Charter School Capital, Inc. v. Taylor International Academy
Filing
44
OPINION and ORDER Denying Receiver's 38 "Motion for Order to Show Cause, to Enforce the Receivership Order, to Enforce M.C.L. 388.1701(9), and to Compel the Michigan Superintendent of Public Instruction to Restore Seized Funds to the Receivership". Signed by District Judge Linda V. Parker. (RLou)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
CHARTER SCHOOL CAPITAL, INC.,
Plaintiff,
Civil Case No. 17-11823
Honorable Linda V. Parker
v.
TAYLOR INTERNATIONAL ACADEMY,
Defendant.
________________________________________/
OPINION AND ORDER DENYING RECEIVER’S “MOTION FOR ORDER
TO SHOW CAUSE, TO ENFORCE THE RECEIVERSHIP ORDER, TO
ENFORCE M.C.L. 388.1701(9), AND TO COMPEL THE MICHIGAN
SUPERINTENDENT OF PUBLIC INSTRUCTION TO RESTORE SEIZED
FUNDS TO THE RECEIVERSHIP”
This lawsuit arises from the closure of Defendant Taylor International
Academy (“TIA”), a charter school previously operating in Southfield, Michigan.
In its Complaint, Plaintiff Charter School Capital, Inc. alleges that it is a secured
lender to TIA and that it has a first priority lien in all assets of TIA. Pursuant to
the parties’ stipulation and a consent order, a receiver has been appointed to wind
up TIA’s affairs and dissolve it. (See ECF No. 7.) Thomas E. Woods currently is
serving as the receiver. (ECF No. 12.) The matter is presently before the Court on
the Receiver’s motion to recover $142,524.17 in state aid payments from the
Michigan Superintendent of Public Instruction (“Superintendent”), filed March 23,
2018. (ECF No. 38.) The Superintendent filed a response to the motion on April
6, 2018. (ECF No. 40.) The Receiver filed a reply brief on April 13, 2018. (ECF
No. 41.)
Background
TIA began operating as a “Public School Academy” (“PSA”) in 2010
pursuant to a Charter Contract issued by Central Michigan University’s Governor
John Engler Center for Charter Schools (“CMU”). TIA’s most recent Charter
Contract began on July 1, 2015 and was scheduled to expire on June 30, 2020.
However, by the end of May 2017, all members of TIA’s board of directors and its
officers had resigned, leaving TIA without officers or directors. On May 31, 2017,
Renaissance School Services, LLC (“RSS”), which had contracted with TIA to
provide it with education management services, terminated the contract and
removed all management personnel for the school. Also on May 31, due to the
lack of management personnel on site to operate TIA, CMU suspended the Charter
Contract, effective immediately, and permanently closed the school effective June
1, 2017. The school year had been scheduled to end on June 20, 2017.
Due to the premature closure of TIA, the school could not provide 180 days
of pupil instruction. Instead, TIA held classes on only 168 calendar days. TIA
provided 1195.2 hours of academic instruction to its students over the course of
those school days, however. For the 2016-2017 school year, Michigan’s State
School Aid Act of 1979 (hereafter “Act” or “statute”) required schools to provide
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1098 hours and 180 days of pupil instruction. See Mich. Comp. Laws
§ 388.1701(3)(a), (b). However, the Act allows for a district to apply for a waiver
of this requirement. Id. § 388.1701(3)(a)(ii).
Michigan law authorizes the funding of the state’s public-school system,
including a PSA such as TIA. See, e.g., Mich. Comp. Laws §§ 388.1611, .1622b.
Installments of state aid are conditioned on a district or PSA establishing eligibility
for the amount it receives. See Galien Twp. Sch. Dist. v. Dep’t of Educ., 871
N.W.2d 382, 385 (Mich. Ct. App. 2015). Eligibility is demonstrated by ongoing
reporting requirements and yearly audits. See Mich. Comp. Laws §§ 388.1606(4),
.1613, .1618(4)(a), .1619, 1622b(3), .1701.
Section 388.1701 of the Act provides that a school failing to satisfy the
required hours and days of instruction “shall forfeit from its total state aid
allocation an amount determined by applying a ratio of the number of hours or
days the district was in noncompliance in relation to the required minimum number
of hours and days under this section.” Mich. Comp. Laws § 388.1701(3)(c). The
statute grants the Michigan Department of Education (“Department”) with the
authority to reduce the next payment of student aid due to a noncompliant school.
