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Funeral Security Plans Inc. v. State Board of Funeral Directors

Filed: October 7, 1994.


Appeal from a judgment of the Superior Court of Sacramento County. Super. Ct. No. CV512564. Hon. Richard K. Park, Judge.

Raye, J.; Sims, Acting P.J., and Nicholson, J., Concurring.



In the underlying declaratory relief action, Funeral Security Plans, Inc. (FSP) challenged the State Board of Funeral Directors and Embalmers' (Funeral Board) application of the "pending litigation exception" to the Bagley Keene Open MeetingAct (the Act). FSP contends the narrowly drawn exception to the ban on conducting public business in secret meetings was erroneously expanded by the trial court to allow the Board not merely to confer with and to receive advice from its legal counsel, but to hear evidence, deliberate, and take actions in closed sessions. FSP also objects to: (1) the Board's lax compliance with the Act's requirement that legal counsel for the Board prepare a memorandum to justify invocation of the pending litigation exception (Gov. Code, § 11126, subd. (q))*fn1; (2) the Disposition of settlements, reinstatement of licenses, and adoption of administrative findings in closed sessions; and (3) the delegation of Board business to two-member committees who meet privately and without notice to the public.

In the context of this declaratory relief action, we define the parameters of the pending litigation exception to the Open Meeting Act. We conclude the Legislature, by including the statutory language permitting a state body to "confer with, and to receive advice from, its legal counsel," authorized state bodies to listen to facts presented by legal counsel, to deliberate on the propriety of the advice received, and to take action based on the legal advice offered. Nevertheless, since the Legislature expressly abrogated the attorney-client privilege that would otherwise apply and continues to espouse a public policy disfavoring secrecy, the pending litigation exception is narrowly circumscribed. We are not satisfied the Board's legal counsel substantially complied with the Act's provisions requiring preparation of a legal memorandum justifying closed sessions. Further, we conclude the pending litigation exception applies to the Disposition of settlements and the reinstatement of licenses provided the state body sustains its substantial burden of demonstrating the prejudice to be suffered from conducting an open meeting. Routine Disposition of these matters in secret contravenes the fundamental policy encouraging participation and oversight by the public. Finally, we hold the multiple two-member committees are not state bodies subject to the open meeting requirements of the Act. ( § 11121.7.)


FSP sells preneed funeral contracts in California. Purchasers of preneed funeral contracts prearrange and prepay for their funerals, guaranteeing the preplanned funeral at today's prices. FSP sells its preneed contracts through licensed funeral homes and deposits prepayments in a preneed trust. Prior to 1977 FSP collected its sales charges through a percentage of the income earned annually by the trust. In 1977 sellers of preneed contracts were limited to 2.5% of annual trust income as expenses. At death, principal and income earned under the contract are released for payment to the funeral home and FSP.

The funeral industry is heavily regulated. The Funeral Board regulates preneed contracts (Bus. & Prof. Code, § 7735 et seq.), preneed trusts (Bus. & Prof. Code, §§ 7736, 7737, 7737.5), funeral directors (Bus. & Prof. Code, § 7615 et seq.), and embalmers (Bus. & Prof. Code, § 7640 et seq.) and is a "state body" as defined under the Act. (Gov. Code, § 11121 et seq.) A state body is authorized under the Act to confer and receive advice from legal counsel regarding pending or threatened litigation in closed sessions provided counsel has prepared a memorandum (referred to as a "Q memorandum") stating the specific reasons and legal authority for the closed session. (Gov. Code, § 11126, subd. (q).)

The Funeral Board met in a closed session on May 18, 1988. Two Q memoranda were prepared explaining the closed session was necessary to discuss settlement on two pending cases. During the Board's deliberations, James Allen, the executive director, responding to an inquiry, informed the Board FSP continued to violate the 2 1/2 percent rule. The Board attorney, Robert Miller, and auditor, Skip Jones, were also present. Following Discussion, the Board instructed Allen to request the Attorney General to provide further advice and to prepare for filing litigation.

In a closed session on September 22, 1988, the Funeral Board authorized deputy attorney general Antonio Merino to initiate civil litigation against FSP. In three subsequent closed sessions, however, the Board, pursuant to Merino's advice,decided not to pursue the action. A Q memorandum was not received by the Board within one week of one of these closed sessions. Allen and Jones were present at the first two sessions; Allen was present at the last session. Occasionally, Board members were mailed written memoranda about FSP prior to the closed sessions.

In November 1989 Randy Stricklin, a member of the Board, told David Newcomer, president of FSP, the Board was conducting closed sessions to discuss serious problems involving FSP. Newcomer testified, "[Stricklin] says, well, the Funeral Board's meeting in closed session now and they've asked me not to be in there, because at one time, you had sold funeral plans for us and that they're discussing--they say there's a lot of problems with Funeral Security Plans and they've, you know, invited me out of their meeting but they've met several times before like this. He says, you're in a lot of trouble." On January 17, 1990, Allen sent letters to FSP associate funeral homes which, according to Newcomer, implied there was something gravely wrong with FSP's handling and administration of preneed contracts.

