Buried in Scandal

by Robert Bryce

photograph by John Anderson

Eliza May was appalled. As May tells it, State Sen. John Whitmire was demanding she tell everyone in the room about her agency's ongoing investigation into Service Corporation International, the world's largest funeral home company. May could scarcely believe it. As the executive director of the Texas Funeral Service Commission (TFSC), May expected to face some political heat. She knew that SCI, a company with $2.8 billion in revenues last year, didn't like her tactics or the fact that she was investigating the company's embalming practices at two Dallas-area funeral homes. But she never expected to be called onto the carpet in the office of Joe Allbaugh, Gov. George W. Bush's chief of staff. Nor did she ever imagine that she'd have to explain the rationale behind an unannounced April 10, 1998, visit her investigators had made to two SCI funeral homes -- particularly while Robert Waltrip, the burly, surly CEO and founder of SCI, was sitting in the same room.

And yet, that was exactly what Whitmire expected. May shifted uneasily in her chair and looked around the room. She wished the court reporter she had hired was in the room so there would be a record of the discussion. Instead, the court reporter was sitting in the governor's waiting room. May says the court reporter was refused entry into the meeting.Next to Allbaugh's desk sat Bush's general counsel, Margaret Wilson. To May's left sat her boss, Dick McNeil, the chairman of the Funeral Service Commission. To her right was the agency's general counsel, Jeff Schrader. Next to him was SCI's Austin-based lawyer, Johnnie B. Rogers. Then came Waltrip, and Whitmire, the Houston Democrat who had requested the meeting.

Looking back on the scene, May believes the meeting "was clearly designed to intimidate me and to obtain information about what we were doing. They were unhappy with the fact that I was doing this investigation."

The meeting in Allbaugh's office, held May 18 of last year, is at the heart of a whistle blower lawsuit filed by May's attorneys on Tuesday in Travis County District Court. The suit alleges that May, who was fired by the TFSC on Feb. 8, was let go because she reported on illegal actions taken by the TFSC, its commissioners, SCI and Waltrip. The suit names the TFSC, Waltrip, SCI, and SCI Management Corporation as defendants. The suit alleges that during her stint at the TFSC, May reported violations of 37 different statutes, including 10 violations of the Texas penal code. It also alleges that May was fired by the agency because she "repeatedly and in good faith reported violations of the law and conduct that she reasonably believed to constitute violations of the law."

The lawsuit, which asks for a jury trial, seeks exemplary damages from Waltrip and SCI. From the state, May is seeking back pay and mental anguish costs. Her lawyers say if they win, May will get at most $500,000 from the state. The suit does not specify the amount being sought from Waltrip.

"I cannot conceive that the lawsuit has any merit," SCI spokesman Bill Miller said.

The suit charges Waltrip and SCI with tortious interference with May's contract with the TFSC and alleges that their conduct "constitutes intentional infliction of emotional distress." It further charges that Waltrip and SCI "engaged in a civil conspiracy directed at Plaintiff May" -- a conspiracy that the suit claims caused May severe mental stress, invaded her privacy, and violated state statutes.

The lawsuit further alleges that SCI repeatedly tried to improperly influence the agency's investigation into the company's operations. The allegations raise questions as to whether May is a victim of political pressure brought by some of the state's most powerful politicos, including the governor's office. The lawsuit points out that SCI gave thousands of dollars worth of political contributions to both Whitmire and Bush, and alleges several instances of SCI's efforts to stop the investigation and intimidate May. The company has a history of bullying critics, including members of the media. More on that momentarily.

The suit also provides a window into SCI's pricing methods. May would never have investigated SCI if the company hadn't been so aggressive in its efforts to consolidate its operations and increase profits (see "Blowing the Whistle," p.18).

Finally, the suit raises questions about the ability of the state to protect consumers who buy goods and services from the 1,250 funeral homes now operating in Texas. Those concerns are underscored by the ongoing disarray at the TFSC, which has had four executive directors in the past five years. Moreover, the lawsuit alleges that two of the nine TFSC commissioners, Tommy Metcalf and Robert Duncan, are SCI employees, a situation that was questioned repeatedly by May and others because of potential conflicts of interest. The suit alleges that their presence on the commission appears to violate state law, which says that no person shall be a commissioner of the TFSC "if another commissioner is also an officer or employee of the same corporation or business entity."

