The Case
Origins
Edward “Ned” O’Keefe immigrated to the United States through New Orleans, Louisiana in the mid-1850s, gradually increasing his finances enough to operate a small boarding house and livery stable in Ocean Springs, Miss. The livery stable began offering funeral services in the years after the Civil War. Eventually, it would grow larger than the livery operations. The family business was passed down from Edward to Jeremiah O’Keefe I, and thereafter to his son, Jeremiah II (Ben), who relocated the business to Biloxi, Miss. Following his service as a fighter pilot in World War II, Jeremiah O’Keefe III purchased the family business from his father in 1953. Jerry also created a company to sell life and burial insurance throughout Mississippi, and began slowly expanding the number of his funeral homes and the network of funeral homes through which his burial and industrial life policies were sold. By the mid-1990s, O’Keefe had 8 funeral homes and was the largest seller of burial insurance in the state of Mississippi. Raymond L. “Ray” Loewen was born in Steinbach, Manitoba, Canada on June 27, 1940. His father was Abraham Loewen, a funeral home operator. After graduation, he ran the business for his father for six years. He sold the business to his brother and bought another funeral operation in Fort Frances, Ont. To obtain the requisite provincial licence, Loewen enrolled in embalming school at the University of Toronto. Upon returning to Fort Frances, Loewen purchased a larger funeral home in New Westminster, B.C. In 1969, Loewen and his family moved to British Columbia, where he also became involved in real estate (apartment buildings) and transportation. When his father became ill, he took over the family business and during the mid-1980s began acquiring Canadian funeral homes. In 1987, with 47 funeral homes and one cemetery, he took the company public and expanded acquisitions into the United States. From a comparatively small base, the Loewen Group expanded to nearly 900 funeral homes and 200 cemeteries in the decade leading up to the O’Keefe v Loewen case. The Loewen Group came into Mississippi in 1990, buying six funeral homes, an insurance company owned by the Riemann family, and the Wright & Ferguson funeral home in Jackson.
The Clash
Beginning in 1974, Gulf National Life Insurance (GNL), owned by O'Keefe, had an exclusive contract with Wright & Ferguson Funeral Home in Jackson, Miss, committing Wright & Ferguson to offer and sell only GNL policies. In 1990, the Loewen Group entered the Mississippi market and acquired, among other assets, an insurance company and funeral home owned by the Riemann family of Gulfport, Miss., and two funeral homes of Wright & Ferguson. The Loewen Group stopped the sale of GNL policies through the Wright & Ferguson funeral homes and substituted its own policies, breaching the contract between O’Keefe and Wright & Ferguson. In April 1991, O'Keefe filed a lawsuit against the Loewen Group contending that it was violating the terms of the GNL insurance sales contract with Wright & Ferguson by selling its own policies instead of those of GNL. Subseqeunt negotiations led to an August 1991 agreement that included: dismissal of the lawsuit; O'Keefe's sale to Loewen of three mid-state funeral homes; Loewen's sale to O'Keefe of Family Guaranty Life Insurance Co., founded by the Riemanns; and a "trust rollover" whereby US$11 million held in a pre-need trust account for funerals to be serviced by Riemann would be converted into Family Guaranty policies. The agreement became the center of the ongoing dispute between O'Keefe and Loewen. The Loewen Group contended O'Keefe's appraisal for various assets was too low. O'Keefe contended that a valuation approach had been agreed upon in advance, Loewen was withholding necessary information, and Loewen was working behind the scenes to crush the deal. O'Keefe expanded his earlier lawsuit regarding breach of contract and breach of settlement to include an antitrust element. As the prospect of a trial loomed closer, Loewen recruited former Mississippi Supreme Court judge James Robertson, state senator Robert Johnson and state representative Ed Blackmon. O'Keefe brought Willie Gary onto the case to work with Jackson-based attorney Mike Allred and Hal Dockins. With days to go before the opening of the trial, O'Keefe made a settlement offer to the Loewen Group of $4 million, but it was rejected.
