United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 15, 2007 Decided April 10, 2007
No. 05-1351
FUNERAL CONSUMER ALLIANCE, INC., ET AL.,
PETITIONERS
v.
FEDERAL TRADE COMMISSION,
RESPONDENT
On Petition for Review of a Letter of the
Federal Trade Commission
Joshua R. Stebbins argued the cause for petitioners. With
him on the briefs were Howard M. Crystal and Eric R.
Glitzenstein.
Lawrence DeMille-Wagman, Attorney, Federal Trade
Commission, argued the cause for respondent. With him on the
brief was John F. Daly, Deputy General Counsel for Litigation.
Before: SENTELLE, RANDOLPH and BROWN, Circuit Judges.
Opinion for the Court filed by Circuit Judge SENTELLE.
SENTELLE, Circuit Judge: Petitioners seek review of a 2005
Federal Trade Commission letter regarding the FTC’s “Funeral
2
Rule.” Under the Federal Trade Commission Act – the statute
under which petitioners seek review of the letter – we only have
jurisdiction over challenges to FTC trade regulation rules or
“substantive amendments” to such rules. We hold that the 2005
letter is not a substantive amendment to the Funeral Rule, and
therefore we lack jurisdiction over this petition for review.
I.
In the 1970s, the FTC conducted a lengthy investigation of
the funeral industry. The Commission determined that
purchasers of funeral services are often unable to make careful,
informed decisions regarding funeral transactions. Funerals are
extremely expensive, and decisions about funeral planning must
be made under tight time pressure during very stressful times.
See Funeral Industry Practices, 47 Fed. Reg. 42,260, 42,265-66
(Sept. 24, 1982). The FTC’s investigation revealed that funeral
consumers are highly vulnerable to unfair and deceptive trade
practices, and that many funeral providers were unlawfully
taking advantage of their customers. To prevent such practices,
the FTC promulgated the “Funeral Rule” in September 1982.
Id. at 42,260. Among other provisions, the Rule prohibits
funeral providers from making misrepresentations about legal
requirements, and it requires that providers make certain
disclosures and give customers an itemized price list. See 16
C.F.R. §§ 453.1 – 453.9.
This case concerns the provisions of the Funeral Rule that
regulate “cash advance items.” The Rule defines “cash advance
item” as
any item of service or merchandise described to a purchaser
as a “cash advance,” “accommodation,” “cash
disbursement,” or similar term. A cash advance item is also
any item obtained from a third party and paid for by the
3
funeral provider on the purchaser’s behalf. Cash advance
items may include, but are not limited to: cemetery or
crematory services; pallbearers; public transportation;
clergy honoraria; flowers; musicians or singers; nurses;
obituary notices; gratuities and death certificates.
16 C.F.R. § 453.1(b). This definition identifies two different
types of “cash advance items”: (1) items that are expressly
described by the funeral provider as “cash advances,”
“accommodations,” or “cash disbursements”; and (2) items
obtained by the funeral provider from a third party “on the
purchaser’s behalf.” With respect to items that fall into one of
these categories, the Rule prohibits funeral providers from
either:
(i) Represent[ing] that the price charged for a cash advance
item is the same as the cost to the funeral provider for the
item when such is not the case; [or]
(ii) Fail[ing] to disclose to persons arranging funerals that
the price being charged for a cash advance item is not the
same as the cost to the funeral provider for the item when
such is the case.
Id. § 453.3(f)(1). The Rule also requires that if a funeral
provider charges extra for cash advance items – or receives a
rebate, commission, or discount from the third-party vendor –
the provider must state on the itemized bill that “We charge you
for our services in obtaining: (specify cash advance items).” Id.
§ 453.3(f)(2).
At issue in the instant case is the Commission’s subsequent
interpretation of “cash advance item.” In April 2005, a member
of the Texas legislature wrote to the Commission seeking
clarification of the definition of that term. The FTC responded
4
on July 7, 2005.1 In a letter from the full Commission, the FTC
stated that the term “cash advance item” only applies to –
those items that the funeral provider represents expressly to
be “cash advance items” or represents by implication to be
procured on behalf of a particular customer and provided to
that customer at the same price the funeral provider paid for
them.
The Commission noted that “reasonable consumers generally
understand that the price charged by a retail seller . . . includes
profit.” Accordingly, “the corrective disclosure about cash
advance items . . . is unnecessary when the funeral provider does
not mislead the customer through either express representations
that the item is a ‘cash advance item’ (or alternative
formulations), or implied representations that the customer is
paying no more for an item than the amount the funeral provider
paid for it.” In other words, the FTC concluded that the
provisions of the Funeral Rule regulating cash advance items do
not apply unless consumers expect to receive the items in
question at cost.