The problems at the agency have become so grotesque that state legislators are considering shutting down the TFSC and transferring all of its duties to other state agencies.

Marc Allen Connelly, the former general counsel at the TFSC, is not surprised by the current controversy. Connelly recalls having numerous run-ins with SCI during his tenure at the TFSC, including one case in which the TFSC charged SCI with using unlicensed funeral directors at one of its Houston funeral homes. Connelly says "by and large SCI's funeral homes were pretty clean. They did things right." But whenever SCI got into a scrap with the TFSC, Connelly said, SCI officials were difficult. "For being as big as they are, they seemed awful petty," he said.

Connelly is also one of May's harshest critics. In his 1997 resignation letter which he sent to all of the TFSC commissioners, he complained about May's "micromanagement" and "aggressive, manic style." In an interview conducted a few weeks ago, Connelly, who now works at another state agency, called May "a terrible boss." But he adds that May had the agency moving in the right direction. And he has a theory about why she was fired. "In terms of SCI, I think she was probably pursuing the right direction," he said.

---

SCI and the Money Trail

SCI lawyer Rogers, a former legislator and lobbyist who has worked for funeral-related interests for several decades, says this story is a simple one. "It's very popular to think negatively about funeral establishments," he said. And when it comes to SCI, Rogers believes, "There's a vendetta against them in the liberal press. Any time you are the big boy there are going to be a lot of shots taken at you."

And Rogers blames May for much of the press SCI has received in recent months. In a recent interview he called May a "devious and manipulative" woman with a vendetta against SCI who "was trying to run for governor." Rogers continued, "She's a control freak of the first order."

Rogers further charges that SCI was denied its rights of due process during the TFSC's investigation into the company's embalming practices. While those charges can be debated, it's clear that the investigation and SCI's efforts to slow it, have not improved the company's public image. And May's lawsuit may show whether Waltrip used his money, and his connections with the Bush family, to get both the governor and Whitmire to intervene on his behalf.

According to a report released earlier this month by Texans for Public Justice, campaign finance records show that since 1996, SCI's political action committee has given Gov. Bush $35,000, Lt. Gov Rick Perry nearly $10,000, and Whitmire $5,000 -- more than any other member of the Senate. According to Texans for Public Justice, SCI's PAC pumped just over $113,000 into statewide and legislative races between 1996 and 1998, and 75% of that money was spent during the 1998 election cycle.

Whitmire denies he was trying to slow or stop the TFSC's investigation into SCI. He said he was trying to be a mediator and that he called for the meeting in Allbaugh's office, "to try to bring all the parties together to try to resolve the issues. It was an opportunity to sit down and work out and to see what the complaints were and to give everyone an opportunity to go forward. So I don't know much about what investigation you are talking about. We were not dealing with the investigation," he said.

But Whitmire later appeared to contradict his claim of ignorance about the TFSC's investigation, when he said he knew about the April 10 -- Good Friday -- visit to the two SCI funeral homes. "I don't think you ought to be making Good Friday raids at seven o'clock in the morning and intimidating citizens of Texas. That got my attention about as much as anything," he said.

There's one other curious fact about Whitmire's involvement in the SCI-TFSC squabble: In 1997, SCI and Waltrip sued Darryl J. Roberts, a former funeral home owner, claiming that Roberts' book, Profits of Death: An Insider Exposes the Death Care Industries, defamed Waltrip and SCI. The suit was filed by attorneys from the Houston law firm then known as Liddell Sapp Zivley Hill & LaBoon. Perhaps it's just coincidence, but since the fall of 1997, Whitmire, an attorney, has been of counsel at the same law firm, which is now known as Locke Liddell & Sapp.

Like Whitmire, Bush spokesperson Karen Hughes says there was nothing untoward about the meeting in Allbaugh's office. "We frequently meet with both sides of a controversy," she said. "If there's a controversial issue, we meet with both sides and their lawyers are present. We listen to both sides." She added that Allbaugh "meets with agency heads every single day. That's one of his roles."

That may be the case. One other agency head who was clashing with SCI was called into Allbaugh's office. In 1996, the state banking commissioner was summoned to Allbaugh's office over a proposed rule change on pre-paid funeral contracts, a change that SCI apparently didn't like.