Market Pressures
In the early 1990s, several large-scale market forces were roiling the funeral home industry. These had a direct impact on the funeral homes and insurance companies of both O'Keefe and Loewen. As the Gulf Coast population grew, the O'Keefe funeral homes continued to be rock-solid, stable companies. However, the O'Keefe funeral homes and the Riemann funerals homes in nearby Gulfport were coming more often into direct competition. Meanwhille, Mr. O'Keefe's Gulf National Life Insurance company was facing a regulatory headwind. The number of insurance company failures across the United States had risen markedly since the 1980s; seven such failures had occurred in the Southeast from 1991 to 1995, the year of the trial. Mississippi insurance industry regulators, often understaffed in relation to the monitor large number of companies to be monitored, were alert to potential problems. In Mississippi, they were challenging the value of one of Gulf National's major assets. If the asset was disallowed, impairment of the insurance company was possible. The Loewen Group had a different set of problems. At first glance, it was riding high. In 1995, one industry analyst wrote that it was "flush with cash" to fuel more acquisitions. "This company, the second-largest and fastest-growing consolidator in the North American funeral home industry, has established an impressive financial record." After years of very rapid expansion, it was facing more competition from Service Corporation International, a funeral conglomerate based in Texas, as it sought to buy up and consolidate small funeral homes. Competition was bidding up prices. Loewen was also beginning to run afoul of regulators for antitrust violations. In 1994, the Massachusetts Attorney General filed a lawsuit against the Loewen Group for monopolistic activity on Cape Cod. The Loewen Group quickly settled. Further, there were rumblings that the company raised local prices too quickly and too high after taking control, and that it dealt with its local partners in a high-handed way.
The Trial
On September 13, an eight-woman, four-man jury began what would become a massive task, wading through more than 350 exhibits and hearing from more than 40 witnesses. Nine of the jurors were black, as was the trial judge. The trial lasted eight weeks. Both Jerry O'Keefe and Ray Loewen testified. Evidence repeatedly showed that Loewen raised prices significantly after purchasing local funeral homes. In some instances, consumers in captive markets -- where there was only one funeral home in town -- faced especiallly steep price increases. For example, it came to light that for a burial vault with a wholesale price of $940, families had been charged $1,995 by Loewen's Jackson homes and $2,920 in the small town of Corinth, where all three funeral homes were controlled by Loewen. According to several jurors interviewed after the case, Loewen damaged his own cedibility by being evasive about key facts. Arguably, one of the most explosive revelations involved the spectre of racism. The Loewen Group had just negotiated a lucrative deal with the network of black Baptist churches based in Tennessee, the National Baptist Convention (NBC). The deal was negotiated without any legal counsel to advocate on behalf of the NBC, and it appeared to give black business partners of Loewen less favorable terms than whites. By all accounts, Gary's closing argument was flamboyant and dramatic. Independent analysts found the Loewen counsel's closing argument rambling and unfocused. The jury ruled in favor of O'Keefe on all counts (breach of contract; breach of settlement; antitrust violations). However, it made a mistake by not properly stipulating actual versus punitive damages. When it went back into the jury room, it took a vote on awarding a $1 billion verdict to O'Keefe. The jury came up one vote shy of approval. Subsequently, it agreed upon a verdict of $500 million, of which $100 million was actual damages and $400 million was punitive damages. At the time, it was the largest verdict in the state of Mississippi and one of the largest in the nation.
