10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2006 Commission File No. 1-6651

HILLENBRAND INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Indiana	35-1160484
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1069 State Route 46 East
Batesville, Indiana	47006-8835
(Address of principal executive offices)	(Zip Code)

(812) 934-7000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ           No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ       Accelerated filer o       Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o            No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, without par value – 61,533,295 shares as of January 31, 2007.

HILLENBRAND INDUSTRIES, INC.

INDEX TO FORM 10-Q

	Page
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for the Quarterly Periods Ended 12/31/06 and 12/31/05		3
Condensed Consolidated Balance Sheets at 12/31/06 and 9/30/06		4
Condensed Consolidated Statements of Cash Flows for the Quarterly Periods Ended 12/31/06 and 12/31/05		5
Notes to Condensed Consolidated Financial Statements		6-19
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		20-28
Item 3 – Quantitative and Qualitative Disclosures About Market Risks		29
Item 4 – Controls and Procedures		29
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings		30
Item 1A – Risk Factors		30
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 6 – Exhibits		32
SIGNATURES		33
302 Certification of Chief Executive Officer
302 Certification of Chief Financial Officer
906 Certification of Chief Executive Officer
906 Certification of Chief Financial Officer
Plaintiff's First Amended Consolidated Class Action Complaint
Plaintiff's First Amended Class Action Complaint
Plaintiff's Class Action Complaint

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PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (Unaudited)

Hillenbrand Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Dollars in millions except per share data)

	Quarterly
	Period Ended
	12/31/06			12/31/05
Net Revenues
Health Care sales	$	210.8		$	195.3
Health Care rentals		110.2			116.5
Funeral Services sales		162.2			165.7
Total revenues		483.2			477.5
Cost of Revenues
Health Care cost of goods sold		122.4			118.1
Health Care rental expenses		53.2			55.2
Funeral Services cost of goods sold		93.4			100.9
Total cost of revenues		269.0			274.2
Gross Profit		214.2			203.3
Other operating expenses		135.1			132.7
Special charges		—			2.4
Operating Profit		79.1			68.2
Other income (expense), net:
Interest expense		(5.7	)		(5.0	)
Investment income and other		8.8			14.8
Income from Continuing Operations Before Income Taxes		82.2			78.0
Income tax expense (Note 8)		30.3			29.4
Income from Continuing Operations		51.9			48.6
Discontinued Operations (Note 4):
Loss from discontinued operations before income taxes (including loss on divestiture of $0 and $1.0)		—			(0.5	)
Income tax benefit		—			(0.2	)
Loss from discontinued operations		—			(0.3	)
Net Income	$	51.9		$	48.3
Income per common share from continuing operations – Basic (Note 9)	$	0.84		$	0.79
Loss per common share from discontinued operations – Basic (Note 9)		—			(0.01	)
Net Income per Common Share – Basic	$	0.84		$	0.79
Income per common share from continuing operations – Diluted (Note 9)	$	0.84		$	0.79
Loss per common share from discontinued operations – Diluted (Note 9)		—			(0.01	)
Net Income per Common Share – Diluted	$	0.84		$	0.79
Dividends per Common Share	$	0.2825		$	0.2825
Average Common Shares Outstanding – Basic (thousands)		61,587			61,375
Average Common Shares Outstanding – Diluted (thousands)		61,835			61,458

Note: Certain per share amounts may not accurately add due to rounding.

See Notes to Condensed Consolidated Financial Statements

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Hillenbrand Industries, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in millions)

	12/31/06			9/30/06
ASSETS
Current Assets
Cash and cash equivalents	$	93.9		$	81.9
Current investments (Note 1)		41.6			—
Trade receivables, net		468.0			495.1
Inventories		142.5			129.8
Income taxes receivable		—			5.9
Deferred income taxes		30.0			28.2
Other		24.1			23.0
Total current assets		800.1			763.9
Equipment Leased to Others, net		167.5			160.7
Property, net		204.5			208.4
Investments (Note 1)		62.8			64.3
Other Assets
Intangible assets:
Goodwill		428.3			414.1
Software and other, net		155.2			157.6
Notes receivable, net of discounts		132.7			134.4
Prepaid pension costs		23.7			25.2
Deferred charges and other assets		28.0			23.6
Total other assets		767.9			754.9
Total Assets	$	2,002.8		$	1,952.2
LIABILITIES
Current Liabilities
Trade accounts payable	$	93.6		$	91.7
Short-term borrowings		11.6			10.9
Accrued compensation		78.9			88.5
Income taxes payable (Note 8)		21.6			—
Accrued warranty (Note 11)		17.9			17.8
Accrued customer rebates		21.9			23.4
Accrued restructuring (Note 7)		6.4			8.9
Accrued litigation (Note 13)		22.5			22.6
Other		57.6			61.4
Total current liabilities		332.0			325.2
Long-Term Debt		347.4			347.0
Other Long-Term Liabilities		91.3			91.3
Deferred Income Taxes		61.5			57.0
Total Liabilities		832.2			820.5
Commitments and Contingencies (Note 13)
SHAREHOLDERS’ EQUITY
Common stock		4.4			4.4
Additional paid-in capital		80.7			79.1
Retained earnings		1,681.2			1,646.8
Accumulated other comprehensive loss, net-of-tax (Note 6)		(0.2	)		(0.3	)
Treasury stock		(595.5	)		(598.3	)
Total Shareholders’ Equity		1,170.6			1,131.7
Total Liabilities and Shareholders’ Equity	$	2,002.8		$	1,952.2

See Notes to Condensed Consolidated Financial Statements

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Hillenbrand Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Dollars in millions)

	Year-to-Date Period Ended
	12/31/06			12/31/05
Operating Activities
Net income	$	51.9		$	48.3
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization		26.4			27.5
Accretion and capitalized interest on financing provided on divestiture		(3.7	)		(3.5	)
Loss on divestiture of discontinued operations (net-of-tax)		—			0.6
Investment income/gains on equity method investments		(4.2	)		(9.1	)
Provision for deferred income taxes		1.5			2.3
(Gain) loss on disposal of fixed assets		(0.4	)		0.7
Change in working capital excluding cash, current investments, current debt, prepaid pension costs, acquisitions and dispositions		26.6			(22.7	)
Other, net		3.7			10.2
Net cash provided by operating activities		101.8			54.3
Investing Activities
Capital expenditures and purchase of intangibles		(27.3	)		(17.2	)
Proceeds on sales of fixed assets		0.7			—
Acquisitions of businesses, net of cash acquired		(14.5	)		(5.7	)
Investment purchases and capital calls		(65.2	)		(27.2	)
Proceeds on investment sales/maturities		29.4			83.2
Bank investments:
Purchases		—			(5.0	)
Proceeds on maturities		—			4.7
Net cash (used in) provided by investing activities		(76.9	)		32.8
Financing Activities
Change in short-term debt		0.7			1.2
Payment of cash dividends		(17.5	)		(17.4	)
Proceeds on exercise of options		3.5			0.8
Treasury stock acquired		(0.6	)		(0.2	)
Bank deposits received		—			4.1
Net cash used in financing activities		(13.9	)		(11.5	)
Effect of exchange rate changes on cash		1.0			(0.3	)
Total Cash Flows		12.0			75.3
Cash and Cash Equivalents:
At beginning of period		81.9			76.8
At end of period	$	93.9		$	152.1

See Notes to Condensed Consolidated Financial Statements

5

Hillenbrand Industries, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in millions except per share data)

1.	Summary of Significant Accounting Policies
	Basis of Presentation
	The unaudited, condensed consolidated financial statements appearing in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission. Unless the context otherwise requires, the terms “Hillenbrand,” “the Company,” “we,” “our” and “us” refer to Hillenbrand Industries, Inc. and its consolidated subsidiaries, and the terms “Hill-Rom Company,” “Batesville Casket Company,” and derivations thereof, refer to one or more of the subsidiary companies of Hillenbrand that comprise those respective business units. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the financial statements herein include all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position, results of operations, and cash flows for the interim periods presented. Quarterly results are not necessarily indicative of annual results.
	In 2004, we closed the sale of Forethought Financial Services, Inc. (“Forethought”), and in January 2006 closed on the sale of Forethought Federal Savings Bank (“FFSB”), which had been a subsidiary of Forethought (see Note 4). As the sale was not completed prior to fiscal 2006, the operations of FFSB continue to be presented as discontinued operations within our Condensed Consolidated Statements of Income for that period. Under this presentation, the revenues and costs associated with the business were removed from the individual line items comprising the Condensed Consolidated Statements of Income and presented in a separate section entitled, “Discontinued Operations.” Within the Condensed Consolidated Statements of Cash Flows, year-to-date operating, investing and financing activities of FFSB for the first quarter of fiscal 2006 were reflected within the respective captions of the Condensed Consolidated Statements of Cash Flows.
	Principles of Consolidation
	The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Material intercompany accounts and transactions have been eliminated in consolidation.
	Use of Estimates
	The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Examples of such estimates include the establishment of liabilities related to our accounts receivable reserves (Note 2), income taxes (Note 8), accrued warranties (Note 11) and accrued litigation and self insurance reserves (Note 13), among others.
	Revision of Prior Year Amounts
	In order to better align the presentation of our cost structure between cost of goods sold and operating expenses, we made revisions to the classification of certain costs within our

6

Condensed Consolidated Statements of Income beginning in the fourth quarter of fiscal 2006. All product distribution costs, which were previously included as a component of operating expenses, are now included within costs of goods sold. This is consistent with the previous classification of distribution and logistics costs associated with Health Care rentals. Additionally, rental sales costs, including commissions, are now reflected as a component of operating expenses. This is consistent with the previous classification of selling expenses associated with Health Care and Funeral Services sales. Collectively these revisions offer a better reflection of true product sourcing and delivery costs, improve the consistency of the classification of such costs within our various revenue streams and also generally increase the comparability of our results with those of our peers. The classification of certain prior year amounts has been revised herein to conform to this new presentation. Distribution costs of $28.7 million were moved from operating expenses to cost of goods sold for the first quarter of fiscal 2006 and $15.7 million of rental sales expenses were moved from cost of goods sold to operating expenses for the same period. This revision had no impact on operating income, cash flows or earnings per share.

Current Investments

At December 31, 2006, we held $41.6 million of current investments, which consist of auction rate municipal bonds classified as available-for-sale securities. Our investments in these securities are recorded at cost, which approximates fair market value due to their variable interest rates. These current investments typically reset every 7 to 35 days, and, despite the long-term nature of their stated contractual maturities, we have the ability to quickly liquidate these securities. As a result, we had no cumulative gross unrealized holding gains (losses) or gross realized gains (losses) from our current investments. All income generated from these current investments was recorded within Investment income and other within the Condensed Consolidated Statements of Income.

Investments

We use the equity method of accounting for certain private equity limited partnership investments, with earnings or losses reported within Investment income and other in the Condensed Consolidated Statements of Income. Our portion of any unrealized gains (losses) related to such investments, as well as unrealized gain (losses) on our other investments, are charged or credited to Accumulated other comprehensive loss in shareholders’ equity, and deferred taxes are recognized for the income tax effect of any such unrealized gains (losses). Earnings and values for investments accounted for under the equity method are determined based on financial statements provided by the investment companies.

Other minority investments are accounted for on either a cost, fair value or equity basis, dependent upon our level of influence over the investee. The seller financing provided upon the divestiture of Forethought included preferred stock at a notional amount of $28.7 million, which accrues cumulative dividends at the rate of 5 percent per annum. The preferred stock is redeemable at any time at the option of FFS Holdings, Inc., the entity that purchased Forethought, and must be redeemed by FFS Holdings, Inc. under specified circumstances. This investment is classified as held-to-maturity and recorded at amortized cost.

When an investment is sold, we report the difference between the sales proceeds and amortized cost (determined based on specific identification) as a capital gain or loss.

We regularly evaluate all investments for possible impairment based on current economic conditions, credit loss experience and other criteria. If there is a decline in a security’s net realizable value that is other-than-temporary, the decline is recognized as a realized loss and the cost basis of the investment is reduced to its estimated fair value. The evaluation of investments for impairment requires significant judgments to be made including (i) the identification of potentially impaired securities; (ii) the determination of their estimated fair

7

value; and (iii) assessment of whether any decline in estimated fair value is other-than-temporary.

For the quarterly periods ended December 31, 2006 and 2005, we recognized income on our investments of $5.0 million and $9.8 million, respectively. These amounts were recorded as a component of Investment income and other within our Condensed Consolidated Statements of Income.

Recently Issued Accounting Standards

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for income taxes by prescribing the minimum recognition threshold as “more-likely-than-not” that a tax position must meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting for income taxes in interim periods, financial statement disclosure and transition rules. This Interpretation is effective for fiscal years beginning after December 15, 2006. As such, we are required to adopt FIN 48 by October 1, 2007. We have not yet analyzed the effect of this Interpretation on our consolidated financial statements or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The adoption of SFAS No. 157 is not expected to have a material impact on our consolidated financial statements or results of operations.

In September 2006, the FASB also issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R).” This Statement requires recognition of the funded status of a benefit plan in the statement of financial position. SFAS No. 158 also requires recognition in other comprehensive income of certain gains and losses that arise during the period but are deferred under pension accounting rules, as well as modifies the timing of reporting and adds certain disclosures. The Statement provides recognition and disclosure elements to be effective as of the end of the fiscal year after December 15, 2006 and measurement elements to be effective for fiscal years ending after December 15, 2008. As such, we will adopt the recognition and disclosure elements at the end of our current fiscal year. Had the recognition elements been effective as of the end of our last fiscal year, total assets would have been approximately $27 million lower due to the elimination of prepaid and intangible pension assets, and total liabilities would have been unchanged as the recognition of additional accrued pension costs to fully reflect the funded status of our defined benefit pension plans would have been offset by a reduction in deferred tax liabilities at September 30, 2006. Additionally, Accumulated other comprehensive loss would have increased by approximately $27 million.

8

2.	Supplementary Balance Sheet Information
	The following information pertains to assets and consolidated shareholders’ equity:

	12/31/06		9/30/06
Allowance for possible losses and discounts on trade receivables	$	59.1	$	58.8
Inventories:
Finished products	$	94.5	$	83.0
Work in process		13.3		13.7
Raw materials		34.7		33.1
Total inventory	$	142.5	$	129.8
Accumulated depreciation of equipment leased to others and property	$	721.8	$	703.5
Accumulated amortization of intangible assets	$	84.2	$	117.9
Capital Stock:
Preferred stock, without par value:
Authorized 1,000,000 shares; shares issued	None		None
Common stock, without par value:
Authorized 199,000,000 shares; shares issued		80,323,912		80,323,912
Shares outstanding		61,513,295		61,415,314
Treasury shares outstanding		18,810,617		18,908,598

3.	Acquisitions
	The results of acquired businesses are included in the Condensed Consolidated Financial Statements since each acquisition’s date of close.
	On October 6, 2006, Hill-Rom acquired Medicraft, Australia PTY, LTD (“Medicraft”), the leader in acute and post-acute hospital beds and furniture in Australia. The acquisition expands Hill-Rom’s sales channel for therapy and higher acuity products, and we believe that several Medicraft products can be adapted for global and price-sensitive bed market segments throughout the world. The purchase price for Medicraft of $15.9 million, which includes direct acquisition costs, is subject to adjustment based on working capital at the time of closing. We are still in the process of finalizing the valuation of certain of the assets and liabilities acquired such that the purchase price remains subject to adjustment. If the purchase had occurred at the beginning of fiscal 2006, the impact to our results of operations and financial condition would not have been material.
	In March 2006, Batesville Casket made an acquisition of a small regional casket distributor. Goodwill of $1.6 million was recorded on the transaction. If the purchase had occurred at the beginning of fiscal 2006, the impact to our results of operations and financial condition would not have been material.

9

4.	Discontinued Operations
	In 2004, we closed the sale of Forethought Financial Services, Inc. (“Forethought”) to FFS Holdings, Inc., an acquisition vehicle formed by the Devlin Group, LLC, which acquired all the common stock of Forethought and its subsidiaries for a combination of cash and other consideration. Because of the need for regulatory approval, we were not able to include with that transaction the sale of Forethought Federal Savings Bank (“FFSB”), which had been a subsidiary of Forethought, but instead retained ownership of FFSB pending approval from the Office of Thrift Supervision. We received that approval at the end of December 2005 and closed the sale on January 3, 2006, receiving cash consideration of approximately $6.5 million. We recognized a loss on this transaction of $0.6 million (net-of-tax) in the first quarter of fiscal 2006.
	As the sale of FFSB was not completed prior to fiscal 2006, its results continued to be reflected as discontinued operations within the Condensed Consolidated Statement of Income for the 2006 period presented herein in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.
	Operating results for FFSB were as follows for the quarterly period ended December 31, 2005:

	Quarterly Period Ended
	12/31/05
Revenues from discontinued operations	$	1.1
Other operating expenses		(0.6	)
Loss on divestiture		(1.0	)
Pre-tax loss from discontinued operations		(0.5	)
Income tax benefit		(0.2	)
Loss from discontinued operations	$	(0.3	)

5.	Retirement Plans
	Hillenbrand and its subsidiaries have several defined benefit retirement plans covering the majority of employees, including certain employees in foreign countries. We contribute funds to trusts as necessary to provide for current service and for any unfunded projected future benefit obligation over a reasonable period. The benefits for these plans are based primarily on years of service and the employee’s level of compensation during specific periods of employment. We also sponsor nonqualified, unfunded defined benefit pension plans for certain members of management.
	The components of net pension expense for defined benefit retirement plans were as follows:

	Quarterly
	Period Ended
	12/31/06			12/31/05
Service cost	$	2.5		$	2.8
Interest cost		5.4			5.1
Expected return on plan assets		(6.3	)		(6.1	)
Amortization of prior service cost, net		0.4			0.4
Actuarial loss		—			0.3
Net periodic benefit cost	$	2.0		$	2.5

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	As of December 31, 2006 we have made no contributions to our defined benefit retirement plans during fiscal 2007, however, we presently anticipate contributing $2.0 million during the remainder of fiscal year 2007 to fund our pension plans.
	We sponsor both qualified and nonqualified defined contribution retirement plans for all eligible employees, as defined in the plan documents. The qualified plans fall under Section 401(k) of the Internal Revenue Code. Contributions to the qualified plans are based on both employee and Company contributions. Our contributions to the plans were $3.4 and $3.4 million, for the quarterly periods ended December 31, 2006 and 2005, respectively. We expect to contribute an additional $12.1 million to the plans during the remainder of fiscal year 2007 for a total of $15.5 million compared to $15.0 million in fiscal 2006. The nonqualified defined contribution plans are unfunded and carried a liability of less than $1 million at December 31, 2006 and September 30, 2006.
6.	Comprehensive Income
	SFAS No. 130, “Reporting Comprehensive Income,” requires the net-of-tax effect of unrealized gains or losses on our available-for-sale securities, foreign currency translation adjustments and minimum pension liability adjustments to be included in comprehensive income.
	The components of comprehensive income are as follows:

	Quarterly
	Period Ended
	12/31/06			12/31/05
Net income	$	51.9		$	48.3
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during period, net-of-tax		2.1			5.1
Less: Reclassification adjustment for gains realized in net income, net-of-tax		(2.4	)		(5.7	)
Net unrealized loss, net-of-tax		(0.3	)		(0.6	)
Foreign currency translation adjustment, net-of-tax		0.4			(1.1	)
Minimum pension liability, net-of-tax		—			(0.2	)
Comprehensive income	$	52.0		$	46.4

	The composition of Accumulated other comprehensive (loss) income at December 31, 2006 and September 30, 2006 consisted of unrealized gains or (losses) on available-for-sale securities of $3.1 million and $3.4 million, foreign currency translation adjustments of ($0.1) million and ($0.5) million, and a minimum pension liability of ($3.2) million and ($3.2) million, respectively.
7.	Special Charges
	2006 Actions
	In the fourth fiscal quarter of 2006, we initiated restructuring actions taken primarily to right-size Hill-Rom’s North America field service organization in response to declines in rental revenue. This restructuring resulted in the elimination of approximately 140 positions and the rationalization of certain rental product offerings which were no longer strategically necessary, and resulted in a one-time charge of $4.2 million in the fourth quarter of fiscal 2006. The cash component of this charge was $2.6 million, and the majority is to be paid by September 30, 2007. As of December 31, 2006, approximately $1.5 million remained in the reserve.

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	2005 Actions
	During the fourth fiscal quarter of 2005, we announced several changes intended to simplify both the corporate and Hill-Rom organizational structures and to support Hill-Rom’s strategy to focus on its core hospital bed frames, therapy support surfaces and services businesses, while remaining flexible for future opportunities. As part of this change, Hill-Rom established new commercial divisions and also combined sourcing, manufacturing and product development under one new function to support the commercial divisions. Additionally, all Hillenbrand corporate functions, including human resources, finance, strategy, legal and information technology, were consolidated with those of Hill-Rom.
	In building on these announced changes and to further capitalize on progress we made with the works council at our Pluvigner, France facility with respect to voluntary departures, we took additional restructuring actions, in the United States and Europe during the fourth quarter of 2005. These actions included the elimination of salaried and hourly positions in the United States and Europe, the outsourcing of various products and sub-assembly parts, the impairment of certain assets no longer considered necessary to the execution of our strategy and the termination of certain contractual obligations. These actions resulted in a fourth quarter fiscal 2005 charge of approximately $30.8 million, including cash charges related to severance and benefits costs of $24.0 million and contract termination costs of $0.8 million. The reduction in employees participating in our Supplemental Executive Retirement plan related to this action necessitated a curtailment charge of approximately $1.2 million. Non-cash charges of $4.8 million were incurred related to the asset impairments previously mentioned. In fiscal 2006, additional charges under these actions were incurred in the amount of $1.4 million. This included $2.4 million of charges in the first quarter, primarily related to the continuation of European restructuring activities. This amount was partially offset by the reversal of excess reserves in later quarters. As of December 31, 2006, approximately $4.5 million remained in the reserve related to these actions.
8.	Income Taxes
	The effective tax rate for the first quarter of fiscal 2007 was 36.9 percent compared to 37.7 percent for the first quarter of 2006. The lower rate in 2007 is the result of a number of factors, including a lower foreign tax rate differential due to lower anticipated losses in France, the reinstatement of the research and development tax credit for a full year and the ability to take advantage of the deduction for qualified domestic production activities in fiscal 2007.
9.	Earnings per Common Share
	Basic earnings per share is calculated based upon the weighted average number of outstanding common shares for the period, plus the effect of deferred vested shares. Diluted earnings per share is calculated consistent with the basic earnings per share calculation plus the effect of dilutive unissued common shares related to stock-based employee compensation programs. For all periods presented, anti-dilutive stock options were excluded from the calculation of diluted earnings per share. Excluded shares were 377,165 and 1,942,132 for the three-month periods ended December 31, 2006 and 2005. Cumulative treasury stock acquired, less cumulative shares reissued, have been excluded in determining the average number of shares outstanding.

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Earnings per share is calculated as follows:

	Quarterly
	Period Ended
	12/31/06		12/31/05
Net income (thousands)	$	51,864	$	48,276
Average shares outstanding – Basic (thousands)		61,587		61,375
Add potential effect of:
Exercise of stock options and other unvested equity awards (thousands)		248		83
Average shares outstanding – Diluted (thousands)		61,835		61,458
Income per common share from continuing operations — Basic	$	0.84	$	0.79
Loss per common share from discontinued operations — Basic		—		(0.01	)
Net income per common share – Basic	$	0.84	$	0.79
Income per common share from continuing operations — Diluted	$	0.84	$	0.79
Loss per common share from discontinued operations — Diluted		—		(0.01	)
Net income per common share – Diluted	$	0.84	$	0.79

	Note: Certain per share amounts may not accurately add due to rounding.
10.	Stock Based Compensation
	We adopted SFAS 123(R) in the first quarter of fiscal 2006, and thus recognize the cost of our stock based compensation plans using the fair value based method for both periods presented.
	The stock based compensation cost that was charged against income for all plans was $1.6 million and $0.9 million for the quarters ended December 31, 2006 and 2005, respectively. The total income tax benefit recognized in the income statement for stock compensation costs was $0.6 million and $0.3 million for the quarters ended December 31, 2006 and 2005, respectively.
11.	Guarantees
	We routinely grant limited warranties on our products with respect to defects in material and workmanship. The terms of these warranties are generally one year, however, certain components and products have substantially longer warranty periods. We recognize a reserve with respect to these obligations at the time of product sale, with subsequent warranty claims recorded directly against the reserve. The amount of the warranty reserve is determined based on historical trend experience for the covered products. For more significant warranty-related matters which might require a broad-based correction, separate reserves are established when such events are identified and the cost of correction can be reasonably estimated.

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A reconciliation of changes in the warranty reserve for the periods covered in this report is as follows:

	Quarterly
	Period Ended
	12/31/06			12/31/05
Balance at beginning of period	$	17.8		$	16.6
Provision for warranties during the period		4.0			4.0
Warranty claims incurred during the period		(3.9	)		(4.2	)
Balance at end of period	$	17.9		$	16.4

	In the normal course of business we enter into various other guarantees and indemnities in our relationships with suppliers, service providers, customers, business partners and others. Examples of these arrangements would include guarantees of product performance, indemnifications to service providers and indemnifications of our actions to business partners. These guarantees and indemnifications would not materially impact our financial condition or results of operations, although indemnifications associated with our actions generally have no dollar limitations.
	In conjunction with our acquisition and divestiture activities, we have entered into select guarantees and indemnifications of performance with respect to the fulfillment of commitments under applicable purchase and sale agreements. The arrangements generally indemnify the buyer or seller for damages associated with breach of contract, inaccuracies in representations and warranties surviving the closing date and satisfaction of liabilities and commitments retained under the applicable contract. For those representations and warranties that survive closing, they generally survive for periods up to five years or the expiration of the applicable statutes of limitations. Potential losses under the indemnifications are generally limited to a portion of the original transaction price, or to other lesser specific dollar amounts for select provisions. With respect to sale transactions, we also routinely enter into non-competition agreements for varying periods of time. Guarantees and indemnifications with respect to acquisition and divestiture activities, if triggered, could have a materially adverse impact on our financial condition and results of operations.
12.	Segment Reporting
	We are organized into two operating companies, Hill-Rom and Batesville Casket. SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” requires reporting of segment information that is consistent with the way in which management operates and views the Company. Accordingly, Hill-Rom’s segment activities are reported herein in a manner consistent with the way management monitors its performance.
	In October 2006, we initiated new operational strategies and associated initiatives for our two operating companies, and as a result, Hill-Rom’s organizational structure was modified to better align with those strategies and initiatives. The new structure categorizes Hill-Rom activities into three commercial divisions, reflecting our broad customer segments. Sourcing, manufacturing, and product development continue to be combined under one function to support these commercial divisions. When combined with the Batesville Casket segment, our 2007 reporting segments are as follows:

• North America Acute Care (Acute)

• North America Post-Acute Care (Post-Acute)

• International and Surgical

• Batesville Casket

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Hill-Rom performance under each segment reporting presentation is measured on a divisional income basis before special items. Divisional income represents the division’s standard gross profit less their direct operating costs. With respect to the reporting of revenues in this structure, the division responsible for the ultimate sale to the end customer is the only division to receive credit for the revenue. As a result, there are no intersegment sales between the divisions requiring elimination for segment reporting purposes.

Functional costs include common costs, such as administration, finance and non-divisional legal and human resource costs and other charges not directly attributable to the segments; along with operations and development costs such as fixed manufacturing overhead, research and development, and distribution. Functional costs and eliminations, while not considered a segment, are presented separately to aid in the reconciliation of segment information to consolidated Hill-Rom financial information. We also break out certain continuing public entity corporate-related costs separately to improve readability and understanding.

The performance of Batesville Casket is measured on the basis of income from continuing operations before special charges and income taxes. Intersegment sales do not occur between Hill-Rom and Batesville Casket.

Financial information regarding our reportable segments is presented below. Segment data for fiscal 2006 has been restated to conform with the new reporting structure outlined above:

	Hill-Rom/Corporate
					International		Functional			Hill-Rom/			Batesville
	Acute		Post-Acute		& Surgical		Costs			Corporate			Casket		Consolidated
Quarterly Period Ended December 31, 2006
Net revenues	$	204.2	$	45.4	$	71.4	$	—		$	321.0		$	162.2	$	483.2
Divisional income (loss)	$	68.7	$	15.7	$	15.9	$	(59.6	)	$	40.7		$	44.3	$	85.0
Public entity costs and other										$	(5.9	)
Income from continuing operations before income taxes										$	37.6		$	44.6	$	82.2
Income tax expense															$	30.3
Net income															$	51.9
Assets										$	1,715.6		$	287.2	$	2,002.8
Capital expenditures and intangible assets										$	25.3		$	2.0	$	27.3
Depreciation and amortization										$	22.1		$	4.3	$	26.4

	Hill-Rom/Corporate
					International		Functional			Hill-Rom/			Batesville
	Acute		Post-Acute		& Surgical		Costs			Corporate			Casket		Consolidated
Quarterly Period Ended December 31, 2005
Net revenues	$	204.0	$	43.3	$	64.5	$	—		$	311.8		$	165.7	$	477.5
Divisional income (loss)	$	65.1	$	14.7	$	16.3	$	(61.1	)	$	35.0		$	41.6	$	76.6
Public entity costs and other										$	(6.0	)
Income from continuing operations before income taxes and special charges										$	38.7		$	41.7	$	80.4
Special charges															$	(2.4	)
Income from continuing operations before income taxes															$	78.0
Income tax expense															$	29.4
Income from continuing operations															$	48.6
Loss from discontinued operations															$	(0.3	)
Net income															$	48.3
Assets										$	1,975.1		$	289.1	$	2,264.2
Capital expenditures and intangible assets										$	14.1		$	3.1	$	17.2
Depreciation and amortization										$	23.2		$	4.3	$	27.5

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13.	Commitments and Contingencies
	As previously reported, on June 30, 2003, Spartanburg Regional Healthcare System (the “Plaintiff”) filed a purported antitrust class action lawsuit against Hillenbrand, Hill-Rom, Inc. and Hill-Rom Company, Inc. in the United States District Court for the District of South Carolina, alleging violations of the federal antitrust laws. Plaintiff sought to certify a class of all purchasers of Hill-RomÒ standard and/or specialty hospital beds, and/or architectural and in-room products from 1990 to the present where there had been contracts between Hill-Rom and such purchasers, either on behalf of themselves or through purchasing organizations, conditioning discounts on Hill-RomÒ hospital beds and other architectural and in-room products on commitments to rent or purchase a very high percentage (e.g. ninety percent) of specialty beds from Hill-Rom. Plaintiff subsequently narrowed the definition of its proposed class to acute and subacute facilities.
	On February 3, 2006, the Court preliminarily approved a definitive agreement among Hillenbrand, its Hill-Rom subsidiaries, Spartanburg Regional Healthcare System, and its attorneys to settle the case for $337.5 million in cash. The Court entered an Order and Final Judgment approving the settlement following a fairness hearing on June 14, 2006. As finally approved by the Court, the settlement resolves all of the claims of class members that did not opt out of the settlement, including the claims of all U.S. and Canadian purchasers or renters of Hill-Rom® products from 1990 through February 2, 2006 related to or arising out of the subject matter of the lawsuit, and the claims that may have resulted from the current or future effects of conduct or events occurring through February 2, 2006. The original settlement amount of $337.5 million was reduced by almost $21.2 million, to $316.3 million, reflecting the portion attributable to customers who opted out of the settlement. Opt-outs from the settlement account for roughly six percent of the total U.S. and Canadian revenue during the class period, and over 99 percent of that figure is attributable to the U.S. government’s decision to opt out of the settlement. We believe we have meritorious defenses against any claims the U.S. government may choose to make, due to, among other reasons, pricing practices of government purchases that are different than the pricing practices primarily at issue in the lawsuit.
	The settlement agreement includes Hill-Rom’s commitment to continue certain company-initiated discounting practices for a period of three years. Essentially, Hill-Rom implemented a policy in October 2002, which it has agreed to follow until at least February 2009. Under that policy, which did not represent a material change in our discounting practices, Hill-Rom refrains from entering into new contracts that condition incremental discounts on Hill-Rom® hospital beds or architectural products on commitments to rent therapy products from Hill-Rom. While such products may be sold together, rental therapy products are separately priced and discounted. Under the settlement Hill-Rom may continue to offer all other discounts such as volume discounts, early payment discounts, capitation, etc. Further, the discounting practices that gave rise to the Spartanburg litigation have already been discontinued (or will be discontinued on the expiration of certain existing contracts) and have been replaced by alternative practices for each of the last four fiscal years. Therefore, any impact of the discontinuance of such practices on our business is already fully reflected in our reported results.
	In connection with our assessment that it was probable that a settlement would be reached and finally approved by the Court during fiscal 2006, we recorded a litigation charge and established a litigation accrual in the amount of $358.6 million in the fourth quarter of fiscal 2005, which included certain legal and other costs associated with the proposed settlement. With the Court’s entering of the Order and Final Judgment in the third quarter of fiscal 2006, we reversed $2.3 million of the $21.1 million of estimated legal and other costs originally provided as part of the litigation accrual as such amounts are not probable of payment. We paid the remaining $266.3 million of the settlement amount

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into escrow in August 2006 and have retained a $21.2 million litigation accrual associated with the opt-outs.

