   4. These proceedings are remanded to the Division of Finance for a preliminary determination of need upon the expiration of the right to appeal this order or upon completion of any appeal from this final order should this order be affirmed.

DONE and ORDERED in Tallahassee, Leon County, Florida this 30th day of September 1993.

GERALD LEWIS, As Comptroller of the State of Florida and Head of the Department of Banking and Finance

ENDNOTES

1/ Recommended Order para. 7, at 6-2. 2/ Id. para. 16, at 11.

3/ Id. para. 18, at 12.

4/ Once Grace and Meadowland presented evidence that Abbey Hills was not financially feasible, Abbey Hills had the burden of going forward with evidence that it was viable. See generally Department of Transportation v. J.W.C. Co., Inc., 396 So.2d 778, 787 (Fla. 1st DCA 1981).

5/ While the RO para. 47 suggested that profitability may be enhanced by "reloading" customers, it must be understood that any additional sales must be effectuated without any undue sales pressure on the customers of the cemetery in violation of Chapter 497.

6/ Section 497.006 does not expressly provide that the Department may approve licenses subject to express conditions being imposed upon licensees.

7/ The Department has also filed exceptions to the RO. However, it is not readily apparent what factor is being contested.

NOTICE OF RIGHTS TO JUDICIAL REVIEW

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE COMMENCED BY FILING ONE (1) COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE DEPARTMENT OF BANKING AND FINANCE AND A SECOND COPY, ACCOMPANIED BY FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY RESIDES. THE NOTICE OF APPEAL MUST BE FILED WITHIN THIRTY (30) DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.

CERTIFICATE OF SERVICE

The undersigned certified that true and correct copies of the foregoing Order and Notice of Rights were duly sent by U.S. Mail to the attached list this 30 day of September 1993.

PAUL C. STADLER, JR.

Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302

Tallahassee, Florida 32399-0350

(904) 488-9896

Service List

Theodore E. Mack Attorney for Grace

Meadowlawn Cobb Cole & Bell

131 North Gadsden Street Tallahassee, Fla. 32301

Robert C. Downie, II Attorney for Abbey Hills

P.O. Box 6507

Tallahassee, Fla.32314-6507

Docket for Case No: 93-000857

Orders for Case No: 93-000857