Petitioners in the instant case are the Funeral Consumers
Alliance – a group dedicated to helping its 400,000 members
obtain “meaningful, dignified, and affordable funerals” – and
three individuals. Two of the individual petitioners allege that
they recently paid for funerals, and that the cash advance items
they purchased were marked up without the proper disclosures.
Petitioners seek direct review in this Court of the 2005 letter
under the judicial review provisions of the Federal Trade
Commission Act. They argue that the letter should be set aside
1
The letter is available at:
http://www.ftc.gov/os/2005/07/050707funeralruleadvoopin.pdf.
5
as unlawful because it narrowed the scope of the Funeral Rule’s
definition of “cash advance item” without following the proper
rulemaking procedures for amending a trade regulation rule.
II.
Before reaching the merits, we must determine whether we
have jurisdiction over this petition for review. See Steel Co. v.
Citizens for a Better Env’t, 523 U.S. 83, 94-95 (1998) (“The
requirement that jurisdiction be established as a threshold matter
springs from the nature and limits of the judicial power of the
United States and is inflexible and without exception.”)
(citations and internal punctuation omitted). More specifically,
we must determine whether jurisdiction is proper in this Court
under the judicial review provisions of the Federal Trade
Commission Act (“FTCA”). We hold that it is not, and we
therefore dismiss the petition for lack of jurisdiction.
Petitioners seek direct review in this Court of the 2005 letter
under the judicial review provisions of the Federal Trade
Commission Act. The FTCA grants the Commission authority
to promulgate “trade regulation rules” – such as the Funeral
Rule – that “define with specificity acts or practices which are
unfair or deceptive acts or practices in or affecting commerce.”
15 U.S.C. § 57a(a)(1)(B). The Act provides for judicial review
of trade regulation rules as follows:
Not later than 60 days after a rule is promulgated under
subsection (a)(1)(B) of this section by the Commission, any
interested person (including a consumer or consumer
organization) may file a petition, in the United States Court
of Appeals for the District of Columbia circuit or for the
circuit in which such person resides or has his principal
place of business, for judicial review of such rule.
6
Id. § 57a(e)(1)(A). The FTCA provides for judicial review of
substantive amendments to trade regulation rules in a similar
manner:
A substantive amendment to, or repeal of, a rule
promulgated under subsection (a)(1)(B) of this section shall
be prescribed, and subject to judicial review, in the same
manner as a rule prescribed under such subsection.
Id. § 57a(d)(2)(B). Thus, direct review in the courts of appeals
is only available for challenges to trade regulation rules or
“substantive amendments” of such rules. Parties seeking review
of other FTC actions must proceed in accordance with the
Administrative Procedure Act, under which review must be
sought in district court in the first instance. See Public Citizen
v. FTC, 829 F.2d 149, 150 (D.C. Cir. 1987) (holding that in the
absence of a statutory grant of jurisdiction in the courts of
appeals, “regulations may be reviewed, in the manner prescribed
by the APA, 5 U.S.C. § 702, in a district court”). Therefore, as
a threshold matter, we must determine whether the 2005 letter
is a “substantive amendment” of the Funeral Rule that may be
reviewed in this Court under the FTCA. We hold that the letter
is – at most – an interpretation of the Funeral Rule rather than a
substantive amendment, and we thus lack jurisdiction over the
petition for review.
Our precedents are instructive as to the distinction between
interpretation and amendment. For example, we have held that
an agency action is an amendment of a rule if it “repudiates or
is irreconcilable with [a prior legislative rule].” Nat’l Family
Planning Ass’n v. Sullivan, 979 F.2d 227, 235 (D.C. Cir. 1992)
(citation omitted). Similarly, if an agency attempts to
“supplement [a statute], not simply to construe it,” then the
agency action is likely to be deemed a substantive amendment
rather than an interpretation. Id. (quoting Chamber of
7
Commerce v. OSHA, 636 F.2d 464, 469 (D.C. Cir. 1980)). We
have also noted that an agency action does not become an
amendment “merely because it supplies crisper and more
detailed lines than the authority being interpreted. If that were
so, no rule could pass as an interpretation of a legislative rule
unless it were confined to parroting the rule or replacing the
original vagueness with another.” American Mining Congress
v. MSHA, 995 F.2d 1106, 1112 (D.C. Cir. 1993). Thus, we must
determine whether the agency has “repudiated” or
“supplemented” one of its rules – in which case its action is
deemed an amendment – or merely interpreted the rule.