Sen. Mike Moncrief, D-Fort Worth, believes that the governor's staffers' involvement in SCI's dispute with the TFSC was improper. "At the minimum it would be considered micromanagement," said Moncrief, who said he began following the TFSC at McNeil's request. "We have members that are appointed by the governor and confirmed by the senate, to serve on these commissions. That's an appropriate process. But we should not go in and try to tell them how to run their business. That's why we have the sunset process."

---

The History of the TFSC

In 1903, the state recognized the need to regulate the funeral business. Since that time, the state's embalmers and funeral directors have had to answer to the TFSC or its predecessor agencies. But the industry and its regulators have maintained close ties. For instance, Rogers, who now represents SCI, lobbied for the Texas Funeral Directors Association (TFDA) for 36 years. A 1971 audit of the Board of Morticians (now the TFSC) found that the board was paying Rogers a retainer of $500 per month to act as its legal counsel at the same time that Rogers was lobbying for the TFDA. He says he acted in good faith and informed both entities of his duties, thus eliminating any conflict of interest. "I prosecuted more funeral directors than anybody at that agency because I knew what I was doing. I prosecuted right and left," says Rogers.

Robert Waltrip, the burly, surly CEO and founder of SCI

There are more examples of potential conflicts. For many years, the agency rented office space from the TFDA, the trade association whose members the agency is supposed to regulate. In 1984, when Consumers Union objected to the office-sharing arrangement, the regulatory agency said it was locked into a rental contract and couldn't move. (The agency currently rents commercial space on South Congress Avenue.)

In 1980, state auditors found that the agency "did not serve to protect the health, safety or welfare of the public." Still the agency survived. In 1986, the agency came under attack from Consumers Union, which accused it of having a "hand-in-glove relationship" with the funeral industry. The Consumers Union further charged that the agency had neglected its responsibility of investigating the industry's price disclosure practices.

In 1990, the Sunset Advisory Commission recommended that the TFSC be abolished because the actions it took to resolve complaints were "minimal and ineffective." The commission said the agency's consumer-related duties should be turned over to the attorney general's office and its other duties divided among other agencies. The agency survived again. In 1997, the State Auditor's Office said the TFSC had failed to monitor funeral homes that had repeatedly violated state rules.

---

May Shakes Up Agency

Despite the problems at the TFSC, Eliza May decided to seek the exective director's job anyway. A Laredo native, May has lived in Austin for many years and is active in Democratic circles. She served on the city Parks and Recreation Board from 1990-93 as an appointee of Councilmember Gus Garcia, and served on the city's Economic Development Commission from 1994-95. And in August of 1996, May took over an agency in shambles. The agency's previous director had left a few weeks earlier after being jailed on charges of aggravated perjury and witness tampering. With no leadership in place and no one clamoring for action, workers were reading the daily newspapers at their desk. Several years' worth of complaints were being ignored. Investigators were sitting in the office drinking coffee and swapping stories.

Sources close to the agency said May did little for the first six months or so after she took the job. Then she began cracking down. "She told us you are paid for eight hours, I want you to work for eight hours," says one source. After that, the agency slowly began to delve into its backlog of complaints. According to the lawsuit, during a routine audit of case files, the TFSC found that two people who were doing embalming work at two SCI funeral homes in the Dallas area did not have proper licenses.

According to an April 15, 1998 letter from Waltrip to TFSC chairman McNeil, in January of 1998, the two SCI facilities began contracting their embalming cases to an independent company called Dallas-Fort Worth Mortuary Service. Waltrip's letter explains that the independent contractor's services were being performed under the embalming licenses held by the two SCI funeral homes, the Sparkman-Crane Funeral Home in Dallas and the Lucas Funeral Home in Hurst. But the TFSC believed that the operations were being done illegally because state regulations require that contract embalming services be done in a building that is separate from an existing funeral home.

The TFSC asked SCI for documentation on the embalmings. But according to a May 7 report that May wrote to the TFSC commissioners, the documents the agency got from Sparkman-Crane "differed from information in other records filed with this agency, thereby calling into question the credibility and reliability of the documents produced." May explained that "the most effective and efficient means of acquiring the information was via subpoena duces tecum." So, on March 31, 1998, the agency issued 23 subpoenas, seeking 15 months' worth of funeral-related documents.

