FUNERAL SECURITY PLANS INC v. STATE BOARD OF FUNERAL DIRECTORS AND EMBALMERS (1993)

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

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

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

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

The Funeral Board met in a closed session on May 18, 1988.   Two Q memoranda were prepared explaining the closed session was necessary to discuss settlement on two pending cases.   During the Board's deliberations, James Allen, the executive director, responding to an inquiry, informed the Board FSP continued to violate the 21/212 percent rule.   The Board attorney, Robert Miller, and auditor, Skip Jones, were also present.   Following discussion, the Board instructed Allen to request the Attorney General to commence an investigation of FSP.

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

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

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

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

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

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

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

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

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

I

SCOPE OF APPELLATE REVIEW

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

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

II

SCOPE OF THE PENDING LITIGATION EXCEPTION

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

Yet as already observed, the Legislature carved narrow exceptions to the basic rule mandating open meetings.   FSP does not dispute the Board's right to hold a closed session “to confer, and receive advice, from legal counsel” concerning pending litigation.   FSP vehemently disagrees, however, with the Funeral Board's application of the exception.   We turn first to the pertinent language of the statute.

“For purposes of this article, all expressions of the lawyer-client privilege other than those provided in this subdivision are hereby abrogated.   This subdivision is the exclusive expression of the lawyer-client privilege for purposes of conducting closed-session meetings pursuant to this article.   For purposes of this subdivision, litigation shall be considered pending when ․ (1) An adjudicatory proceeding before a court, an administrative body exercising its adjudicatory authority, a hearing officer, or an arbitrator, to which the state body is a party, has been initiated formally․  (3) Based on existing facts and circumstances, the state body has decided to initiate or is deciding whether to initiate litigation.”  (§ 11126, subd. (q).)

FSP correctly points out this portion of section 11126 was added in 1987 to clarify and restrict the scope of the exception.   Prior to the amendment, there had emerged a blanket attorney-client exception to the Ralph M. Brown Act and Act.  (Sacramento Newspaper Guild v. Sacramento County Bd. of Suprs. (1968) 263 Cal.App.2d 41, 69 Cal.Rptr. 480.)   In Sacramento Newspaper Guild, the court wrote:  “Government should have no advantage in legal strife;  neither should it be a second-class citizen․  ‘Public agencies face the same hard realities as other civil litigants.   An attorney who cannot confer with his client outside his opponent's presence may be under insurmountable handicaps.   A panoply of constitutional, statutory, administrative and fiscal arrangements covering state and local government expresses a policy that litigating public agencies strive with their legal adversaries on fairly even terms.   We need not pause for citations to demonstrate the obvious.   There is a public entitlement to the effective aid of legal counsel in civil litigation.   Effective aid is impossible if opportunity for confidential legal advice is banned.’  [¶] Settlement and avoidance of litigation are particularly sensitive activities, whose conduct would be grossly confounded, often made impossible, by undiscriminating insistence on open lawyer-client conferences․   Neither the Brown Act nor its history supplies undebatable evidence of a legislative intent to supersede the assurance of private legal consultation stemming from the statutory lawyer-client privilege.”  (Id. at pp. 55–57, 69 Cal.Rptr. 480, citations omitted.)

In the 1987 amendment the Legislature clearly expressed its intent to supersede the statutory lawyer-client privilege with the explicit language “all expressions of the lawyer-client privilege other than those provided in this subdivision are hereby abrogated.”   The amended pending litigation exception was enacted to correct a perceived abuse of the privilege in derogation of the strong public policy fostering open meetings.  (See Van de Kamp letter, 1 Sen. J. (1987 Reg. Sess.) p. 1775.)

It is clear the 1987 amendment was designed to limit when the attorney-client privilege could be invoked by a public agency to conduct a closed session.  (Roberti ltr., 1 Sen. J. (1987 Reg. Sess.) p. 1776.)   What is not as clear is the scope of the exception and the scope of the attorney-client privilege once the exception is properly invoked.

