Friday, September 1, 2006
Supreme Court Rules:
Parents May Sue Charter Schools Under Fraudulent Claims Act
By a MetNews Staff Writer
Students and their parents may sue charter schools that collect state funds but fail to deliver on instructional promises under the state’s fraudulent claims act, the state’s Supreme Court ruled yesterday.
The court affirmed in part and reversed in part the Third District Court of Appeal which held that both charter schools and the school districts that charter them could be sued under the act. The Supreme Court held that school districts may not be sued under the act.
Interested parties may obtain charters to operate schools that function within public school districts, accept all eligible students, charge no tuition, and are financed by state and local tax dollars, but retain considerable academic independence from the mainstream public education system. Such schools may elect to operate as, or be operated by, corporations organized under the Nonprofit Public Benefit Corporation Law.
Charter schools are funded by the state based on average daily attendance records. While charter schools have considerable freedom in their academic approach, they must meet statewide educational standards and use appropriately credentialed teachers. The chartering entity, usually a school district, has oversight responsibilities, and must revoke a school’s charter for fiscal mismanagement, material violation of the charter, failure to meet or pursue any of the educational outcomes set by the charter, failure to meet generally accepted accounting principles, or violations of law.
One2One Learning Foundation, a Texas corporation, operated three charter schools in California through its California corporate alter ego, Charter School Resource Alliance. These schools included Sierra Summit Academy, Inc., chartered by the Sierra Plumas Joint Unified School District in Sierra County Mattole Valley Charter School, chartered by the Mattole Unified School District in Humboldt County and Camptonville Academy, Inc., chartered by Camptonville Union Elementary School District in Yuba County.
Students and parents of students of the schools filed a fraudulent claims act suit against One2One, CSRA, the schools, and the chartering school districts, alleging that the schools—designed to provide and facilitate home instruction through use of the Internet— failed to deliver instructional services, equipment, and supplies as promised, and as required by law. The plaintiffs alleged the schools functioned only to collect average daily attendance forms, on the basis of which the schools, and the districts, fraudulently claimed and received public education funds from the state.
The fraudulent claims act provides that any person who makes a fraudulent claim for money to the state shall be liable for up to three times the amount involved and a civil penalty of up to $10,000. Suits under the act may be brought on behalf of the state by a private party, as a “qui tam” plaintiff or “relator,” who would be entitled to part of any judgment.
Sierra Superior Court Judge William W. Pangman sustained demurrers of the schools, their operators and the school districts, reasoning that the all of plaintiffs’ claims were noncognizable private claims for “educational malfeasance.” After the Third District reversed, the schools and districts appealed to the Supreme Court arguing that they were public entities and as such, not “persons” subject to suit under the act.
Justice Marvin R. Baxter, writing for the court, agreed with respect to the school districts, saying:
“[I]n light of the stringent revenue, appropriations, and budget restraints under which all California governmental entities operate, exposing them to the draconian liabilities of the CFCA would significantly impede their fiscal ability to carry out their core public missions.”
“In the particular case of public school districts, such exposure would interfere with the state’s plenary power and duty, exercised at the local level by the individual districts, to provide the free public education mandated by the Constitution.”
The charter schools and their operators argued that they were entitled to the same “public entity” immunity enjoyed by the school districts.
But Baxter said:
“Though charter schools are deemed part of the system of public schools for purposes of academics and state funding eligibility, and are subject to some oversight by public school officials . . . they are operated, not by the public school system, but by distinct outside entities— including nonprofit public benefit corporations with independent legal identities . . . —that are given substantial freedom to achieve academic results free of interference by the public educational bureaucracy.”
The justice reasoned:
“The CFCA was designed to help the government recover public funds of which it was defrauded by outside entities with which it deals. There can be little doubt the CFCA applies generally to nongovernmental entities that contract with state and local governments to provide services on their behalf. The statutory purpose is equally served by applying the CFCA to the independent corporations, organizations, and associations that receive public monies under the [Charter School Act] to operate schools on behalf of the public education system.”
The court also held that the charter school defendants could be sued under the state’s unfair competition laws.
Chief Justice Ronald George and Justices Ming W. Chin, Carlos R. Moreno, Carol A. Corrigan and Justice Joan Irion of the Fourth District Court of Appeal, sitting by assignment, concurred in Baxter’s opinion.
Justice Joyce L. Kennard wrote a concurring and dissenting opinion in which she agreed with the majority that the charter schools, but not the school districts, could be sued under the act, but disagreed with the majority’s holding that a section of the Education Code applied to charter schools before its amendment in 1999.
The case is Wells v. One2One Learning Foundation, 06 S.O.S. 4632.
Copyright 2006, Metropolitan News Company