Turning to the instant case, we hold that the 2005 letter is
not a “substantive amendment” of the Funeral Rule for purposes
of the FTCA’s judicial review provisions. Under the Funeral
Rule, “cash advance item” is defined as
any item of service or merchandise described to a purchaser
as a “cash advance,” “accommodation,” “cash
disbursement,” or similar term. A cash advance item is also
any item obtained from a third party and paid for by the
funeral provider on the purchaser’s behalf. Cash advance
items may include, but are not limited to: cemetery or
crematory services; pallbearers; public transportation;
clergy honoraria; flowers; musicians or singers; nurses;
obituary notices; gratuities and death certificates.
16 C.F.R. § 453.1(b). Under this definition, there are two
different types of cash advance items: (1) items expressly
described to consumers as “cash advances” (or similar terms);
and (2) items “obtained from a third party and paid for by the
funeral provider on the purchaser’s behalf.” With respect to the
first type of cash advance item, the preamble to the Funeral Rule
states:
8
In ordinary usage, terms such as “cash advance,”
“accommodation items” or “cash advanced for your
convenience” imply that the consumer is being charged
only for the actual cash outlay. The use of this term in
connection with items such as flowers, obituary notices,
etc., which the consumer could easily obtain from a third
party, creates the expectation that the amount billed the
consumer is the same as the amount paid by the funeral
provider.
Funeral Indus. Practices, 47 Fed. Reg. at 42,279. In other
words, based on evidence obtained during its investigation of the
funeral industry, the Commission determined that when items
are expressly labeled as “cash advances” or “accommodation
items,” there is an inherent representation by the funeral
provider that such items are being provided to the consumer at
cost.
In its 2005 letter, the FTC concluded that the second type of
cash advance item in the Funeral Rule’s definition – “any item
obtained from a third party and paid for by the funeral provider
on the purchaser’s behalf” – is also limited to situations in which
there is an implicit representation of at-cost pricing by the
funeral provider. As the Commission stated in the letter:
[T]he term “cash advance item” in the Rule applies only to
those items that the funeral provider represents expressly to
be “cash advance items” or represents by implication to be
procured on behalf of a particular customer and provided to
that customer at the same price the funeral provider paid for
them.
The Commission explained that the second sentence of the
definition of “cash advance item” is designed to bring within the
Rule’s purview situations that are functionally equivalent to
9
those described in the first sentence, but where the funeral
provider does not expressly describe the transaction as a “cash
advance” or “accommodation item.” More specifically, the
second sentence of the definition was intended –
to deter the less scrupulous funeral provider from evading
the Rule by eschewing express description of an item as a
“cash advance item” (or alternative formulations), yet
nevertheless conveying to a customer acting reasonably
under the circumstances that obtaining the item involves
merely a forwarding of cash by the funeral provider and a
subsequent dollar-for-dollar reimbursement by the
customer. The Commission’s intention, in sum, is that this
part of the “cash advance item” definition function to
foreclose funeral providers from attempting to sidestep the
strict letter of the Rule by using implied misrepresentations
rather than express ones.
As explained above, the FTC found during its investigation of
the funeral industry that when items are expressly described as
“cash advance items,” there is an inherent representation that
such items are being provided at cost. Since the second sentence
of the definition is designed to cover situations that are
functionally identical to those described in the first sentence –
notwithstanding the absence of the magic words – the
Commission also interpreted the second sentence as containing
a requirement that the funeral provider implicitly represent that
the items are being provided at cost. We cannot hold that this
interpretation was a “substantive amendment” of the Funeral
Rule.
Moreover, as the Commission explains in the 2005 letter,
the purpose of the Funeral Rule – like all trade regulation rules
– is to protect consumers from deceptive and unfair trade
practices. If a consumer expects to pay a markup on the price of
10
a cash advance item, then the funeral provider does not act
“deceptively” or “unfairly” by charging such a markup.2 See
Funeral Indus. Practices, 47 Fed. Reg. at 42,278 (“If, with
knowledge that the funeral provider will profit from ordering
flowers or arranging obituary notices, a consumer chooses to use
the services of a funeral provider, a charge for that service
should be anticipated.”). Deception only results when funeral
providers charge an undisclosed markup to consumers who
expect to receive cash advance items at cost. Id. at 42,279
(“Given this expectation [of at-cost pricing], the failure to
disclose the existence of a markup is a deceptive practice.”).
The FTC’s interpretation of the Funeral Rule in the 2005 letter
is consistent with these principles. As the Commission explains
in the letter:
[T]he corrective disclosure about cash advance items that §
453.3(f)(2) requires is unnecessary when the funeral
provider does not mislead the customer through either
express representations that the item is a “cash advance
item” (or alternative formulations), or implied
representations that the customer is paying no more for an
item than the amount the funeral provider paid for it.