Urging a strict construction of the statutory language, FSP insists the Board can meet in closed session only “to confer, and receive advice from, legal counsel.”   FSP objects to the Board's routine discussion of facts presented for the first time in closed sessions by either staff or legal counsel.   Similarly, FSP contends the Board must conduct a public hearing to deliberate and take action because neither deliberation nor decision making involve conferring or receiving advice from counsel.   The Funeral Board, on the other hand, argues that the traditional scope of the attorney-client privilege applies to all closed sessions involving pending or threatened litigation.   FSP's position offends common sense and the Board's position violates the language, as well as the spirit, of the statutory scheme.

We need not explore the potential breadth of the attorney-client privilege to interpret the statutory language “to confer with, or receive advice from, its legal counsel.”   FSP suggests the statutory language compels a two-step process.   First, legal counsel can deliver advice to the Board in a closed session, as long as no new facts are disclosed, and second, the Board must deliberate on the advice and decide whether to initiate litigation in an open meeting.   It is difficult to conceive of meaningful deliberation without disclosure of the legal advice received.   We conclude deliberation and decision making are necessary components of “confer[ring] with,” and “receive [ing] advice from,” legal counsel.   Consequently, we are unwilling to ascribe such a tortured construction to the statutory language and compel a bifurcated decision making process whereby the analysis of the advice is divorced from the closed conference with counsel.

The facts of this case are illustrative.   Here, the Board, assisted by the Attorney General, was conducting an inquiry into whether FSP violated the preneed arrangements law.   The inquiry provided the factual, as well as legal, basis for commencing civil litigation to enjoin those violations.   The facts were inextricably intertwined with the legal advice offered by the Attorney General.

The Board was not required to notify FSP it was the target of inquiry as it received and reviewed the evidence, grappled with the legal advice it was given, and deliberated the question of whether and when it should pursue injunctive and restitutionary relief.   FSP's right to notice did not accrue until the action was filed.   Moreover, the open meeting law was not designed to impede a state body's pre-litigation investigation and consultation with legal counsel.

This is not to accept the Board's wholesale proposition that the attorney-client privilege is as broad in closed sessions as in all other arenas in which the privilege is invoked.   We leave that issue to be resolved in a proper case in which the strong public policy ensuring open discussion and deliberation is weighed against the asserted need for the attorney-client privilege.   Without defining the outer edges of the privilege, we find the presentation of facts by legal counsel and Board staff and the Funeral Board's deliberations and decision making are encompassed by the “confer and advice” language of the pending litigation exception.

III

THE SUFFICIENCY OF THE Q MEMORANDA

 To justify a closed session to discuss pending litigation, legal counsel must prepare a legal memorandum as described in section 11126, subdivision (q).  “The legal counsel of the state body shall prepare and submit to it a memorandum stating the specific reasons and legal authority for the closed session.   If the closed session is pursuant to paragraph (1), the memorandum shall include the title of the litigation.   If the closed session is pursuant to paragraph (2) or (3), the memorandum shall include the existing facts and circumstances on which it is based.   The legal counsel shall submit the memorandum to the state body prior to the closed session, if feasible, and in any case no later than one week after the closed session.   The memorandum shall be exempt from disclosure pursuant to Section 6254.25.”  (§ 11126, subd. (q).)

FSP complains that on three occasions no Q memoranda were prepared, on one occasion the memorandum was tardy, and routinely neither the statutory authority, nor the existing facts and circumstances justifying a closed session, are described.   The Funeral Board relies on an asserted defense of substantial compliance.   In this declaratory relief appeal our interpretation of the statute is prospective.   However, we are not satisfied the Board's action complied with the statutory criteria for Q memoranda.

 The Legislature did not exempt every discussion involving litigation from public scrutiny.   Rather, a state body is allowed to conduct a closed session “when discussion in open session concerning those matters would prejudice the position of the state body in the litigation.”  (§ 11126(q).)  Moreover, the law is clear that the presence of the lawyer or the lawsuit cannot be used as a ruse or pretext for an otherwise unlawfully convened closed session.  (Register Div. of Freedom Newspapers, Inc. v. County of Orange (1984) 158 Cal.App.3d 893, 907, 205 Cal.Rptr. 92;  Sacramento Newspaper Guild v. Sacramento County Bd. of Suprs., supra, 263 Cal.App.2d 41, 58, 69 Cal.Rptr. 480.)   The Q memorandum is the vehicle the Legislature has created to assure devotion to openness.   The memorandum must justify deviation from the presumption all discussions of public business should be held in public.