On May 2, 2005, a non-profit entity called Funeral Consumers Alliance, Inc. (“FCA”) and several individual consumers filed a purported class action antitrust lawsuit (“FCA Action”) against three national funeral home businesses, Service Corporation International (“SCI”), Alderwoods Group, Inc. (“Alderwoods”), and Stewart Enterprises, Inc. (“Stewart”) together with Hillenbrand and its Batesville Casket Company, Inc. subsidiary (“Batesville”), in the United States District Court for the Northern District of California. This lawsuit alleged a conspiracy to suppress competition in an alleged market for the sale of caskets through a group boycott of so-called “independent casket discounters,” that is, third-party casket sellers unaffiliated with licensed funeral homes; a campaign of disparagement against these independent casket discounters; and concerted efforts to restrict casket price competition and to coordinate and fix casket pricing, all in violation of federal antitrust law and California’s Unfair Competition Law. The lawsuit claimed, among other things, that Batesville’s maintenance and enforcement of, and alleged modifications to, its long-standing policy of selling caskets only to licensed funeral homes were the product of a conspiracy among Batesville, the other defendants and others to exclude “independent casket discounters” and that this alleged conspiracy, combined with other alleged matters, suppressed competition in the alleged market for caskets and led consumers to pay higher than competitive prices for caskets. The FCA Action alleged that two of Batesville’s competitors, York Group, Inc. and Aurora Casket Company, are co-conspirators but did not name them as defendants. The FCA Action also alleged that SCI, Alderwoods, Stewart and other unnamed co-conspirators conspired to monopolize the alleged market for the sale of caskets in the United States.

Batesville, Hillenbrand, and the other defendants filed motions to dismiss the FCA Action and a motion to transfer to a more convenient forum. In response, the court in California permitted the plaintiffs to replead the complaint and later granted defendants’ motion to transfer the action to the United States District Court for the Southern District of Texas (Houston, Texas) (“Court”).

On October 12, 2005, the FCA plaintiffs filed an amended complaint containing substantially the same basic allegations as the original FCA complaint in the United States District Court for the Southern District of Texas. It is not unusual to have multiple copycat class action suits filed after an initial filing, and it is possible that additional suits based on the same or similar allegations will be brought against Hillenbrand and Batesville. To date, other purported consumer class actions that had been filed in the wake of the FCA action have either been consolidated into the FCA Action or dismissed. On October 26, 2006, however, a new purported class action was filed by the estates of Dale Van Coley and Joye Katherine Coley, Candace D. Robinson, Personal Representative, consumer plaintiffs, against Batesville and Hillenbrand in the Western District of Oklahoma alleging violation of the antitrust laws in fourteen states based on allegations that Batesville engaged in conduct designed to foreclose competition and gain a monopoly position in the market. This lawsuit is largely based on similar factual allegations to the FCA Action. The Company moved to transfer this case to the Southern District of Texas in order to coordinate this action with the FCA Action, and the Company intends to file a motion to dismiss this action.

The FCA plaintiffs are seeking certification of a class that includes all United States consumers who purchased Batesville caskets from any of the funeral home co-defendants at any time during the fullest period permitted by the applicable statute of limitations. Plaintiffs generally seek actual unspecified monetary damages, trebling of any such damages that may be awarded, recovery of attorneys’ fees and costs, and injunctive relief. On October 18, 2006, the district court denied Batesville’s, Hillenbrand’s, and other defendants’ November 2005 motions to dismiss the amended FCA complaint. A class certification hearing was held in the FCA Action in early December 2006.

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In addition to the consumer lawsuits discussed above, on July 8, 2005, Pioneer Valley Casket Co. (“Pioneer Valley”), an alleged casket store and Internet retailer, also filed a purported class action lawsuit against Batesville, Hillenbrand, SCI, Alderwoods, and Stewart in the Northern District of California on behalf of the class of “independent casket distributors,” alleging violations of state and federal antitrust law and state unfair and deceptive practices laws based on essentially the same factual allegations as in the consumer cases. Pioneer Valley claimed that it and other independent casket distributors were injured by the defendants’ alleged conspiracy to boycott and suppress competition in the alleged market for caskets, and by an alleged conspiracy among SCI, Alderwoods, Stewart and other unnamed co-conspirators to monopolize the alleged market for caskets.

Plaintiff Pioneer Valley seeks certification of a class of all independent casket distributors who are now in business or have been in business since July 8, 2001. Pioneer Valley generally seeks actual unspecified monetary damages on behalf of the purported class, trebling of any such damages that may be awarded, recovery of attorneys’ fees and costs, and injunctive relief.

The Pioneer Valley complaint was also transferred to the Southern District of Texas but was not consolidated with the FCA Action, although the scheduling orders for both cases are identical. On October 21, 2005, Pioneer Valley filed an amended complaint adding three new plaintiffs, each of whom purports to be a current or former “independent casket distributor.” Like Pioneer Valley’s original complaint, the amended complaint alleges violations of federal antitrust laws, but it has dropped the causes of actions for alleged price fixing, conspiracy to monopolize, and violations of state antitrust law and state unfair and deceptive practices laws. On October 25, 2006, the district court denied Hillenbrand’s and Batesville’s December 2005 motions to dismiss the amended Pioneer Valley complaint. The class certification hearing in the Pioneer Valley case was held on December 8, 2006. Post-hearing briefing on the plaintiffs’ class certification motion in both the FCA and Pioneer Valley Actions is scheduled to be completed by March 2007. Trials in the FCA and Pioneer Valley Actions are scheduled to begin on or about February 4, 2008.

If a class is certified in any of the antitrust cases filed against Hillenbrand and Batesville and if the plaintiffs in any such case prevail at trial, potential trebled damages awarded to the plaintiffs could have a significant material adverse effect on our results of operations, financial condition, and/or liquidity. Accordingly, we are aggressively defending against the allegations made in all of these cases and intend to assert what we believe to be meritorious defenses to class certification and to plaintiffs’ allegations and damage theories.

After the FCA Action was filed, in the summer and fall of 2005, Batesville was served with Civil Investigative Demands (“CIDs”) by the Attorney General of Maryland and certain other state attorneys general who have begun an investigation of possible anticompetitive practices in the funeral service industry relating to a range of funeral services and products, including caskets. Batesville has been informed that approximately 26 state attorneys general offices are participating in the joint investigation, although more could join. Batesville is cooperating with the attorneys general. To date, no claims have been filed against Batesville.

In August 2005, Hill-Rom received a civil subpoena from the Office of the Connecticut Attorney General seeking documents and information related to the Attorney General’s investigation of the Healthcare Research & Development Institute, LLC (“HRDI”), a health care trade organization, of which Hill-Rom was a corporate member. Hill-Rom has responded to that subpoena. On April 3, 2006, Hill-Rom received a set of supplemental interrogatories from the Attorney General’s Office. Hill-Rom has responded to those interrogatories. In December 2006, Hill-Rom received a civil subpoena from the Office of the Illinois Attorney General seeking documents and information related to the Attorney General’s investigation of HRDI. Hill-Rom is in the process of responding to this

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	subpoena. On January 25, 2007, the Connecticut Attorney General’s Office announced a settlement with HRDI and its hospital Chief Executive Officer members, at the same time announcing that the investigation is ongoing as to supplier members and others. The investigation appears to concern whether HRDI supplier members had influence over hospitals represented among HRDI’s Chief Executive Officer members. We are cooperating with both investigations and no claims have been filed against Hill-Rom.
	We are subject to various other claims and contingencies arising out of the normal course of business, including those relating to commercial transactions, product liability, employee related matters, antitrust, safety, health, taxes, environmental and other matters. Litigation is subject to many uncertainties and the outcome of individual litigated matters is not predictable with assurance. It is possible that some litigation matters for which reserves have not been established could be decided unfavorably to us, and that any such unfavorable decisions could have a material adverse effect on our financial condition, results of operations and cash flows.
	We are also involved in other possible claims, including product liability, workers compensation, auto liability and employment related matters. These have deductibles and self-insured retentions ranging from $150 thousand to $1.5 million per occurrence or per claim, depending upon the type of coverage and policy period.
	Since December 1999, we have purchased deductible reimbursement policies from our wholly-owned insurance company, Sycamore Insurance Company, for the deductibles and self-insured retentions associated with our product liability, workers compensation and auto liability programs. For these self-insured exposures, outside insurance companies and third-party claims administrators establish individual claim reserves and an independent outside actuary provides estimates of ultimate projected losses, including incurred but not reported claims. The actuary also provides estimates of ultimate projected losses used to determine accrual adequacy for losses incurred prior to December 1999. These independent third-party estimates are used to record reserves for all projected deductible and self-insured retention exposures.
	Claim reserves for employment related matters are established based upon advice from internal and external counsel and historical settlement information for claims and related fees when such amounts are considered probable of payment.
14.	Subsequent Events
	In line with our strategy to grow through acquisitions, in January 2007, Batesville Casket acquired a small regional casket distributor. This acquisition capitalizes on our capacity to serve the broad needs of funeral service professionals and maximizes our distribution base in the Midwest and Florida. We are still in the process of finalizing the valuation of certain of the assets and liabilities acquired. As a result, the purchase price remains subject to adjustment, and goodwill associated with the transaction has not been determined. If the purchase had occurred at the beginning of fiscal 2007, the impact to our results of operations and financial condition would not have been material.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements and Factors That May Affect Future Results

Certain statements in this Quarterly Report on Form 10-Q contain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995 regarding our future plans, objectives, beliefs, expectations, representations and projections. We have tried, whenever possible, to identify these forward-looking statements by using words such as “intend,” “anticipate,” “believe,” “plan,” “encourage,” “expect,” “may,” “goal,” “become,” “pursue,” “estimate,” “strategy,” “will,” “projection,” “forecast,” “continue,” “accelerate,” “promise,” “increase,” or the negative of those terms or other variations of them or by comparable terminology. The absence of such terms, however, does not mean that the statement is not forward-looking. We caution readers that any such forward-looking statements are based on assumptions that we believe are reasonable, but are subject to a wide range of risks. It is important to note that forward-looking statements are not guarantees of future performance, and our actual results could differ materially from those set forth in any forward-looking statements. There are a number of factors — many of which are beyond our control — that could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. For a more in depth discussion of these and other factors that could cause actual results to differ from those contained in forward-looking statements, see the discussions under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2006 filed with the U.S. Securities and Exchange Commission. We assume no obligation to update or revise any forward-looking statements. Readers should also refer to the various disclosures made by us in our periodic reports on Form 8-K filed with the U.S. Securities and Exchange Commission.

Overview

The following discussion and analysis should be read in conjunction with the accompanying interim financial statements and our Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended September 30, 2006.

Hillenbrand Industries is organized into two operating companies serving the health care and funeral services industries.

Hill-Rom is a leading worldwide manufacturer and provider of medical technologies and related services for the health care industry, including patient support systems, non-invasive therapeutic products for a variety of acute and chronic medical conditions, medical equipment rentals, and workflow information technology solutions. Hill-Rom’s comprehensive product and service offerings are used by health care providers across the health care continuum in hospitals, extended care facilities and home care settings, to enhance the safety and quality of patient care.

Batesville Casket Company is a leader in the North American death care industry through the sale of funeral services products, including burial caskets, cremation caskets, containers and urns, selection room display fixturing and other personalization and memorialization products.

For a detailed discussion of industry trends, fiscal 2007 strategy and other factors impacting our businesses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Industry Trends, Fiscal 2007 Strategy and Other Factors Impacting the Business” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006.

Consolidated Results of Operations

In this section, we provide a high-level overview of our consolidated results of operations. Immediately following this section is a discussion of our results of operations by reportable segment.

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Consolidated Revenues

	Three Months Ended
	December 31,
(Dollars in millions)	2006		2005		% Change
Revenues:
Health Care sales	$	210.8	$	195.3		7.9
Health Care rentals		110.2		116.5		(5.4	)
Funeral Services sales		162.2		165.7		(2.1	)
Total Revenues	$	483.2	$	477.5		1.2

Consolidated revenues for the first quarter of 2007 increased $5.7 million, or 1.2 percent, compared to the first quarter of 2006. The increase in revenues was primarily related to Health Care sales revenues increasing $15.5 million from the prior year as a result of higher volumes, favorable exchange rates and to a lesser extent favorable price realization when compared to the prior year. Volume strength was led by CareAssist ES^® bed frames and Workflow Information Technology Solutions products within our North America Acute Care segment, along with slightly higher volumes in our International and Surgical segment partially resulting from the acquisition of Medicraft, a market leading manufacturer of hospital bed platforms in Australia. Health Care rental revenues decreased $6.3 million related to lower volumes and continued weak pricing. These lower volumes were expected as we continue to experience many of the unfavorable trends encountered in fiscal 2006, including customer relationship issues resulting from past billing and processing issues and the impacts of changes in GPO affiliations. We have significant initiatives underway to reverse those unfavorable trends and revitalize our rental business, including increased investments in our therapy rental fleet, increased efficiencies using our rental billing system and reenergized customer focus. While we have already begun to realize benefits, much of the momentum from these initiatives is not expected to take hold until later in the year. Funeral Services revenues were also down for the quarter, decreasing $3.5 million compared to the prior year due to lower volumes and continued unfavorable product mix shifts, partially offset by favorable net price realization. The lower volumes were partially attributable to the lower incidence of seasonal pneumonia and influenza in the first quarter of 2007.

Consolidated Gross Profit

	Three Months Ended				Three Months Ended
	December 31, 2006				December 31, 2005
			% of Related				% of Related
(Dollars in millions)			Revenues				Revenues
Gross Profit
Health Care sales	$	88.4		41.9	$	77.2		39.5
Health Care rentals		57.0		51.7		61.3		52.6
Funeral Services		68.8		42.4		64.8		39.1
Total Gross Profit	$	214.2		44.3	$	203.3		42.6

Consolidated gross profit for the first quarter of 2007 increased $10.9 million, or 5.4 percent, from the prior year quarter. As a percentage of sales, consolidated gross profit margins of 44.3 percent increased from 42.6 percent in the prior year period. Health Care sales gross profit increased $11.2 million due primarily to the effects of the higher volumes along with improved price and product mix. Lower overall costs resulting from various sourcing and other manufacturing cost reduction initiatives realized since the prior year first quarter also contributed to the higher margins. The decrease in Health Care rental gross profit was largely volume related as the lower costs resulting from the prior year field service restructuring efforts only partially offset the lower revenues. Funeral Services gross profit increased $4.0 million, driven by favorable price realization and continued productivity improvements at our manufacturing locations, including savings from the wood plant consolidation completed in the prior year. This favorability was partially offset by the effects of lower volumes and the continued gradual shift in product mix from metal to wood caskets and from higher to lower-end products that have slightly lower margins.

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Other

	Three Months Ended
	December 31,
(Dollars in millions)	2006			2005			% Change
Other operating expenses	$	135.1		$	132.7			1.8
Percent of Total Revenues		28.0	%		27.8	%
Special charges		—			2.4			(100.0	)
Interest expense	$	(5.7	)	$	(5.0	)		14.0
Investment income		9.8			14.8			(33.8	)
Other		(1.0	)		—			N/A
Other income/(expense), net	$	3.1		$	9.8			(68.4	)

Other operating expenses increased $2.4 million for the three-month period ended December 31, 2006 compared to the same prior year period. As a percentage of revenues, operating expenses for the three-month period of 2007 were 28.0 percent compared to 27.8 percent in the prior year comparable period. The overall higher expense levels were partially due to the increased investments previously outlined as part of our 2007 strategic plan, including increased spending in research and development, marketing and sales. Also contributing to this increase were slightly higher incentive compensation costs, operating expenses associated with the acquisition of Medicraft made at the beginning of the first quarter and general salary and benefit inflation. This unfavorability was partially offset by decreased legal and professional fees, including a reduction in costs associated with the defense of antitrust lawsuits of $3.0 million for the three-month period of 2007.

While there were no special charges for the three-month period ended December 31, 2006, the prior year period included special charges of approximately $2.4 million, most notably in Europe, as we continued with the restructuring activities previously announced in the fourth quarter of fiscal 2005. Additional special charges of $2 million to $4 million may be incurred in Europe during fiscal 2007 as our restructuring activities and the voluntary severance program at our French manufacturing facility continue. (See Note 7 to the Condensed Consolidated Financial Statements for more detail on these actions.)

Interest expense increased $0.7 million compared to the first quarter of 2006 due to the increase in short-term interest rates and their negative impact to our interest rate swaps on long-term debt. Investment income for the quarter decreased $5.0 million in 2007, as while performance of our limited partnership investments was favorable in both periods, the gains and corresponding cash distributions received during the prior year quarter were larger than those of the current year. Other expense was negligible in both three-month periods ended December 31, 2006 and 2005.

The effective tax rate for the first quarter of fiscal 2007 was 36.9 percent compared to 37.7 percent for the first quarter of 2006. The lower rate in 2007 is the result of a number of factors, including a lower foreign tax rate differential due to lower anticipated operating losses in France, the reinstatement of the research and development tax credit for a full year and the ability to take advantage of the deduction for qualified domestic production activities in fiscal 2007. These favorable impacts to the effective tax rate are partially offset by the recognition of lower discrete period tax benefits in the first quarter of fiscal 2007 compared to the first quarter of fiscal 2006. The first quarter fiscal 2007 effective tax rate reflects the recognition of $0.5 million of certain discrete period tax benefits, primarily related to the one-time “catch-up” for the retroactive reinstatement of the research and development credit. This compares to $1.2 million of discrete period tax benefits recorded in the first quarter of fiscal 2006, principally related to the filing of amended state tax returns and the finalization of other tax positions.

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Income from continuing operations increased $3.3 million to $51.9 million in the first quarter of 2007 compared to $48.6 million in the prior year quarter. This equates to diluted earnings per share of $0.84 for the three-month period of 2007, compared to $0.79 per share for the comparable period of 2006.

Results from discontinued operations were a loss of $0.3 million for the first quarter of 2006. With the exception of Forethought Federal Savings Bank (“FFSB”), we completed the divestiture of Forethought Financial Services in the fourth quarter of fiscal 2004. The sale of FFSB was completed on January 3, 2006, and accordingly, the operations of FFSB are presented as discontinued operations within our Condensed Consolidated Statements of Income for 2006. We recognized an after tax loss on this transaction of $0.6 million in the first quarter of fiscal 2006. See Note 4 to the Condensed Consolidated Financial Statements for more information.

Business Segment Results of Operations

	Three Months Ended
	December 31,
(Dollars in millions)	2006			2005			% Change
Revenues:
North America Acute Care	$	204.2		$	204.0			0.1
North America Post-Acute Care		45.4			43.3			4.8
International and Surgical		71.4			64.5			10.7
Total Hill-Rom		321.0			311.8			3.0
Batesville Casket		162.2			165.7			(2.1	)
Total revenues	$	483.2		$	477.5			1.2
Divisional income:
North America Acute Care	$	68.7		$	65.1			5.5
North America Post-Acute Care		15.7			14.7			6.8
International and Surgical		15.9			16.3			(2.5	)
Functional Costs		(59.6	)		(61.1	)		(2.5	)
Total Hill-Rom		40.7			35.0			16.3
Batesville Casket		44.3			41.6			6.5
Total divisional income	$	85.0		$	76.6			11.0

The following table reconciles segment divisional income to income from continuing operations before income taxes.

	Three Months Ended
	December 31,
(Dollars in millions)	2006			2005			% Change
Segment divisional income	$	85.0		$	76.6			11.0
Public entity costs and other		(5.9	)		(6.0	)		(1.7	)
Special charges		—			(2.4	)		(100.0	)
Other income/(expense)		3.1			9.8			(68.4	)
Income from continuing operations before income taxes	$	82.2		$	78.0			5.4

North America Acute Care

North America Acute Care revenues increased $0.2 million, or 0.1 percent, in the first quarter of 2007 compared to the first quarter of 2006. Sales revenues reflected an increase of $8.8 million, or 6.5 percent, primarily on higher volumes, favorable mix and to a lesser extent favorable price

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realization, while rental revenues were lower by $8.6 million, or 12.7 percent, due to lower expected volumes and continued lower pricing. Higher sales volumes during the quarter were led by our CareAssist ES^® platform with revenues up $4.3 million when compared to the prior year while Workflow Information Technology Solutions products accounted for an additional $3.8 million of the sales increase. The expected decline in rental volume was evident in all major product categories, except bariatric products, and was driven by the loss of some business and reduced account conversions as we continue to experience many of the unfavorable trends encountered in fiscal 2006 resulting from our past rental billing and processing issues and the impacts of changes in GPO affiliations. Volumes were also negatively impacted by continuing declines in the pulmonary and wound product areas resulting from increasing capital purchases by customers of these products.

Divisional income for North America Acute Care increased $3.6 million in the first quarter of 2007 compared to the prior year period. Most of this increase resulted from higher gross profit, which was up $2.7 million compared to the prior period. Sales gross profit was up $9.9 million driven by higher volumes and to a lesser extent favorable price. For rentals, gross profit was down $7.2 million as with the generally fixed cost nature of the field service and sales network, only a limited amount of the $8.6 million revenue shortfall could be recovered by lower costs. The lower rental costs achieved during the quarter were related to cost improvements in our field service network of $2.0 million primarily resulting from our prior year restructuring activities, and from which benefits are expected to continue. Operating expenses were down $0.9 million in 2007, despite certain investments related to our current year strategy, as a result of restructuring actions in late 2005 that are now being fully realized.

North America Post-Acute Care

North America Post-Acute Care revenues increased $2.1 million, or 4.8 percent, in the first quarter of 2007 compared to the first quarter of 2006. Sales revenues increased by $1.2 million, primarily due to the performance of our extended care product line and increased sales of The Vest™ products. Rental revenues increased $0.9 million, primarily related to an increase in revenues on The Vest™, partially offset by lower activity in our standard therapy rentals.

Divisional income for North America Post-Acute Care increased $1.0 million, or 6.8 percent, in the first quarter of 2007 compared to the prior year period. The increase was due primarily to higher rental gross profit of $1.4 million associated with the higher rental volume, along with slightly lower field service costs, once again the result of our prior year restructuring activities. Sales margins also increased $0.4 million from the prior year primarily due to increased sales volumes. Partially offsetting the higher gross profit, operating expenses increased from prior year by $0.8 million mainly due to increased costs related to our on-going efforts to improve the efficiency and effectiveness of our rental billing system, along with additional investments in sales and marketing initiatives.

International and Surgical

International and Surgical revenues increased $6.9 million, or 10.7 percent, in the first quarter of 2007 compared to the first quarter of 2006, inclusive of the favorable impact of exchange rates of $3.6 million. Sales revenues, which were up $5.5 million, were positively affected by the favorable exchange rates and our acquisition of Medicraft, which was completed early in the first quarter and drove $3.8 million of the revenue increase. Additionally, sales of our new AvantGuard™ 800 bed frame, which was launched in Europe to address market demand in the mid and low end acuity bed frame segment has exceeded our expectations in the first quarter. Rental revenues were also higher by $1.4 million due to the favorable exchange rates and improved mix related to higher TotalCare^® product usage and increased mattress rental volume in Europe. Overall, favorability in our Surgical business and within Europe offset weaker performance in Latin America, Asia and the Middle East, all of which experienced very strong prior year performance.

Divisional income for International and Surgical decreased $0.4 million in the first quarter of 2007 compared to the prior year period, net of the impact of favorable exchange rates of $0.5

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million. Most of this decline was the result of higher operating expenses by $3.4 million, or 26.5 percent, primarily due to the additional $0.8 million of Australian expenses associated with the Medicraft acquisition and increased investment in the strategic initiatives as described in our Form 10-K. Gross profit was up $3.0 million compared to the prior period on increased sales revenues in Europe and Australia and higher rental volume.

Batesville Casket

Batesville Casket revenues in the first quarter of 2007 decreased $3.5 million, or 2.1 percent, from the prior year comparable period. Revenues were unfavorably impacted by lower volume of $6.2 million and unfavorable product mix of $2.6 million, partially offset by an increase in net price realization of $5.3 million. The volume decline was in part a result of the relatively low pneumonia and influenza rate during the period, along with the likely acceleration of certain purchases by our customers ahead of our annual price increase, which was effective October 1, 2007. The unfavorable product mix resulted from relative increased sales of our lower-end metal products and the continued gradual shift from metal to wood caskets.

Batesville Casket divisional income increased $2.7 million, or 6.5 percent, in the first quarter compared to the same period of the prior year. That favorability was driven by higher gross profit, despite the lower revenues and higher commodity costs in steel and red metals. The increase in gross profit resulted from cost savings of $2.0 million associated with our prior year wood plant consolidation, a $0.5 million gain on the sale of a distribution facility in the first quarter of 2007, lower relative fuel and utility costs and other manufacturing process and sourcing efficiencies realized over the prior year. Partially offsetting the higher gross profit, operating expenses were up $1.1 million primarily due to higher antitrust legal costs of $1.4 million.

Liquidity and Capital Resources

	Three Months Ended
	December 31,
(Dollars in millions)	2006			2005
Cash Flows Provided By (Used In):
Operating activities	$	101.8		$	54.3
Investing activities		(76.9	)		32.8
Financing activities		(13.9	)		(11.5	)
Effect of exchange rate changes on cash		1.0			(0.3	)
Increase in Cash and Cash Equivalents	$	12.0		$	75.3

Net cash flows from operating activities and selected borrowings have represented our primary sources of funds for growth of the business, including capital expenditures and acquisitions. Our financing agreements contain no restrictive provisions or conditions relating to dividend payments, working capital or additional unsecured indebtedness (except to the extent that a dividend payment or incurrence of additional unsecured indebtedness would result in a default under our financing agreements), but there are limitations with respect to secured indebtedness. Our debt agreements also contain no credit rating triggers. Credit rating changes can, however, impact the cost of borrowings under our financing agreements.

Operating Activities

For the three-month period ended December 31, 2006, net cash provided by operating activities totaled $101.8 million compared to $54.3 million for the three months ended December 31, 2005.

Depreciation and amortization decreased slightly to $26.4 million in the first three months of fiscal 2007 from $27.5 million in the 2006 comparable period.

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Changes in working capital increased cash from operations in the first quarter of 2007 and decreased cash from operations in the same prior year period. In the first three months of fiscal 2007, accounts receivable decreased $27.1 million from the prior year-end resulting from the collection of high fiscal year-end receivables. The effects of increased inventories and the reduction of accrued compensation associated with the payment of fiscal 2006 incentive compensation were essentially offset with the increase in income taxes payable associated with the timing of our estimated tax payments. In the first quarter of 2006, trade accounts payable decreased $19.4 million from the prior year-end resulting from normal repayments of traditionally higher fiscal year-end payables. Other reductions in operating cash flow in 2006 included the increase in accounts receivable from year-end due to higher sales volumes at Batesville Casket in the period preceding the quarter-end balance sheet date versus the year-end date and the increase in inventory levels at Hill-Rom from year-end. Partially offsetting these declines in cash from operations was an increase in accrued expenses driven by increases in income taxes payable and accrued compensation.

Investing Activities

Net cash used in investing activities for the three months ended December 31, 2006 totaled $76.9 million compared to net cash provided by investing activities of $32.8 million for the three months ended December 31, 2005. Capital expenditures increased to $27.3 million from $17.2 million in the prior year period. Capital expenditures increased to $25.3 million from $14.1 million within Hill-Rom for the first three months of 2007 and 2006, respectively, due primarily to rental fleet additions. Batesville Casket’s capital expenditures decreased to $2.0 million from $3.1 million over the same periods. Fiscal year 2007 capital expenditures are expected to approximate $145 million, as we strategically invest in our rental fleet, our rental systems, and Hill-Rom’s low cost manufacturing facility in Mexico.

The first three months of investment activity in fiscal 2007 included $65.2 million of purchases and capital calls and $29.4 million provided from sales and maturities. We invest a portion of our excess cash from operations into highly liquid auction rate municipal bonds. These liquid, current investments accounted for $64.9 million of the purchases and $23.3 million of the sales for the first three months of fiscal 2007, as they were utilized as a treasury management strategy to earn better rates of return on available cash. In the first three months of fiscal 2006, current investment purchases were $26.0 million with sales of $73.0 million.

On October 17, 2003, we announced that we had completed our acquisition of ARI, a manufacturer and distributor of non-invasive airway clearance products and systems. The purchase price was $105.2 million. In the first quarter of 2006, the final deferred acquisition payment of $5.7 million was made. All purchase price obligations relative to ARI have now been completed.

On January 30, 2004, we acquired Mediq, a company in the medical equipment outsourcing and asset management business. The purchase price for Mediq was approximately $328.9 million plus an additional $5.9 million of acquisition costs incurred in relation to the transaction. This purchase price was subject to certain adjustments based upon the Mediq balance sheet at the date of close. Upon finalization of the funded status of the Mediq defined benefit pension plan, $7.3 million of the purchase price was returned to Hill-Rom in 2006, which was recorded as a reduction of goodwill. The purchase was initially funded from cash on hand and from our revolving credit facilities, but was later financed on a permanent basis through the issuance of senior notes in June 2004.

On October 6, 2006, Hill-Rom acquired Medicraft, Australia PTY, LTD (“Medicraft”), the leader in acute and post-acute hospital beds and furniture in Australia. The purchase price for Medicraft of $15.9 million, which includes direct acquisition costs, is subject to adjustment based on working capital at the time of closing. In the first quarter of fiscal 2007, $14.8 million was paid. We are still in the process of finalizing the valuation of certain of the assets and liabilities acquired such that the purchase price remains subject to adjustment.

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Financing Activities

Net cash used in financing activities totaled $13.9 million for the three months ended December 31, 2006 compared to $11.5 million for the three months ended December 31, 2005.

Cash dividends paid increased slightly to $17.5 million in the first quarter of 2007, compared to $17.4 million in the prior year comparable period due to the increase in shares outstanding. Quarterly cash dividends per share were $0.2825 in both 2007 and 2006.

Our debt-to-capital ratio was 23.5 percent at December 31, 2006 compared to 26.2 percent at December 31, 2005. This decrease was primarily due to the higher capital resulting from earnings.

Other Liquidity Matters

As of December 31, 2006, we have a $400.0 million five-year senior revolving credit facility with a syndicate of banks led by Bank of America, N.A. and Citigroup North America, Inc. The term of the five-year facility expires on June 1, 2009. Borrowings under the credit facility bear interest at variable rates, as defined therein. The availability of borrowings under the five-year facility is subject to our ability at the time of borrowing to meet certain specified conditions. These conditions include, without limitation, a maximum debt to capital ratio of 55 percent. The proceeds of the five-year facility shall be used, as needed: (i) for working capital, capital expenditures, and other lawful corporate purposes; and (ii) to finance acquisitions.

As of December 31, 2006, we: (i) had $14.8 million of outstanding, undrawn letters of credit under the five-year facility, (ii) were in compliance with all conditions set forth under the facility and (iii) had complete access to the remaining $385.2 million of borrowing capacity available under that facility.

We have trade finance credit lines totaling $20.0 million that have no commitment fees or compensating balance requirements and are renewed annually. As of December 31, 2006, we had $11.3 million outstanding under this credit line as reflected in Short-term borrowings on the Condensed Consolidated Balance Sheets. In addition, as of December 31, 2006, we had $14.7 million of outstanding, undrawn letters of credit under an uncommitted credit line of $20.0 million that has no commitment fees, compensating balance requirements or fixed expiration dates.

In fiscal year 2005, we recorded a pre-tax litigation charge of $358.6 million ($226.1 million net-of-tax). The charge is associated with the definitive agreement to settle for $337.5 million ($212.8 million net-of-tax) the Spartanburg antitrust class action litigation lawsuit. The charge also includes certain legal and other costs related to the settlement. The court entered an Order and Final Judgment approving the settlement following a fairness hearing on June 14, 2006. The original cost of the settlement, $337.5 million, was reduced by almost $21.2 million to $316.3 million. The reduction in the settlement amount reflects the position attributable to customers who opted out of the settlement. In addition to the $50 million that was paid into the escrow fund in the second quarter of fiscal 2006 pending final court approval, we paid the remaining $266.3 million into the escrow fund in August 2006. The entire funding of the settlement was completed from cash on hand. After funding the settlement, we continue to have a solid financial position with continued strong operating cash flows, and remaining availability under our previously discussed revolving credit facility as well as potential access to the capital markets to fund the execution of our strategic initiatives.

We intend to continue to pursue selective acquisition candidates in certain areas of our business, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. We expect to fund future acquisitions primarily with cash on hand, cash flow from operations and borrowings, including the unborrowed portion of the five-year credit facility, but we may also issue additional debt and/or equity in connection with acquisitions.

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During the first quarter of 2007, we did not repurchase any shares of our common stock in the open market. As of December 31, 2006, we had Board of Directors’ approval to repurchase 3,000,000 shares of our common stock. We may consider additional repurchases of shares if justified by the stock price or other considerations. Repurchased shares are used for general business purposes.