In light of the express purpose of the Funeral Rule – preventing
“unfair or deceptive acts or practices” – the FTC did not
substantively amend the Rule by interpreting the phrase “cash
advance item” as applying only to items that consumers believe
2
Unless, of course, it is per se unfair or deceptive for a
funeral provider to charge markups on the cost of cash advance items.
However, the Commission expressly stated in the preamble to the
Funeral Rule that it “does not suggest that it is improper for funeral
providers to profit on items obtained from third parties.” 47 Fed. Reg.
at 42,278. Rather, funeral providers violate the Rule only when they
charge markups to customers who do not expect to pay such charges.
11
they will receive at cost, based on the express or implied
representations of the funeral provider.
Petitioners also argue that the 2005 letter should be deemed
a “substantive amendment” to the Funeral Rule because the
letter is inconsistent with the Commission’s previous
interpretations of the Rule. In particular, petitioners contend
that the letter is inconsistent with FTC compliance guidelines
issued in 1985, 1994, and 2004. We disagree. In the 1985
guidelines, the Commission noted that limousine services may
be a cash advance item if the services are “obtained from a third
party and paid for by a funeral provider on the purchaser’s
behalf.” Funeral Indus. Practices; Final Staff Compliance
Guidelines, 50 Fed. Reg. 28,062, 28,070 (July 9, 1985). In the
1994 and 2004 compliance manuals, the FTC stated that cash
advance items are items that a funeral provider “obtain[s] from
a third party and pay[s] for on the consumer’s behalf.”
Complying with the Funeral Rule (2004 ed.), at 20; Complying
with the Funeral Rule (1994 ed.), at 24. The two manuals and
the compliance guidelines simply repeat the definition of “cash
advance item” from the Funeral Rule. See 16 C.F.R. § 453.1(b).
As explained above, we do not believe that the letter is a
substantive amendment of the Funeral Rule’s definition of “cash
advance item.” Therefore, it also cannot be said that the letter
is inconsistent with the FTC compliance manuals, given that
these manuals use the same language as the Rule itself. See,
e.g., Nat’l Family Planning Ass’n, 979 F.2d at 236-37 (noting
that an agency action that “simply explained something the
statute already required” is likely to be an interpretation rather
than an amendment (citation omitted)); Gen. Motors Corp. v.
Ruckelshaus, 742 F.2d 1561, 1565 (D.C. Cir. 1984) (holding that
an agency action was not a legislative rule when it “simply
restated the consistent practice of the agency”). Finally,
petitioners argue that the 2005 letter is inconsistent with a
section of the 1985 compliance guidelines that provides
12
illustrations of how the Rule operates. However, that section of
the guidelines – which addresses flowers – did not interpret the
definition of “cash advance item.” Final Staff Compliance
Guidelines, 50 Fed. Reg. at 28,075. The hypothetical posed in
that section simply assumed that the flowers were a cash
advance item, then addressed how the substantive provisions of
the Funeral Rule would apply to that transaction. Id. The 2005
letter – which only addresses the definition of “cash advance
item” – is not inconsistent with this illustration.
The Commission also argues that we lack jurisdiction over
this petition for review because the 2005 letter was not
“promulgated under subsection (a)(1)(B),” as required by the
FTCA. See 15 U.S.C. § 57a(e)(1)(A). The Commission asserts
that the letter was adopted without observance of the procedures
set forth in subsection (a)(1)(B), and that the letter was not
“promulgated” under the FTC’s rules because it was never
published in the Federal Register. We need not address these
arguments, however, because we do not believe that the 2005
letter was a “substantive amendment” of the Funeral Rule.
Therefore, even if the Commission is incorrect with respect to
the “promulgated under subsection (a)(1)(B)” arguments, this
would not affect our jurisdictional holding.
***
In sum, we cannot hold that the FTC’s 2005 letter was a
substantive amendment of the Funeral Rule. Accordingly, we
lack jurisdiction over this petition for review under the FTCA,
which provides for direct review in the courts of appeals only
for challenges to trade regulation rules or “substantive
amendments” thereto.3 15 U.S.C. § 57a(d)(2)(B).
3
Although we do not have direct-review jurisdiction over this
petition under the FTCA, nothing in our decision prevents petitioners
13
For the aforementioned reasons, the petition for review is
Dismissed.
from seeking review of the letter in district court under the
Administrative Procedure Act. See Public Citizen v. FTC, 829 F.2d
149, 150 (D.C. Cir. 1987).