In her May 7 report, May wrote: "Upon receipt of the subpoenas, Commissioner Metcalf [Tommy Metcalf, an SCI employee and TFSC commissioner] immediately contacted Mr. Schrader [Jeff Schrader, TFSC's general counsel] to discuss the investigation and the issuance of the subpoenas. Mr. Schrader refused to discuss the ongoing investigation, advising Commissioner Metcalf of the serious conflict of interest issues." Shortly after the subpoenas were issued, May's report said, the agency received a letter from Rogers dated April 6, stating that "the SCI affiliates would not respond to the subpoenas."

Two days later, on April 8, Josh Kimball, a provisional licensee who was working on his embalming license at Sparkman-Crane, called May at the TFSC office. During that conversation, May alleges, Kimball said, "I am going to kill all of you." (Miller says Kimball was not working for SCI at the time he allegedly threatened May.) According to Austin Police Dept. records, May called at 12:25pm to report the threat. The agency quickly hired a security officer to guard the office during business hours. "I was concerned for my personal safety," says May.

On April 10, TFSC investigators showed up at the Lucas and Sparkman-Crane funeral homes and demanded to see the documents they had requested. The unannounced visit infuriated Waltrip. Five days later, he fired off a six-page letter to McNeil, questioning the agency's right to issue subpoenas, which he called "outrageous, unwarranted and unexplained." He went on to say that the agency's "'storm trooper' tactics have no place in responsible government," and that the agency had engaged in an "abusive and pointless display of power." He complained that the TFSC employees had been discourteous to the SCI employees, and said McNeil should "consider disciplinary action, including termination" of the staffers involved. At about that same time, says May, Waltrip threatened to sue the agency.

McNeil was unfazed by SCI's actions. Last fall, he said the investigation of SCI was being done because, "I want them to understand that the law is to be applied to everybody equally, regardless of who they may be. Everybody has to meet the same standards."

---

SCI and Intimidation

Over SCI's objections, the TFSC continued to pursue the investigation into SCI's embalming practices, and on Aug. 3, the commission voted to levy a fine of $445,000 against SCI for violations of state embalming laws. SCI is contesting the fine and has not paid any money to the TFSC. (The two entities went into arbitration in December but no decision was reached.) That same day, a private investigator working for SCI called three of May's friends: Dennis Garza, Jeff Heckler, and Pat Crow. "He wanted to meet with me," said Crow, an Austin-based political consultant. "He wanted some dirt on Eliza May. And I didn't have any. He called me three times. He said some negative things about her. I didn't respond and didn't comment."

Miller, an Austin-based public relations consultant and political operative who represents SCI, says the investigation of May was dropped right after the company hired him last summer. Was the company trying to intimidate May? "Not since I got hired," Miller replied.

SCI has threatened to sue journalists. In 1996, SCI threatened to sue this writer and Texas Monthly based on an article about Waltrip and SCI. No lawsuit was ever filed.

In 1997, SCI and Waltrip did file suit against author Roberts and his publisher, Five Star Publications, for defamation. What was Roberts' sin? In his book, he quoted Waltrip as saying he wanted to turn SCI into "the True Value hardware of the funeral service industry." In its lawsuit, SCI said, "the statement attributed to Waltrip is entirely false. Waltrip never made such a statement. The false attribution of the statement to Waltrip is defamatory and highly offensive to SCI and Waltrip."

Maybe it is. But then, why didn't Waltrip sue Business Week magazine? After all, Roberts got the Waltrip quote directly from an Aug. 26, 1986, article in Business Week titled, "Bob Waltrip is Making Big Noises in a Quiet Industry." Nevertheless, SCI's lawyer, Rob Wiley of Liddell Sapp Zivley Hill and La Boon, wrote in his complaint that the quote "suggests that Waltrip desires to create a company that projects itself to its industry and to the public as a mass market appeal firm devoid of personal, individualized identity and service."

In February of last year, Roberts irritated SCI and Waltrip again when he appeared on CBS'60 Minutes, where he referred to SCI as a "conglomerate" and said that large funeral companies like SCI "raise prices fairly quickly" after they buy funeral homes in a given town. In March, SCI amended its lawsuit against Roberts saying he had defamed the company when he "falsely labeled SCI as a 'conglomerate.'"