We believe that cash on hand and generated from operations and amounts available under our five-year credit facility along with amounts available from the capital markets, will be sufficient to fund operations, working capital needs, capital expenditure requirements and financing obligations. However, if a class is certified in any of the purported class action antitrust lawsuits filed against us, as described in Note 13 of the Condensed Consolidated Financial Statements, and the plaintiffs prevail at trial, potential damages awarded the plaintiffs could have a material adverse effect on our results of operations, financial condition and/or liquidity.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies

Our accounting policies require management to make significant estimates and assumptions using information available at the time the estimates are made. Such estimates and assumptions significantly affect various reported amounts of assets, liabilities, revenues and expenses. If future experience differs materially from these estimates and assumptions, our results of operations and financial condition could be affected. A detailed description of our accounting policies is included in the Notes to our Consolidated Financial Statements and the Critical Accounting Policies Section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006.

Recently Issued Accounting Standards

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for income taxes by prescribing the minimum recognition threshold as “more-likely-than-not” that a tax position must meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting for income taxes in interim periods, financial statement disclosure and transition rules. This Interpretation is effective for fiscal years beginning after December 15, 2006. As such, we are required to adopt FIN 48 by October 1, 2007. We have not yet analyzed the effect of this Interpretation on our consolidated financial statements or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The adoption of SFAS No. 157 is not expected to have a material impact on our consolidated financial statements or results of operations.

In September 2006, the FASB also issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R).” This Statement requires recognition of the funded status of a benefit plan in the statement of financial position. SFAS No. 158 also requires recognition in other comprehensive income of certain gains and losses that arise during the period but are deferred under pension accounting rules, as well as modifies the timing of reporting and adds certain disclosures. The Statement provides recognition and disclosure elements to be effective as of the end of the fiscal year after December 15, 2006 and measurement elements to be effective for fiscal years ending after December 15, 2008. As such, we will adopt the recognition and disclosure elements at the end of our current fiscal year. Had the recognition elements been effective as of the end of our last fiscal year, total assets would have been approximately $27 million lower due to the elimination of prepaid and intangible pension assets, and total liabilities would have been unchanged as the recognition of additional accrued pension costs to fully reflect the funded status of our defined benefit pension plans would have been offset by a reduction in deferred tax liabilities at September 30, 2006. Additionally, Accumulated other comprehensive loss would have increased by approximately $27 million.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Our financial instruments expose us to interest rate risk. During the first quarter of 2007 and throughout fiscal 2006, we had two interest rate swap agreements outstanding that converted our fixed interest rate expense to a floating basis. The notional amount of the interest rate swaps was $200 million at December 31, 2006 and September 30, 2006. The gains or losses arising from the interest rate swap contracts offset gains or losses on the underlying assets or liabilities and are recognized as offsetting adjustments to the carrying amounts. Our full exposure to floating rate risk is reduced due to the fact that we had cash, cash equivalents, and current investments of $135.5 million and $81.9 million on hand at December 31, 2006 and September 30, 2006, respectively. These holdings are exposed to floating rates as well, and therefore reduce our total exposure to movements in rates. As of December 31, 2006, the interest rate swap contracts reflected a cumulative loss of $3.7 million, compared to a cumulative loss of $4.3 million at September 30, 2006.

In January 2006, we began using derivative instruments to manage our cash flow exposure from changes in certain currency exchange rates. We operate the program pursuant to documented corporate risk management policies and do not enter into derivative transactions for speculative purposes.

Our currency risk consists primarily of foreign currency denominated firm commitments and forecasted foreign currency denominated intercompany and third-party transactions. We had currency derivative instruments outstanding in the contract amount of $22.8 million and $14.5 million at December 31, 2006 and September 30, 2006, and those derivative instruments had a fair value of $0.8 million and $0.3 million, respectively. The maximum length of time over which the Company has hedging transaction exposure is 12 months. Derivative gains/(losses), initially reported as a component of other comprehensive income, are reclassified to earnings in the period when the forecasted transaction affects earnings.

A 10 percent appreciation in the U.S. dollar’s value relative to the hedged currencies would increase the derivative instruments’ fair value by $2.0 million. A 10 percent depreciation in the U.S. dollar’s value relative to the hedged currencies would decrease the derivative instruments’ fair value by $2.5 million. Any increase or decrease in the fair value of our currency derivative instruments would be substantially offset by a corresponding decrease or increase in the fair value of the hedged underlying asset, liability or cash flow.

Item 4. CONTROLS AND PROCEDURES

Our management, with the participation of our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer (the “Certifying Officers”), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report for the information required to be disclosed in the reports we file or submit under the Exchange Act to be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and for such information to be accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. There were no changes in our internal control over financial reporting during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

As previously disclosed, on May 2, 2005, a non-profit entity called Funeral Consumers Alliance, Inc. and several individual consumers filed a purported class action antitrust lawsuit (“FCA Action”) against three national funeral home businesses, Service Corporation International (“SCI”), Alderwoods Group, Inc. (“Alderwoods”) and Stewart Enterprises, Inc. (“Stewart”) together with Hillenbrand and its Batesville Casket Company, Inc. subsidiary (“Batesville”). Also as previously disclosed, on July 8, 2005 Pioneer Valley Casket Co., an alleged casket store and Internet retailer, filed a purported class action antitrust lawsuit (“Pioneer Valley Action”) against Batesville, Hillenbrand, SCI, Alderwoods, and Stewart. These proceedings are described more fully in Note 13 to the Condensed Consolidated Financial Statements included elsewhere in this report.

Class certification hearings were held in the FCA Action on December 4-7, 2006 and in the Pioneer Valley Action on December 8, 2006. Post-hearing briefing on the plaintiffs’ class certification motions is scheduled to be completed by March 2007 in both actions.

In August 2005, Hill-Rom received a civil subpoena from the Office of the Connecticut Attorney General seeking documents and information related to the Attorney General’s investigation of the Healthcare Research & Development Institute, LLC (“HRDI”), a health care trade organization, of which Hill-Rom was a corporate member. Hill-Rom has responded to that subpoena. On April 3, 2006, Hill-Rom received a set of supplemental interrogatories from the Attorney General’s Office. Hill-Rom has responded to those interrogatories. In December 2006, Hill-Rom received a civil subpoena from the Office of the Illinois Attorney General seeking documents and information related to the Attorney General’s investigation of HRDI. Hill-Rom is in the process of responding to this subpoena. On January 25, 2007, the Connecticut Attorney General’s Office announced a settlement with HRDI and its hospital Chief Executive Officer members, at the same time announcing that the investigation is ongoing as to supplier members and others. The investigation appears to concern whether HRDI supplier members had influence over hospitals represented among HRDI’s Chief Executive Officer members. We are cooperating with both investigations and no claims have been filed against Hill-Rom.

Item 1A. RISK FACTORS

For information regarding the risks we face, see the discussion under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2006. There have been no material changes to the risk factors described in that report.

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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

					Total Number of		Maximum Number
					Shares Purchased		of Shares that May
	Total Number				as Part of Publicly		Yet Be Purchased
	of Shares		Average Price		Announced Plans		Under the Plans or
Period	Purchased 1		Paid per Share		or Programs 2		Programs
October 1, 2006 – October 31, 2006		65		57.07		—		3,000,000
November 1, 2006 – November 30, 2006		—		—		—		3,000,000
December 1, 2006 – December 31, 2006		10,765		58.92		—		3,000,000
Total		10,830		58.91		—		3,000,000

1

All shares purchased in the three months ended December 31, 2006 were in connection with employee payroll tax withholding for restricted and deferred stock distributions.

2

In January 2000, the Board of Directors approved the repurchase of a total of 24,289,067 shares of common stock. There were no purchases under this approval in the three months ended December 31, 2006. The approval has no expiration, and there were no terminations or expirations of plans in the current quarter. However, effective October 26, 2006, the Board of Directors authorized the repurchase of an additional 1,421,600 shares, bringing the total available for repurchase to 3,000,000 shares.

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Item 6. EXHIBITS

A. Exhibits

     Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     Exhibit 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     Exhibit 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     Exhibit 99.1 Plaintiffs’ First Amended Consolidated Class Action Complaint, dated October 12, 2005, In re Funeral Consumers Antitrust Litigation

     Exhibit 99.2 Plaintiffs’ First Amended Class Action Complaint, dated October 21, 2005, Pioneer Valley Casket Co., Inc. et al. v. Service Corporation International et al.

     Exhibit 99.3 Plaintiffs’ Class Action Complaint dated October 26, 2006, Estates of Dale Van Coley and Joye Katherine Coley, Candace D. Robinson, Personal Representative, v. Hillenbrand Industries, Inc. and Batesville Casket Company

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HILLENBRAND INDUSTRIES, INC.
DATE: February 7, 2007	BY:	/S/	Gregory N. Miller
			Gregory N. Miller
			Senior Vice President and Chief Financial Officer
DATE: February 7, 2007	BY:	/S/	Richard G. Keller
			Richard G. Keller
			Vice President, Controller and Chief Accounting Officer

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EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Peter H. Soderberg, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hillenbrand Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 7, 2007

/S/ Peter H. Soderberg

Peter H. Soderberg

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Gregory N. Miller, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hillenbrand Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 7, 2007

/S/ Gregory N. Miller

Gregory N. Miller

Senior Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Hillenbrand Industries, Inc. (the “Company”) on Form 10-Q for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter H. Soderberg, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/ Peter H. Soderberg

Peter H. Soderberg

President and Chief Executive Officer

February 7, 2007

A signed original of this written statement required by Section 906 has been provided to Hillenbrand Industries, Inc. and will be retained by Hillenbrand Industries, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Hillenbrand Industries, Inc. (the “Company”) on Form 10-Q for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory N. Miller, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/ Gregory N. Miller

Gregory N. Miller

Senior Vice President and Chief Financial Officer

February 7, 2007

A signed original of this written statement required by Section 906 has been provided to Hillenbrand Industries, Inc. and will be retained by Hillenbrand Industries, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.1

Exhibit 99.1

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

	)
	)
IN RE FUNERAL CONSUMERS	)	CIVIL ACTION NO.
	)
ANTITRUST LITIGATION	)	4:05-cv-03394 (KMH)
	)
	)
	)	FIRST AMENDED CONSOLIDATED
	)	CLASS ACTION COMPLAINT

          Plaintiffs Funeral Consumers Alliance, Inc. (“ FCA” ), Gloria Jaccarino Bender, Anthony J. Jaccarino, John Clark, Donna Sprague, Nancy and Ira Helman, Donald Sprague, Maria and Tony Magsarili, Frances H. Rocha, Marsha Burger, Sandra Gonzalez, Deborah Winch, Anna Kain and Gay Holtz (collectively, the “Consumer Plaintiffs”), on behalf of themselves and those similarly situated, upon knowledge with respect to their own acts and upon information and belief with respect to all other matters, allege in their First Amended Consolidated Class Action Complaint against defendants Service Corporation International (“SCI”), Alderwoods Group, Inc. (“Alderwoods”), Stewart Enterprises, Inc. (“Stewart”) (collectively, the “Funeral Home Defendants”), Hillenbrand Industries, Inc. (“Hillenbrand”), and Batesville Casket Company (“Batesville”), as follows:

SUMMARY OF CLAIMS

     1. The anticompetitive and anti-consumer practices that have been rife within the funeral industry for decades are well-known. Consumers of funeral products and services, who are under severe emotional distress and time pressure at the time of purchase, have been easily and routinely preyed upon. Nowhere have such predatory tactics been on greater display than in the sale of caskets by funeral homes.

     2. In an attempt to protect consumers from these tactics, the Federal Trade Commission (the “FTC”) enacted the Funeral Industry Practices Trade Regulation Rule, 16 C.F.R. Part 453 (1982). The so-called Funeral Rule, among other things, prohibits funeral homes from refusing to service or from otherwise

penalizing consumers who purchase caskets from independent casket discounters (“ICDs”) — third-party sellers of caskets unaffiliated with a licensed funeral home. It also prohibits funeral homes from requiring consumers to purchase funeral packages that force them to buy goods that they do not want, such as caskets.

     3. Despite the Funeral Rule’s prohibitions, defendants Stewart, Alderwoods, SCI, Batesville and their co-conspirators, have entered into horizontal conspiracies to suppress competition in the sale of caskets to consumers and to fix and maintain their casket pricing above competitive levels. Batesville entered into these conspiracies and engaged in the anticompetitive conduct described herein with the approval of its alter ego and corporate parent, defendant Hillenbrand.

     4. Specifically, in furtherance of these conspiracies, Stewart, Alderwoods, SCI, Batesville and their co-conspirators have engaged in three types of anticompetitive conduct. First, they have entered into a group boycott to prevent ICDs from selling Batesville caskets — the dominant brand of casket — as well as certain other brand-name caskets. Consequently, ICDs are foreclosed from competing for the hundreds of thousands of consumers that purchase these caskets every year. This group boycott is an open secret in the funeral industry. Verifying the existence of this boycott, the executive director of one of the industry’s leading trade organizations referred to it as part of the industry’s “unwritten tradition.”

     5. Second, Stewart, Alderwoods, SCI, Batesville and their co-conspirators have entered into an agreement to collectively disparage ICDs and the caskets they sell. This campaign of disparagement is facilitated by the group boycott which ensures that ICDs do not sell the same caskets that are sold by the Funeral Home Defendants and their co-conspirators. In furtherance of this campaign, each of these defendants has made disparaging remarks to consumers about ICDs and the caskets that they sell. Moreover, the following statement made by a spokesperson for the California Funeral Directors Association—an association that is governed and/or substantially influenced by Stewart, Alderwoods, SCI and their funeral home co-conspirators — exemplifies the comments made pursuant to this agreement: “The caskets you get online [from ICDs] are inferior, yes they are. They’re not as good at all .... I wouldn’t

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want to get a casket online — it might be from Mexico!” Another example of the types of comments made in furtherance of this agreement appeared in Funeral Service Insider — one of the industry’s leading publications. There, one SCI-affiliated funeral home advised other funeral homes to tell consumers that all ICDs “ care[] about [is] one thing and one thing only: Your Money,” (Bolded in original.)

     6. Third, Stewart, Alderwoods, SCI and their co-conspirators have collectively engaged in concerted efforts to restrict casket price competition and coordinate their casket pricing. These efforts include restricting or preventing price advertising of caskets — a practice the FTC recently and successfully challenged; sharing casket price information; and promoting and employing sham discounting of funeral package purchases (which steers consumers away from purchasing ICD caskets).

     7. Defendants’ anticompetitive conduct has been facilitated by meetings and seminars held or sponsored by industry trade associations governed and/or substantially influenced by Stewart, Alderwoods, SCI and their co-conspirators.

     8. Defendants’ anticompetitive conduct has substantially foreclosed ICDs from competing in the casket market, and has allowed Stewart, Alderwoods and SCI to fix and maintain artificially high prices for caskets. Over the course of the relevant damages period, Stewart, Alderwoods and SCI have overcharged consumers hundreds of millions, if not billions, of dollars for caskets.

     9. FCA, the leading organization dedicated to protecting the rights of funeral consumers, and the individual Consumer Plaintiffs on behalf of themselves and a putative Class of all those similarly situated, bring this action to enjoin this anticompetitive conduct and to recover damages for the illegal overcharges that the Class has incurred.

JURISDICTION AND VENUE

     10. This Complaint is filed under Section 16 of the Clayton Act, 15 U.S.C. § 26, to prevent and restrain violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and for damages under Section 4 of the Clayton Act, 15 U.S.C. § 15. This Complaint is also brought under California’s Unfair

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Competition Law, Section 17200 of the Business and Professions Code. This Court has jurisdiction over the federal antitrust law claims alleged herein under 28 U.S.C. §§ 1331, 1337, 2201, 2202. This Court has supplemental jurisdiction over the state law claim under 28 U.S.C. § 1367.

     11. Defendants, through their ownership of funeral homes, their servicing of funeral customers, and their sale of caskets, are found and transact substantial business in this state and district. In addition, SCI is headquartered hero.

     12. Substantial interstate trade and commerce involved in and affected by the alleged violations of antitrust law occurs within this district, including the annual sale of thousands of Batesville caskets to consumers that reside in this district. The acts complained of have had, and will have, substantial anticompetitive effects in this district.

     13. All parties agree that venue is proper in this district under 28 U.S.C. § 1391 and 15 U.S.C. §§ 15, 22, 26.

THE PARTIES

A. Plaintiffs

     14. FCA is a not-for-profit corporation organized and existing under the laws of the State of Pennsylvania. Its principal place of business is located at 33 Patchen Road, South Burlington, Vermont.

     15. FCA, whose predecessor-in-interest was founded in 1963, is comprised of nonprofit entities, including memorial societies, that provide consumers with information on funeral-related goods and services. FCA’s purpose and mission is to protect, promote, foster and advance the interests of its members and consumers of funeral products and services. It is the only national organization dedicated to protecting consumer rights in the deathcare industry. FCA has approximately 400,000 individual consumer members nationwide. FCA’s members include consumers that have purchased, or in the future will likely purchase, caskets from funeral homes owned and operated by Stewart, Alderwoods, and SCI.

     16. FCA is empowered by its members and bylaws, through the action of its Board of Directors, to

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engage in lawful acts necessary, suitable and useful to the attainment of FCA’s mission.

     17. Having found that consumers (including FCA consumer members) that have purchased caskets from the Funeral Home Defendants have suffered injury, and that consumers (including FCA members) continue to incur threatened injury as a result of the challenged conspiracy, FCA’s Board of Directors voted to join in this action as a plaintiff and to seek declaratory and injunctive relief under the antitrust laws on behalf of its members.

     18. Gloria Jaccarino Bender and Anthony J. Jaccarino are residents of New York. On July 16, 2004, the Jaccarinos purchased a Batesville “Delray” casket from Casey Funeral Home (“Casey”) for their mother, Lucy Denning. Casey is owned and operated by defendant SCI and is located at 350 Slosson Avenue, Staten Island, New York. Ms. Denning had died four days earlier, on July 12, 2004, unexpectedly from a heart attack. Although Ms, Denning was to be cremated, Casey required the Jaccarinos to purchase a casket for her and only offered them two models from which to choose. The Jaccarinos paid $2,095 while still in a grieving state over the death of their mother. This price was artificially high because of defendants’ anticompetitive conduct.

     19. John Clark is a resident of California. On April 16, 2004, Mr. Clark purchased a Batesville “Woodbridge” casket for his terminally ill wife, Yvonne Clark, from Dilday Brothers Mortuary (“Dilday”). Dilday is owned and operated by defendant Stewart and is located at 17911 Beach Boulevard, Huntington Beach, California. Ms. Clark died five days later, on April 21, 2004. Mr. Clark paid $3,695 for the casket. This price was artificially high because of defendants’ anticompetitive conduct.

     20. Donna Sprague is a resident of New York. On February 25, 2003, Ms. Sprague purchased a Batesville “Churchill” casket from James D. Barrett Funeral Home (“Barrett”) for her husband, Robert Sprague, who had died the same day. Barrett is owned and operated by defendant SCI and is located at 1004 Lake Street, Elmira, New York. Ms. Sprague paid $2,195 for the casket while still in a grieving state over the death of her husband. This price was artificially high because of defendants’ anticompetitive conduct.

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     21. Nancy and Ira Helman are residents of Florida. On November 15, 2002, the Helmans purchased a Batesville casket from Deltona Memorial Funeral Home (“Deltona”) for Mr. Helman’s mother, Shirley Helman, who had died the previous day. Deltona is owned and operated by defendant SCI and located at 1295 Saxon Boulevard, Orange City, Florida. The Helmans paid $2,395 for the casket while still in a grieving state over the death of Mr. Helman’s mother. This price was artificially high because of defendants’ anticompetitive conduct.

     22. Donald Sprague (no relation to plaintiff Donna Sprague) is a resident of Florida. On November 15, 2002, Mr. Sprague purchased a Batesville “Cottage Rose” casket from Arlington Park Funeral Home (“Arlington”) for his mother, Myrtle Sprague, who had died the previous day. Arlington is owned and operated by defendant Stewart and is located at 6920 Lone Star Road, Jacksonville, Florida. Mr. Sprague paid $3,445 for the casket while still in a grieving state over the death of his mother. This price was artificially high because of defendants’ anticompetitive conduct.

     23. Maria Magsarili and her son, Tony Magsarili, are residents of Washington state. On April 22, 2002, they purchased a Batesville “Model D73 Majestic Blue” casket from Green Funeral Home (“Green”) for their husband and father, Oscar Magsarili, who had died unexpectedly three days earlier. At the time of the Magsarilis’ purchase, Green was owned and operated by defendant Alderwoods and located at 1215-145th Place, S.E., Bellevue, Washington. Defendant SCI currently owns and operates a funeral home at the former Green location. The Magsarilis’ paid $3,570 for the casket while still in a grieving state over the death of their husband and father. This price was artificially high because of defendants’ anticompetitive conduct.

     24. Frances H. Rocha is a resident of Bowie, Maryland. On December 8, 2003, Ms. Rocha purchased a Batesville “Model 024 841 D Crystal” casket from Robert E. Evans Funeral Home (“Evans”) for her son, Richard Robert Rocha, Jr., who died the previous day. Evans is owned and operated by defendant Alderwoods and located at 1600 Annapolis Road, Bowie, Maryland. Ms. Rocha paid $2,695 for the casket while still in a grieving state over the death of her son. This price was artificially high because of

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defendants’ anticompetitive conduct.

     25. On October 9, 2004, Ms. Rocha also purchased from Evans a Batesville “Model UGI 828” casket for her husband, Richard Robert Rocha, Sr., who died the previous day. Ms. Rocha paid $3,645 for the casket while still in a grieving state over the death of her husband. This price was artificially high because of defendants’ anticompetitive conduct.

     26. Marsha Burger is a resident of New York. On December 26, 2003, Ms. Burger purchased a Batesville “Model 043” casket from I.J. Morris, Inc. (“Morris”) for her father, Murray Zwerling, who died the previous day. Morris is owned and operated by defendant SCI and is located at 46 Greenwich Street, Hempstead, New York. Ms. Burger paid $3,145 for the casket while still in a grieving state over the death of her father. This price was artificially high because of defendants’ anticompetitive conduct.

     27. Sandra Gonzalez and Deborah Winch are residents of Ohio. On April 25, 2005, Ms. Gonzalez and Ms. Winch purchased a Batesville “Athena” casket from DiCicco & Sons Funeral Home (“Di Cicco & Sons”) for Ms. Gonzalez’s mother and Ms. Winch’s grandmother, Helen A. Palermo, who died two days earlier. DiCicco & Sons is owned and operated by defendant Alderwoods and is located at 5975 Mayfield Road, Mayfield Heights, Ohio. Ms. Winch and Ms. Gonzalez paid $2,195 for the casket while still in a grieving state over the death of their mother and grandmother. This price was artificially high because of defendants’ anticompetitive conduct.

     28. Anna Kain is a resident of New Jersey. On December 16, 2002, Ms. Kain purchased a Batesville “Silver G 90” casket from Lamb Funeral Chapel (“Lamb”) for her husband, Edward Kain, who died two days earlier. Lamb is owned and operated by defendant SCI and is located at 101 Byberry Road, Huntington Valley, Pennsylvania. Ms. Kain paid $2,695 for the casket while still in a grieving state over the death of her husband. This price was artificially high because of defendants’ anticompetitive conduct.

     29. Gay Holtz is a resident of New York. On December 26, 2001, Ms. Holtz purchased a Batesville “Neopolitan” casket from O’Neill-Redden-Drown Funeral Home (“O’Neill”) for her mother, Viola

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Duquette, who died the previous day. O’Neill is owned and operated by defendant Alderwoods and is located at 94 Court Street, Plattsburg, New York. Ms. Holtz paid $3,445 for the casket while still in a grieving state over the death of her mother. This price was artificially high because of defendants’ anticompetitive conduct.

B. Defendants

     30. SCI is a corporation organized and existing under the laws of the State of Texas. Its principal place of business is 1929 Allen Parkway, Houston, Texas. SCI is the largest owner and operator of funeral homes in the United States, owning and operating roughly 1,200 funeral homes in the United States. According to its 2003 Annual Report, SCI operates a “network that cannot be duplicated.” SCI funeral homes are largely clustered in major metropolitan areas throughout the United States. SCI, through its various funeral home locations, sells tens of thousands of Batesville caskets annually in the United States. SCI’s 2004 revenues were roughly $1.86 billion.

     31. Alderwoods is a corporation organized and existing under the laws of the State of Delaware. Its principal place of business is 311 Elm Street, Suite 1000, Cincinnati, Ohio. Alderwoods is the second largest owner and operator of funeral homes in the United States, owning and operating roughly 710 funeral homes in the United States. Alderwoods funeral homes are largely clustered in major metropolitan areas throughout the United States. Alderwoods, through its various funeral home locations, sells tens of thousands of Batesville caskets annually in the United States. Alderwoods’ 2004 revenues were roughly $715 million.

     32. Stewart is a corporation organized and existing under the laws of the State of Louisiana. Its principal place of business is 1333 South Clearview Parkway, Jefferson, Louisiana. Stewart is the third largest owner and operator of funeral homes in the United States, owning and operating roughly 240 funeral homes in the United States. Stewart funeral homes are largely clustered in major metropolitan areas throughout the United States. Stewart, through its various funeral home locations, sells tens of thousands of Batesville caskets annually in the United States. Stewart’s 2004 revenues were roughly $515

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million.

     33. Batesville is a corporation organized and existing under the laws of the State of Indiana. Its principal place of business is One Batesville Boulevard, Batesville, Indiana. Batesville is wholly-owned and controlled by Hillenbrand, a corporation organized and existing under the laws of the State of Indiana. Hillenbrand has assented to Batesville’s participation in the conspiracies at issue.

     34. Batesville manufactures and sells various funeral service products throughout the United States. It is the largest casket manufacturer in the United States, selling hundreds of thousands of caskets annually. Batesville manufactures approximately 45% of the caskets sold to consumers in the United States. Batesville does not sell its caskets directly to consumers, nor does Batesville sell its caskets to ICDs. Batesville only sells its caskets to licensed funeral directors operating licensed funeral homes.

     35. Virtually all of the caskets sold by Stewart, Alderwoods and SCI are Batesville caskets. The Funeral Home Defendants are the three largest distributors of Batesville caskets in the United States.

CO-CONSPIRATORS

     36. Various persons, firms, corporations, organizations and other business entities — including funeral homes throughout the United States — have participated as co-conspirators in the violations alleged herein and have performed acts in furtherance of the conspiracies. Some of these persons, firms, corporations, organizations and business entities are known and some are unknown.

     37. Among the co-conspirators is the National Funeral Directors Association (the “NFDA”), the “leading funeral service organization in the United States.” The NFDA represents thousands of funeral home members including those owned by the Funeral Home Defendants.

     38. Through its sponsorship of seminars and conferences, its promotion of practice materials and guides, and its involvement in other industry activities, the NFDA has participated in and facilitated the anticompetitive conduct alleged herein.

     39. The NFDA is governed by both an Executive Board and a Policy Board on which Stewart,

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Alderwoods and SCI have been widely represented.

     40. Among the NFDA’s membership are Funeral Director Associations (“FDAs”) from each of the fifty states. Several of these state FDAs have also taken part in the conspiratorial acts alleged herein. Other local or regional FDAs have also participated in these conspiracies. Stewart, Alderwoods and SCI have also been widely represented in the membership and on the governing boards of these state, regional and local FDAs.

     41. The anticompetitive conduct of Stewart, Alderwoods, SCI and their co-conspirators has been facilitated by meetings and seminars held or sponsored by these FDAs.

     42. Also included among the co-conspirators are many of the hundreds of non SCI-owned funeral homes that are Dignity Memorial partners with SCI. Through their operations and pricing which SCI develops, influences, and/or controls, these funeral homes have participated in and facilitated the anticompetitive conduct alleged herein.

     43. The Aurora Casket Company (“Aurora”), The York Group, Inc. (“York”) and certain other casket manufacturers are additional co-conspirators in the conduct alleged in this action. While substantially smaller than Batesville, Aurora and York are the next largest casket manufacturers in the United States. Like Batesville, Aurora and York do not sell caskets to ICDs. They only sell them to licensed funeral directors operating licensed funeral homes. The Funeral Home Defendants do not sell Aurora and York caskets; however, many of their co-conspirators do.

FACTUAL BACKGROUND

     44. The FTC has attempted to regulate the funeral industry for more than twenty years. Through its creation and enforcement of the Funeral Rule, the FTC has attempted to curb the anticompetitive practices engaged in by defendants and their co-conspirators. The FTC has specifically targeted its efforts to protecting competition and consumer choice in the casket market. Despite these efforts, defendants and their co-conspirators have, through the anticompetitive acts described herein, been successful in

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suppressing competition in the casket market and fixing and maintaining supracompetitive prices for the caskets they sell.

A. The FTC’s Funeral Rule

     45. In 1972, the FTC began a decade-long investigation of funeral practices in the United States. The FTC’s investigation uncovered the existence of a number of wide-spread anticompetitive practices. These practices included offering consumers only pre-packaged funerals that forced them to purchase goods and services they did not want. They also included misrepresenting that certain goods and services, such as embalming, or a casket for direct cremation, were required purchases.

     46. As a result of the investigation, the FTC enacted the Funeral Rule which became effective on April 30, 1984. The Funeral Rule set forth a number of requirements and prohibitions for funeral providers to remedy their unfair practices. In particular, the Funeral Rule required funeral homes to unbundle their pre-packaged funerals and to give consumers an itemized price listing of every good and service the funeral home sold.

     47. As the FTC made clear in the Funeral Rule’s original Statement of Basis and Purpose, the rule was premised on the particularly vulnerable state of funeral consumers that makes them “unusually susceptible to influence from the funeral director’s advice:”

The Rule was premised on evidence that consumers are uniquely disadvantaged when they purchase funeral services after the death of a loved one. The bereaved usually must arrange to have the body removed within hours after the death, and make final arrangements within 24 to 48 hours — a period during which they are often suffering from shock and intense grief.... The strain is compounded by inexperience — fewer than half of all adults had arranged a funeral, and only 25% of adults had done so more than once.

B. Entry of ICDs

     48. One of the principal wrongs the FTC attempted to remedy through the Funeral Rule was the universal industry practice of tying the purchase of funeral services with the purchase of caskets. The FTC was particularly concerned about the sale of caskets because they typically represent the largest price component of a funeral (roughly half), costing in the thousands of dollars. For many consumers, a casket

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can be one of the most expensive purchases they will ever make.

     49. By prohibiting these tying practices, the Funeral Rule attempted to “lower barriers to price competition” and “facilitate informed consumer choice.” It also provided a catalyst for ICDs to enter the market. After the enactment of the Funeral Rule, ICDs emerged as an alternative, less expensive means of purchasing caskets.

     50. ICDs have taken a variety of forms. Some are physical establishments. Some are Internet-based. Others are a combination of the two. Regardless of their form, ICDs are neither owned, managed, nor controlled by or in any way affiliated with a licensed funeral home.

     51. In Pennsylvania Funeral Directors Association, Inc. v. Federal Trade Commission, 41 F.3d 81 (3d Cir. 1994), the Third Circuit described the entry of ICDs into the casket market as follows:

Prior to the enactment of the Funeral Rule, funeral service providers (i.e., funeral homes) were virtually the only parties selling funeral goods. However, after the implementation of the Funeral Rule, the way was paved for third parties to provide various funeral goods — namely caskets. Because funeral service providers could no longer require a consumer to purchase a casket in order to receive any other funeral service, third parties stepped into the markets ....

Id. at 84.

     52. As the FTC anticipated, and consistent with one of the principal goals of the Funeral Rule, the prices charged by ICDs are considerably lower than those charged by funeral homes. The FTC has noted that “third-party casket sellers typically charge significantly lower prices than do funeral homes for comparable caskets.”

     53. The lower casket pricing by ICDs has been recognized by every court that has considered the issue. See, e.g., Pennsylvania Funeral Directors, 41 F.3d at 84 (“The third parties began selling caskets ... usually at a substantially lower price than did the funeral homes.”); Craigmiles v. Giles, 312 F.3d 220, 224 (6th Cir. 2002) (“funeral home operators generally mark up the price of caskets 250 to 600 percent, whereas casket retailers sell caskets at much smaller margins”).

C. The Imposition of “Casket Handling Fees” to Quash ICD Competition

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     54. In response to the competitive threat posed by the entry of ICDs, funeral homes adopted the practice of imposing extra charges or “casket handling fees” on consumers who chose to purchase their caskets from ICDs.

     55. The FTC found that this new anticompetitive practice was wide-spread and frustrated the anti-tying provisions of the Funeral Rule:

The Commission has concluded that substantial “casket handling fees” are imposed on consumers by a significant proportion of providers wherever third-party casket sellers exist, and, as a result, frustrate the Rule’s “unbundling” requirements and result in the reduction of potential competition in the sale of caskets fostered by the Funeral Rule.

     56. The imposition of “casket handling fees” had the effect of negating most, if not all, of the cost savings a consumer would otherwise realize from purchasing the less expensive casket offered by an ICD. In fact, as the court noted in Pennsylvania Funeral Directors, these fees sometimes resulted in a higher overall price for an ICD casket compared to a funeral home casket. 41 F.3d at 84. According to the Court, with “casket handling fees,” what the funeral providers were essentially telling consumers was “either buy your casket here, or we’ll charge you for it anyway.” Id. at 89 n.10.