Id. § .1701(6)(a). On June 6, 2017, the Department sent an email to TIA and CMU
indicating that the Department would be reducing TIA’s final state aid payment for
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the 2016-2017 school year based on its failure to satisfy the 180-days’ requirement.
(Resp., Ex. 1, ECF No. 40-2.)
A representative from CMU subsequently spoke to the Superintendent
seeking an exemption from that requirement. (Id., Ex. 2, ECF No. 40-3.) CMU
sent a follow-up e-mail to the Deputy Superintendent on or before June 12, 2017.
(Id.) In the e-mail, CMU acknowledged that TIA was unable to provide 180 days
of instruction during the 2016-17 school year due to the suspension of its Charter
Contract. CMU pointed out, however, that TIA did complete approximately 1200
instructional hours as a result of having an extended school day throughout the
year—exceeding the Act’s hourly requirement. (Id.)
In the meantime, this lawsuit was filed on June 8, 2018, and the Court
entered a Consent Order for Appointment of Receiver the following day. (ECF
Nos. 1, 7.) The Court appointed the Law Offices of Steven E. Smith & Associates
as Receiver. (ECF No. 7.) CMU informed the Deputy Superintendent of the
Receiver’s appointment in a June 20, 2017 e-mail, in which CMU also inquired
whether there was an update regarding the request for a waiver of the hours’
requirement. (Mot., Ex. B, ECF No. 38-1 at Pg ID 772.) Pursuant to the parties’
stipulation, the Court entered an order substituting Thomas E. Woods as the
Receiver on June 30, 2017. (ECF No. 12.)
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On June 22, 2017, the Deputy Superintendent sent an e-mail to CMU and the
Receiver stating that the Superintendent lacks the authority to grant TIA an
exception or waiver to the hours’ requirement. (Mot., Ex. D, ECF No. 38-1 at Pg
ID 777.) The Receiver then sent a letter to the Superintendent “to formally apply
for the requisite statutorily-authorized waiver[]” under Michigan Compiled Laws
§ 388.1701(9). (Id., Ex. E, ECF No. 38-1 at Pg ID 779-785.) The Receiver argued
that the statute required the Superintendent to grant the waiver. (Id. at 4, Pg ID
782.)
The Superintendent sent the Receiver a letter, dated September 18, 2017,
affirming the denial of the waiver request. (Id., Ex. G, ECF No. 38-1 at Pg ID 79698.) In the letter, the Superintendent provided the following response to the
Receiver’s request for TIA’s program to be considered an innovative program
entitled to a waiver under subsection (9):
The Department finds no evidence of a prior request for the exception
provided under this section. These requests are considered for
programs that wish to implement an innovative program prior to the
start of a school year. The district has provided a similar number of
days and hours in previous years. In the absence of a significant
change to the district’s programming, a waiver would be deemed
unnecessary for the continuation of the district’s program.
(Id. at 1, Pg ID 796.) In response to the Receiver’s claim that the statute mandated
the waiver, the Superintendent wrote:
[Section 388.1701(9)] states that the days and hours waiver shall be
granted for a “department-approved alternative education program or
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another innovative program approved by the department.” As stated
above, the Department did not receive a request for a waiver under
this section prior to the start of the 2016-17 school year. As the
program has operated previously without the waiver, and there is no
evidence to suggest the implementation of an innovative program
during the 2016-17 school year, the Department would not be inclined
to grant a waiver for the current school year.
(Id. at 2, Pg ID 797.)
Without the waiver, TIA’s failure to satisfy the 180-days’ requirement
resulted in the Department reducing the school’s final state aid payment by
$142,524.17. The Receiver contends that this amount constituted Receivership
Property, which the Superintendent seized in violation of the Receivership Order.
The Receiver therefore asks the Court to hold the Superintendent in contempt for
violating the Receivership Order and order him to restore the seized funds to the
receivership.