 Consequently, we are not satisfied with the Board's notion of substantial compliance.   The state body is put to the burden of proving a compelling necessity for a closed session.   It is not sufficient, as the Board suggests, to rely on a previous memorandum to justify subsequent closed sessions.   Nor is a vague reference to potential litigation enough.   Although we reject FSP's technical insistence that the subparagraph number be identified, we conclude the statute compels legal counsel to describe the existing facts and circumstances which would prejudice the position of the state body in the litigation if the discussion occurred in open session.

IV

SETTLEMENTS, REINSTATEMENTS, AND DISCIPLINARY PROCEEDINGS

FSP objects, not only to the closed sessions during which its practices were discussed, but also to a smorgasbord of other issues considered privately by the Board.   Those include stipulated settlements with various funeral homes, the adoption of an administrative law judge's findings in disciplinary proceedings, and the termination of probation with reinstatement of licenses.   FSP argues these issues are of acute public interest.

 The pending litigation exception contained in section 11126, subdivision (q) tends to overlap with another exception set forth in subdivision (d).   Subdivision (d) provides:  “Nothing in this article shall be construed to prohibit a state body from holding a closed session to deliberate on a decision to be reached based upon evidence introduced in a proceeding required to be conducted pursuant to [the Administrative Procedure Act (APA) ].”   FSP contends subdivision (d) only applies when a public hearing has been conducted pursuant to the APA.   The section should not be construed so narrowly.   The Funeral Board is charged with policing the funeral industry.   Pursuant to that charge, it files accusations for alleged violations of the Funeral Directors and Embalmers Law.  (Bus. & Prof.Code, § 7600 et seq.)   The accused has the right to an administrative hearing in which case Government Code section 11126, subdivision (d) clearly applies.   The Board can consider the administrative law judge's findings in closed sessions, or vote by mail.  (§ 11526.)

 In those cases in which the accused waives his right to an administrative hearing and attempts to settle the dispute with the Board, subdivision (q) applies.  “ ‘[L]itigation’ includes any adjudicatory proceeding ․ before a court, administrative body exercising its adjudicatory authority, hearing officer, or arbitrator.”  (§ 11126, subd. (q).)  Therefore, the Board can seek legal advice and confer with counsel in a closed session about the propriety of the proposed stipulated settlement provided there is a demonstrated prejudice to the Board by open discussion.

The Board has a formidable task to demonstrate prejudice.   The purported prejudice to the Board's litigation posture from discussing a settlement to a disciplinary charge is much different from the Board's stake in an ongoing investigation before litigation is initiated, or the Board's position when involved in pending civil litigation.   In either of the latter two circumstances, public disclosure often would impact the Board's litigation strategy and compromise the ultimate success of the litigation.

The public, however, has a much greater interest in overseeing the Board's execution of its regulatory powers.   The accusation is made publicly.   When there is no administrative hearing, a process which rightfully begins in the public eye is resolved in secrecy.   Consequently, as we discussed above, legal counsel must justify a closed session by specifically describing the facts and circumstances which would prejudice the Board by an open hearing on the disposition.   Secret dispositions should be the exception, not the rule.

V

COMMITTEE MEETINGS

The Funeral Board argues the Open Meeting Act does not apply to its committee meetings because each committee is comprised of two members, and therefore, less than the three member quorum necessary to trigger the Act.   The Board relies exclusively on the language of section 11121.8 which states:  “As used in this article, ‘state body’ also means any advisory board, advisory commission, advisory committee, advisory subcommittee, or similar multimember advisory body of a state body, if created by formal action of the state body or of any member of the state body, and if the advisory body so created consists of three or more persons.”

FSP, counting the attendance of Executive Officer James Allen at committee meetings, argues the three member advisory bodies constitute “state bodies” pursuant to section 11121.8.   The evidence reveals, however, that while Allen attends most committee meetings, he is not a committee member.   He has no authority to vote, and does not participate in the deliberations of the committee.   He attends to answer questions or assist the committee.