     57. The FTC concluded that these fees served no purpose other than to penalize consumers who chose to purchase their caskets from ICDs: “The fee, in any amount, penalizes consumers for exercising their choice afforded by the [Funeral] Rule.”

     58. “Casket handling fees” achieved their desired effect; namely, quashing the growth of ICDs. According to the FTC: “Casket sales by third parties have declined as a result, and several retailers have curtailed their marketing efforts or withdrawn from the market.”

D. The 1994 Amendment to the Funeral Rule

     59. The FTC amended the Funeral Rule in 1994 to ban “casket handling fees.” The ban was designed to guarantee that consumers would benefit from real choice and price competition. In upholding the validity of the ban, the Third Circuit described the increased competition and lower prices that would

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result therefrom:

Consumers will have increased choice in the purchase of caskets. Consumers will not be penalized for exercising that choice. Additionally, competition in the market for caskets can be expected to increase with the ban in effect, given the fact that many third party casket sellers went out of business as a result of casket handling fees. Increasing competition in the casket market is likely to drive the cost of caskets down. All consumers will benefit from this result.

Pennsylvania Funeral Directors, 41 F.3d at 90-91.

     60. Following the 1994 ban on “casket handling fees,” numerous ICDs entered the casket market. This entry was facilitated by the growth of the Internet as a vehicle for consumer purchasing. However, defendants and their co-conspirators have engaged in a series of new anticompetitive practices to again thwart the competitive threat posed by ICDs and to fix and maintain their casket prices at supracompetitive levels.

ANTICOMPETITIVE CONDUCT

     61. Despite the efforts of the FTC, Stewart, Alderwoods, SCI, Batesville and their co-conspirators have been successful in suppressing competition in the casket market and fixing and maintaining supracompetitive prices for caskets. They have accomplished this in three principal ways. First, they have engineered and participated in a group boycott to restrict the ability of ICDs to sell Batesville caskets, the dominant brand of casket, as well as certain other casket brands such as Aurora and York. Second, they have collectively agreed to engage in a campaign of disparagement against ICDs and the caskets they sell, and each defendant has committed acts of disparagement in furtherance of this campaign. Third, Stewart, Alderwoods and SCI have collectively agreed to restrict price competition through coordinating their casket pricing, and each has acted in furtherance of this agreement through such actions as restricting price advertising, sharing pricing information and sham discounting.

     62. Defendants’ anticompetitive conduct has foreclosed ICDs from competing in the casket market, and has reduced competition among the Funeral Home Defendants and their co-conspirator funeral homes. As a result, consumers have been forced to pay supracompetitive prices for defendants’ caskets.

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These prices are substantially higher — by hundreds, if not thousands of dollars per casket — than those charged by ICDs for comparable caskets. And, they are substantially higher than those that defendants would have charged in a world absent their exclusionary acts.

A. Defendants’ Group Boycott of ICDs

     63. At the heart of defendants’ efforts to quash ICD competition and fix and maintain their supracompetitive pricing of caskets is their conspiracy to prevent ICDs from selling to consumers at discounted prices the dominant Batesville brand of casket as well as certain other casket brands. Defendants and their co-conspirators have accomplished this through their collective refusal to sell Batesville and certain other brands of caskets to ICDs. All defendants, including Batesville, have engaged in this group boycott with full knowledge of and/or willful intent to participate in this conspiracy.

1. Batesville’s Anti-ICD Policy

     64. Batesville will only sell its caskets to licensed funeral directors operating licensed funeral homes. It will not sell its caskets to ICDs. Batesville’s restrictive sales policy directly flows from the horizontal conspiracy to boycott ICDs entered into by Stewart, Alderwoods, SCI and their co-conspirator funeral homes. Batesville has knowingly and/or willfully participated in this group boycott. Certain other casket manufacturers have similar sales policies which flow from this conspiracy.

     65. Following the passage of the Funeral Rule, ICDs began to enter the casket market and sell caskets to consumers at discounted prices. In response to this entry, Stewart, Alderwoods, SCI and their co-conspirator funeral homes entered into an agreement to boycott ICDs, specifically by collectively pressuring Batesville and other casket manufacturers to restrict casket distribution to licensed funeral homes. This agreement to boycott ICDs has been facilitated by meetings and seminars held or sponsored by industry trade associations governed and/or substantially influenced by Stewart, Alderwoods, SCI and their co-conspirators.

     66. The pressure placed upon Batesville and other casket manufacturers by Stewart, Alderwoods, SCI and their co-conspirator funeral homes has continued unabated and has come in two principal forms.

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First, to effectuate their horizontal agreement to deprive ICDs of the dominant Batesville caskets and other name-brand caskets, Stewart, Alderwoods, SCI and their co-conspirator funeral homes have withheld, or threatened to withhold, their business from Batesville and other casket manufacturers if they sell to ICDs. Second, they have encouraged other funeral homes to take similar action.

     67. The Funeral Home Defendants and their co-conspirators not only have conspired to create the boycott. They also have collectively acted to police it to ensure that “rogue” funeral homes — unaffiliated with the Funeral Home Defendants and their co-conspirators — do not supply ICDs with Batesville caskets. Stewart, Alderwoods and SCI all have engaged in such “policing” activities and all have “reported” to Batesville ICDs that have purchased Batesville caskets for resale on the “black market.” After receiving such reports, Batesville has tracked down (through the serial number branded on the casket) the funeral home that sold the casket to the ICD and threatened to stop dealing with the “rogue” funeral home if it continued to deal with ICDs. This conduct by Batesville has caused funeral homes to comply with defendants’ boycott by ceasing their supply of Batesville caskets to ICDs.

     68. The threats by each of the Funeral Home Defendants and their co-conspirators to withhold business from Batesville have caused Batesville in recent years to refine and broaden its restrictive sales policy in furtherance of the conspiracy.

     69. In May 2001, Batesville adopted a new sales policy that went beyond merely limiting its casket sales to funeral homes. It also restricted Batesville’s delivery of caskets to the funeral homes that actually ordered them.

     70. Batesville amended its sales policy in response to the growth of Internet-based ICDs that were circumventing the boycott with the help of rogue funeral homes that — for a price — were willing to purchase Batesville caskets on the ICDs’ behalf. The funeral home would then direct Batesville to deliver it to the funeral home actually performing the funeral service for the ICD customer.

     71. By requiring delivery of the casket to the funeral home that ordered it, Batesville’s new sales

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policy was designed to disrupt this avenue for side-stepping the boycott. This was made clear by the Batesville memorandum introducing the amended sales policy — a memorandum that evidences that Batesville had altered its sales policy as part of its agreement with Stewart, Alderwoods, SCI and their co-conspirators to foreclose discount competition in caskets:

The increasing growth of third party casket sales, especially on the Internet, continues to be a challenge that faces all of us in funeral service.... The purpose of this [new sales policy] is to ensure we do not inadvertently accept an order from a third party seller for subsequent delivery to a funeral home.... This policy is the way we have chosen to operate and reflects the relationship between Batesville and our valued funeral home customers. [Emphasis added.]

     72. Despite its amended sales policy, some Internet-based ICDs continued to gain access to Batesville caskets. So, in July 2004, Batesville amended its sales policy yet again, this time requiring that the funeral home ordering and receiving the Batesville casket also be the one ultimately billed for it. In a letter dated July 2, 2004 to its funeral home customers, Batesville described the change in policy as follows:

Our previous practice of permitting the receiving funeral home to place the order and then having the invoice go to another business entity has ended. Effective July 12, Batesville will only deliver caskets to the funeral home business entity that will be invoiced for the casket and which will be responsible for payment.

     73. As reported in Funeral Monitor, one of the leading publications in the funeral industry, Batesville’s new policy was designed to “close[] the door on third party casket sellers ....“ Funeral Monitor explained why:

Since it is unlikely many [funeral homes] will agree to order, receive, and pay for a casket they then have to turn around and invoice at cost to the seller who marks it up and takes the profit, the new policy may indeed put the skids on casket retailers and Internet marketers who advertise low discount prices and free next-day delivery on Batesville caskets.

     74. Batesville has taken pains to publicize its new sales policy to consumers in a further effort to cement the boycott of ICDs. Beginning in October 2004, Batesville initiated an on-line consumer “education” program that consists of a sponsored link featuring a “Consumer Alert” on several popular consumer search engines such as Google.com. The link goes to Batesville’s home page which prominently displays a “Casket Consumer Alert” icon providing the following message: “Online retailers

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who are not funeral homes but nevertheless sell Batesville caskets are not authorized to do so .... Only authorized and licensed funeral homes can guarantee that your casket will be authentic and of the highest Batesville Casket quality standards.” (Emphasis in original.)

2. Defendants’ Conspiracy to Boycott ICDs

     75. The conspiracy among the Funeral Home Defendants, Batesville and their co-conspirators to boycott ICDs is an “open secret” in the industry.

     76. The April 19, 2004 edition of Funeral Service Insider, a “completely independent” publication of “[n]ews, [a]nalysis and guidance for funeral service professionals,” reported the following results of a survey it conducted on what funeral homes are doing to combat the threat of ICD competition:

One third of our survey respondents say they’ve pulled their business from casket or vault suppliers who deal with third-party sellers — and nearly one-fifth say they’ve gone even further: They’ve urged other funeral homes to boycott suppliers who deal with third party sellers. [Emphasis added.] The results of this survey — which are plainly understated based on the reluctance of most companies to admit to per se violations of the antitrust laws — reflect how pervasive the group boycott is within the funeral industry.

     77. Indeed, George Lemke, Executive Director of the Casket and Funeral Supply Association — the principal trade association for the funeral supply industry — referred to the boycott of ICDs as an “unwritten tradition” in the industry. In the context of Costco’s recent efforts to become an ICD, Mr. Lemke stated:

I know of no [casket] manufacturer who would willingly risk his relationship with licensed funeral homes by cooperating in such a scheme [to supply Costco with caskets]... Distributing through wholesale buying clubs would be a violation of the industry’s unwritten tradition. [Emphasis added.]

     78. Batesville’s new sales policy is simply the latest manifestation of this “tradition”— a “tradition” that Stewart, Alderwoods, SCI and their co-conspirators have each taken pains to maintain by conspiring, along with Batesville, to foreclose ICD competition. As reported in the August 2, 2004 Funeral Monitor, a representative of SCI admitted as much:

Facing continuing complaints from its largest customer [SCI], Batesville Casket

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Company has moved to stop the sale of its caskets in casket stores and on the Internet.... According to an unnamed funeral director with SCI: “Funeral consumers have returned to us after funerals and questioned us about the price we charged them for a particular casket. In many cases they have gone on the Internet and found the same casket we sold them priced as much as 60 percent less than we charged.... [T]o prevent consumers from comparing apples to apples, we have asked Batesville to stop selling their caskets to casket stores and Internet vendors.”

3. There Is No Legitimate Business Purpose For the ICD Boycott

     79. Batesville’s stated purpose for its restrictive sales policy is that only licensed funeral directors are qualified to se11 caskets:

We view the casket not just as a piece of merchandise, but as an integral part of the overall funeral service.... Working with professional funeral firms gives us a greater assurance that our products will be used with the dignity and purpose intended.

However, this rationale has been recognized by both the courts and the industry as pure pretext.

     80. The court in Casket Royale, Inc. v. Mississippi, 124 F. Supp. 2d 434 (S.D. Miss.2000), for example, rejected this rationale in striking down a Mississippi statute that prevented ICDs from selling caskets. Finding that a casket is nothing more than a “glorified box,” the court concluded that selling one requires “no special skills” and that “any special training that [funeral] licensees may receive does not advance consumer protection” with respect to the sale of caskets.

Id. at 438-39.

     81. In striking down as unconstitutional an analogous Tennessee statute, the Fourth Circuit reached the identical conclusion: The proffered justifications for preventing ICDs from selling caskets “come close to striking us with the force of a five-week-old unrefrigerated dead fish, a level of pungence almost required to invalidate a statute under rational basis review.” Craigmiles, 312 F.3d at 225 (internal quotes and citations omitted).

     82. The International Cemetery and Funeral Association (the “ICFA”), which represents roughly 6,000 funeral homes, cemeteries, and other industry members, is equally dismissive of any justification for restrictions on who can sell caskets. In comments it submitted to the FTC in October 2002, the ICFA

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stated that laws preventing ICDs from selling caskets are “anticompetitive.” The ICFA scoffed at the notion that only licensed funeral directors should sell caskets:

Specifically, whether or not casket retailers should be registered sellers does not justify a requirement that such retailers must also graduate from mortuary science school, pass a licensing examination, and serve an apprenticeship at a funeral home, in order to sell a casket. These typical requirements for becoming a licensed funeral director in most states make no sense when applied solely to the sale of caskets. Columnist George Will succinctly stated the issue when he observed that requiring casket sellers to be licensed funeral directors was like saying only podiatrists can sell shoes.

     83. The pretextual nature of Batesville’s sales policy is further demonstrated by the way it is applied. Batesville has refused to sell its caskets to ICDs even if they are operated by licensed funeral directors, and even if these licensed funeral directors were prior customers of Batesville.

     84. One example of Batesville’s unjustifiable sales policy involved a licensed funeral director and owner of several funeral homes who received from Batesville an award for outstanding service in connection with his sale of Batesville caskets. But when he sold his funeral homes and opened an ICD operation, Batesville refused to continue selling to him.

     85. Batesville has also argued that its sales policy is justified because it needs to ensure that only establishments with physical facilities sell its product. According to Batesville, it is important for funeral consumers to view sample Batesville caskets in showrooms prior to purchase. The pretextual nature of this purported justification is demonstrated by the fact that Batesville refuses to supply its caskets to ICDs even if they have such physical facilities (including showrooms).

     86. The lack of legitimate business purpose behind the refusal of Batesville and other casket manufacturers to sell to ICDs is perhaps best revealed by the fact that by closing down a potentially vibrant and lucrative distribution source, they are acting against their own economic self-interest. One Batesville customer admitted as much when questioned by Funeral Monitor about Batesville’s newly amended sales policy:

In light of increasing cremations, fewer caskets being sold, and the low-cost caskets arriving from China, an intelligent person has to scratch his or her head and wonder why

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a casket company would willingly reduce its market.

     87. Funeral Monitor agreed with this assessment:

I’m no economist and I could be wrong, but it’s hard to understand how any manufacturer investing the labor and materials before bringing a product to market could plan to grow by shrinking its channels of distribution .... Even a groundswell of satisfied [funeral home] customers might not be enough to surpass (or at least balance) the amount of business Batesville is willing to turn away. The last time I checked, every death gets a maximum of one casket (if that, with the rise of cremation). And no matter how appreciative Batesville’s [funeral home] customers might be, they are not going to order two caskets out of love and loyalty when only one will do.

B. Defendants’ Campaign of Disparagement

     88. The second aspect of defendants’ conspiracy is their agreement to individually and collectively disparage ICDs and the caskets they sell. Such a campaign has been facilitated by defendants’ efforts to restrict ICDs from selling Batesville and other major brand caskets. By ensuring that consumers comparing the caskets defendants and their co-conspirators sell to those the ICDs sell are not comparing “apples to apples,” defendants and their co-conspirators are free to disparage the ICD caskets without also denigrating the caskets they sell. In truth, the caskets sold by ICDs are generally similar or superior to those manufactured by Batesville and the other boycotting brands. Nevertheless, many consumers will only purchase a Batesville or other major brand casket because of what they are told by the Funeral Home Defendants or their co-conspirators.

     89. Accordingly, virtually identical comments made by defendants and their co-conspirators maligning ICD caskets abound. Some of the most commonly used lines disparaging ICD caskets include: “their handles fall off,” “the bottoms drop out,” “they are made by prisoners,” “they are tin cans,” and “they are all seconds.”

     90. These types of disparaging comments are made not only in face-to-face encounters between consumers and funeral directors employed by Stewart, Alderwoods, SCI and their co-conspirator funeral homes. They are also made publicly by participants in these conspiracies, through the press or other media outlets, to create the wide-spread perception among consumers that ICDs are disreputable and their

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caskets inferior.

     91. For example, a spokesperson for the California FDA — an organization that is governed and/or substantially influenced by Stewart, Alderwoods and SCI — publicly stated:

The caskets you get online are inferior, yes they are. They’re not as good at all. ... Let’s say your next door neighbor dies and the family buys a casket online. We put her in the casket, take four steps up the stairs at the ceremony, and mom falls out the bottom. Who are they gonna sue? ... I sure as hell wouldn’t want to walk into a funeral store and see a guy that looked like a used car salesman.... I wouldn’t want to get a casket online — it might be from Mexico! Just the other day I saw one that looked like a Guadalajara special.

     92. In addition to the public and private comments disparaging the quality and integrity of ICDs and their caskets made by Stewart, Alderwoods, SCI and their co-conspirators, there are a number of “how-to” guides that defendants and their co-conspirators have prepared and disseminated to ensure that all funeral providers are spreading a consistent message.

     93. For example, the NFDA — an organization governed and/or substantially influenced by Stewart, Alderwoods and SCI — has engaged in an effort to get the funeral industry to adopt a unified anti-ICD stance with consumers through its publication, dissemination, and wide-spread promotion of its “Use of Third-Party Merchandise” form. The NFDA advises its funeral home members to demand that any customer intending to purchase an ICD casket sign this standard form. The form requires that the consumer “indemnify” and “hold harmless” the funeral home from any liability arising out of the consumer’s purchase of an ICD casket. It also provides an acknowledgement by the consumer of the purported risks associated with the purchase of an ICD casket:

The [consumer] authorizes the FUNERAL HOME to accept, unconditionally, the delivery of the casket. If the [consumer] decides after inspection of the casket that the casket is unacceptable, the [consumer] understands that this could delay and cause the originally scheduled funeral service to be rescheduled and that additional funeral charges could be added to compensate for the time incurred in rescheduling the ceremony.

     94. The true purpose behind the NFDA’s wide promotion of the form is not to shield funeral homes against liability or warn consumers about any real risks associated with an ICD purchase. Rather, it is to

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steer consumers — who are in their most vulnerable and impressionable state — away from ICDs and their products in furtherance of the conspiracy to supress ICDs.

     95. According to one funeral home that has used this type of form, it has proven extremely successful. Walton’s Family of Funeral Homes — an SCI Dignity Memorial partner — trumpeted in a recent edition of Funeral Service Insider that through its use of forms to “educat[e] families on the risks of going elsewhere for a casket,” it has been successful in shutting down two ICDs in its area and convincing 90% of the customers who were leaning towards an ICD casket to purchase it from the funeral home instead.

     96. Of particular note is the following language contained in the Walton form, a copy of which the Funeral Service Insider published in full:

Third party casket marketers are often “fly-by-night” operators working out of a telephone “hotbox,” cell phone or Internet site .... They have little or no Casket Inventory of their own because most reputable Casket manufacturers will not sell to them .... In most cases, the person selling you this Casket has neither seen the actual casket you have purchased, nor can they make an honest representation to you of its condition, when it was manufactured or how long it has been in storage. Most importantly, the person selling you a Casket cares about one thing and one thing only: Your Money. They care little about how satisfied you will be with the delivered casket and have limited recourse in promptly replacing a Casket that is delivered damaged or is not the actual Casket that you ordered... . We respectfully offer this information and our opinion to you as a means of protecting you and your family from any further distress during your time of grief and loss. [Emphasis in original.]

     97. Mark Blankenship, Walton’s General Manager and Vice President of Operations, told Funeral Service Insider that Walton’s use of these customer “education” forms is a much better practice for retaining casket sales than trying to compete with the lower pricing of the ICDs:

We tried that before, and its a slippery slope. You lose the integrity of your pricing .... Plus, pretty soon you’ll find yourself cutting casket prices for every family within certain tight-knit ethnic and religious communities .... Word spreads pretty fast.

Walton’s willingness to openly share its competitive strategy with other funeral homes is further evidence of defendants’ conspiracy.

          C.    Defendants’ Price Coordination

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     98. The third aspect of defendants’ conspiracy is the agreement by Stewart, Alderwoods, SCI and their co-conspirator funeral homes to eliminate price competition for casket sales. They have accomplished this through restricting or preventing price advertising, sharing casket price information, and sham discounting funeral packages that require the purchase of a casket. Each of these price coordination measures has enabled the Funeral Home Defendants and their co-conspirators to fix and maintain supracompetitive pricing on the caskets they sell. In addition, the concerted efforts to promote and employ sham discounting have further suppressed the ability of ICDs to compete and constrain pricing in the casket market.

1. No Price Advertising

     99. The funeral industry has historically been opposed to any form of price advertising in order to withhold price information from consumers. As the FTC recognized in its comments surrounding the creation of the Funeral Rule, a lack of price information facilitates reduced price competition and the charging of higher prices: “Consumer ignorance about prices will permit sellers to charge higher than competitive prices, even in a market with numerous sellers.”

     100. Through the price disclosure and anti-tying requirements of the Funeral Rule, the FTC hoped to remedy the lack of price information and price competition that existed in the funeral industry. However, due to the concerted efforts of Stewart, Alderwoods, SCI and their co-conspirators in coordinating their pricing, the FTC has not succeeded.

     101. In some cases, the Funeral Home Defendants and their co-conspirators have gone beyond simply encouraging a unified policy against price advertising; they have actually mandated it. For example, the Virginia Board of Funeral Directors and Embalmers, an industry “regulatory” body comprised primarily of representatives of funeral homes — including Alderwoods — recently settled with the FTC after the agency sued the Board for its ban on discount advertising.

     102. The FTC complained that the Board’s ban violated Section 5 of the FTC Act by constituting a “horizontal agreement[] among competing funeral directors.... that restricted price competition in the

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provision of funeral products and services .... ”

     103. The FTC concluded that the conduct was anticompetitive because it had the following effects:

[T]he conduct deprived consumers of truthful information about prices for funeral products and services; ... the conduct deprived consumers of the benefits of vigorous price competition ... ; and the conduct caused consumers to pay higher prices for funeral products and services than they would have in the absence of that conduct.

2. Price Sharing

     104. The efforts of the Funeral Home Defendants and their co-conspirators to restrict price advertising is consistent with their overall efforts to coordinate pricing generally. One way they have accomplished this is through the annual pricing surveys that the NFDA has up until recently performed and that the Federated Funeral Directors of America (the “FFDA”) still performs. These listings of average prices for funeral products and services, including caskets, are compiled with the assistance of more than one thousand funeral homes nationally. As principal members of the national and state FDAs, Stewart, Alderwoods and SCI have supplied casket pricing information to their competition in connection with these surveys.

     105. According to the late Jessica Mitford, a noted authority on the consumer abuses of the funeral industry, “[i]ndustry observers have no doubt that the dissemination of these numbers within the trade serves to establish uniform price minimums, in violation of the antitrust laws.”

     106. Of particular note is that the FFDA, the current compiler of the survey, is a consultant to more than 1,300 funeral homes. Among the consulting services that FFDA provides to these homes is “pricing recommendations,” as advertised on FFDA’s website.

     107. In addition to the national pricing surveys, some of the state trade associations perform their own pricing surveys on a state-wide basis which further facilitates the fixing and maintenance of high casket prices. For example, the New Jersey FDA, an organization governed and/or substantially influenced by the Funeral Home Defendants and their co-conspirator funeral homes, conducts an annual pricing survey of its membership and reports its findings on its website. Among the findings highlighted

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are the average prices charged for caskets based on three levels of casket quality.

     108. In addition to the sharing of price information facilitated by these pricing surveys, the industry routinely offers formal training seminars on how caskets should be priced to foreclose competition from ICDs. For example, the Illinois FDA offered a seminar on this subject by industry consultant Ron Hast entitled Funeral Service Pricing & Packaging, Addressing Third Party Casket Sellers & Competition. Examples of other such seminars that have been held by the NFDA and other state FDAs include: Putting all your eggs in one casket? (NFDA presentation by NFDA spokesman David Walkinshaw); Understanding Innovative Funeral Service Pricing (NFDA presentation by David Walkinshaw); When it’s BMOC (bring your own casket) what do you do? (NFDA presentation by NFDA General Counsel Scott Gilligan); The New Competitor — Retail Casket Stores (Massachusetts FDA presentation by John Cannon, past NFDA President).

3. Sham Discounting

     109. A common theme of these seminars, and central to the price coordination agreement of the Funeral Home Defendants and their co-conspirators, is the practice of sham discounting. Stewart, Alderwoods, SCI and their co-conspirator funeral homes have agreed as part of these conspiracies to sham discount in order to suppress discount casket competition and fix and maintain their casket pricing at supracompetitive levels.

     110. Under this pricing practice, funeral homes make “discounts” available only to consumers who purchase funeral “packages” that include a casket. Those that purchase a casket from an ICD are not eligible for the “package discount” and must pay artificially inflated a la carte pricing for the goods and services they purchase from the funeral home. The end result is that consumers pay the funeral home for the casket whether they purchase it from the funeral home or not.

     111. This pricing stratagem — also referred to as “reverse handling fees” — represents a clear attempt to undermine the freedom of choice and open competition the Funeral Rule was designed to foster.

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     112. Stewart has employed sham discounting at its funeral homes located in Texas and throughout the United States in order to foreclose ICDs from competing on the merits. For example, under Stewart’s “Simplicity Package,” consumers that purchase a casket from an ICD rather than from the funeral home are charged substantially more for other funeral goods and services that they need. As a result, consumers have been steered away from ICDs and instead have purchased caskets from Stewart at prices that are still artificially high and substantially higher than the prices offered by ICDs.

     113. Alderwoods has similarly employed sham discounting at its funeral homes in Texas and throughout the United States in order to foreclose ICDs from competing on the merits. For example, Alderwoods has offered “package discounts to families who purchase an appropriate casket from our funeral home.” This package offering has similarly steered customers away from ICDs and caused them to purchase caskets from the funeral home at prices that are still artificially high and substantially higher than the prices offered by ICDs.

     114. SCI has similarly employed sham discounting at its funeral homes in Texas and throughout the United States as a means of foreclosing ICDs from competing on the merits. SCI has offered consumers a “package discount” on services and goods necessary to a funeral only if the consumer also purchases the casket from the funeral home. This package offering has similarly steered customers away from ICDs and caused them to purchase caskets from the funeral home at prices that are still artificially high and substantially higher than the prices offered by ICDs.

     115. The FTC has recognized the prevalence of sham discounting and the adverse effects it has on competition in the casket market:

Since the amendment of the Rule, the Commission is aware that some funeral providers may employ certain practices that may undermine the benefit to consumers and to competition intended by the Rule’s unbundling provisions...For example, the prices of itemized goods and services (appearing on the General Price List) may in some instances be inflated to the point of fictitiousness. Thus, virtually all consumers would choose to purchase “discount packages,” resulting in a situation where the discount package represents the de facto prices for the goods and services. Such a scenario may restrict consumer choice in a manner that frustrates the intended purpose of the Rule. Further, some members of the funeral industry have alleged that because

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such “discount packages” are often conditioned on the purchase of a casket, these packages are artificially constructed by certain funeral providers in order to eliminate competition in casket sales.

     116. The prevalence and anticompetitive effects of the agreement by Stewart, Alderwoods, SCI and their co-conspirator funeral homes to sham discount has also been widely recognized and attested to by a number of industry observers as well as funeral homes unaffiliated with the Funeral Home Defendants and their co-conspirators.

     117. For example, in comments it submitted to the FTC, the Graham Funeral Horne complained about this pricing practice as follows:

It seems that the growing trend in the industry is to artificially inflate the itemized prices to a ridiculous level, and then greatly discount the total price of the funeral if a package deal is selected, including the casket. This has the effect of not only forcing the consumer to purchase items they don’t necessarily need, but also unfairly closing the door to competition. If a client chooses to purchase a casket elsewhere, they are penalized by having to pay the artificially inflated prices taken from the price list. In effect, the package price becomes the “de facto” price, and subverts the intent of the funeral rule.

     118. The Vassar-Rawls Funeral Home similarly complained to the FTC about sham discounting:

Funeral packages are a sham used to circumvent the purpose for requiring itemized pricing. Funeral providers that use funeral packages, in most instances, grossly inflate their itemized prices and offer the packages at what they represent as a discount.

     119. The prevalence of sham discounting is directly attributable to the concerted efforts of Stewart, Alderwoods, SCI and their co-conspirators who have heavily promoted the practice as an effective way to combat the threat posed by ICDs.

     120. In addition to the industry seminars that spread the gospel of “package pricing,” the NFDA widely circulates to its membership pricing guides that advocate the use of sham discounting as an effective way to restrict ICD sales. Through these guides, the NFDA advises its members to raise their a la carte pricing to the point where the consumer will pay the funeral home a supracompetitive profit for the casket whether the consumer purchases it from the funeral home or not.

RELEVANT MARKET

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     121. The sale of caskets to consumers is the product dimension of a relevant market. The geographic dimension of this market is the United States.

     122. Because of the unique purpose they serve — containing the remains of a loved one for burial — caskets are not reasonably interchangeable with any other products.

     123. From the standpoint of both consumers and suppliers, there are no reasonable substitutes for caskets. Even in the face of a small but significant and nontransitory price increase, consumers have not, and would not, substitute their purchase of a casket with the purchase of a different product.

     124. There is widespread recognition of a casket market by both the industry and the courts. Indeed, in Pennsylvania Funeral Directors, the Third Circuit plainly recognized the existence and economic coherence of a casket market when it upheld the validity of the FTC’s ban on casket handling fees: “[C]ompetition in the market for caskets can be expected to increase with the ban in effect .... Increasing competition in the casket market is likely to drive the cost of caskets down.” 41 F.3d at 91 (emphasis added).

     125. The geographic dimension of the casket market is the United States because of the availability of the Internet as a source for purchasing caskets. The use of the Internet has become particularly prevalent over the past decade. Indeed, it is the emergence of Internet-based ICDs that has prompted defendants to step up their concerted efforts to suppress ICD competition through the exclusionary acts described herein. But for defendants’ anticompetitive conduct, the Internet would be a much more vibrant medium through which consumers could purchase caskets.

MARKET POWER

     126. SCI, Alderwoods and Stewart collectively own thousands of funeral homes in the United States and perform hundreds of thousands of funerals annually. Because of the size and scope of their funeral networks, and the large number of funerals they perform, the Funeral Home Defendants, both individually and collectively, have substantial market power over funeral merchandise suppliers such as Batesville.

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     127. With SCI, this market power extends even beyond the number of funeral homes it owns. Through its Dignity Memorial partnerships with hundreds of non-SCI funeral homes, SCI influences and/or controls the pricing and practices of these affiliated funeral homes in locations where SCI otherwise has no presence.

     128. The Funeral Home Defendants, both individually and collectively, also have substantial market power over consumers. This market power is evidenced by the power over casket pricing each of the Funeral Home Defendants has. The Funeral Home Defendants charge consumers significantly more than ICDs charge for comparable caskets. Despite these large price differentials, consumers continue to purchase caskets from the Funeral Home Defendants. This market power is also evidenced from the Funeral Home Defendants’ power to exclude competition and reduce consumer choice.

     129. The substantial market power of the Funeral Home Defendants is even greater when aggregated with the collective power of the funeral home co-conspirators.

     130. Batesville — the supplier of the dominant brand of casket — also possesses market power over consumers. This is evidenced by the fact that many consumers will only purchase Batesville caskets. This is further evidenced by the fact that hundreds of thousands, if not millions, of consumers have purchased Batesville caskets at supra-competitive prices during the relevant damages period. Batesville’s market power is further evidenced by the foreclosure of ICDs that has resulted from defendants’ agreement to prevent ICDs from selling Batesville caskets. Simply put, as Batesville has market power over consumers, ICDs cannot compete without Batesville branded caskets.

HARM TO COMPETITION

     131. Through their group boycott, disparagement and coordinated pricing campaigns —whether viewed independently or collectively — defendants have harmed competition in the casket market in three principal ways. First, they have excluded competition from ICDs.

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          Second, they have succeeded in charging supracompetitive prices for the caskets they sell consumers. And third, they have limited the variety and choice of caskets available to consumers. In addition, defendants’ conduct has suppressed competition in the sale of other funeral goods and services to consumers.

          A.   ICD Competition Has Been Excluded

     132. Through their group boycott of ICDs, defendants and their co-conspirators have succeeded in restricting the ability of ICDs to sell at discount prices the dominant Batesville brand of casket and certain other brands of caskets such as Aurora and York. ICDs are either completely blocked from selling these caskets, or severely restricted from doing so by being forced to try to purchase these caskets indirectly from rogue funeral homes unaffiliated with the Funeral Home Defendants and their co-conspirators.

     133. Many consumers will only purchase the dominant Batesville brand of casket or certain other brands of caskets because of the false perception fostered by defendants and their co-conspirators that these caskets are superior to those sold by ICDs. ICDs are foreclosed from competing with funeral homes on a level playing field for these consumers. They either are barred from making the sale altogether, or can do so only on terms that significantly add to their costs or make the product less attractive to consumers.

     134. Defendants’ campaign of disparagement further forecloses ICD competition by steering consumers — who are extremely impressionable because of grief, time pressure, and inexperience — away from making ICD purchases.

     135. The Funeral Home Defendants’ concerted efforts to engage in sham discounting have also foreclosed ICD competition. Sham discounting prevents consumers from making purchase decisions based on price since they will pay the funeral home for the casket whether or not they actually purchase it from the funeral home.