Newcomer requested records of the closed meetings, but the Board refused. Moreover, the Board refused to disclose the substance of its deliberations at the next public hearing on January 25, 1990. On February 9, 1990, FSP filed this action for declaratory relief.

In a closed session on March 22, 1990, the Board authorized Merino to initiate civil litigation seeking injunctiveand restitutionary relief against FSP and also authorized an audit of FSP's preneed trusts. Allen was present. On May 24, 1990, the Attorney General filed a complaint against FSP, et al., requesting a temporary restraining order, preliminary and permanent injunction, reimbursement, restitution, and civil penalties on behalf of the People of the State of California and the Funeral Board. There were additional closed sessions during the prosecution of this action. During many, if not all, of the closed sessions involving FSP, legal counsel introduced facts, sometimes for the first time, intertwined with the legal advice he gave.

FSP was not the only matter discussed in closed sessions. During the same time frame, from April 1988 through November 1990, the Board routinely discussed, approved, and adopted proposed settlements of accusations against various mortuaries. Stipulated settlements were presented by a deputy attorney general, who interjected facts as well as advice, and were adopted following deliberation. In some instances, Board members approved the stipulated settlements by mail.

In two closed sessions, the Board decided to terminate a probation previously imposed and to reinstate the suspended licenses. Prior to these sessions, Allen had provided Board members with written documents setting forth facts concerning the disciplinary proceedings. In another closed session, it adopted a proposed disciplinary decision prepared by an administrative law Judge, but a Q memorandum was never received by the Board.

Many of the memoranda did not reference the subparagraph of subdivision (q) authorizing the closed session nor did they contain a statement of reasons why public disclosure would prejudice the Board. Q memoranda were not prepared for three closed sessions.

The Funeral Board has created several committees comprised of two members of the Board. Board members receive per diem compensation for attending committee meetings and receive memoranda in the mail in advance of the meetings. James Allen attends these meetings but does not vote. Public notice of committee meetings is not provided.

The record reflects a history of animosity between FSP and members of the Board. David Newcomer testified: "I think we have ruffled a lot of feathers with the staff. The staff is--has a bias towards the type of prearrangement that's passive, that merely where people come into a funeral home, we're going to use that funeral home anyway to make arrangements. . . . [P] And we'd have a very hard time staying in business when the Board has this ability to have all these competitors on the Board making the rules and regulations and proposing the rules and regulations. [P] And when they can do this is secret and use Gestapo-type practices, it makes it very difficult to stay in business in this state and give the public the opportunity to take advantage of prearrangement."



"Any interested person may commence an action by . . . declaratory relief for the purpose of stopping or preventing violations or threatened violations of [the Act] or to determine the applicability of [the Act] to actions or threatened future action by members of the state body." (Gov. Code, § 11130.) We are not asked to provide FSP relief for the Board's past transgressions. Rather, in this appeal, FSP's request for declaratory relief challenges the Funeral Board's ongoing application of the pending litigation exception to evade the open meeting requirement. That exception reads in pertinent part: "Nothing in this article shall be construed to prevent a state body, based on the advice of its legal counsel, from holding a closed session to confer with, or receive advice from, its legal counsel regarding pending litigation when Discussion in open session concerning those matters would prejudice the position of the state body in the litigation." (Gov. Code, § 11126, subd. (q).)

The issue thus presented is whether the Funeral Board's practice of invoking closed sessions and the scope of the actions taken within these sessions constitute a violation of the Act. "When reviewing the interpretation and proper application of a statute where, as here, the underlying facts are not in dispute, the reviewing court must exercise its independent judgment inmaking that determination." (San Diego Union v. City Council (1983) 146 Cal. App. 3d 947, 952, 196 Cal. Rptr. 45.)



We begin with the fundamental premise that the Act articulates a vital public policy favoring public Discussion of public business by those regulators charged with serving the public. The Legislature has not left this policy to conjecture or surmise, emphatically stating: "It is the intent of the law that actions of state agencies be taken openly and that their deliberation be conducted openly. [P] The people of this state do not yield their sovereignty to the agencies which serve them. The people, in delegating authority, do not give their public servants the right to decide what is good for the people to know and what is not good for them to know. The people insist on remaining informed so that they may retain control over the instruments they have created." (Gov. Code, § 11120; see also Stockton Newspapers, Inc. v. Redevelopment Agency (1985) 171 Cal. App. 3d 95, 100-101, 214 Cal. Rptr. 561, construing similar language under the Brown Act § 54950.)

Yet as already observed, the Legislature carved narrow exceptions to the basic rule mandating open meetings. FSP does not dispute the Board's right to hold a closed session "to confer, and receive advice, from legal counsel" concerning pending litigation. FSP vehemently disagrees, however, with theFuneral Board's ...

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