Receiver’s Arguments and Superintendent’s Response
Contending that the Superintendent previously acknowledged that TIA had
an approved innovative program and exceeded the educational hours’ requirement,
the Receiver first argues that the Superintendent was required to waive the
minimum 180-days’ requirement. Alternatively, the Receiver argues that the
Superintendent abused his discretion, to the extent he had any, in refusing to grant
the waiver. The Receiver further argues that the Superintendent should have
accounted for unused force majeure or professional development days under
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Michigan Compiled Laws § 388.1701(4) and (10) to find that TIA satisfied the
hours’ requirement. The Receiver claims that the Superintendent violated the
Receivership Order by “seizing” state aid payments owed to TIA.
In response, the Superintendent argues that TIA forfeited a portion of its
school aid by failing to satisfy the 180-days of pupil instruction requirement. The
Superintendent maintains that § 388.1701(9) did not mandate his waiver of the
requirement, as an “application by the district for a particular fiscal year” is a
condition precedent to the consideration of a waiver that must be satisfied prior to
the start of the school year and nothing required the Department to grant a waiver
after the school year ends. The Superintendent further argues that the Department
never approved an alternative education program or innovative program for TIA,
as required to grant a waiver. The Superintendent also counters that TIA was not
entitled to a credit under the force majeure or professional development provisions.
The Superintendent next argues that the Court cannot find the Department in
contempt because it is a non-party to this litigation and does not fall within the
ambit of Federal Rule of Civil Procedure 65(d), and because the Receivership
Order neither bound the Department nor commanded the turnover of school aid
forfeited under state law. Finally, the Superintendent asserts laches and
impossibility as defenses to the Receiver’s motion.
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Analysis
Michigan law required TIA to “provide at least 1,098 hours, and, beginning
in 2010-2011, the required minimum number of days of pupil instruction.” Mich.
Comp. Laws § 388.1701(3)(a) (emphasis added). The Michigan legislature’s use
of the conjunctive “and” reflects its intent that both the minimum hours and days
must be satisfied. See OfficeMax, Inc. v. United States, 428 F.3d 583, 588 (6th Cir.
2005); Sec. Ins. Co. of Hartford v. Kevin Tucker & Assoc., Inc., 64 F.3d 1001,
1007 (6th Cir. 1995). For the 2016-2017 school year, the required minimum
number of days of pupil instruction was 180. Mich. Comp. Laws
§ 388.1701(3)(b). The Act provides that a school failing to comply with these
requirements “shall forfeit” a specified portion of its total state aid allocation. Id.
§ .1701(3)(c).
There is no dispute that TIA failed to satisfy the 180-days’ requirement.
Thus, the Act required the Department to reduce TIA’s state aid allocation in
accordance with § 388.1701(3)(c) unless TIA was entitled to a waiver under
§ 388.1701(9) or credit for the deficiency under the force majeure or professional
development provisions of § 388.1701(4) or (10). For the reasons that follow, the
Court concludes that TIA was not entitled to a waiver or credit.
The Michigan Legislature required the Superintendent to provide waivers
under subsection (9) “for a department-approved alternative education program or
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another innovative program approved by the department, including a 4-day school
week.” Mich. Comp. Laws § 388.1701(9). As relevant here, the statute states that
a waiver “is valid for 1 fiscal year and must be renewed annually to remain in
effect.” Id. § .1701(9)(c). The Receiver maintains that “[i]n prior academic years
… TIA provided an ‘innovative program approved by the department’, a 4-day
school week, 8 hours per day, …” (Br. in Supp. of Mot. at 13, ECF No. 38 at Pg
ID 732.) The Receiver further claims that the Superintendent acknowledged in his
September 18, 2017 letter that TIA provided such a program. (Id., citing Ex. G.)
The Receiver misconstrues the Superintendent’s statements in his letter.
When the two responses quoted in the preceding section, see supra at 5-6, are read
together, it is clear the Superintendent was expressing that TIA had been following
the same program in previous years as it provided during the 2016-17 school year,
pursuant to which it satisfied the required hours and days of pupil instruction and
therefore never needed a waiver. A waiver therefore was unnecessary (as the
Superintendent stated) and, in fact, TIA had not applied for one.1 The
Superintended further expressed that he was denying a waiver because of TIA’s
failure to apply prior to the start of the 2016-17 school year and TIA’s past ability
1
As the Superintendent pointed out in his letter to the Receiver, TIA had provided
the minimum hours and days of instruction in previous years following the same
program used in the 2016-17 school year. For that reason, “a waiver would be
deemed unnecessary for the continuation of the district’s program.” (Resp., Ex. G
at 1, ECF No. 38-1 at Pg ID 796.)