     136. As a result of defendants’ anticompetitive conduct, numerous ICDs have either lost a significant

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percentage of their sales to funeral homes, or have gone out of business altogether.

          B.   Consumers Pay Fixed and Supracompetitive Prices For Caskets

     137. Defendants’ exclusionary acts have also resulted in consumers paying fixed and supracompetitive prices for caskets. Foreclosed from competing on a level playing field because of the group boycott, campaign of disparagement, and sham discounting practices of defendants and their co-conspirators, ICDs are unable to constrain the Funeral Home Defendants’ casket pricing to the extent they would have in a world absent the conspiracies. The Funeral Home Defendants and their co-conspirators have further fixed prices and eliminated price competition among themselves through their various price coordination activities.

     138. Accordingly, Stewart, Alderwoods, SCI and their co-conspirators have charged hundreds of thousands of consumers, including each of the named individual plaintiffs in this action, fixed and supracompetitive prices for caskets. These prices are substantially higher than those charged by ICDs for comparable caskets. And, they are substantially higher than the prices the Funeral Home Defendants and their co-conspirators would have charged in a world absent their exclusionary acts.

     139. In an unrestrained environment where they would have faced substantially greater price competition from ICDs, the Funeral Home Defendants and their co-conspirators would have been forced to lower their casket prices in order to compete with the lower pricing of ICDs. They also would have been forced to engage in price competition among themselves absent their price coordination efforts.

     140. The price-constraining effect of unrestrained competition by ICDs has been recognized by every court that has considered the issue. For example, in upholding the FTC’s ban on “casket handling fees,” the Third Circuit found that these fees “precluded much true competition from third parties which would ordinarily result in prices charged being driven down.” Pennsylvania Funeral Directors, 41 F.3d at 91.

     141. Similarly, in invalidating Tennessee’s requirement that only licensed funeral providers may sell

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caskets, the Sixth Circuit held:

The licensure requirement imposes a significant barrier to competition in the casket market. By protecting licensed funeral directors from competition on caskets, the [rule] harms consumers in their pocketbooks.... [W]e invalidate only the [state’s] naked attempt to raise a fortress protecting the monopoly rents that funeral directors extract from consumers.

Craigmiles, 312 F.3d at 228-29.

     142. In rescinding an analogous statute from Mississippi, the court in Casket Royale similarly concluded:

As a result of this [restriction], consumers in Mississippi are offered fewer choices when it comes to selecting a casket. Consequently, there is less price competition among the sellers of caskets. Ultimately, the consumer is harmed by this regulation as one is forced to pay higher prices in a far less competitive environment.

124 F. Supp. 2d. at 440.

          C.    Consumer Choice Has Been Restricted

     143. Through their concerted efforts to foreclose competition from ICDs — particularly those that sell through the Internet — defendants have also substantially restricted the range of casket choices available to consumers.

     144. Stewart, Alderwoods and SCI offer consumers only one brand of casket — Batesville. Moreover, they routinely steer their customers to a limited selection of Batesville caskets, typically the most expensive caskets the consumer can (or in some cases, can’t) afford.

     145. In contrast, ICDs — particularly those that are Internet-based — offer consumers a pressure-free environment to view a large variety of caskets from various manufacturers, and in different styles and price ranges. ICDs also provide consumers with a source for highly individualized caskets which funeral homes are unable or unwilling to offer.

     146. The expanded casket variety and choice available to consumers only through the ICD channel has been recognized by the FTC as another key reason for its creation of the Funeral Rule:

Third-party casket sellers can benefit consumers by expanding the range of casket

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choices available in a market along additional dimensions. For example, consumers desiring highly individualized caskets made by artists or craftsmen may be unable to find such caskets through funeral homes.

          D.   Competition in the Sale of General Funeral Services Has Been Suppressed

     147. The threat to the Funeral Home Defendants and their co-conspirators from unrestrained ICD competition is not simply about fixing and maintaining their supracompetitive pricing on caskets. It is also about suppressing competition with respect to all of the other funeral goods and services they provide. If ICDs become a viable alternative source from which consumers can purchase lower-priced caskets, consumers will begin to challenge the prices charged by the Funeral Home Defendants and their co-conspirators for the other funeral goods and services they sell.

     148. Moreover, ICDs offer a potential vehicle for consumers to shop around for low-cost funeral providers through referral services that some ICDs offer. Indeed, some Internet based ICDs offer their customers a nationwide network of funeral homes unaffiliated with the Funeral Home Defendants and their co-conspirators that will provide deep discounts over their general prices.

     149. Costco, which recently has taken steps to enter the casket market as an ICD, also has in place plans to establish a national network of funeral providers that will provide discounted services to Costco members. In the industry press describing Costco’s entry into the casket market, Costco’s planned referral network was highlighted as one of the principal threats to and concerns of funeral homes.

          E.   There Is No Legitimate Business Purpose For Any of Defendants’ Conduct

     150. There is no legitimate business justification for the concerted efforts of defendants and their co-conspirators to suppress competition in the casket market. Their conduct and conspiracies are solely for the purpose of excluding competition from ICDs, fixing and maintaining supracompetitive prices for the dominant Batesville brand and certain other brands of casket, restricting consumer choice, and protecting the Funeral Home Defendants and their co-conspirators from competition in the sale of other funeral goods and services that would result if consumers had free and open access to ICDs.

CLASS ACTION ALLEGATIONS

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     151. The Consumer Plaintiffs bring this action as a class action under Rule 23(b)(3) of the Federal Rules of Civil Procedure for violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and the California Unfair Competition Law, Section 17200 of the California Business and Professions Code. The Rule (b)(3) Class is comprised of all consumers located in the United States who purchased Batesville caskets from the Funeral Home Defendants during the fullest period permitted by the applicable statute of limitations.

     152. All of the members of the Rule (b)(3) Class were injured as a result of the supracompetitive prices charged for caskets by the Funeral Home Defendants — supracompetitive prices achieved as a result of the conspiracies detailed herein. The Rule (b)(3) Class does not include the defendants or their co-conspirators.

     153. Members of the (b)(3) Class include hundreds of thousands, if not millions, of consumers. They are so numerous that their joinder would be impracticable.

     154. FCA and the Consumer Plaintiffs also bring this action as a class action under Rule 23(b)(2) of the Federal Rules of Civil Procedure, for violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C, §§ 1, 2 and the California Unfair Competition Law, Section 17200 of the California Business and Professions Code. The Rule (b)(2) Class includes the FCA, all members of the Rule (b)(3) Class, and all consumers who are threatened with injury by the conspiracies detailed herein.

     155. Defendants have acted, continued to act, refused to act and continued to refuse to act on grounds generally applicable to the Rule (b)(2) Class, thereby making appropriate final injunctive relief with respect to the Rule (b)(2) Class as a whole. The Rule (b)(2) Class does not include defendants or their co-conspirators.

     156. Members of the Rule (b)(2) Class include hundreds of thousands, if not millions, of consumers. They are so numerous that their joinder would be impracticable.

     157. Common questions of law and fact exist with respect to all Class members and predominate

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over any questions solely affecting individual Class members. Among the questions of law and fact common to the Class are the following:

• Whether defendants and their co-conspirators have engaged in a concerted effort to fix and maintain supracompetitive casket prices.

• Whether defendants and their co-conspirators have engaged in a concerted effort to suppress or exclude competition in the casket market.

• Whether the prices for Batesville caskets the Funeral Home Defendants sold during the limitations period were higher than they would have been absent the anticompetitive conduct alleged herein.

• Whether, and to what extent, defendants’ anticompetitive conduct has harmed competition in the casket market.

• The duration and scope of defendants’ conspiracies.

• Whether there is any legitimate business purpose for defendants’ anticompetitive conduct (for plaintiffs’ rule of reason claims).

     158. Neither FCA nor the Consumer Plaintiffs have any conflict of interest with Class members. Their claims are typical of the claims of the Class and they will fairly and adequately protect the interests of the Class. Counsel competent and experienced in federal class action and federal antitrust litigation has been retained to represent the Class.

     159. This action is superior to any other method for the fair and efficient adjudication of this legal dispute since joinder of all members is not only impracticable, but impossible. The damages suffered by certain members of the Class are small in relation to the expense and burden of individual litigation and therefore it is highly impractical for such Class members to seek redress for damages resulting from defendants’ anticompetitive conduct.

     160. There will be no extraordinary difficulty in the management of the Class action.

CLAIMS FOR RELIEF

FIRST CLAIM FOR RELIEF

— Against All Defendants —

(Per Se Unlawful or Rule of Reason Price-Fixing)

     161. Plaintiffs repeat and reallege each and every allegation of this complaint as if fully set forth herein.

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     162. Each of the defendants, along with their co-conspirators, have entered into continuing illegal contracts, combinations or conspiracies in restraint of trade, the purpose and effect of which are to fix and maintain supracompetitive prices on caskets. These contracts, combinations or conspiracies are illegal per se under Section 1 of the Sherman Act, 15 U.S.C. § 1.

     163. These contracts, combinations or conspiracies have caused substantial anticompetitive effects in the casket market. They have excluded competition from ICDs. They have fixed and maintained supracompetitive prices for the caskets that the Funeral Home Defendants and their co-conspirators sell. And, they have restricted the variety of casket choices available to consumers.

     164. These contracts, combinations or conspiracies have no legitimate business purpose. They achieve no legitimate efficiency benefit to counterbalance the substantial anticompetitive effects they have caused in the casket market.

     165. As a result of these violations of Section 1 of the Sherman Act, plaintiffs and Class members have been injured in their business and property in an amount not presently known, but which is, at a minimum, hundreds of millions of dollars, prior to trebling.

     166. Such violation and the effects thereof are continuing and will continue unless injunctive relief is granted. Plaintiffs and Class members have no adequate remedy at law.

SECOND CLAIM FOR RELIEF

— Against All Defendants —

(Per Se Unlawful or Rule of Reason Group Boycott)

     167. Plaintiffs repeat and reallege each and every allegation of this complaint as if fully set forth herein.

     168. Each of the defendants, along with their co-conspirators, have entered into continuing illegal contracts, combinations or conspiracies in restraint of trade, the purpose and effect of which are to fix and

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maintain supracompetitive prices on caskets and eliminate competition from ICDs in the sale of caskets to consumers. These contracts, combinations, agreements or conspiracies are illegal per se under Section 1 of the Sherman Act, 15 U.S.C. § 1.

     169. Each of the Funeral Home Defendants — individually, collectively among themselves, and collectively with their co-conspirators — possess and exercise market power over Batesville and consumers. Their ability to get Batesville to act against its economic self-interest by not supplying ICDs with caskets as well as their ability to fix and maintain supracompetitive prices is evidence of the individual and collective market power of the Funeral Home Defendants.

     170. These contracts, combinations or conspiracies have caused substantial anticompetitive effects in the casket market. They have excluded competition from ICDs. They have fixed and maintained supracompetitive prices for the caskets that the Funeral Home Defendants and their co-conspirators sell. And, they have restricted the variety of casket choices available to consumers.

     171. These contracts, combinations or conspiracies have no legitimate business purpose. They achieve no legitimate efficiency benefit to counterbalance the anticompetitive effects they cause in the casket market.

     172. As a result of these violations of Section 1 of the Sherman Act, plaintiffs and Class members have been injured in their business and property in an amount not presently known, but which is, at a minimum, hundreds of millions of dollars, prior to trebling.

     173. Such violation and the effects thereof are continuing and will continue unless injunctive relief is granted. Plaintiffs and Class members have no adequate remedy at law.

THIRD CLAIM FOR RELIEF

— Against Funeral Home Defendants —

(Conspiracy to Monopolize)

     174. Plaintiffs repeat and reallege each and every allegation of this complaint as if fully set forth herein.

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     175. Each of the Funeral Home Defendants, along with their co-conspirators, have willfully, knowingly, intentionally and with the specific intent to do so, combined and conspired to monopolize the casket market. This combination and conspiracy is illegal under Section 2 of the Sherman Act, 15 U.S.C. § 2.

     176. The combination and conspiracy to monopolize the casket market has been effectuated by the means and overt acts set forth above, among others.

     177. The combination and conspiracy to monopolize the casket market has caused substantial anticompetitive effects in the casket market. It has excluded competition from ICDs. It has fixed and maintained supracompetitive prices for the caskets that the Funeral Home Defendants and their co-conspirators sell. And, it has restricted the variety of casket choices available to consumers.

     178. The combination and conspiracy has no legitimate business purpose. It achieves no legitimate efficiency benefit to counterbalance the anticompetitive effects it causes in the casket market.

     179. As a result of this violation of Section 2 of the Sherman Act, plaintiffs and Class members have been injured in their business and property in an amount not presently known, but which is, at a minimum, hundreds of millions of dollars, prior to trebling.

     180. Such violation and the effects thereof are continuing and will continue unless injunctive relief is granted. Plaintiffs and Class members have no adequate remedy at law.

FOURTH CLAIM FOR. RELIEF

— Against All Defendants —

(For Violations Of California’s Unfair Competition Law)

     181. Plaintiffs repeat and reallege each and every allegation of this complaint as if fully set forth herein.

     182. Defendants’ contracts, combinations or conspiracies constitute unlawful or unfair business acts

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and practices under Section 17200 of the California Business and Professions Code.

     183. Defendants and their co-conspirators have engaged in “unlawful” business acts and practices by violating Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2.

     184. Plaintiffs reserve the right to allege other violations of law which constitute unlawful acts or practices. Such conduct is ongoing and continues to date.

     185. Defendants and their co-conspirators have also engaged in “unfair” business acts and practices in that the harm caused by their contracts, combinations or conspiracies offends public policy, is immoral, unscrupulous, unethical, deceitful and offensive, and causes substantial economic injury to consumers.

     186. As a result of these violations of California’s Unfair Competition Law, plaintiffs and Class members have been injured in their business and property in an amount not presently known, but which is, at a minimum, hundreds of millions of dollars.

     187. Such unlawful or unfair business practices are continuing and will continue unless relief enjoining these practices is granted under Section 17204 of the California Business and Professions Code. Plaintiffs and Class members have no adequate remedy at law.

RELIEF SOUGHT

WHEREFORE, the Class requests the following relief:

     A. That the Court declare, adjudge and decree that defendants have committed the violations of federal and state law alleged herein;

     B. That defendants, their directors, officers, employees, agents, successors, and assigns be permanently enjoined and restrained from, in any manner, directly or indirectly, fixing casket prices, boycotting ICDs, disparaging ICDs, sharing casket price information, restricting casket price advertising, offering sham discounts through package pricing, and committing any other violations of Sections 1 and 2 of the Sherman Act or California’s Unfair Competition Law, and that defendants, their directors, officers, employees, agents, successors, and members be enjoined and restrained from, in any manner, directly or

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indirectly, committing any other violations of statutes having a similar purpose or effect.

     C. That defendants provide Class members with damages, in an amount to be proven at trial, to be trebled according to law, plus interest — including prejudgment interest — to compensate them for the overcharges they incurred from defendants’ violations of the federal antitrust laws.

     D. That defendants provide Class members with restitution for the overcharges that were extracted by violating the California Unfair Competition Law.

     E. That the Court award the Class attorneys’ fees and costs of suit, and such other and further relief as this Court may deem just and proper.

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DEMAND FOR JURY TRIAL

Plaintiffs demand a trial by jury.

DATED: October 12, 2005

CONSTANTINE CANNON, PC
By:
	Matthew U. Cantor Attorney-in-Charge, Plaintiffs
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By:
	Gordon Schnell Attorney-in-Charge, Plaintiffs
Matthew L. Cantor (pro hac vice pending) Gordon Schnell (pro hac vice pending) Kerin E. Coughlin (pro hac vice pending) Jean Kim (pro hac vice pending) 450 Lexington Avenue New York, NY 10017 Telephone: (212) 350-3700 Facsimile: (212) 350-2701
Lead Counsel for Plaintiffs and The Putative Class Counsel for Funeral Consumers Alliance, Inc. Gloria Jaccarino Bender, Anthyony J. Jaccarino, Donna Sprague, Sandra Gonzalez and Deborah Winch
Of Counsel: LAW OFFICES OF JEFFREY F. KELLER Jeffrey F. Keller Kathleen R. Scanlan 425 Second Street Suite 500 San Francisco, CA 94107 Telephone: (415) 543-1305 Facsimile: (415) 543-7861
Counsel for John Clark

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EMERY CELLI BRINCKERHOFF & ABADY LLP
Jonathan S. Abady
Andrew G. Celli
Katherine F. Rosenfeld
545 Madison Avenue
New York, NY 10022
Telephone: (212) 763-5000
Facsimile: (212) 763-5001

Counsel for Gloria Jaccarino Bender,
Anthony J. Jaccarino, Donna Sprague and Gay Holtz

LAW OFFICES OF STEVEN M. SHERMAN
Steven M. Sherman
220 Montgomery Street
Suite 1500
San Francisco, CA 94104
Telephone: (415) 403-1660
Facsimile: (415) 397-1577

Counsel for Ira and Nancy Hehnan and Donald Sprague

MILLER, FAUCHER AND CAFFERTY Bryan L. Clobes
Melody Forrester
Michael Tarringer
18th & Cherry Streets
One Logan Square, Suite 1700
Philadelphia, PA 19103
Telephone: (215) 864-2800
Facsimile: (215) 864-2810

Counsel for Frances H. Rocha

ZWERLING, SCHACHTER & ZWERLING, LLP
Robert S. Schachter
Stephen L. Brodsky
Paul Kleidman
41 Madison Avenue, 32nd Floor
New York, NY 10010
Telephone: (212) 223-3900
Facsimile: (212) 371-5969

Counsel for Marsha Burger

HAGENS BERMAN SOBOL SHAPIRO LLP

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George W. Sampson
1301 Fifth Avenue
Suite 2900
Seattle, WA 98101
Telephone: (206) 623-7292
Facsimile: (206) 623-0594

Counsel for Marla and Tony Magsarili

SPECTOR, ROSEMAN & KODROFF
Eugene A. Spector
Jeffrey J. Corrigan
William B. Caldes
Simon Paris
1818 Market Street, Suite 2500
Philadelphia, PA 19103
Telephone: (215) 496-0300
Facsimile: (215) 496-6611

Counsel for Anna Kain

LABATON SUCHAROW & RUDOFF LLP
Hollis Salzman
Kellie Safar
100 Park Avenue
New York, NY 10017-5563
Telephone: (212) 907-0700
Facsimile: (212) 818-0477

CHIMICLES & TIKELLIS
Michael Gottsch
Daniel B. Scott
361 Lancaster Avenue
Haverford, PA 19041
Telephone: (610) 642-8500
Facsimile: (610) 649-3633

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EX-99.2

Exhibit 99.2

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

PIONEER VALLEY CASKET CO., INC.;	§
ETERNAL COMFORT dba THE CASKET	§
STORE; FINALITY LLC; FUNERAL	§	NO. 4:05-CV-03399
SUPPLIES, INC. dba THE CASKET STORE,	§
on behalf of themselves and those similarly	§
situated,	§
	§	JURY TRIAL DEMANDED
v.	§
SERVICE CORPORATION	§
INTERNATIONAL, et al.	§

FIRST AMENDED CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE SHERMAN ACT

     Plaintiffs Pioneer Valley Casket Co., Inc. (“Pioneer”), Eternal Comfort dba The Casket Store (“Eternal Comfort”), Finality LLC (“Finality”), and Funeral Supplies, Inc. dba The Casket Store (“Funeral Supplies”), file this Class Action Complaint on behalf of themselves and all others similarly situated against Defendants Service Corporation International (“SCI”), Alderwoods Group, Inc. (“Alderwoods”), Stewart Enterprises, Inc, (“Stewart”) (collectively, the “Funeral Home Defendants”), Hillenbrand Industries, Inc. (“Hillenbrand”) and Batesville Casket Company (“Batesville”) (collectively the “Casket Manufacturer Defendants” and both groups collectively referenced as “Defendants”). This Complaint is alleged upon information and belief, except as to those allegations pertaining to the named Plaintiffs, which are alleged on personal knowledge.

I. INTRODUCTION

     1. Plaintiffs bring this action for relief on behalf of independent casket distributors, meaning third party sellers of caskets who are unaffiliated with any of the Funeral Home Defendants or their co-conspirators (hereinafter “ICDs” ). Plaintiffs seek to enjoin Defendants’ anti-competitive conduct and to recover damages incurred by Plaintiffs and the class members.

     2. This class action arises from Defendants’ participation in a conspiracy to suppress competition in the market for funeral caskets across the nation (hereinafter the “relevant market” or the “casket market”). Because of Defendants’ unlawful conduct, Plaintiffs and the class members have suffered antitrust injury to their business or property.

     3. Defendants and their co-conspirators have suppressed competition in the sale of caskets in order to unlawfully limit competition among casket sellers.

     4. Defendants’ anti-competitive conduct has substantially foreclosed ICDs from competing in the casket market.

     5. Defendants engage in their anti-competitive conduct despite the prohibitions of the Funeral Industry Practices Trade Regulation Rule, 16 C.F.R. part 453 (1982) (the “Funeral Rule”). This rule was enacted by the Federal Trade Commission (“FTC”) to protect consumers from anticompetitive practices in the funeral industry. The Funeral Rule prohibits funeral homes from, among other things, refusing service to or otherwise penalizing consumers who purchase caskets from ICDs. It also prohibits funeral homes from requiring consumers to purchase funeral packages that force them to buy goods, such as caskets, that the consumers do not need or want.

II. JURISDICTION AND VENUE

     6. This complaint is filed under Section 16 of the Clayton Act, 15 U.S.C. § 26, to obtain injunctive relief for violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, to recover damages under Section 4 of the Clayton Act, 15 U.S.C. § 15, and to recover the costs of suit, including reasonable attorneys’

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fees, for those injuries that Plaintiffs and all others similarly situated sustained as a result of Defendants’ violation of those laws.

     7. The Court has jurisdiction over the federal claims under 28 U.S.C. §§ 1331 and 1337.

     8. Venue is proper in this District under 15 U.S.C. § 22 and 28 U.S.C. § 1391 because Defendants reside, transact business, or are found within this District, and a substantial part of the events giving rise to the claims arose in this District. The Honorable J. Alsup of the District Court for the Northern District of California also transferred this action to this venue at Defendants’ request.

     9. The activities of the Defendants and their co-conspirators, as described, were within the flow of, were intended to, and did have a substantial effect on, foreign and interstate commerce of the United States.

III. THE PARTIES

     10. Plaintiff Pioneer Valley Casket Co., Inc. (“Pioneer”) is an ICD, with its principal place of business formerly located at Whately, MA. Philip Wartel was the owner and president of Pioneer. Pioneer was a retail casket business, offering hardwood, steel, and semi-precious metal, and children’s and oversized caskets, in an attempt to meet virtually every financial need, faith or family tradition. Pioneer sold caskets directly to the public at costs far less than most local funeral homes. Casket prices were generally lower for caskets purchased through Pioneer and other ICDs, as opposed to those purchased through establishments such as the Funeral Home Defendants, because the overhead was lower and the markup on the price of a casket offered for sale was not nearly as much as that of the Funeral Home Defendants. Pioneer has suffered injury as a result of the unlawful anticompetitive conduct alleged herein, and is, in fact, no longer in business.

     11. Plaintiff Eternal Comfort dba The Casket Store (“Eternal Comfort”) is an ICD, with its principal place of business located at Lithonia, Georgia. Victor Lovick is the owner of Eternal Comfort. Eternal Comfort is a licensed funeral merchandise dealer under GA St. § 10-14-4. Eternal Comfort is a retail casket business, offering hardwood, steel, and semi-precious metal, and children’s and oversized caskets, in an attempt to meet virtually every financial need, faith or family tradition. Eternal Comfort sells caskets directly to the public at costs far less than most local funeral homes. Casket prices are generally lower for caskets

-3-

purchased through Eternal Comfort and other ICDs, as opposed to those purchased through establishments such as the Funeral Home Defendants, because the overhead is lower and the mark-up on the price of a casket offered for sale is not nearly as much as that of the Funeral Home Defendants. Eternal Comfort has suffered injury as a result of the unlawful anticompetitive conduct alleged herein.

     12. Plaintiff Finality LLC (“Finality”) is an ICD, with its principal place of business located at North Little Rock, AR. Stephanie Webb is the owner of Finality. Finality is a retail casket business, offering hardwood, steel, and semi-precious metal, and children’s and oversized caskets, in an attempt to meet virtually every financial need, faith or family tradition. Finality has a large showroom with ten caskets on display. Finality sells caskets directly to the public at costs far less than most local funeral homes. Casket prices are generally lower for caskets purchased through Finality and other ICDs, as opposed to those purchased through establishments such as the Funeral Home Defendants, because the overhead is lower and the mark-up on the price of a casket offered for sale is not nearly as much as that of the Funeral Home Defendants. Finality has suffered injury as a result of the unlawful anticompetitive conduct alleged herein.

     13. Plaintiff Funeral Supplies, Inc. dba The Casket Store (“Funeral Supplies”) is an ICD, with its principal place of business located at Macon, GA. Bobby White is the owner of Funeral Supplies. Funeral Supplies is a licensed funeral merchandise dealer under GA St. § 10-14-4. Funeral Supplies is a retail casket business, offering hardwood, steel, and semi-precious metal, and children’s and oversized caskets, in an attempt to meet virtually every financial need, faith or family tradition. Funeral Supplies sells caskets directly to the public at costs far less than most local funeral homes, Casket prices are generally lower for caskets purchased through Funeral Supplies and other ICDs, as opposed to those purchased through establishments such as the Funeral Home Defendants, because the overhead is lower and the mark-up on the price of a casket offered for sale is not nearly as much as that of the Funeral Home Defendants. Funeral Supplies has suffered injury as a result of the unlawful anticompetitive conduct alleged herein.

     14. SCI is a corporation organized and existing under the laws of the State of Texas. Its principal place of business is 1929 Allen Parkway, Houston, Texas. According to its 2003 Annual Report,

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SCI operates a “network that cannot be duplicated.” SCI, through its various funeral home locations sells tens of thousands of Batesville caskets annually in the United States. SCI’s 2004 revenues were approximately $1.86 billion.

     15. Alderwoods is a corporation organized and existing under the laws of the State of Delaware. Its principal place of business is 311 Elm Street, Suite 1000, Cincinnati, Ohio. Alderwoods, through its various funeral home locations, sells tens of thousands of Batesville caskets annually. Alderwoods’ 2004 revenues were approximately $715 million.

     16. Stewart is a corporation organized and existing under the laws of the State of Louisiana. Its principal place of business is 1333 South Clearview Parkway, Jefferson, Louisiana. Stewart, through its various funeral home locations, sells tens of thousands of Batesville caskets annually. Stewart’s 2004 revenues were approximately $515 million.

     17. Batesville is a corporation organized and existing under the laws of the State of Indiana. Its principal place of business is One Batesville Boulevard, Batesville, Indiana. Batesville is wholly-owned and controlled by Hillenbrand, a corporation organized and existing under the laws of the State of Indiana, Batesville manufactures and sells various funeral service products. It is the largest casket manufacturer in the United States, selling hundreds of thousands of caskets annually. Batesville manufactures approximately 45% of the caskets sold to consumers in the United States. Batesville does not sell its caskets directly to consumers, nor does Batesville sell its caskets to ICDs. Batesville only sells its caskets to licensed funeral directors operating licensed funeral homes.

     18. Virtually all of the caskets sold by the Funeral Home Defendants are Batesville caskets.

     19. Various persons, firms, corporations, organizations and other business entities, including funeral homes in this District and throughout the United States, have participated as co-conspirators in the violations alleged herein and have performed acts in furtherance of the conspiracies. Some of these persons, firms, corporations, organizations and business entities are known and some are unknown. For example, the National Funeral Directors Association (“NFDA”) is the leading funeral service organization in the United States. The NFDA represents the interests of thousands of funeral home members, including

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those owned by the Funeral Home Defendants. Through sponsorship of seminars and conferences, promotion of practice materials and guides, and involvement in other industry activities, the NFDA has participated in and facilitated the anti-competitive conduct alleged herein. The NFDA is governed by both an Executive Board and a Policy Board on which the Funeral Home Defendants are widely represented.

     20. Other co-conspirators include many of the non SCI-owned funeral homes that are “Dignity Memorial” partners with SCI. Through their operations and pricing, which are developed, influenced and/or controlled by SCI, these funeral homes have participated in and facilitated the anti-competitive conduct alleged herein.

IV. CLASS ACTION ALLEGATIONS

     21. Plaintiffs bring this action pursuant to Rule 23 of the Federal Rules of Civil Procedure, on behalf of themselves and a Plaintiff Class (“the Class”) composed of and defined as follows:

All independent casket distributors in the United States who are presently in business or were in business any time from July 8, 2001, to the present. Excluded from this class are Defendants and all directors, officers, agents, employees, parents, subsidiaries, affiliates, and/or co-conspirators of Defendants and all governmental entities.

     22. The requirements of Rules 23(a), 23(b)(1), 23(b)(2) and 23(b)(3) of the Federal Rules of Civil Procedure have been met in that:

(a) Numerosity: Plaintiffs do not know the exact size of the Class, though the exact number of Class members can be determined by appropriate discovery. Based on the nature of the commerce involved, however, Plaintiffs believe that the Class members are in the hundreds and that members of the Class are so numerous and so geographically dispersed throughout the United States so that joinder of all members would be impracticable.

(b) Typicality: Plaintiffs’ claims are typical of the other class members’ claims because Plaintiffs, like each Class member, have been injured through the uniform conduct of Defendants described herein. Plaintiffs’ claims are typical of the class members’ claims because Defendants injured Plaintiffs and the class members in the same manner and because Plaintiffs’ theories of liability giving rise to relief are the same as Class members.’ Accordingly, by proving its own claims, Plaintiffs will presumptively prove the claims of all Class members.

(c) Commonality: Virtually all of the issues of law and fact in this class action are common to each class member including, without limitation, the following:

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(i) Whether Defendants engaged in the conduct alleged herein;

(ii) Whether Defendants and their co-conspirators engaged in a concerted effort to fix and maintain artificially inflated casket prices;

(iii) Whether Defendants and their co-conspirators engaged in a concerted effort to suppress or exclude competition in the casket market;

(iv) Whether, and to what extent, Defendants’ anti-competitive conduct has harmed competition in the casket market;

(v) The duration and scope of Defendants’ conspiracies; and

(vi) Whether there is any legitimate business purpose for Defendants’ anticompetitive conduct.

(d) Adequacy of Representation: Plaintiffs can and will fairly and adequately represent and protect the interests of the Class members and have no interests that conflict with or are antagonistic to the interests of the Class members. Plaintiffs have retained attorneys who are experienced and competent in complex class action and antitrust litigation.

     23. Class certification is appropriate under Rule 23(b)(3) of the Federal Rules of Civil Procedure because a class action is the superior procedural vehicle for the fair and efficient adjudication of the claims asserted herein:

(a) Common questions of law and fact overwhelmingly predominate over any individual questions that may arise, and consequently there would be enormous economies to the courts and to the parties in litigating the common issues on a class-wide basis instead of on a repetitive individual basis;

(b) The size of each Class members’ individual damage claim is too small to make individual litigation an economically viable alternative, such that few Class members have any interest individually controlling the prosecution of a separate action;

(c) Class treatment is required for optimal deterrence and compensation and for limiting the court-awarded reasonable legal expenses incurred by Class members; and

(d) Despite the relatively small size of each individual Class members’ claim, the aggregate volume of said claim, coupled with the economies of scale inherent in litigating similar claims on a common basis, will enable this case to be litigated as a class action on a cost effective basis, especially when compared with repetitive individual litigation. Further, no unusual difficulties are likely to be encountered in the management of this class action since all questions of law and fact to be litigated at the liability phase are common to the Class.

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     24. Class certification is appropriate under Rule 23(b)(2) of the Federal Rules of Civil Procedure because Defendants have acted on grounds generally applicable to all members of the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the Class as a whole.

     25. Class certification is appropriate pursuant to Rule 23(b)(1) of the Federal Rules of Civil Procedure because prosecution of separate actions would create a risk of adjudication with respect to individual class members which may, as a practical matter, be dispositive of the interests of other members not parties to the adjudication or which may substantially impair or impede their ability to protect their interests.

     26. Separate actions prosecuted by individual class members also would create a risk of inconsistent or varying adjudications, which would establish incompatible standards of conduct for Defendants.

V. FACTUAL ALLEGATIONS

A. History of ICDs’ Entry in the Casket Industry

     27. In 1984, the FTC enacted the Funeral Rule, which set forth requirements and prohibitions for funeral providers and required funeral homes to unbundle their packaged funerals and give consumers an itemized price listing of every good and service sold.

     28. The FTC attempted, through the Funeral Rule, to remedy the universal industry practice of tying the purchase of funeral services to the purchase of caskets. Caskets typically represent the largest price component of a funeral, usually almost half of the total expense, and can cost up to thousands of dollars.

     29. The Funeral Rule was also intended to lower barriers to price competition in the funeral industry. After the enactment of the Funeral Rule, ICDs entered the market as an alternative, and less expensive, means of purchasing caskets.

     30. ICDs are independent of the Funeral Home Defendants and their co-conspirators. Some ICDs are physical establishments, some are entirely Internet-based, and others are a combination, of the two. ICDs offer funeral goods, including funeral caskets, for sale to consumers. Accordingly, ICDs are an alternative chain of distribution for funeral caskets.