Post-Trial
Following the trial, both O’Keefe and The Loewen Group recognized that the $500 million award was problematic, albeit for different reasons. Mississippi law requires appellants to post a bond in the amount of 125 percent of the jury verdict, meaning Loewen would have to post a $625 million bond requirement to appeal. The company sent mixed signals via the media, alternately hinting that it would be forced into bankruptcy or that coming up with that sum would be very difficult but possible. O’Keefe recognized that an award of that size, at a time when the movement for tort reform was growing, might face antagonism during the appeals process and be set aside by the state Supreme Court. The two sides ultimately agreed to a deal requiring the Loewen Group to pay a nominal amount of $175 million, composed of cash, stock, and a series of annual payments over a 20-year period. Immediately after the settlement, the shares of the Loewen Group “sky-rocketed,” according to the Gazette of Montreal. The Loewen Group would later report to its shareholders that, because of the structure of the settlement, the after-tax expense of the settlement would be around $85 million. Industry analysts were quoted at the time as saying that the settlement would have a downstream effect, perhaps more so than the cost of the O’Keefe settlement itself. The cost of raising financing to support the Loewen Group’s ambitious expansion plans would likely increase. The company faced similar lawsuits in other jurisdictions, and the outcome of the O’Keefe lawsuit might encourage others. In August of 1996, the Loewen Group issued a press release claiming a nearly miraculous recovery from the O’Keefe lawsuit. The press release said, “The funeral giant's profits were up 59 per cent from the second quarter of 1995 and revenue, at $223.2 million, improved 61 per cent over the same period, chairman Ray Loewen,” according to the Canadian Press Newswire, August 7, 1996. One month later, the Loewen Group’s rival consolidator — Service Corporation International (SCI), the largest provider of death services in the US — launched a hostile takeover bid for the Loewen Group valued at $2.8 billion. O’Keefe and his wife, Annette, meanwhile, used proceeds of the settlement to form a family foundation to support the arts, differently abled children, mental health causes, Catholic church charities, and the African-American community. In 1997, Service Corp. International withdrew its bid to acquire Loewen Group Inc., roughly four months after launching the attempt. Loewen was widely reported to have waged a multi-pronged defensive strategy that included making a slew of acquisitions, granting lucrative severance packages to senior executives and encouraging state and federal regulatory agencies in the U.S. to investigate the proposed transaction's anticompetitive effects. In 1998, the Loewen Group was fined $500,000 for violating antitrust laws in its takeover of a funeral corporation in Indiana. For 1998, the Loewen Group reported a loss of roughly $600 million. In its filings, the company reported that it sold the 110-foot company yacht, originally purchased for $7.9 million, for $4 million. On October 9, 1998, the Wall Street Journal reported that the founder and CEO of the Loewen Group, Ray Loewen, resigned his post to take on a non-executive position as co-chairman of the company board. On January 13, 1999, the Wall Street Journal reported that, “Canada's Loewen Group Inc. and its founder Raymond Loewen are seeking a minimum US$725 million in damages from the U.S. government in a claim filed under an obscure provision of the North American Free Trade Agreement, or NAFTA.” On May 13, 1999, the New York Times reported that shares of the Loewen Group had fallen from more than $40 down to around $1, and the company might need to seek bankruptcy unless it could renegotiate with creditors. The article says that Loewen’s strategy of “plunging” the company into debt in order to fend off the SCI bid had led to its undoing. In mid-1999, the Loewen Group filed for protection from bankruptcy under Chapter 11. On April 10, 2000, the Wall Street Journal reported, “Funeral-services company Loewen Group Inc. said that $1.1 billion of its secured debt may not actually be secured. The company said that three series of notes, with principal outstanding totaling $750 million, weren't registered in a collateral trustee's register, while another two series of senior notes, with combined principal outstanding of $350 million, were incorrectly registered with zero outstanding principal amounts. The Loewen Group said an investigation and analysis of the issue are continuing but that the uncertainty may not be resolved for several weeks.” In January 2002, the Loewen Group emerged from bankruptcy as The Alderwoods Group. In 2004, a NAFTA tribunal rejected the Loewen Group’s lawsuit. While noting flaws in the conduct of the trial, the tribunal said there was no indication of bias. Further, it ruled that the Loewen Group had voluntarily settled with the plaintiff rather than exhausting its appeal, and that the Loewen Group’s reorganization in bankruptcy as a US corporation deprived it of jurisdiction under NAFTA. “Loewen failed to present evidence disclosing its reasons for entering into the settlement agreement in preference to pursuing other options, in particular the Supreme Court option,” the tribunal said. In November 2006, The Alderwoods Group was acquired by SCI, which had been The Loewen Group’s rival. In 2008, an article in Chief Executive magazine concluded, “People sometimes decide they can buy hundreds of small businesses and operate them efficiently as one national business, but find the complexity overwhelming. It was hard to find examples of successful rollups but easy to find failures. Loewen Funeral Homes bought more than 1,100 funeral homes and 400 cemeteries in North America over 12 years, but found few efficiencies and amassed so much debt that the company went into bankruptcy proceedings.” In the fall of 2015, the Michael G. Foster School of Business at the University of Washington began offering a course in “Problems in Corporate Planning and Financing.” One of the case studies is The Loewen Group’s failures in debt and cash flow management in the years before its bankruptcy. As of 2023, Bradford-O’Keefe Funeral Home Inc. continues to operate as an independent, family-owned company on the Mississippi Gulf Coast.