 We conclude the attendance of Executive Officer Allen to answer questions of the advisory committees and to assist in the handling of whatever matters are before the committee does not convert the committee into a state body.   A committee is allowed under the Act to contact the staff to obtain and exchange information, the purpose for which the staff is hired.  (See 64 Ops.Cal.Atty.Gen. 856 (1981).)

However, our inquiry does not end with the language of section 11121.8.   FSP contends the committees qualify as state bodies under section 11121.7, which provides:  “As used in this article, ‘state body’ also means any board, commission, committee, or similar multimember body on which a member of a body which is a state body pursuant to Section 11121, 11121.2, or 11121.5 serves in his or her official capacity as a representative of such state body and which is supported, in whole or in part, by funds provided by the state body, whether such body is organized and operated by the state body or by a private corporation.”

 Emphasizing that committee members, all members of the Board, a state body, receive per diem compensation for their attendance at committee meetings, FSP contends the committees are state bodies under section 11121.7.   We agree.

The Attorney General adopted the same rationale in determining that meetings of the State Board of the California Community College Student Government Association (CCCSGA) are subject to the requirements of the Act.   (65 Ops.Cal.Atty.Gen. 638 (1982).)   The Attorney General wrote:  “Accordingly, despite the fact that not all members of the governing board of the CCCSGA must be members of local student association, and despite the fact that such members are selected by an intermediary ‘semi-autonomous' student association, we conclude that the governing board meets the requirements of section 11121.7 to make it a ‘state body’ within the meaning of that section.   As such, it is subject to the open meeting requirements of section 11123,supra, of the Bagley–Keene Open Meeting Act.   We believe this conclusion is in accord with the clear legislative intent, which is apparent on the face of section 11121.5 itself, that when a second body is financed by a ‘state body,’ and a member thereof qua member serves on that second body, the open meeting requirements attach to and follow that member to the second body.   This conclusion is also in accordance with the rule that remedial legislation is to be liberally construed to effectuate its purposes.  (Alford v. Pierno (1972) 27 Cal.App.3d 682, 688, 104 Cal.Rptr. 110.)”  (Id. at p. 644.)

We agree with the Attorney General's analytical approach.   Because the Board finances the meetings of its committees, “the open meeting requirements attach to and follow” those members to the second body, the committee.   The committees are also state bodies pursuant to section 11121.7 and, therefore, remain subject to the open meeting requirements.

VI

CROSS–APPEAL

 Asserting FSP's action was filed for an improper motive and completely devoid of merit, the Board appeals from the trial court's denial of court costs and reasonable attorneys fees.   While acknowledging “technical violations,” the Board insists it was unnecessary for FSP to bring this lawsuit;  the minor violations were cured prior to filing of the lawsuit, and FSP like other members of the public could have simply requested the Board to place the issue of disciplinary procedures on the public agenda.   We are not persuaded.

The Board's actions reflect an underlying aversion to openness, creating, at a minimum, the appearance of impropriety.   The Q memoranda are vague and indescript, if prepared at all.   When discussing the subject of the memorandum, the Board, on at least one occasion, lapsed into a discussion of a completely different topic, whether or not to initiate litigation against FSP.   Disciplinary proceedings are brought and settled, out of the public eye, and then licenses are reinstated without public notice or input.   Moreover, we have sustained FSP's objection to the two-member committees as an obvious, but unlawful, attempt to avoid a quorum and, hence, the open meeting requirements.   Cumulatively, the Board's conduct fosters a distrust of government, an understandable disenchantment with a secret process, and invites litigation.   Under these circumstances, the trial court did not abuse its discretion by denying sanctions for the prosecution of a frivolous action.

The declaratory judgment is affirmed in part and reversed in part in accordance with this opinion.   Each party shall bear its own costs on appeal.

FOOTNOTES

1.   Further statutory references to sections of an undesignated code are to this code.

RAYE, Associate Justice.

SIMS, Acting P.J., and NICHOLSON, J., concur.