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     31. The Third Circuit described, the entry of ICDs into the casket market in Pennsylvania Funeral Directors Ass’n. Inc. v. Federal Trade Commission, 41 F.3d 81, 84 (3d Cir. 1994):

Prior to the enactment of the Funeral Rule, funeral service providers (i,e., funeral homes) were virtually the only parties selling funeral goods.

However, after the implementation of the Funeral Rule, the way was paved for third parties to provide various funeral goods-namely caskets. Because funeral service providers could no longer require a consumer to purchase a casket in order to receive any other funeral service, third parties stepped into the markets....

     32. The prices charged by ICDs are considerably lower than those charged by funeral homes, as the FTC anticipated and intended under the goals of the Funeral Rule. The FTC has stated that “third-party casket sellers typically charge significantly lower prices than do funeral homes for comparable caskets.”

     33. Case law acknowledges that ICDs’ casket prices are lower than funeral home prices. See, e.g., Pennsylvania Funeral Directors, 41 F.3d at 84 (“The third parties began selling caskets...usually at a substantially lower price than did the funeral homes.”); Craigmiles v. Giles, 312 F.3d 220, 224 (6th Cir. 2002) (“funeral home operators generally mark up the price of caskets 250 to 600 percent, whereas casket retailers sell caskets at much smaller margins”).

     34. The July 1990 Presiding Officer’s Report on the FTC’s Review of the Funeral Industry Practices Trade Regulation Rule, “[t]he emergence of third party casket sellers has met with a strong negative reaction from the traditional elements of the funeral industry.”

     35. Rather than accepting and fairly responding to competition created by ICDs’ entry into the casket market, the Funeral Home Defendants first struck back by imposing extra charges and “casket handling fees” on consumers who chose to purchase their caskets from ICDs instead of from the Funeral Home Defendants.

     36. These casket handling fees cancelled out most or all of the cost savings a consumer would otherwise realize from purchasing a less expensive casket offered by an ICD. As the court noted in Pennsylvania Funeral Director, the fees sometimes resulted in a higher overall price for an ICD casket compared to a funeral home casket. The court determined that funeral providers were telling consumers “either

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you buy your casket here, or we’ll charge you for it anyway.” Pennsylvania Funeral Directors, 41 F.3d at 89 n.10.

     37. The FTC concluded that casket handling fees serve no purpose other than to penalize consumers who chose to purchase their caskets from ICDs and “penalizes consumers for exercising their choice afforded by the Rule.”

     38. The casket handling fees practice successfully curbed the growth of ICDs. According to the FTC, casket sales “by third parties have declined as a result, and several retailers have curtailed their marketing efforts or withdrawn from the market.”

     39. The FTC amended the Funeral Rule in 1994 to ban casket handling fees to guarantee that consumers would benefit from real choice and price competition. The FTC “concluded that substantial ‘casket handling fees’ are imposed on consumers by a significant proportion of providers wherever third-party casket sellers exist, and, as a result, frustrate the Rule’s ‘unbundling’ requirements and result in the reduction of potential competition in the sale of caskets fostered by the Funeral Rule.” In upholding the validity of this ban, the Third Circuit described the increased competition and lower prices that would result in Pennsylvania Funeral Directors:

Consumers will have increased choice in the purchase of caskets. Consumers will not be penalized for exercising that choice. Additionally, competition in the market for caskets can be expected to increase with the ban in effect, given the fact that many third party casket sellers went out of business as a result of casket handling fees. Increasing competition in the casket -market is likely to drive the cost of caskets down. All consumers will benefit from this result.

41 F.3d at 90-91.

     40. Following the FTC’s prohibition on casket handling fees, numerous ICDs entered the casket market. Their entry into the market was facilitated by the growth of the Internet as a vehicle for consumer purchasing. Fearful that ICDs could end their profit windfall on caskets, Defendants and their co-conspirators chose to engage in new anti-competitive practices to restrain the competitive threat posed by ICDs.

B. Defendants’ Anti-Competitive Attempts to Oust ICDs from the Casket Market

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     41. Despite the efforts of the FTC, Defendants and their co-conspirators have successfully suppressed competition in the casket market by engineering and implementing a group boycott and illegal restraints of trade which restrict the ability of ICDs to sell Batesville caskets and other popular casket brands; engaging in concerted efforts to restrict price competition through coordination of their casket pricing; and furthering the boycott through engaging in a campaign of disparagement against ICDs and the caskets they sell.

     42. Defendants’ anti-competitive conduct has foreclosed ICDs from fully competing in the casket market.

1. Group Boycott of ICDs and Vertical Restraint of Trade

a. Structure of Defendants’ Group Boycott and Vertical Restraint of Trade

     43. In an effort to eliminate ICD competition, Defendants conspired to prevent ICDs from acquiring at competitive prices and selling Batesville, the dominant brand, and other brands of caskets to consumers at discounted prices. The Defendants’ and their co-conspirators met and took actions in furtherance of the conspiracy at industry trade association meetings and/or seminars.

     44. Twice per year, the senior management of Batesville held a company wide meeting at its headquarters in Batesville, Indiana; where it was made clear to all employees that Batesville needed to keep SCI happy.

     45. Batesville caskets are the dominant brand for a number of reasons, not the least of which is Batesville’s distribution network. Purchasing a casket is usually done on short notice and customers often do not have time to wait beyond a day or two for a casket to be delivered. Due to Batesville’s extensive distribution network, Batesville caskets can be delivered within a day without any additional delivery charges, where other casket manufacturers charge exorbitant fee’s to deliver a casket within a day.

     46. Batesville, Aurora Casket Company, the York Group and Milso Industries, are the only manufacturers that sell caskets over a wide geographic area. None of these manufacturers sell to ICDs,

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however. While other enterprises manufacture, assemble, and/or distribute funeral services products for sale, they only do so within limited geographic areas.

     47. In 1997, Batesville redesigned its production and distribution processes. Now, even if a funeral director calls Batesville for a customized order, the casket usually arrives within 24 hours.

     48. Batesville has focused on its distribution methods to ensure that it can deliver caskets within 24 hours. As described in an article in the magazine, Fast Company, a magazine devoted to analyzing business practices:

[Batesville] maintains [tight control] over its entire supply chain, most of which it owns. From the tools that are used to make metal casket components at its stamping plants, to casket assembly, to trucking, [Batesville] runs the whole show. According to [Joe Weigel, Batesville director of communications], this tight integration is a major factor in the company’s success. “None of our competitors own all of their facilities,” he says. “Also, most of them use jobbers, especially for shipping. We own our entire distribution channel, so we can control every step of the process.”

     49. Batesville owns the largest private fleet of trucks in the nation and uses them to service its FedEx-type hub and spoke distribution system. Caskets are shipped from one of Batesville’s manufacturing facilities to a rapid-deployment center, driven to a nationwide network of local customer-service centers, and then sent to the funeral home waiting for delivery. The rapid-deployment centers carefully track which caskets were shipped and Batesville replaces them the next day. The result is that rapid-deployment centers almost always have a requested casket in stock and it can be delivered within ten hours to any customer service center to fulfill an order. Currently, Batesville can deliver 98.5% of its caskets on time, which almost always means within 24 hours.

     50. Funeral homes predominantly push the sale of Batesville brand caskets. As an owner of one ICD remarked, funeral homes have convinced families that their loved ones won’t get into heaven unless they arrive in a Batesville casket.

     51. For 2000, the NFDA pegged the average price of a casket at $2,330, which comprised 45% of the $5,180 average cost of an adult funeral service. As such, the price of a casket is a very important component of overall revenue and income for the industry.

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     52. Once ICDs began to enter the casket market after the passage of the Funeral Rule, the Funeral Home Defendants and their co-conspirators responded by collectively pressuring casket manufacturers, such as Batesville, to restrict casket distribution solely to licensed funeral homes.

     53. The pressure on the casket manufacturers continues unabated. The Funeral Home Defendants and their co-conspirators withhold, and threaten to withhold, their business from the manufacturers if they sell caskets to ICDs. The Funeral Dome Defendants and their co-conspirators encourage other funeral homes to take similar action. Additionally, the Funeral Dome Defendants collectively refuse to sell Batesville and certain other brands of caskets to ICDs.

     54. The July 1990 Presiding Officer’s Report on the FTC’s review of the Funeral Industry Practices Trade Regulation Rule stated that “[t]hird party casket sellers have been unable to purchase caskets from several of the larger casket companies, apparently due to a fear on the part of those companies that they would suffer reprisals from funeral home clients.”

     55. Batesville only sells its caskets to licensed funeral directors operating licensed funeral homes. It will not sell its caskets to ICDs. Batesville’s restrictive sales policy is held in place by Defendants’ conspiracy to boycott ICDs. York and Aurora have similar sales policies flowing from this conspiracy. Batesville’s restrictive sales policy is, in the alternative, an illegal restraint of trade in furtherance of a conspiracy between SCI and Batesville to eliminate ICD competition from the market.

     56. Other manufacturers are acting as co-conspirators by agreeing not to sell their caskets to ICDs and implementing their policy of refusing to sell to ICDs. For example, one ICD said that a York casket representative offered to sell the store York caskets directly and with a 15% discount, but this offer was rescinded shortly thereafter. Since that time, the York representative who offered to sell York caskets to the ICD is no longer with the company.

     57. In another example of the manufacturers’ anticompetitive policy, Philip Wartel, the Owner and President of Pioneer, contacted both Batesville and York to inquire about carrying those brands of casket in his store. His telephone inquiries resulted in the now usual response: they only sell to licensed funeral directors. Similarly, when Stephanie Webb first set up her business, Finality, she

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contacted Batesville to attempt to purchase caskets, but was told Batesville only sold caskets to licensed funeral directors, which she is not. At no time has Pioneer or Finality been able to purchase a Batesville or York brand of casket.

     58. The Funeral Home Defendants and their co-conspirators not only conspired to create the boycott, but also collectively police the boycott to ensure that “rogue” funeral homes, i.e. those not affiliated with the Funeral Home Defendants and their co-conspirators, do not supply ICDs with Batesville caskets. This is typically accomplished by the Funeral Home Defendants reporting sales by ICDs of Batesville caskets to Batesville. Batesville then uses the casket serial number to track down the funeral home that sold the casket to the ICD and threatens to stop dealing with the “rogue” funeral home if it continues to deal with ICDs. In smaller markets, Batesville can actually track down the funeral home that sold the casket by the style of casket sold, regardless of whether the serial number has been removed from the casket.

     59. In a further effort to prevent “rogues” from assisting ICDs to compete in the casket market, Defendants and their co-conspirators caused Batesville to further tighten its restrictive sales policy to ensure that ICDs do not have access to Batesville caskets.

     60. In May 2001, Batesville adopted a new sales policy which not only limited its casket sales to licensed funeral homes, but also required delivery of Batesville caskets directly to the funeral homes that actually ordered them.

     61. This policy was adopted in response to the growth of Internet-based ICDs that circumvented the boycott with the help of rogue funeral homes that, for a price, were willing to purchase Batesville caskets on the ICDs’ behalf. The rogue funeral home would then direct Batesville to deliver the casket to the funeral home actually performing the funeral service for the ICD customer.

     62. Batesville’s new sales policy was designed to disrupt the side-stepping of the boycott by limiting casket delivery to the funeral home that ordered it. Batesville’s memo introducing the amended sales policy made this clear:

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The increasing growth of the third party casket sales, especially on the Internet, continues to be a challenge that faces all of us in funeral service... The purpose of this [new sales policy] is to ensure we do not inadvertently accept an order from a third party seller for subsequent delivery to a funeral home, thereby becoming their delivery service.... This policy is the way we have chosen to operate and reflects the relationship between Batesville and our valued funeral home customers.

     63. Despite Batesville’s amended sales policy, some Internet-based ICDs gained access to Batesville caskets, but at higher prices than the Funeral Home Defendants paid. When “rogue” funeral homes supply Batesville caskets to ICDs, they typically add a surcharge to the price of the casket. ICDs have reported surcharges of anywhere from $50 to $400.

     64. When ICDs that sell Batesville caskets try to compete with funeral homes that sell Batesville caskets they start at a disadvantage due to the surcharge they must pay to be able to obtain a Batesville casket, but in addition they are also excluded from the rebates and promotional items provided by Batesville to its funeral home customers. The rebates amount to a significant savings for the funeral homes.

     65. In July 2004 Batesville further tightened its sales policy to require that each funeral home ordering and receiving a Batesville casket also be the one ultimately billed for it. In a July 2, 2004 letter to its funeral home customers, Batesville described the change in policy as follows:

Our previous practice of permitting the receiving funeral home to place the order and then having the invoice go to another business entity has ended. Effective July 12, Batesville will only deliver caskets to the funeral home business entity that will be invoiced for the casket and which will be responsible for payment.

     66. One of the leading publications in the funeral industry, Funeral Monitor, stated that Batesville’s new policy was designed to “close the door on third party casket sellers.” Funeral Monitor explained:

Since it is unlikely many [funeral homes] will agree to order, receive, and pay for a casket they then have to turn around and invoice at cost to the seller who marks it up and takes the profit, the new policy may indeed put the skids on casket retailers and Internet marketers who advertise low discount prices and free next day delivery on Batesville caskets.

     67. Batesville publicized its new sales policy to consumers in an effort to further the boycott of ICDs. Beginning in October 2004, Batesville initiated an on-line consumer “education” program that

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consists of a sponsored link featuring a “Consumer Alert” on several popular search engines, such as Google.com. The link opens to Batesville’s home page which prominently displays a “Casket Consumer Alert” icon providing the following message: “Online retailers who are not funeral homes but nevertheless sell Batesville caskets are not authorized to do so.... Only authorized and licensed funeral homes can guarantee that your casket will be authentic and of the highest Batesville Casket quality standards.”

     68. The Funeral Home Defendants further the restraint on competition by carefully tracking how many of their customers bring in a casket they purchased from an ICD. For example, one former SCI Funeral Director and Senior Counselor said that he was responsible for getting weekly and sometimes daily sales reports to his regional manager, which included the amount and origin of caskets sold. The former SCI Funeral Director said that if one of his customers decided to purchase his or her casket from an ICD, SCI’s headquarters required a single-spaced, 10 point font written report detailing “how and why you lost the sale.”

     69. Further, the Funeral Home Defendants exert great pressure on families to purchase caskets from them, often times making inappropriate remarks about a family’s choice to purchase a casket from an ICD, such as Pioneer. Such pressure has resulted in, and continues to result in, the loss of sales by ICDs, such as Finality, to the Funeral Home Defendants.

     70. Funeral Home Defendants also exert pressure on families who choose not to purchase their caskets from them by forcing a family to be at the funeral home when a casket purchased from an ICD is delivered, on the pretext that the funeral home can’t be responsible for the condition of the casket otherwise. This places a serious and unnecessary burden on a family already burdened by grief.

     71. For example, the funeral director at a local funeral home refused to sign a receipt for a casket purchased from and being delivered by Pioneer. The senior funeral director’s reasoning was to the effect that he would not sign for a casket whose handles may fall off or the bottom fall out after Pioneer delivered the casket and left. “The family chose to buy it from you, they should be here to sign for it.” Further, at the wake that evening, the same senior funeral director confronted the bereaved family members and repeated his stance on the conditions for delivery of a third-party casket.

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     72. The Funeral Home Defendants sometimes refuse to conduct funeral services for families who want to purchase their casket from an ICD.

     73. When a funeral director at one funeral home learned that a family was providing its own casket, purchased from Pioneer, for use in a funeral service at that funeral home, the family was told that the funeral director could make it very difficult for the family to conduct the planned services, that the funeral home might suddenly be too busy to handle the funeral service until the next week, or that the obituary and obituary photo may not make it into the newspaper until the day of the service. As a result of such conduct, the family reluctantly ceded to the funeral home’s pressure and canceled its casket purchase with Pioneer.

     74. Funeral Home Defendants use a variety of methods to achieve their ultimate anticompetitive goal of keeping ICDs out of the casket market. Often the funeral homes make the delivery of caskets from ICDs very difficult. A former SCI Funeral Director and Senior Counselor said that they were encouraged by SCI management not to accept casket deliveries from ICDs when they were delivered: “We were supposed to make it very hard for these people to make their deliveries.” A former SCI Funeral Director and Senior Counselor agreed that they would intentionally set “very hard times for casket deliveries.” Funeral homes also will not return the calls of an ICD attempting to set up a time to deliver a casket. Funeral home employees even lie to the ICD about the time by which a casket is needed. One funeral home informed an ICD that the casket should be delivered at a time that was well after a viewing was supposed to be conducted The ICD had to contact the family to ensure the casket was delivered in time.

     75. As the Funeral Homes Defendants attempt to ensure that the ICDs deliver caskets in an untimely fashion, they also tell customers that if they order a casket from an ICD they have “no guaranties that they would have the casket in time for the service,” and that an ICD is “unpredictable in terms of timing and deliveries.”

     76. Funeral homes make the physical delivery of caskets unnecessarily difficult for ICDs. For example, a funeral home will force the ICD to deliver a casket through a narrow front door, thus possibly damaging the casket and potentially interrupting any services being conducted, even though it has wide double-doors in the back of the facility.

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     77. The Funeral Home Defendants have damaged ICD-purchased caskets after the casket has been delivered to the funeral home and to then blame the ICD for the damage. To avoid this possibility Stephanie Webb of Finality must inspect caskets prior to delivery in the presence of customers and require them to sign a form acknowledging the results of the inspection.

     78. In furtherance of their conspiracy, the Funeral Home Defendants and their co-conspirators also have conspired to eliminate price competition for caskets by: restricting or preventing price advertising, sharing casket price information, and sham discounting of funeral packages that require the purchase of a casket. In local markets where the Funeral Home Defendants have market power, either independently or through local market cartels, these Defendants increase the price of services where an ICD is involved in order to preclude the sale of caskets by ICDs. Through these price coordination measures, the Funeral Home Defendants and their co-conspirators have fixed and maintained artificially inflated prices on funeral caskets. Their concerted efforts have also suppressed the ability of ICDs to compete.

     79. Historically, the funeral industry opposed any form of price advertising in order to withhold price information from consumers. As the FTC recognized in its comments regarding the creation of the Funeral Rule, a lack of price information fueled reduced price competition and the charging of higher prices: “[c]onsumer ignorance about prices will permit sellers to charge higher than competitive prices, even in a market with numerous sellers.”

     80. The FTC intended the price disclosure and anti-tying requirements of the Funeral Rule to remedy the lack of price information and price competition in the funeral industry. However, through concerted efforts, the Funeral Home Defendants and their co-conspirators have successfully originated new ways to avoid price competition for caskets.

     81. For example, the funeral industry routinely offers formal training seminars on how to price caskets to foreclose TCD competition through the use of “sham discounting.” Examples of such seminars include the Illinois FDA offered a seminar on this subject by industry consultant Ron Hast entitled Funeral Service Pricing & Packaging, Addressing Third Party Casket Sellers & Competition, as well as similar seminars held by NFDA and other state Funeral Directors Associations (“FDAs”), including: Putting all your

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eggs in one casket? (NFDA presentation); Understanding Innovative Funeral Service Pricing (NFDA presentation); When It’s BYOC (bring your own casket) what do you do? (NFDA presentation); and The New Competitor-Retail Casket Stores (Massachusetts FDA presentation).

     82. The practice of “sham discounting” is a common theme of these seminars, and is central to the efforts of the Funeral Home Defendants and their co-conspirators. Under this pricing practice, funeral homes make “discounts” available only to consumers who purchase funeral “packages” which include a casket. Those that purchase a casket from an ICD are not eligible for the “package discount” and must pay artificially inflated a la carte prices for the other goods and services purchased from the funeral home. The end result is that consumers pay the funeral home for the casket whether they purchase the casket from the funeral home or not.

     83. This pricing strategy, also referred to as “reverse handling fees”, represents an attempt to undermine the freedom of choice and open competition that the Funeral Rule was designed to foster and that antitrust laws are designed to enforce.

     84. For example, in approximately September 2003, a customer chose to purchase a casket from Pioneer for use in a funeral service to be conducted in a local funeral home. This customer later asked Mr. Wartel to intercede with the funeral home on her behalf because the funeral home changed its prices when it found out she was providing her own casket. Mr. Wartel was told by a representative of the funeral home that the price change would remain in effect because without the casket sale, the funeral home would not make enough money on the funeral. As a result, the family ceded to the funeral home’s pressure and purchased the casket from it, canceling its casket purchase with Pioneer.

     85. The prevalence of sham discounting is directly attributable to the concerted efforts of the Funeral Home Defendants and their co-conspirators, who have heavily promoted the practice as an effective way to combat the threat posed by ICDs and has significant detrimental impact on interbrand competition.

     86. In order to eliminate ICD competition, the Funeral Home Defendants all use sham discounting at their funeral homes, including, but not limited to their homes in Texas. These discount packages are specifically tied to the customer purchasing the casket from the funeral home and not an ICD. This has the

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intended effect of ensuring that customers purchase their casket from the Funeral Home Defendant and not from an ICD.

     87. The prevalence of sham discounting, and its anti-competitive effects, have also been widely recognized and attested to by a number of industry observers as well as funeral homes unaffiliated with the Funeral Home Defendants and their co-conspirators.

     88. For example, in comments submitted to the FTC, the Graham Funeral Home stated:

It seems that the growing trend in the industry is to artificially inflate the itemized prices to a ridiculous level, and then greatly discount the total price of the funeral if a package deal is selected, including the casket. This has the effect of not only forcing the consumer to purchase items they don’t necessarily need, but also unfairly closing the door to competition. If a client chooses to purchase a casket elsewhere, they are penalized by having to pay artificially inflated prices taken from the price list. In effect, the package price becomes the “de facto” price, and subverts the intent of the funeral rule.

     89. The Vassar-Rawls Funeral Home similarly complained to the FTC about sham discounting:

Funeral packages are a sham used to circumvent the purpose for requiring itemized pricing. Funeral providers that use funeral packages, in most instances, grossly inflate their itemized prices and offer the package at what they represent as a discount.

     90. In addition to the industry seminars that encourage the use of “package pricing,” NFDA widely circulates its membership pricing guides that advocate the use of sham discounting as an effective way to restrict ICD sales. Through these guides, the NFDA, advises its members to raise their a la carte pricing to the point where the consumer will pay the funeral home a supra-competitive profit for the casket whether the consumer purchases the casket from the funeral home or not.

     91. The FTC recognized the prevalence of sham discounting and the adverse effects it has on competition in the casket market:

Since the amendment of the Rule, the Commission is aware that some funeral providers may employ certain practices that may undermine the benefit to consumers and to competition intended by the Rule’s unbundling provisions.... For example, the prices of itemized goods and services (appearing on the General Price List) may in some instances be inflated to the point of fictitiousness. Thus, virtually all consumers would choose to purchase

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“discount packages,” resulting in a situation where discount package represents the de facto prices for the goods and services. Such a scenario may restrict consumer choice in a manner that frustrates the intended purpose of the Rule. Further, some members of the funeral industry have alleged that because such “discount packages” are often conditioned on the purchase of a casket, these packages are artificially constructed by certain funeral providers in order to eliminate competition in casket sales.

     92. The Funeral Home Defendants’ concerted efforts to engage in sham discounting forecloses ICD competition. Sham discounting prevents consumers from making purchase decisions based on price since they will pay the funeral home for the casket whether or not they actually purchase it from the funeral home.

     93. A previous Chairman of the Federal Trade Commission, James C. Miller III, stated that the funeral rule’s “requirement that [funeral] services be ‘unbundled’ can be easily circumvented by funeral directors’ simply charging higher prices for services a’ la carte.” This is, in fact, exactly what has happened and the sham discounts become ever more attractive in that context.

     94. Plaintiffs are unable to compete with the packages offered by the funeral homes. The prices of the funeral services listed independently by the Funeral Home Defendants have been so inflated, sometimes to even three or four times their original value, that most consumers cannot afford not to take a package deal from a funeral home. In effect, the package is the only viable economic option. For example, one SCI owned funeral home just raised its prices for services listed independently again as of September 12, 2005. Embalming fees which were $795 were raised to $1295, basic service fees which were $1595 were raised to $1995; and body transportation services which were $295 were raised to $495. These services are offered as part of a package at steeply discounted prices.

     95. The Funeral Home Defendants coordinate pricing and restrict competition through the annual pricing surveys that the NFDA has, until recently, performed and that the Federated Funeral Directors of America (“FFDA”) still performs. These listings of average prices for funeral products and services, including caskets, are compiled with the assistance of more than one thousand funeral homes.

     96. According to Jessica Mitford, a noted authority on the consumer abuses in the funeral industry, “[i]ndustry observers have no doubt that the dissemination of these numbers within the trade serves to establish uniform price minimums, in violation of the antitrust laws.”

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     97. The FFDA, the current compiler of the survey, is a consultant to more than 1,300 funeral homes. Among the consulting services that FFDA provides to funeral homes is “pricing recommendation,” as advertised on FFDA’s website.

     98. Some of the state trade associations also perform their own pricing surveys on a statewide basis, facilitating the fixing and maintenance of high casket prices, further supporting the group boycott. The New Jersey Funeral Directors Association, for example, conducts an annual pricing survey of its members and reports its findings on its website. Among the findings highlighted on the website are the average prices charged for caskets based on three levels of casket quality.

     99. The Funeral Home Defendants’ anti-competitive pricing practices, like sham discounting and price coordination, have further acted to foreclose ICDs from the casket market.

     100. The April 19, 2004 issue of Funeral Service Inside, a “completely independent” publication of “News, Analysis and guidance for funeral service professionals,” reported the following results of a survey conducted on what funeral homes are doing to combat the threat of ICD competition:

One third of our survey respondents say they’ve pulled their business from casket or vault suppliers who deal with third-party sellers and nearly one-fifth say they’ve gone even further: They’ve urged other funeral homes to boycott suppliers who deal with third party sellers.

     101. The results of this survey, which are likely understated because of most companies’ reluctance to admit to per se violations of antitrust laws, reflect how pervasive the group boycott is within the funeral industry.

     102. George Lemke, Executive Director of the Casket and Funeral Supply Association, the principal trade association for the funeral supply industry, referred to the boycott of ICDs as an “unwritten tradition” in the industry. In the context of Costco’s recent efforts to become an ICD, Mr. Lemke stated:

I know of no [casket] manufacturer who would willingly risk his relationship with licensed funeral homes by cooperating in such a scheme [to supply Costco with caskets]....Distributing through wholesale buying clubs would be a violation of the industry’s unwritten tradition.

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     103. Batesville’s new sales policy is only the latest manifestation of this “tradition.” As reported in the August 2, 2004 issue of Funeral Monitor, a representative of SCI acknowledged its role in the group boycott conspiracy:

Facing continuing complaints from its largest customer [SCI], Batesville Casket Company has moved to stop the sale of its caskets in casket stores and on the Internet.... According to an unnamed funeral director with SCI: “Funeral customers have returned to us after funerals and questioned us about the price we charged them for a particular casket. In many cases they have gone on the Internet and found the same casket we sold them priced as much as 60 percent less than we charged .... [T]o prevent consumers from comparing apples to apples, we have asked Batesville to stop selling their caskets to casket stores and Internet vendors.”

b. Lack of Rational Basis for Casket Manufacturers’ Anti-ICD Policies

     104. Batesville’s publicly-stated purpose for its restrictive sales policy is that only licensed funeral directors are qualified to sell caskets:

We view the casket not just as a piece of merchandise, but as an integral part of the overall funeral service....Working with professional funeral firms gives us a greater assurance that our products will be used with the dignity and purpose intended.

     105. Courts and the funeral industry itself have repeatedly rejected this alleged rationale. For example, the court in Casket Royale, Inc. v. Mississippi, 124 F. Supp.2d 434, 438-39 (S. D. Miss. 2000), struck down a Mississippi statute that prevented ICDs from selling caskets, finding that a casket is nothing more than a “glorified box” that requires “no special skills” to sell.

     106. The Fourth Circuit reached the identical conclusion in Craigmiles, 312 F.3d at 225: The proffered justifications for preventing ICDs from selling caskets “come close to striking us with the force of a five-week-old unrefrigerated dead fish, a level of, pungence almost required to invalidate a statute under rational basis review.”

     107. The International Cemetery and Funeral Association (ICFA), which represents approximately 6,000 funeral homes, cemeteries, and other industry members, is equally dismissive of any justification for restrictions on who can sell caskets. In comments submitted to the FTC in October 2002, ICFA

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stated that laws preventing ICDs from selling caskets are “anti-competitive.” The ICFA disputed the notion that only licensed funeral directors should sell caskets:

Specifically, whether or not casket retailers should be registered sellers does not justify a requirement that such retailers must also graduate from mortuary science school, pass a licensing examination, and serve an apprenticeship at a funeral home, in order to sell a casket. These typical requirements for becoming a licensed funeral director in most states make no sense when applied solely to the sale of caskets. Columnist George Will succinctly stated the issue when he observed that requiring casket sellers to be licensed funeral directors was like saying only podiatrists can sell shoes.

     108. Further, under current law, funeral directors are not considered professional employees, they must be paid overtime if they work more than 40 hours per week, and they cannot be paid fixed salaries or receive bonuses.

     109. There is a dwindling difference between ICDs and funeral home showrooms. First, the actual display of choices has become very similar through the trend of “panel” displays. In lieu of displaying the entire container, establishments (both ICD and funeral home) display only panels or cut-outs of the containers. Panel displays require less space and allow many more options to be displayed. Panel displays also are thought to reduce the anxiety to the customer of viewing full-sized caskets. Both ICDs and funeral homes have began shifting toward panel displays. Second, just as ICDs sell caskets online, networks of funeral homes have begun selling caskets online. Web sites rely on images and descriptions of the caskets to complete the sale.

     110. The increasing use and reliance on the Internet as a sales tool by both ICDs and funeral homes blurs the distinction between the two, further undermining Batesville’s defense of its policy. For example, FuneralDepot.com is an online casket dealer that is authorized to sell Batesville, York and Aurora caskets. FuneralDepot.com has a network of funeral providers that will receive caskets from these manufacturers and shop the caskets at the bidding of FuneralDepot.com for its online customers. The end result is that a casket consumer orders a casket online from FuneralDepot.com and the casket is delivered to the funeral home conducting the funeral. There is no justifiable basis for Batesville, Aurora, and York to sell caskets through FuneralDepot.com and not through other ICDs, like Plaintiffs.

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     111. The pretextual nature of Batesville’s sales policy is also demonstrated by its application. Batesville refuses to sell caskets to ICDs even if they are operated by licensed funeral directors, even if these licensed funeral directors were prior customers of Batesville, and even if these licensed funeral directors also own independent funeral homes.

C. Harm to Competition Caused by Defendants’ Group Boycott

     112. Through the group boycott of ICDs, Defendants and their co-conspirators have succeeded in restricting the ability of ICDs to buy the predominate casket brands at competitive prices, and/or to sell, at discount prices, the Casket Manufacturer Defendants’ caskets. ICDs are either completely blocked from selling these caskets or severely restricted from doing so by being forced to try to purchase these caskets at a higher price indirectly from rogue funeral homes unaffiliated with the Funeral Home Defendants and their co-conspirators.

     113. Many ICDs state that they are losing business because of their inability to sell Batesville caskets. Stephanie Webb’s Finality loses business because funeral homes recommend certain models of Batesville caskets and then when potential customers contact Finality to purchase those models of caskets, Finality cannot provide them.

     114. Many consumers will only purchase the dominant Batesville, York, or Aurora brands of casket because of the false perception fostered by Defendants and their co-conspirators that these caskets are superior to those sold by ICDs. ICDs are foreclosed from competing with funeral homes on a level playing field for these consumers. As a result of Defendants’ anti-competitive conduct, numerous ICDs have either lost a significant percentage of their sales to funeral homes or have gone out of business altogether.

     2.    Defendants’ Campaign of Disparagement

     115. Defendants’ conspiracy also includes a campaign to disparage ICDs and the caskets sold by ICDs. Some of the most commonly repeated disparagements of ICD caskets include: “their handles fall off,” “the bottoms drop out,” “they are made by prisoners,” “they are tin cans,” and “they are all seconds.” Defendants’ disparagement campaign would largely be impossible if ICDs could sell Batesville caskets.

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     116. Disparaging comments about caskets sold by ICDs are made in face-to-face encounters between funeral directors and consumers, and also publicly through press and media outlets to create a wide spread perception among consumers and potential consumers that ICDs are disreputable and their caskets are inferior.

     117. One such incident occurred on or about June 21, 2005. After receiving a telephone call from a potential client who just lost a parent, Mr. Wartel visited the bereaved family to discuss their purchase of a casket from Pioneer, and ultimately finalized the details of that purchase before the bereaved visited a local funeral home later that same afternoon. According to the family, the funeral director at this local funeral home indicated that the caskets it had received from Pioneer in the past were seconds, were faded and squeaky, and were used. Similar instances with other local funeral homes reveal a pattern of disparagement. For example, the senior funeral director at another local funeral home stated that the handles on caskets purchased from Pioneer fall off and the bottom may fall out.