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to satisfy the 180-days’ requirement under the same program in place during its
final school year.
The Receiver acknowledges in his first letter to the Superintendent that the
first time a request for a waiver was submitted on behalf of TIA was June 7,
2017—after TIA already had closed for the 2016-17 school year. But even setting
aside the timeliness of the request, at no time did TIA submit an “application” for a
waiver.
The Department maintains a Waiver Application that is available through its
website. (See Resp., Ex. 3, ECF No. 40-4.) For the 2016-17 school year, the
deadline for submitting the application was October 3, 2016. (Id.) While the
statute does not specifically include a deadline for when a district must apply for a
waiver, it does expressly confer upon the Superintendent the authority to carry out
the Act. See Mich. Comp. Laws § 388.1701(j).
For these reasons, the Court concludes that the Superintendent was not
required to waive the minimum 180-days’ requirement for TIA. As no timely
application was submitted, the Superintendent also did not abuse his discretion in
denying the Receiver’s request for the waiver. The Court further concludes that
TIA was not entitled to a credit for additional days of instruction under the force
majeure or professional development provisions in the statute.
The force majeure provision reads:
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Except as otherwise provided in this subsection, the first 6 days or the
equivalent number of hours for which pupil instruction is not provided
because of conditions not within the control of school authorities,
such as severe storms, fires, epidemics, utility power unavailability,
water or sewer failure, or health conditions as defined by the city,
county, or state health authorities, shall be counted as hours and days
of pupil instruction. With the approval of the superintendent of public
instruction, the department shall count as hours and days of pupil
instruction for a fiscal year not more than 3 additional days or the
equivalent number of additional hours for which instruction is not
provided in a district due to unusual and extenuating occurrences
resulting from conditions not within the control of school authorities
such as those described in this subsection. Subsequent such hours or
days shall not be counted as hours or days of pupil instruction.
Mich. Comp. Laws § 388-1701(4). TIA’s 2016-17 school year was not cut short
due to the type of environmental or health disturbances described in the first
clause. Moreover, the early closing of TIA was not “because of conditions”
beyond “the control of school authorities.”
The Act’s provision for qualifying hours due to professional development
applies after 2014-2015 only where there is collective bargaining agreement
(“CBA”) in effect providing for the counting of qualifying professional
development for teachers as pupil instruction.2 Mich. Comp. Laws
2
The statute reads in relevant part:
Until 2014-2015, a district may count up to 38 hours of qualifying
professional development for teachers as hours of pupil instruction.
However, if a collective bargaining agreement that provides for the
(Cont’d …)
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§ 388.1701(10). When TIA was in operation, its website reflected that its staff
members were not employed under a CBA. (Resp., Ex. 3 at 2, ECF No. 40-5 at Pg
ID 855.) The Receiver does not present evidence suggesting otherwise. Moreover,
§ 388.1701(10) is limited to satisfaction of the hours requirement, but TIA did not
meet the days requirement.
For these reasons, the Court concludes that TIA forfeited $147,524.17 from
its total state aid allocation due to its failure to satisfy the Act’s 180-days’
requirement. The Superintendent did not violate the Act by withholding those
funds and, in fact, was required to do so under its provisions. Those funds,
therefore, were not Receivership Property that must be “restored” to the
Receivership.
Accordingly,
IT IS ORDERED, that the Receiver’s Motion for Order to Show Cause, to
Enforce the Receivership Order, to Enforce M.C.L. 388.170(8), and to Compel the
counting of up to 38 hours of qualifying professional development for
teachers as pupil instruction is in effect for employees of a district as
of July 1, 2013, then until the school year that begins after the
expiration of that collective bargaining agreement a district may count
up to the contractually specified number of hours of qualifying
professional development for teachers as hours of pupil instruction.
Mich. Comp. Laws § 388.1701(10).
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Michigan Superintendent of Public Instruction to Restore Seized Funds to the
Receivership is DENIED.
s/ Linda V. Parker
LINDA V. PARKER
U.S. DISTRICT JUDGE
Dated: December 11, 2018
I hereby certify that a copy of the foregoing document was mailed to counsel of
record and/or pro se parties on this date, December 11, 2018, by electronic and/or
U.S. First Class mail.
s/ R. Loury
Case Manager
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