SCI has operations in 20 countries on five continents. It operates 3,442 funeral homes (90 of them in Texas), 433 cemeteries, and 191 crematoria. It sells cemetery plots, cremation urns, caskets, and pre-arranged funerals. According to SCI's Web site (http://www.sci-corp.com) the company even sells travel insurance "in case a death occurs away from your hometown." Charles Babcock, Roberts' Houston-based lawyer, thought the company's claim was almost laughable. "We thought it was untenable. To call somebody a conglomerate is hardly defamatory," he said.

Last September, SCI and Waltrip dismissed their lawsuit against Roberts. But the suit cost the author $25,000 in legal expenses. Babcock, who works for Jackson & Walker, said SCI didn't tell him why they were dropping the suit. "Sometimes it's an effort to get somebody to shut up," says Babcock. "Typically libel litigation is an inhibiting factor on speech. It chills speech."

Miller offered a different explanation. "I think they decided they had made their point," he said. "They wanted to show that if you were going to say things that they felt were unjust, they were going to come after you."

In 1996, SCI tried to get Jessica Mitford, the famous muckraking journalist, to send the company copies of her book manuscript before it was published. In 1963, Mitford published The American Way of Death, the first exposé of the funeral industry. Thirty-three years later, she was updating it and planning to publish the new book as The American Way of Death Revisited. Mitford had asked Waltrip for an interview. According to Mitford's research assistant, Waltrip agreed, then changed his mind.

And even though SCI officials refused to talk to her, their lawyers pestered Mitford. In a January 1996 letter, one of SCI's outside lawyers, Thomas McDade of McDade & Fogler (now known as McDade Fogler Maines and Lohse) wrote to Mitford saying, "We have had considerable experience with libel and slander cases; however, we are not by this letter suggesting that we are going to sue you or any such thing." He then asked that SCI "be allowed the courtesy of commenting on or reviewing for accuracy your galley proof prior to publication. We are not requesting veto or censorship power."

Mitford, who died in July 1996, before her book was released, declined.

---

The TFSC's Future

While SCI tried to put May on the hot seat, May was trying to figure out why so much political pressure was being put on her agency. She talked to McNeil about the problem. And according to May, McNeil suggested she look into SCI's political contributions. McNeil, a licensed funeral director for 44 years and manager of three funeral homes in the Fort Worth area, refuses to comment on why May was fired. "The board as a whole met and agreed through a unanimous vote that she needed to leave," he said. "We have a pending lawsuit. We are very limited in what we can say. We as a board lost our confidence in her to lead the agency."

While the nine members of the commission have lost confidence in May, the Texas Legislature has lost confidence in the TFSC. On March 1, the House Appropriations Committee voted unanimously to cut off all funding for the agency. "It's been mismanaged and mis-run," explained committee chairman Rep. Rob Junell, D-San Angelo, but he added that the recent investigation did not affect their decision. "I didn't even know who SCI was. I thought they were in the waste business."

Junell and other legislators are blasting the TFSC for its actions in the wake of May's firing. Last month, the TFSC commissioners agreed to make C. David Richards, who was the agency's general counsel, the acting executive director. And it wanted to raise his salary to $60,000, a dramatic increase over the $43,680 May was earning. Junell laughs and shakes his head ruefully while talking about Richards' salary. "Within a short time, he's made executive director and he raises his salary $20,000? That's not right," he said. "This agency's just not following rules and laws that are set out in general state law." For all of those reasons, Junell is ready to close the TFSC's doors. "When you have members who are in an industry regulating that industry you are bound to not get very good decisions or very good administration," he said.

But even if legislators shut down the TFSC, May's lawsuit will continue. In the meantime, the TFSC's investigation into SCI has been stopped and the arbitration between the company and the agency has been halted. Miller claims that most of the charges against SCI have been dropped. And that angers Connelly, the agency's former general counsel. "It's an agency that isn't looking out for the interests of the consumers," said Connelly. "It's supposed to be. But that's not the way it's run."

And what does SCI think about closing the agency? According to Rogers, their Austin-based attorney, the company opposes it. Rogers says funeral directors shouldn't be regulated like "plumbers and electricians." Then, without a hint of irony, he adds that the TFSC "has been doing a good job of regulating the funeral industry."