     118. Another specific example is a public statement by a spokesperson for the California Funeral Director Association:

The caskets you get online are inferior, yes they are. They’re not as good at all.... Let’s say your next door neighbor dies and the family buys a casket online. We put her in the casket, take four steps up the stairs at the ceremony, and mom falls out the bottom. Who are they gonna sue? ...I sure as hell wouldn’t want to walk into a funeral store and see a guy that looked like a used car salesman .... I wouldn’t want to get a casket online it might be from Mexico! Just the other day I saw one that looked like a Guadalajara special.

     119. Another example occurred when a Batesville representative spoke at a seminar targeted at the elderly. The Batesville representative told the elderly audience that he tells his funeral home customers to consider what would happen if the casket were being carried during a funeral procession and one of the handles fell off because it was a ICD purchased casket. An elderly attendee questioned the representative about whether he knew of any casket ever having its handles fall off, and the representative conceded that he didn’t know of that happening, but that it could happen.

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     120. In addition to the frequent public and private disparaging comments about the quality and integrity of ICDs and their caskets, Defendants and their co-conspirators have created a number of “how to” guides to ensure that all funeral providers are spreading a consistent message.

     121. For example, NFDA advises its members to request that any customer who intends to purchase an ICD casket sign a “Use of Third Party Merchandise” form. The form requires that the consumer indemnify and hold harmless the funeral home from any liability arising out the consumer’s purchase of an ICD casket. It also provides an acknowledgment by the consumer of the purported risks associated with the purchase of an ICD casket:

The [consumer] authorizes the FUNERAL HOME to accept, unconditionally, the delivery of the casket. If the [consumer] decides after inspection of the casket that the casket is unacceptable, the [consumer] understands that this could delay and cause the originally scheduled funeral service to be rescheduled and that additional funeral charges could be added to compensate for the time incurred in rescheduling the ceremony.

     122. The NFDA’s promotion of this form is not intended to shield funeral homes against liability or warn consumers about real risks associated with an ICD purchase but rather to steer consumers, who are in a very vulnerable and impressionable state, away from ICDs’ more cost-efficient caskets.

     123. According to one funeral home, this type of form has been extremely successful in dissuading consumers from using ICDs. In a recent edition of Funeral Service Insider, Walton’s Family of Funeral Homes, an SCI Dignity Memorial partner, stated that through its use of forms to “educat[e] families on the risks of going elsewhere for a casket,” it has shut down two ICDs in its area and convinced 90% of its customers who were leaning towards an ICD casket to purchase a casket from the funeral home instead.

     124. The Walton form was published in full in the Funeral Service Insider and contains the following language:

Third party casket marketers are often “fly-by-night” operators working out of a telephone “hot box,” cell phone or Internet site.... They have little or no Casket Inventory of their own because most reputable Casket manufacturers will not sell to them.... In most cases, the person selling the Casket has neither seen the actual casket you have

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purchased nor can they make any honest representative to you of its condition when it was manufactured or how long it has been in storage. Most importantly, the person selling you a Casket cares about one thing and one thing only: Your Money. They care little about how satisfied you will be with the delivered casket and you have limited recourse in promptly replacing a Casket that is delivered damaged or is not the actual Casket that you ordered.... We respectfully offer this information and our opinion to you as a means of protecting you and your family from any further distress during your time of grief and loss.

     125. Mark Blankenship, Walton’s General Manager and Vice President of Operations told Funeral Service Insider that Walton’s use of these customer education forms is a much better practice for retaining casket sales than trying to compete with the lower pricing of the ICDs:

We tried that before, and it’s a slippery slope. You lose the integrity of your pricing.... Plus, pretty soon you’ll find yourself cutting casket prices for every family within certain tight-knit ethnic and religious communities ...Word spreads pretty fast.

     126. Walton’s willingness to openly share its competitive strategy with other funeral homes also evidences Defendants’ conspiracy and agreement.

VI. RELEVANT MARKET

     127. The relevant market is funeral caskets. The geographic dimension of this market is the United States.

     128. Because of the unique purpose they serve, caskets are not reasonably interchangeable with any other products.

     129. From the standpoint of both consumers and suppliers, there are no reasonable substitutes for caskets. Even in the event of a significant and non-transitory price increase, consumers have not, and would not, substitute their purchase of a casket with the purchase of a different product.

     130. There is a widespread recognition of a casket market by both the funeral industry and the courts. For example, in Pennsylvania Funeral Directors, 41 F.3d at 91, the Third Circuit recognized the existence and economic coherence of a casket market in upholding the validity of the FTC’s ban on casket handling fees: “competition in the market for caskets can be expected to increase with the ban in effect....Increasing competition in the casket market is likely to drive the cost of caskets down.”

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     131. The nationwide geographic market is appropriate because of the availability of the Internet as a source for purchasing caskets and the nationwide distribution systems of the large manufacturers. The use of the Internet has become particularly prevalent over the past decade. Indeed, it is the emergence of Internet based ICDs that prompted Defendants to step up their concerted efforts to suppress ICD competition. But for Defendants’ anti-competitive conduct and conspiracy, the Internet would be a much more vibrant medium through which ICDs could sell caskets.

     132. Finality had a website for its store, but Finality’s website is currently offline while it is being upgraded. While the website was online, casket customers would contact Finality after having viewed the store’s website.

VII. MARKET POWER

     133. SCI, Aiderwoods, and Stewart collectively own thousands of funeral homes in the United States and perform hundreds of thousands of funerals annually. Because of the size and scope of their funeral networks and the large numbers of funerals they perform, the Funeral Home Defendants, individually and collectively, maintain substantial market power over casket manufacturers, such as Batesville.

     134. SCI is the market leader with operations in 44 states, and a network that can geographically cover more than 70% of US households. In Texas, where SCI is based, the company handles 70% of all death services. Audits conducted by the Texas Department of Banking found that 30% of SCI’s funeral homes in Texas charged incorrect prices to consumers, however, this has not impacted SCI’s market share in Texas as demonstrated by the fact that SCI still handles 70% of all death services there.

     135. SCI’s market power extends beyond the number of funeral homes it owns. SCI influences and/or controls the pricing and practices of affiliated funeral homes in locations whether SCI otherwise has no presence through its Dignity Memorial partnerships with hundreds of non-SCI funeral homes nationwide.

     136. The Funeral Home Defendants, individually and collectively, also maintain substantial market power over consumers. This market power is evidenced by each of the Funeral Home Defendant’s power over casket pricing. The Funeral Home Defendants charge consumers significantly more than ICDs charge for comparable caskets. Despite these large price differentials, consumers continue to purchase caskets

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from the Funeral Home Defendants. This market power is also evidenced by the Funeral Home Defendants’ power to exclude competition and reduce consumer choice.

     137. The collective power of the Funeral Home Defendants along with like minded “independent” funeral homes that can control pricing in local markets further enhances the substantial market power of the Funeral Home Defendants. Furthermore, Batesville manufactures approximately 45% of the caskets sold to consumers in the United States. Batesville, does not sell its caskets directly to consumers, nor does Batesville sell its caskets to ICDs. Batesville only sells its caskets to licensed funeral directors operating licensed funeral homes. In fact, SCI has a $750 million, six-year contract with Batesville to buy its caskets which ends at the end of 2005.

     138. The funeral service industry is characterized by low rates of entry and exit. State funeral director licensing standards generally require completion of a nine month to one year vocational training program in mortuary science followed by a period of apprenticeship varying from one to three years in length before qualifying to take the state board examination.

     139. Certain aspects of the funeral home market make it difficult for new firms to enter and compete. A variety of nonprice factors influence consumers’ choices of funeral providers, with the most important being existing relationships, along with family tradition, religions or ethnic affiliation, and reputation of the firm. These consumer preferences give established firms in the market a distinct advantage over potential entrants. The difficulty of building clientele has been cited as the primary barrier to entry into the funeral industry.

     140. Most funeral homes have very limited competition. Nearly 70% of all funeral homes have fewer than four competitors.

     141. Lower prices and aggressive marketing will not expand the number of consumers in the market for a casket. A funeral home can only increase the number of funerals it performs, and caskets it sells, by taking business away from its competitors. Since competing firms are likely to respond with lower prices, the result is prices that are reduced and sales do not increase, thereby reducing total revenues. Funeral homeowners know the effects of price competition in the demand in elastic industry and have the incentive to

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avoid price competition. Most metropolitan areas are served by a set number of long established funeral homes that divide up the business in their geographic area through a cartel.

     142. Representatives of the funeral industry acknowledge that prior to the existence of ICDs, that competition in the sale of funeral goods and services did not exist at the point of sale. As such, funeral providers were insulated from the need to set prices competitively.

     143. Courts that have invalidated state laws requiring that only licensed funeral providers may sell caskets did so based on the anticompetitive effect the requirement had on the casket market. For example, the Sixth Circuit in Craigmiles held:

The licensure requirement imposes a significant barrier to competition in the casket market. By protecting licensed funeral directors from competition on caskets, the [law] harms consumers in their pocketbooks....[We invalidate only the [state’s] naked attempt to raise a fortress protecting the monopoly rents that funeral directors extract from customers.

The policy of Batesville to keep this practice in place has had similar results on the casket market.

     144. Many state funeral regulations force funeral homes to have a common set of facilities and funeral directors to have a high level of training. Thus, when funeral directors have the same training and work in funeral homes with similar facilities, they are likely to have the same attitudes about and incentives for resisting funeral market innovations, such as the introduction of ICDs to the market and cremation as an alternative to traditional burial.

     145. The same attitudes about and incentives for resisting funeral market innovations, in turn, result in funeral directors making similar comments to their customers about such market innovations. For example, a 1999 USA Today article details the experience of a consumer who wanted to buy an online casket for his mother’s funeral in Connecticut. When he asked about online caskets at a funeral home near his mother’s house, the funeral director tried to discourage him by disparaging the ICD’s casket, saying that “those things are made by prisoners.” Similarly, at another nearby funeral home, the consumer was told, “I’m sorry, we don’t have any tin cans for you to look at.”

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     146. This particular consumer persisted and ultimately purchased his casket on-line. However, many other consumers would likely conclude that it was hopeless and return to the most convenient funeral home. Thus, funeral directors in local cartels who make disparaging comments about funeral market innovations, such as the introduction of ICDs as an alternative source of caskets, are less likely to lose customers where other funeral directors are making similar comments, thereby increasing market power both on an individual basis and in the aggregate.

     147. The casket manufacturing industry is centralized with few manufacturers. In 1982, the Federal Trade Commission classified casket manufacturing as a concentrated industry with significant impediments to entry of new companies. Substantial capital is required to purchase existing manufacturers or to become a new manufacturer in the industry. There are less than a dozen manufacturers that assemble well over 90% of all metal caskets sold in the US. It is estimated that three companies produce more than 70% of all caskets sold annually. Further complicating entry into the industry are discounting practices and demands that reduce available margins needed to recover capital costs. Large funeral home chains demand discounts from their suppliers and similar demands are increasingly made by other customers. While several large manufacturers are able to comply with the demand for discounts and special product lines, it is difficult for most industry entities to meet those demands. New entrants find it even more difficult to compete, given the capital cost associated with developing a new business in casket industry.

C. Market Conditions Gave The Funeral Home Defendants Impetus For Engaging In Anti-Competitive Conduct Aimed At Ousting ICDs from the Casket Market

     148. Certain factors particular to the funeral industry have served to provide the Funeral Home Defendants with the motive to engage in their concerted group boycott of ICDs. These factors, which are eroding the Funeral Home Defendants’ profit margins, include the need to restructure and/or reduce their heavy debt burdens incurred as a result of consolidation activities engaged in during the late 1990’s, the increase in life expectancy coupled with a flat death rate anticipated until approximately 2010, and the increased acceptance of cremation as an alternative to traditional burial.

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     149. For example, in the late 1990s, a consolidation trend swept the funeral industry. This consolidation trend created mountains of debt for the Funeral Home Defendants as a result of having paid too much for businesses that were not performing as expected.

     150. Form 10Ks for the fiscal years ending 1993 through 1999 detail the companies growth and acquisition strategy. In its Form 10K for the period ending December 31, 1996, SCI states:

The growth strategy initiates with the Company producing significant cash flow from its existing cluster operations, then grows by using that cash to expand clusters through add-on acquisitions, new construction, and improvements to existing locations. The Company also expands its network through strategic acquisition of larger, multi-location death care companies, typically funding these transactions by accessing the debt and equity markets when appropriate.

     151. Pursuant to its growth and acquisition strategy, SCI began acquiring large numbers of funeral homes beginning in or around 1993, resulting in an ever increasing debt burden for the company.

     152. In 1993, SCI acquired 124 funeral homes and 21 cemeteries, as reported in its Form 10K for the period ending December 31, 1993. SCI’s Consolidated Statement of Cash Flows showed total acquisitions for that period amounting to over $175 million. As of December 31, 1993, the company’s debt to capitalization ratio had grown to as high as 54.6%.

     153. In 1994, SCI acquired 674 funeral service locations, 28 cemeteries, and 24 crematories, as reported in its Form 10K for the period ending December 31, 1994. SCI’s Consolidated Statement of Cash Flows showed total acquisitions, net of cash acquired for that period amounting to over $711 million. As of December 31, 1994, the company’s debt to capitalization ratio was still around 54%. SCI described its growth and acquisition strategy as follows:

The Company believes that the acquisition of funeral and cemetery operations funded primarily with debt is a prudent business strategy given the stable cash flow generated and the impressive non-failure rate exhibited by these businesses. These acquired firms are capable of servicing the additional debt and providing a sufficient return on the Company’s investment.

     154. In 1995, SCI acquired 1,263 funeral service locations, 99 cemeteries, and 30 crematories, as reported in its Form 10K for the period ending December 31, 1995. SCI’s Consolidated Statement of

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Cash Flows showed total acquisitions, net of cash acquired for that period amounting to over $693 million.

     155. In 1996, SCI acquired 210 funeral service locations, 35 cemeteries, and 9 crematories, as reported in its Form 10K for the period ending December 31, 1996. SCI’s Consolidated Statement of Cash Flows showed total acquisitions, net of cash acquired for that period amounting to over $279 million.

     156. In 1997, SCI acquired 294 funeral service locations, 51 cemeteries, and 19 crematories, as reported in its Form 10K for the period ending December 31, 1997. SCI’s Consolidated Statement of Cash Flows showed total acquisitions, net of cash acquired for that period amounting to over $409 million. As of December 31, 1997, the company’s debt to capitalization ratio was around 50%.

     157. In 1998, SCI acquired 308 funeral service locations, 47 cemeteries, 18 crematories, and 2 insurance companies, as reported in its Form 10K for the period ending December 31, 1998. SCI’s Consolidated Statement of Cash Flows showed total acquisitions, net of cash acquired for that period amounting to over $719 million. As of December 31, 1998, SCI’s debt to capitalization ratio was back up to 55%. SCI stated in its Form 10K for the period ending December 31, 1998, that:

In light of the prevailing market prices for available acquisition candidates, the Company is curtailing its acquisition activity. Additionally, because of the current size of the Company, it is becoming increasingly difficult to support the historical earnings growth rate through acquisitions. Therefore, the Company intends to focus its efforts on maximizing the profitability of existing cluster facilities rather than the historical heavy emphasis on acquisitions.

     158. In 1999, SCI acquired 434 funeral service locations, 95 cemeteries, and 9 crematories, as reported in its Form 10K for the period ending December 31, 1999. SCI’s Consolidated Statement of Cash Flows showed total acquisitions, net of cash acquired for that period amounting to over $102 million. SCI’s Form 10K for the period ending December 31, 1999 discusses also the company’s suspension of its acquisition program, perhaps due in part to the Company’s lack of access to the capital markets resulting from SCI’s downgraded credit ratings:

During the mid 1990’s, the market to acquire funeral service locations and cemeteries became more competitive than ever before and resulted in increasing prices which lowered returns on invested capital. As a result, the

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     Company suspended its acquisition program in 1999 and is in transition from an acquisition company to an operating company.

     159. One of SCI’s goals for the year 2000 was to “continue the reduction of the Company’s debt levels to create a sound capital structure for the Company and to reduce cash paid for interest costs.”

     160. Similarly, Stewart Enterprises employed a growth strategy through acquisitions. In its Form 10K for the period ending October 31, 1996, the company stated:

From the Company’s initial public offering in October 1991 through January 10, 1997, the Company has acquired 258 funeral homes and 91 cemeteries for purchase prices aggregating approximately $646 million.

     161. Stewart Enterprises acquisitions included the following:

	Funeral Homes
	and Cemeteries
FY	Acquired		Purchase Prices
1997		114	$184.5 Million
1998		162	266.3 Million
1999		100	156.4 Million
2000		4	5.3 Million

     162. Stewart Enterprises explained the reason for the drop in acquisitions from fiscal year end 1999 to fiscal year end 2000 by stating in its Form 10K for the period ending October 31, 2000, as follows:

Historically, the Company focused on growth principally through acquisitions; however, beginning in late fiscal year 1999, the Company began modifying its strategy to focus on cash flow, debt reduction and internal growth rather than acquisitions...

As the business model shifted, death care consolidators experienced diminishing access to capital. In response to these changes, the Company began to develop strategies for improving cash flow and reducing and restructuring debt.

     163. Loewen Group, like SCI and Stewart Enterprises, pursued a growth strategy through acquisitions. The Loewen Group emerged from Chapter 11 bankruptcy protection as the Alderwoods Group, Inc., on or about January 2, 2002.

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     164. The Loewen Group’s Form I0K for the period ending December 31, 1995 described its growth and acquisition strategy as emphasizing three components:

(i) acquiring a significant number of small, family-owned funeral homes and cemeteries; (ii) acquiring “strategic” operations consisting predominantly of large, multi location urban properties that generally serve as platforms for acquiring small, family-owned businesses in surrounding regions; and (iii) improving the revenue and profitability of newly-acquired and established locations.

     165. In furtherance of its growth and acquisition strategy, the Loewen Group’s Form 10Ks for the years 1995 through 1998 indicate that during the years 1993 through 1998, it acquired approximately 1,200 funeral homes and cemeteries for approximately $2.2 billion.

     166. The Loewen Group stated in its Form 10K for the fiscal year ending December 31, 1998, as follows:

The Company’s recent financial results have been disappointing. Beginning in the second half of 1998, as part of its strategy to improve its results, liquidity and financial condition the Company virtually eliminated its acquisition program in order to concentrate on improving existing operations.

     167. Shortly thereafter, the Loewen Group sought the protection of both the United States and Canadian bankruptcy laws. On or about January 2, 2002, the Loewen Group emerged from bankruptcy as The Alderwoods Group, Inc.

     168. Other industry factors also are decreasing, or have the potential to decrease, the Funeral Home Defendants’ overall revenues. For example, life expectancy has increased as death rates have declined.

     169. From 1980 to 1997, the death rate for persons 65-74 declined 16%. For those 85 and older, the death rate declined 4%. Further, statistics reported by the Centers for Disease Control (“CDC”) indicate that the number of deaths declined in both 2001 and 2002 by approximately 1% and 2%, respectively, and anticipate the death rate remaining flat until approximately 2010. In fact, during the 10 year period from 2000 to 2010, life expectancy for the general population is projected to increase from 76.9 years to 78.5 years.

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     170. Similarly, the increased acceptance of cremation, rather than traditional burial, negatively impacts the Funeral Home Defendants’ revenues. Cremation, historically, has been marketed as a less costly alternative to internment, which, according to Marketdata Enterprises in its 2003 report on the U.S. Funeral Homes industry, “has caused a stir in the industry.” This is so because “basic cremations (with no funeral service, casket, urn, mausoleum niche, columbarium niche or burial) produce ... lower revenues than traditional funerals “ Thus, going forward, “the big question in the death services industry is whether the growth in cremation will lead to a decline in profitability for the death care companies.”

     171. In recent years, there has been steady, gradual growth in the number of families in the United States that have chosen cremation as an alternative to traditional methods of burial. According to industry studies, cremations represented approximately 27% of the U.S. burial market in 2002 and are projected at 40% for 2010, as compared to approximately 10% in 1980. According to those same studies, cremations increased by approximately 1% annually from 1997 to 2001, as a percentage of all funeral services in the United States.

     172. In North America during 2002, 38.2% of all funeral services performed by SCI were cremation cases, compared to 37.0% and 36.3% performed in 2001 and 2000.

     173. In 2002, cremations accounted for approximately 36% of all funeral services performed by Alderwoods, compared to approximately 34% performed in 2001.

     174. In 2002, 39% of the funeral services performed by Stewart Enterprises in the United States and Puerto Rico were cremations, compared to 38% in 2001 and 36% in 2000.

     175. In 1997, SCI acquired the Marsellus Casket Co., a high-quality manufacturer primarily of hard wood caskets.

     176. Prior to 1997, Marsellus maintained its own casket distribution network. After SCI`s acquisition, however, SCI contracted out this distribution service to another company, the rights to which were subsequently acquired by Batesville.

     177. In or about March 2003, SCI announced that it was closing the Marsellus Casket Co. Pursuant to the closure, SCI sold the Marsellus brand name, designs, and drawings to Batesville, thereby reducing interbrand competition in the market for funeral caskets.

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VI. CAUSES OF ACTION

COUNT I

Violation of Section 1 of the Sherman Act

     178. Plaintiffs incorporate by reference the preceding allegations.

     179. This Count is alleged against all Defendants.

     180. Defendants combined, conspired, and contracted among themselves and with coconspirators to eliminate and/or hinder the possibility of ICDs from selling, at discounted prices, certain caskets, including but not limited to, Batesville, York, and/or Aurora caskets. Defendants were not acting independently but had a conscious commitment to a common scheme designed to eliminate and/or hinder the possibility of ICDs from selling, at discounted prices, certain caskets, including but not limited to, Batesville, York, and/or Aurora caskets.

     181. In furtherance of this conspiracy, the Funeral Home Defendants sought and obtained agreement from the Casket Manufacturer Defendants to;

(a)	Refuse to sell caskets to ICDs;
(b)	Limit the sale of caskets to licensed funeral directors operating licensed funeral homes;
(c)	Police “rogue” funeral homes who supply ICDs with caskets;
(d)	Threaten to stop dealing with “rogue” funeral homes if they continue to deal with ICDs;
(e)	Limit delivery of caskets to the funeral homes that actually ordered them; and
(f)	Require that the funeral home ordering and receiving the casket also be the one ultimately billed for it.

     182. The Funeral Home Defendants also played a role in this group boycott conspiracy by conduct, as described herein, that included:

(a)	Conspiring to pressure the Casket Manufacturer Defendants to restrict casket distribution;
(b)	Conspiring to disparage ICDs and their products; and
(c)	Taking action in furtherance of these conspiracies; and

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(d) Artificially inflating the price of funeral services where the purchase of caskets through ICDs is involved and through the use of “sham discounting.”

     183. NFDA further assisted with the group boycott conspiracy through conduct, as described herein, that included:

(a)	Advocating the disparagement of ICDs and their products;
(b)	Promoting and disseminating materials and guides that set forth means by which to disparage ICDs; and
(c)	Sponsoring seminars and conferences which helped facilitate the alleged anticompetitive conduct.

     184. These actions are per se in violation of 15 U.S.C. § 1 et seq., in that they constitute a horizontal agreement among competitors to exclude ICDs from participating in the funeral casket market:

(a)	The Funeral Home Defendants conspired to pressure the Casket Manufacturer Defendants into denying ICDs access to certain caskets, which were needed by the ICDs to compete effectively in the funeral casket market, as well as conspired to disparage ICDs in an effort to reduce consumers’ interest in purchasing from ICDs;
(b)	The Funeral Home Defendants maintained a dominant position in the funeral casket market; and
(c)	Defendants’ misconduct lacks, any plausible contention that the challenged behavior enhanced overall efficiency or made the funeral casket market more competitive.

     185. These actions also constitute a violation of 15 U.S.C. § 1 et seq. under rule of reason scrutiny. Defendants had unlawful purposes in enacting these restraints and/or their actions had an adverse effect on competition in the funeral casket market:

(a)	Defendants lacked pro-competitive benefits or justifications for enacting these restraints; and
(b)	The adverse effects of Defendants’ restraints included, inter alia, restricting trade and maintaining at supra competitive levels the retail price of funeral caskets sold in the United States during the Class Period by restricting competition from the sale of lower cost funeral caskets.

     186. Plaintiffs and members of the Class have been injured in their business or property by reason of Defendants’ antitrust violation. Their injury consists of being foreclosed from competing with funeral homes on a level playing field for funeral casket consumers. Such injury is of the type the antitrust laws were designed to prevent and flows from Defendants’ unlawful conduct.

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     187. Plaintiffs and Class members have no adequate remedy at law. These violations are continuing and will continue unless enjoined by this Court.

PRAYER FOR RELIEF

     WHEREFORE, Plaintiffs respectfully request that this Court enter an Order setting forth the following:

     1. Certifying the Class pursuant to Rule 23 of the Federal Rules of Civil Procedure, certifying Plaintiffs as the representatives of the Class, and designating their counsel as counsel for the Class;

     2. Declaring that Defendants’ conduct constitutes a combination and conspiracy to restrain trade in violation of Section 1 of the Sherman Act;

     3. Granting Plaintiffs and the Class damages, including treble damages, as permitted by law;

     4. Granting Plaintiffs and the Class their costs of prosecuting this action, together with interest and attorneys’ fees, including such as allowed by statute, experts’ fees and costs;

     5. Injunctive relief to halt all practices; and

     6. Granting such other relief as this Court may deem just and proper.

JURY TRIAL DEMANDED

     Pursuant to Fed. R. Civ. P. 38(b), Plaintiffs demand a trial by jury for all issues so triable,

Dated: October 21, 2005

Respectfully submitted,

Thomas E. Bilek
State Bar No. 023135251/Federal Bar No. 9338
HOEFFNER & RILEK, L.L.P.
1000 Louisiana, Suite 1302
Houston, TX 77002
(713) 227-7720
FAX (713) 227-9404

Local Counsel for Plaintiffs

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Robert S. Green
Tenelle Welling
Brian S. Umpierre
Elizabeth C. Guarnien
GREEN WELLING LLP
595 Market Street, Suite 2750
San Francisco, CA 94105
Telephone: (415) 477-6700
Facsimile: (415) 477-6710

Lead Counsel for the ICD Class

Shannon P. Cereghino
Christina G. Pedigo
FINKELSTEIN, THOMPSON & LOUGHRAN
601 Montgomery Street, Suite 665
SanFrancisco, CA 94111
Telephone: (415) 398-8700
Facsimile: (415) 398-8704

Counsel for Plaintiffs

CERTIFICATE OF SERVICE

     I certify that a true and correct copy of the foregoing was sent to the counsel listed below by first class mail, postage prepaid, on October 21, 2005, and that service upon the known Filing Users will be made automatically via Notice of Electronic Filing:

Clifford Gunter, III
Andrew Edison
Bracewell & Giuliani
711 Louisiana, Suite 2900
Houston, Texas 77002
713-221-1212

 

Thomas E. Bilek 

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EX-99.3

Exhibit 99.3

Case 5:06-cv-01190-R Document 1-1 Filed 10/26/2006

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF OKLAHOMA

ESTATES OF DALE VAN COLEY and	)
JOYE KATHERINE COLEY, CANDACE	)
D. ROBINSON, Personal Representative,	)
on behalf of themselves and all others	)
similarly situated in the states of Alaska,	)
Florida, Iowa, Maine, Maryland,	)
Massachusetts, Missouri, Montana,	)
Nevada, New Mexico, Oklahoma, Oregon,	)
Texas and Wisconsin,	)
	)
Plaintiffs,	)
	)
v.	)	No.
	)
HILLENBRAND INDUSTRIES, INC. and	)
BATESVILLE CASKET COMPANY,	)
	)
Defendants.

CLASS ACTION COMPLAINT

     NOW INTO COURT come the Plaintiffs, the ESTATES OF DALE VAN COLEY and JOYE KATHERINE COLEY, CANDACE D. ROBINSON, Personal Representative, and pursuant to Rule 23, Fed. R. Civ. P., file this Class Action Complaint on behalf of themselves and all others similarly situated in fourteen (14) states against Defendants Hillenbrand Industries, Inc. (“Hillenbrand”) and Batesville Casket Company (“Batesville”) (collectively, “Batesville”).

     This Complaint is alleged upon information and belief except as to those allegations pertaining to the named Plaintiffs, which are alleged on their personal knowledge.

I. NATURE OF ACTION

     1. Plaintiffs bring this action for relief on behalf of a class of consumers in fourteen (14) states who purchased Batesville-brand caskets. This action against Batesville, who possesses dominant power in the casket market, arises from Batesville’s policies of selling its caskets only to licensed funeral directors operating licensed funeral homes. Batesville will not sell its caskets to third-party sellers. This restrictive sales policy flows directly from a horizontal conspiracy to boycott third-party sellers entered into by funeral home consolidators. Aware of the existence of the conspiracy, and realizing a unique opportunity to expand its dominant position and achieve monopoly power in the casket market, Batesville engaged in illegal unilateral actions designed to increase its market power in order to illegally gain a monopoly position. Batesville has denied participating in a conspiracy with funeral home consolidators and admits that its sales policies which have resulted in the exclusion of third-party sellers were taken unilaterally, i.e., Batesville states that there was no “contract, combination, or conspiracy” between it and the funeral home consolidators.

     2. Batesville’s unilateral conduct quashed and otherwise precluded competition in the American casket market; resulting in higher prices paid by Plaintiffs and Class members for caskets and antitrust injury. This anti-competitive conduct violates the antitrust laws of the states of Alaska, Florida, Iowa, Maine, Maryland, Massachusetts, Missouri, Montana, Nevada, New Mexico, Oklahoma, Oregon, Texas, Wisconsin (the “Class Jurisdictions”). Specifically, Batesville recognized that other casket-makers — the York Group, Inc. and Aurora Casket Company, a division of Matthews International Corporation — and funeral home consolidators — Service Corporation International (“SCI”); Alderwoods Group, Inc. (“Alderwoods”); Stewart Enterprises, Inc. (“Stewart”); and Carriage Services, Inc. (“Carriage”) — had engaged in an arrangement, combination or conspiracy to restrain competition in the casket market. Those companies engaged in a conspiracy to prevent independent casket discounters (“ICDs”) from selling their brand of caskets, a campaign of disparagement against ICDs and the caskets they sell, and concerted efforts to restrict casket price competition and coordinate casket-pricing. These efforts by other casket-

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makers and funeral home consolidators also included such acts as restricting or preventing price advertising, sharing price information, and promoting sham discounting of funeral package purchases.

II. JURISDICTION AND VENUE

     3. This Court has diversity subject matter jurisdiction over this class action pursuant to the Class Action Fairness Act of 2005, which, inter alia, amends 28 U.S.C. § 1332 to add a new subsection (d) conferring federal jurisdiction over class actions where, as here, “any member of a class of plaintiffs is a citizen of a State different from any defendant” and the aggregated amount in controversy exceeds five million dollars ($5,000,000.00), exclusive of interests and costs. See 28 U.S.C. §§ 1332(d)(2) and (6). This Court also has jurisdiction under 28 U.S.C. § 1332(d) because “one or more members of the class is a citizen of a state within the United States and one or more of the Defendants is a citizen or subject of a foreign state.” The Court also has personal jurisdiction over the parties because Plaintiffs submit to the jurisdiction of the Court and Batesville systematically and continually conducts business throughout the United States, including the Eastern District of Pennsylvania.

     4. Venue is proper in this District pursuant to 28 U.S.C. §§1391(a) and (c) because Batesville, as corporations, are “deemed to reside in any judicial district in which [they are] subject to personal jurisdiction.”

     5. Batesville, through its sale of caskets, may be found and transacts substantial business in this state and district. Substantial trade and commerce involved in, and affected by, the alleged violations of law occur within this district. The acts complained of have had, and will have, substantial anticompetitive effects in this district.

III. PARTIES

     6. Dale Van Coley and Joye Katherine Coley were citizens and residents of Oklahoma City, Oklahoma. Their daughter, Candace Robinson, who is also the personal representative of their respective estates, is a citizen and resident of Oklahoma City, Oklahoma. On or about September 6, 1990, Mr. and Mrs. Coley had executed a “pre-paid pre-need funeral merchandise and services” agreement with Bill Merritt Funeral Service. On or about December 1, 2002, Joye Katherine Coley passed away, whereupon

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her daughter, Candace Robinson, contracted to purchase a Batesville-brand casket for her mother’s funeral service and interment from Bill Merritt Funeral Service in Bethany, Oklahoma, utilizing the “pre-paid pre-needs” agreement above-described to make partial payment. On or about December 13, 2003, Dale Van Coley passed away. On or about December 15, 2003, Candace Robinson purchased a Batesville-brand casket for her father’s funeral service and interment from Bill Merritt Funeral Service, again utilizing the “pre-paid pre-needs” agreement for partial payment. On both occasions, the prices of those caskets were artificially-inflated because of Batesville’s attempt to monopolize the casket-market. Plaintiffs and their respective estates were injured by Batesville’s violations of Oklahoma antitrust laws. Plaintiffs seek to represent similarly situated consumers located in fourteen (14) states who also purchased Batesville-brand caskets.

     7. Batesville is a corporation organized and existing under the laws of the State of Indiana.

     Its principal place of business is One Batesville Boulevard, Batesville, Indiana. Batesville is wholly-owned and controlled by Hillenbrand, a corporation organized and existing under the laws of the State of Indiana.

     8. Batesville manufactures and sells various funeral service products. It is the largest casket manufacturer in the United States, selling hundreds of thousands of caskets annually. Batesville manufactures approximately 45% of the caskets sold to consumers in the United States. Batesville does not sell its caskets directly to consumers or ICDs. Batesville only sells its caskets to licensed funeral directors operating licensed funeral homes.

     9. Virtually all of the caskets sold by SCI, Alderwoods, and Stewart are Batesville caskets, all of which were marketed, distributed and sold throughout the Class Jurisdictions.

IV. CLASS ACTION ALLEGATIONS

     10. Plaintiffs bring this action pursuant to Rule 23 of the Federal Rules of Civil Procedure, seeking to represent the following class:

All individuals and entities in Alaska, Florida, Iowa, Maine, Maryland, Massachusetts, Missouri, Montana, Nevada, New Mexico, Oklahoma, Oregon, Texas, Wisconsin (the “Class Jurisdictions”) who purchased

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caskets made by Batesville during the fullest period permitted by the applicable statutes of limitations.

Excluded from this class are Defendants and all directors, officers, agents, employees, parents, subsidiaries, affiliates, and/or co-conspirators of Defendants, and all governmental entities.

     11. The requirements of Rules 23(a), 23(b)(1), 23(b)(2), and 23(b)(3) of the Federal Rules of Civil Procedure have been met in that:

a)	Numerosity: Plaintiffs do not know the exact size of the class, since such information is in the exclusive control of Batesville. The exact number of class members may be determined by appropriate discovery. Based on the nature of the commerce involved, however, Plaintiffs believe that the class members are in the hundreds of thousands and that members of the class are so geographically dispersed that joinder of all members would be impracticable.
b)	Typicality: Plaintiffs’ claims are typical of the other class members’ claims because each class member consumer has been injured through the conduct of Batesville described herein and have paid supra-competitive prices for caskets. Accordingly, by proving their own claims, Plaintiffs will presumptively prove the claims of all class members.
c)	Commonality: Virtually all of the issues of law and fact in this class action are common to each class member including, without limitation, the following:

(i) Whether Batesville engaged in the conduct alleged herein;

(ii) Whether Batesville engaged in a concerted effort to suppress or exclude competition in the casket market;

(iii) Whether the prices for Batesville’s caskets during the limitations period were higher than they would have been absent the attempted monopolization alleged herein;

(iv) Whether, and to what extent, Batesville’s attempt to monopolize the casket market has harmed competition;

(v) Whether there is any legitimate business purpose for Batesville anticompetitive conduct.

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d) Adequacy of Representation: Plaintiffs can and will fairly and adequately represent and protect the interests of the class members and have no interests that conflict with or are antagonistic to the interests of the class members. Plaintiffs have retained attorneys who are experienced and competent in complex class action and consumer litigation.

     12. Class certification is appropriate under Rule 23(b)(3) of the Federal Rules of Civil Procedure because a class action is the superior procedural vehicle for the fair and efficient adjudication of the claims asserted herein:

a)	Common questions of law and fact overwhelmingly predominate over any individual questions that may arise, and consequently there would be enormous economies to the courts and to the parties in litigating the common issues on a class-wide basis instead of on a repetitive individual basis;
b)	The size of each class members’ individual damage claim is too small to make individual litigation an economically viable alternative, such that few class members have any interest in individually controlling the prosecution of separate actions;
c)	Class treatment is required for optimal deterrence and compensation and for limiting the court-awarded reasonable legal expenses incurred by class members; and
d)	Despite the relatively small size of each individual class members’ claim, the aggregate volume of said claims, coupled with the economies of scale inherent in litigating similar claims on a common basis, will enable this case to be litigated as a class action on a cost-effective basis, especially when compared with repetitive individual litigation. Further, no unusual difficulties are likely to be encountered in the management of this class action — all questions of law and fact to be litigated at the liability phase are common to the class.

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     13. Class certification is appropriate under Rule 23(b)(2) of the Federal Rules of Civil Procedure because Defendants have acted on grounds generally applicable to all members of the class.

     14. Class certification is appropriate pursuant to Rule 23(b)(1) of the Federal Rules of Civil Procedure because prosecution of separate actions would create a risk of adjudication with respect to individual class members which may, as a practical matter, be dispositive of the interests of other members not parties to the adjudication or which may substantially impair or impede their ability to protect their interests.

     15. Separate actions prosecuted by individual class members would create a risk of inconsistent or varying adjudications, which would establish incompatible standards of conduct for Batesville.

V. FACTUAL ALLEGATIONS

     A. Industry Background

     16. According to the U.S. Bureau of the Census, a death care industry is defined as “establishments primarily engaged in preparing the dead for burial, conducting funerals and cremating the dead.” The funeral home industry includes funeral directors, funeral homes or parlors, morticians and undertakers. The principal functions of the funeral home industry are the arrangement of funeral or memorial service, the disposition of remains through burial or cremation, and memorialization through monuments, markers or inscriptions. Funeral homes provide all of the products and services needed to perform these primary functions, including a casket or urn, embalming, cosmetology and other preparations, visitation and viewing, transfer of remains to the funeral home, to a church if that is the site of the memorial service, and to a cemetery if the remains are to be buried, use of a hearse and a limousine, use of the funeral home, cremation, and other professional services. The traditional burial funeral would often include all of these products and services other than cremation and an urn.

     17. Historically, funeral homes have been family run businesses, often with only one location in a single community. However, in the 1990s, several firms began acquiring funeral homes and cemeteries. These fines, sometimes known as consolidators, include the largest funeral home companies;

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SCI, Alderwoods, Stewart, and Carriage. In 2003, there were 11,556 firms with 16,059 establishments or funeral home locations in the United States. There were also 4,496 cemeteries and crematories with 6,066 establishments in 2003 ¹. However, by 2004, the top four death care industry firms had 2,040 funeral homes and 696 cemeteries in the United States. SCI, the largest of the four, alone had 1,060 funeral homes and 383 cemeteries in the United States. SCI also had a 10.32% share of the revenues of the entire death care services industry in 2004, white the top four companies collectively accounted for 18.57% of industry revenues.

     18. Over two-thirds of caskets sold in the United States in 2002 were metal-steel, copper, or bronze. The majority of metal caskets have a rubber or synthetic gasket to seal the casket and prevent air or moisture from seeping into the casket for some period of time. Steel caskets are made from 20 (thinnest), 18, or 16 (heaviest) gauge steel. Caskets made of hardwood (oak, cherry, walnut mahogany, etc.) are usually more expensive than steel caskets, but less expensive than copper or bronze caskets. Pine wood caskets, which are usually covered with cloth, are the least expensive and are often used when the remains are to be cremated.

     19. The demand for caskets has been declining over time because of the increasing popularity of cremation, which is often done without casket or with only an inexpensive wood, cardboard or canvas casket or container. The proportion of the deceased that have been cremated was almost 10% in 1980, 17% in 1990, near 25% in 2000, and 27% in 2002; and is expected to be as much as 40% by 2010. Casket manufacturing is also a concentrated industry, with the largest four manufacturers accounting for 73.2% of the value of casket shipments in 2002.² In 2002, the combined casket manufacturing market share of the three largest manufacturers — Batesville, York, and Aurora - - was 70%, with Batesville alone accounting for 45% of industry sales. The 2005 casket sales of these leading manufacturers were approximately $135 million for York, $160 million for Aurora, and $659 million for Batesville. Although the 2002 Economic Census reported that there were 148 casket manufacturing companies in the United States, these three

1	U.S. Bureau of the Census, “Statistics of U.S. Business,” at www.census.gov/csd/susb/Susb/htm.
2	U.S. Bureau of the Census, 2002 Economic Census, Table 2.

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leading manufacturers have advantages over their smaller rivals, maintaining warehouse and distribution facilities that enable them to sell nationwide and to deliver a casket to a funeral home within a day or two after it is ordered.

     B. The Funeral Rule

     20. Historically, virtually all retail sales of caskets were made by funeral homes. However, in 1984, the Federal Trade Commission enacted the Funeral Industry Practices Trade Regulation Rule (the Funeral Rule), which, among other things, required funeral homes to provide a general price list (GPL) of its products and services to consumers and to provide prices over the telephone. The FTC’s Statement of Basis and Purpose stated:

The Rule was premised on evidence that consumers are uniquely disadvantaged when they purchase funeral services after the death of a loved one. The bereaved usually must arrange to have the body removed within hours after the death, and make final arrangements within 24 to 48 hours -a period during which they are often suffering from shock and intense grief.... The strain is compounded by inexperience-fewer than half of all adults had arranged a funeral, and only 25% of adults had done so more than once.

     21. The Funeral Rule was intended to lower barriers to price competition in the funeral industry and to facilitate informed consumer choice. The Funeral Rule also prohibited funeral homes from tying; that is, conditioning the purchase of one product or service upon the purchase of another. These changes enabled new retailers, called independent casket distributors (ICDs), to commence business and sell caskets from retail stores or over the Internet or both. ICDs entered the market as an alternative and less expensive means of purchasing caskets.

     22. ICDs are not owned, managed, or controlled by SCI, Alderwood, or Stewart. Some ICDs are physical establishments, some are entirely Internet-based, and others are a combination of the two. Most ICDs are neither funeral directors nor are they affiliated with any funeral home. However, some Internet-based ICDs do have arrangements or affiliations with funeral homes, the most notable being The Funeral Depot.

     23. The Third Circuit described the entry of ICDs into the casket market in Pennsylvania Funeral Directors Assn, Inc. v. Federal Trade Commission, 41 F.3d 81, 84 (3d Cir. 1994):

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Prior to the enactment of the Funeral Rule, funeral service providers (i.e., funeral homes) were virtually the only parties selling funeral goods. However, after the implementation of the Funeral Rule, the way was paved for third parties to provide various funeral goods-namely caskets. Because funeral service providers could no longer require a consumer to purchase a casket in order to receive any other funeral service, third parties stepped into the markets....

     24. The prices charged by ICDs are considerably lower than those charged by funeral homes, as the FTC anticipated and intended under the goals of the Funeral Rule. The FTC has stated that “thirdparty casket sellers typically charge significantly lower prices than do funeral homes for comparable caskets.”

     25. Every court that has addressed this issue has recognized that ICDs’ casket prices are lower than funeral home prices. See e.g., Pennsylvania Funeral Directors, 41 F.3d at 84 (“The third parties began selling caskets ... usually at a substantially lower price than did the funeral homes.”); Craigmiles v. Giles, 312 F.3d 220, 224 (6th Cir. 2002) (“funeral home operators generally mark up the price of caskets 250 to 600 percent, whereas casket retailers sell caskets at much smaller margins”).

     26. According to the FTC, the “essential purposes and objectives of the [Funeral] Rule were...the lowering of existing barriers to price competition in the industry and increasing the flow or price and other important information.” By eliminating tying by funeral homes and forcing them to reveal itemized prices, the Funeral Rule enabled ICDs to compete for casket sales on the basis of prices. For example, the avenge price of caskets sold online by The Funeral Depot was about $1,500 in early 2003, even though the range of the prices of the 300 different caskets The Funeral Depot offered at the time “was from $745 for an unsealed thin metal box to $18,500 for a solid bronze model.... “In contrast, the average price of caskets sold by funeral homes over a year earlier in 2001 was $2,330.

     27. Eventhough ICDs attempted to introduce low prices for caskets after the Funeral Rule was enacted in 1984, they were not successful because funeral homes began charging “casket-handling fees” to consumers who purchased a casket from an entity other than the funeral home. According to the FTC, these casket-handling fees are “not related to the performance of any additional labor or services,” a funeral home does not incur “any additional costs or an increased risk because it handles and uses a casket

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obtained from a third party seller...” and “is saved the expense of ordering the casket or maintaining it in stock.” Consequently, the FTC concluded “the casket handling fee [was] a penalty imposed upon a consumer for not purchasing the casket from the funeral director,” which has “the effect of raising the cost or price to consumers of caskets sold by a third party casket seller.” For these reasons, in 1994, the FTC amended the Funeral Rule in a way that effectively prohibits casket handling fees.

     C. Group Boycott of ICDs

     28. After 1994, the funeral home consolidators conspired to implement a group boycott of ICDs and other restraints of trade. Batesville, Aurora, York, and Milso Industries (“Milso”) are the only casket manufacturers that sell over a wide geographical area, but they will not sell to ICDs. Batesville, for example, restricts its sales of caskets to licensed funeral homes.

     D. Batesville’s Reaction to Conspiracy

     29. Recognizing that a conspiracy was being perpetrated by the funeral home consolidators, Batesville refined and broadened its already restrictive sales policy to ensure that ICDs do not have access to Batesville-brand caskets,

     30. Batesville’s efforts to eliminate ICD competition and gain monopoly power in the casket market include its efforts to prevent ICDs from selling Batesville caskets, the dominant brand, to consumers at discounted prices. Specifically, in attempting to monopolize the casket market, Batesville engaged in a variety of anti-competitive practices, including: (a) refusing to sell caskets to ICDs; (b) limiting the sale of caskets to licensed funeral directors operating licensed funeral homes; (c) policing “rogue” funeral homes who supply ICDs with caskets; (d) threatening to stop dealing with “rogue” funeral homes if they continue to deal with lCDs’; (e) limiting delivery of caskets to the funeral homes that actually ordered them; and (f) requiring that the funeral home ordering and receiving the casket also be the one ultimately billed for it.

     31. In response to the growth of Internet-based ICDs, in May 2001, Batesville adopted a new sales policy which not only limited Batesville-brand casket sales to funeral homes, but also restricted delivery of Batesville-brand caskets to the funeral homes that actually ordered them.

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     32. By requiring delivery of the casket to the funeral home that actually ordered it, Batesville’s new sales policy was designed to disrupt the side-stepping of the boycott being perpetrated by the funeral home consolidators. The Batesville memo introducing the amended sales policy made this clear:

The increasing growth of third party casket sales, especially on the Internet, continues to be a challenge that faces all of us in funeral service.... The purpose of this [new sales policy] is to ensure we do not inadvertently accept an order from a third party seller for subsequent delivery to a funeral home, thereby becoming their delivery service....This policy is the way we have chosen to operate and reflects the relationship between Batesville and our valued funeral home customers.

     33. Despite the amended sales policy, some Internet-based ICDs continued to gain access to Batesville-brand caskets. Therefore, in July 2004, Batesville again amended its sales policy, this time to require that the funeral home ordering and receiving the Batesville-brand casket also be the one ultimately billed for it. In a July 2, 2004 letter to its funeral home customers, Batesville described the change in policy as follows:

Our previous practice of permitting the receiving funeral home to place the order and then having the invoice go to another business entity has ended. Effective July 12, Batesville will only deliver caskets to the funeral home business entity that will be invoiced for the casket and which will be responsible for payment.

     34. One of the leading publications in the funeral industry, Funeral Monitor, stated that Batesville’s new policy was designed to “close the door on third party casket sellers. “Funeral Monitor” explained:

Since it is unlikely many [funeral homes] will agree to order, receive, and pay for a casket they then have to turn around and invoice at cost to the seller who marks it up and takes the profit, the new policy may indeed put the skids on casket retailers and Internet marketers who advertise low discount prices and free next-day delivery on Batesville caskets.

     35. Batesville even publicized its new sales policy to consumers in an effort to further the boycott of ICDs. Beginning in October 2004, Batesville initiated an on-line consumer “education” program that consists of a sponsored-link featuring a “Consumer Alert” on several popular search engines,

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such as Google.com. The link goes to Batesville’s home page which prominently displays a “Casket Consumer Alert” icon providing the following message: “Online retailers who are not funeral homes but nevertheless sell Batesville caskets are not authorized to do so.... Only authorized and licensed funeral homes can guarantee that your casket will be authentic and of the highest Batesville Casket quality standards.”

     36. Batesville’s new sales policy is only the latest manifestation of a “tradition” it has taken pains to maintain. As reported in the August 2, 2004 issue of Funeral Monitor, a representative of SCI admitted as much:

Facing continuing complaints from its largest customer [SCI], Batesville Casket Company has moved to stop the sale of its caskets in casket stores and on the Internet....According to an unnamed funeral director with SCI: “Funeral customers have returned to us after funerals and questioned us about the price we charged them for a particular casket. In many cases they have gone on the Internet and found the same casket we sold them priced as much as 60 percent less than we charged.... [T]o prevent consumers from comparing apples to apples, we have asked Batesville to stop selling their caskets to casket stores and Internet vendors.”

     37. Batesville’s publicly-stated purpose for its restrictive sales policy is that only licensed funeral directors are qualified to sell caskets:

We view the casket not just as a piece of merchandise, but as an integral part of the overall funeral service. Working with professional funeral firms gives us a greater assurance that our products will be used with the dignity and purpose intended.

     However, this rationale has been recognized as pure pretext by both the courts and the funeral industry itself.

     38. The court in Casket Royale, Inc. v. Mississippi, 124 F. Supp. 2d 434, 438-39 (S.D. Miss. 2000), for example, rejected this rationale in striking down a Mississippi statute that prevented ICDs from selling caskets. Finding that a casket is nothing more than a “glorified box,” the court concluded that selling one requires “no special skills” and that “any special training that licensees may receive does not advance consumer protection” with respect to the sale of caskets.

     39. The Fourth Circuit reached the identical conclusion in Craigmiles, 312 F.3d at 225: The proffered justifications for preventing ICDs from selling caskets “come close to striking us with the force

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of a five-week-old unrefrigerated dead fish, a level of pungence almost required to invalidate a statute under rational basis review”

     40. The International Cemetery and Funeral Association (“ICFA”), which represents approximately 6,000 funeral homes, cemeteries, and other industry members, is equally dismissive of any justification for restrictions on who can sell caskets. In comments it submitted to the FTC in October 2002, ICFA stated that laws preventing ICDs from selling caskets are “anti-competitive.” The ICFA disputed the notion that only licensed funeral directors should sell caskets:

Specifically, whether or not casket retailers should be registered sellers does not justify a requirement that such retailers must also graduate from mortuary science school, pass a licensing examination, and serve an apprenticeship at a funeral home, in order to sell a casket. These typical requirements for becoming a licensed funeral director in most states make no sense when applied solely to the sale of caskets. Columnist George Will succinctly stated the issue when he observed that requiring casket sellers to be licensed funeral directors was like saying only podiatrists can sell shoes.

     41. The pre-textual nature of Batesville’s sales policy is also demonstrated by the way in which it is applied. Batesville has refused to sell its caskets to ICDs even if they are operated by licensed funeral directors, even if these licensed funeral directors were prior customers of Batesville, and even if these licensed funeral directors also own independent funeral homes.

     42. One example of Batesville’s unjustifiable sales policy involved a licensed funeral director and owner of several funeral homes who received from Batesville an award for outstanding service in connection with his sale of Batesville caskets. When this licensed funeral director sold his funeral homes and opened an ICD, Batesville refused to continue selling caskets to him.

     43. The lack of a legitimate business purpose or justification for Batesville’s refusal to sell to ICDs is also evidenced by the fact that closing down a potentially lucrative distribution source is against Batesville’s own economic self-interest. When Funeral Monitor questioned one Batesville customer about Batesville’s newly amended sales policy, he admitted that “in light of increasing cremations, fewer caskets being sold, and the low-cost caskets arriving from China, an intelligent person has to scratch his or her head and wonder why a casket company would willingly reduce its market.”

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     44. Funeral Monitor agreed with this assessment:

I’m no economist and I could be wrong, but it’s hard to understand how any manufacturer investing the labor and materials before bringing a product to market could plan to grow by shrinking its channels of distribution.... Even a groundswell of satisfied [funeral home] customers might not be enough to surpass (or at least balance) the amount of business Batesville is willing to turn away. The last time I checked, every death gets a maximum of one casket (if that, with the rise of cremation). And no matter how appreciative Batesville’s [funeral home] customers might be, they are not going to order two caskets out of love and loyalty when only one will do.

VI. RELEVANT MARKET

     45. The sale of Batesville-brand caskets to consumers is the product dimension of the relevant market. The geographic dimension of this market is the states of Alaska, Florida, Iowa, Maine, Maryland, Massachusetts, Missouri, Montana, Nevada, New Mexico, Oklahoma, Oregon, Texas, and Wisconsin.

     46. Because of the unique purpose they serve — containing the remains of a loved one for burial — caskets are not reasonably interchangeable with any other products.

     47. There are no reasonable substitutes for caskets. Even in the face of a significant and nontransitory price increase, consumers have not, and would not, substitute their purchase of a casket with the purchase of a different product.

     48. There is widespread recognition of a casket market by both the funeral industry and the courts. For example, in Pennsylvania Funeral Directors, 41 F.3d at 91, the Third Circuit recognized the existence and economic coherence of a casket market in upholding the validity of the FTC’s ban on casket handling fees; “competition in the market for caskets can be expected to increase with the ban in effect .... Increasing competition in the casket market is likely to drive the cost of caskets down.”

     49. The geographic dimension of the casket market is appropriate because of the availability of the Internet as a source for purchasing caskets. The use of the Internet has become particularly prevalent over the past decade. Indeed, it is the emergence of Internet-based ICDs that prompted Batesville to step up its concerted efforts to suppress ICD competition. But for Batesville’s attempt to

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monopolize the casket market, the Internet would be a much more vibrant medium through which consumers could purchase caskets.

VII. MARKET POWER

     50. Batesville accounts for 45% of casket sales. 2005 casket sales for Batesville were approximately $659 million. As the dominant casket maker in the United States, Batesville has substantial market power over consumers. Batesville caskets are priced significantly higher than ICDs charge for comparable caskets. Despite these large price differentials, consumers continue to purchase Batesville branded caskets. This market power is also evidenced by Batesville’s power to exclude competition and reduce consumer choice.

VIII. HARM TO CONSUMERS

     51. Through its illegal attempt to monopolize the casket market, Batesville has harmed consumers who purchase caskets, by among other things, excluding competition from ICDs, successfully overcharging for caskets, and limiting the variety and choice of caskets available to consumers.

     A. Exclusion of ICD Competition

     52. By taking advantage of the group boycott of ICDs by funeral home consolidators, Batesville has succeeded in restricting the ability of lCDs to sell at discount prices the dominant Batesville-brand of caskets. ICDs are either completely blocked from selling these caskets or severely restricted from doing so by being forced to try to purchase these caskets indirectly from rogue funeral homes. The cost of caskets have remained high because of Batesville’s unilateral conduct.

     53. Many consumers will only purchase the dominant Batesville brand of casket because of false perceptions fostered by Batesville that these caskets are superior to those sold by ICDs. ICDs are foreclosed from competing with funeral homes on a level playing field for these consumers. They either are barred from making the sale altogether, or can do so only on terms that significantly add to their costs or make the product less attractive to consumers.

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     54. As a result of Batesville’s anti-competitive conduct, numerous ICDs have either lost a significant percentage of their sales to funeral homes or have gone out of business altogether and the price of a casket to the consumer has remained higher because of Batesville’s conduct.

     B. Restriction Of Consumer Choice

     55. Through concerted efforts to foreclose competition from ICDs — particularly those that sell through the Internet — Batesville has substantially restricted the range of casket choices available to consumers.

     56. As a result of Batesville’s conduct, consumers are usually offered only one brand of casket — Batesville. Moreover, customers are routinely steered to a limited selection of Batesville caskets, typically the most expensive caskets the consumer can (or in some cases, can’t) afford.

     57. In contrast, ICDs particularly those that are Internet-based offer consumers a pressure-free environment to view a large variety of caskets from various manufacturers, and in different styles and price ranges. ICDs also provide consumers with a source for highly individualized caskets which funeral homes are unable or unwilling to offer.

     58. The expanded casket variety and choice available to consumers only through the ICD channel has been recognized by the FTC as another key reason for its creation of the Funeral Rule:

[T]hird-party casket sellers can benefit consumers by expanding the range of casket choices available in a market along additional dimensions, For example, consumers desiring highly individualized caskets made by artists or craftsmen may be unable to find such caskets through funeral homes.

     C. There Is No Legitimate Business Purpose For Defendants’ Conduct

     59. There is no legitimate business justification for the concerted efforts of Batesville to suppress competition in the casket market and gain monopoly power. Its conduct is solely for the purpose of excluding competition from ICDs, fixing and maintaining supra-competitive prices for the dominant Batesville-brand of casket, and restricting consumer choice.

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IX. EQUITABLE TOLLING, CONTINUING VIOLATIONS,
AND FRAUDULENT CONCEALMENT

     60. Plaintiffs hereby repeat each and every allegation contained in the foregoing paragraphs of this Complaint with the same force and effect as if here set forth in full.

     61. Until in or about the spring of 2005, Plaintiff’s and class members had no knowledge of Batesville’s unlawful self-concealing conduct and could not have discovered the conduct at an earlier date by the exercise of due diligence because of the deceptive practices and techniques of secrecy employed by Batesville to avoid detection of, and fraudulently conceal, their conduct.

     62. Because the conduct was kept secret by Batesville, Plaintiffs and the class members were unaware of the conduct alleged herein. As a result of the fraudulent concealment of the conduct, Plaintiffs assert the tolling of any applicable statutes of limitations affecting the right of action by Plaintiffs and the class members. Upon each and every instance that Batesville failed to disclose their conduct and its effect on the prices of funeral products and services, Batesville knew or should have known that the undisclosed information was material to those who purchased from them and the purchasers’ decisions to accept the charges and prices quoted to them.

     63. The unlawful conduct of Batesville described in this Complaint is a continuing and ongoing practice. Therefore, Plaintiffs and the class members submit that each instance that Batesville engaged in the conduct complained of herein and each instance that a class member unknowingly remits payment for Batesville-branded caskets at supra-competitive prices, constitutes part of a continuing violation and operates to toll the statutes of limitation in this action.

X. CAUSES OF ACTION

COUNT I

VIOLATION OF STATE ANTITRUST LAWS
FOR ATTEMPTED MONOPOLIZATION

     64. Plaintiffs realleges the foregoing paragraphs as set forth above.

     65. Batesville has unlawfully attempted to monopolize the casket market.

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     66. Batesville has willfully and unlawfully used exclusionary and predatory conduct with the intent to foreclose competition and to illegally obtain monopoly power in the casket market.

     67. Batesville has the specific intent to achieve its goal of obtaining monopoly power in the casket market and engaged in the conduct alleged above for the specific purpose of achieving those goals.

     68. There is a dangerous probability that if left unchecked, Batesville will achieve its goals of obtaining monopoly power in the casket market.

     69. As a result of Batesville’s attempt to monopolize the American casket market, Plaintiff’s and members of the Class were injured in their business or property. Plaintiffs and other Class members have been forced to pay higher prices for caskets in the relevant markets than they would have paid in the absence of Batesville’s unlawful conduct.

     70. Batesville unreasonably restrained trade, willfully maintained and unlawfully exercised its monopoly and/or market power, or attempted to acquire monopoly power in the relevant markets in violation of Alaska law, AS §45.50.564.

     71. Batesville unreasonably restrained trade, willfully maintained and unlawfully exercised its monopoly and/or market power, or attempted to acquire monopoly power in the relevant markets in violation of Florida law, Fla. Stat. §542.19.

     72. Batesville unreasonably restrained trade, willfully maintained and unlawfully exercised its monopoly and/or market power, or attempted to acquire monopoly power in the relevant markets in violation of Iowa law, Iowa Code §553.5.

     73. Batesville unreasonably restrained trade, willfully maintained and unlawfully exercised its monopoly and/or market power, or attempted to acquire monopoly power in the relevant markets in violation of Maine law, Me. Rev. Stat. Alm. tit. 10, §1102.

     74. Batesville unreasonably restrained trade, willfully maintained and unlawfully exercised its monopoly and/or market power, or attempted to acquire monopoly power in the relevant markets in violation of Maryland law, Md. Stat. §11-204.

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     75. Batesville unreasonably restrained trade, willfully maintained and unlawfully exercised its monopoly and/or market power or attempted to acquire monopoly power in the relevant markets in violation of Massachusetts law, Mass. Gen. Laws. Ann. ch 93A, §5.

     76. Batesville unreasonably restrained trade, willfully maintained and unlawfully exercised its monopoly and/or market power, or attempted to acquire monopoly power in the relevant markets in violation of Missouri law, Mo. Rev. Stat. §416.031.1.

     77. Batesville unreasonably restrained trade, willfully maintained and unlawfully exercised its monopoly and/or market power, or attempted to acquire monopoly power in the relevant markets in violation of Montana law, Mont. Code Ann. §30-14-205.

     78. Batesville unreasonably restrained trade, willfully maintained and unlawfully exercised its monopoly and/or market power, or attempted to acquire monopoly power in the relevant markets in violation of Nevada law, Nev. Rev. Stat. §598 A.060.

     79. Batesville unreasonably restrained trade, willfully maintained and unlawfully exercised its monopoly and/or market power, or attempted to acquire monopoly power in the relevant markets in violation of New Mexico law, N.M. Stat. §57-1-3(A).

     80. Batesville unreasonably restrained trade, willfully maintained and unlawfully exercised its monopoly and/or market power, or attempted to acquire monopoly power in the relevant markets in violation of Oklahoma law, 79 Okl. St. §203.

     81. Batesville unreasonably restrained trade, willfully maintained and unlawfully exercised its monopoly and/or market power, or attempted to acquire monopoly power in the relevant markets in violation of Oregon, Ore. Rev. Stat. §646-730.

     82. Batesville unreasonably restrained trade, willfully maintained and unlawfully exercised its monopoly and/or market power, or attempted to acquire monopoly power in the relevant markets in violation of Texas law, Tex Code. §15.05.

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     83. Batesville unreasonably restrained trade, willfully maintained and unlawfully exercised its monopoly and/or market power, or attempted to acquire monopoly power in the relevant markets in violation of Wisconsin law, Wis. Stat. §133.18(1)(a).

     84. Batesville acted willfully to unreasonably restrained trade, maintain monopoly and/or market power or attempt to acquire monopoly power in the relevant markets through exclusionary and predatory conduct set forth above.

     85. There is no legitimate business justification for the actions and conduct through which Batesville unreasonably restrained trade or attempted to acquire monopoly power in the casket market.

     86. The anti-competitive effects of Batesville’s conduct far outweigh any conceivable procompetitive benefits or justifications.

     87. Plaintiffs and Class members were injured in their business or property by Batesville’s exclusionary and predatory conduct in the relevant markets. Without limiting the generality of the foregoing, Plaintiffs and the Class members have been forced to pay higher prices for caskets than they would have absent Batesville’s unlawful conduct.

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X1. PRAYER FOR RELIEF

     WHEREFORE, Plaintiffs, on behalf of themselves and the Class, respectfully request that:

     A. The Court determine that this action may be maintained as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure and direct that reasonable notice of this action, as provided by Rule 23, be given to the Class;

     B. The acts alleged herein be adjudged and decreed to be unlawful acts in violation of the antitrust laws of the Class Jurisdictions;

     C. The Class be granted structural, prospective relief to promote competition, and any other appropriate relief as may be determined to be just, equitable, and proper by this Court;

     D. Each member of the Class recover damages determined to have been sustained by each of them, and that judgment be entered against Defendant in favor of the Class;

     E. The Class be granted any other appropriate relief as may be determined to be just, equitable, and proper by this Court; and

     F. An award to Plaintiffs of all costs incurred, including reasonable attorneys’ fees, as well as pre-judgment and post-judgment interest.

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XII. JURY TRIAL DEMAND

     Pursuant to Fed. R. Civ. P. 38(b), Plaintiffs demands a trial by jury of all of the claims asserted in this Complaint so triable.

Respectfully submitted, this 26th day of October, 2006.

/s/ G. Rudy Hiersche, Jr.

G. Rudy Hiersche, Jr., #4183

Hiersche Law Firm

Suite 300, Hightower Building

105 North Hudson

Oklahoma City, Oklahoma 73102

Telephone: 405-235-3123

Facsimile: 405-235-3142

Rudylaw@sbcglobal.net

Gordon Ball

BALL & SCOTT

550 West Main Street, Suite 601

Knoxville, Tennessee 37902

Telephone: 865.525.7028

Facsimile: 865.525.4679

gball@ballandscott.com

Michael D. Hausfeld

Megan Jones

COHEN, MILSTEIN, HAUSFELD

& TOLL, P.L.L.C.

1100 New York Avenue, N.W.

West Tower - Suite 500

Washington, D.C. 20005

Telephone: 202-408-4600

Facsimile: 202-408-4699

mhausfeld@cmht.com

R. Laurence Macon

AKIN GUMP STRAUSS HAVER & FELD, LLP

300 Convent Street, Suite 1500

San Antonio, TX 78205-3732

Telephone: (210) 281-7000

Facsimile: (210) 224-2035

Imacon@akingump.com

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Richard L. Wyatt, Jr.

AKIN GUMP STRAUSS HAUER & FELD, LLP

1333 New Hampshire Avenue, N.W.

Washington, DC 20036-1564

Telephone: (202) 887-4000

Facsimile: (202) 887-4288

rwyatt@akingump.com

Arthur N. Bailey

ARTHUR N. BAILEY & ASSOCIATES

Suite 4500

111 West Second Street

Jamestown, NY 14701

Telephone: (716) 664-2967

Facsimile: (716) 664-2983

Artlaw@alltel.net

Attorneys for Plaintiffs

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