Renaissance Academy for Math and Science of Missouri, Inc. v. Imagine Schools, Inc.

Filing 95

ORDER entered by Judge Nanette Laughrey. Imagine Schools' Motion for Partial Summary Judgment on Counts I-III, 66 , is DENIED. (Cross, Ashley)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
CENTRAL DIVISION

RENAISSANCE ACADEMY FOR MATH
AND SCIENCE OF MISSOURI, INC.,

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Plaintiff,
v.
IMAGINE SCHOOLS, INC.,
Defendant.

No. 4:13-CV-00645-NKL

ORDER
In November 2007, Plaintiff Renaissance Academy for Math and Science, a
charter school, and Imagine Schools, a charter school management company, entered into
an Operating Agreement in which Imagine Schools agreed to provide management
services to Renaissance for the operation of its charter school. After the termination of
their agreement, Renaissance filed this lawsuit against Imagine Schools alleging breach
of fiduciary duty (Counts I-III), unjust enrichment (IV), conversion (V), and violations of
the Racketeer Influenced Corrupt Organizations Act (RICO) (VI-VII). Before the Court
is Imagine Schools’ Motion for Partial Summary Judgment on Counts I-III of
Renaissance’s Amended Complaint, [Doc. 66]. The primary issue raised by the Motion
is whether the undisputed facts establish that Renaissance and Imagine Schools had a
purely contractual relationship or whether Imagine Schools had a fiduciary duty to
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Renaissance. For the reasons set forth below, the Motion for Partial Summary Judgment
is DENIED.
I.

Undisputed Facts
Imagine Schools is a full-service operator of public charter schools. [Doc. 88-1, ¶

1]. Imagine Schools has considerable experience operating charter schools. Id. at ¶ 25.
Imagine Schools contracts with each independent local charter school governing board.
Id. at ¶ 2. The governing board oversees Imagine Schools, which has responsibility for
the day-to-day operations of the charter school. Id. In November 2007, Imagine Schools
and Renaissance entered into a Charter School Operating Agreement (Operating
Agreement). Imagine Schools was required
to provide all of the charter school management services provided for in
[the Operating] Agreement, including without limitation the administration
and supervision of the personnel, materials, equipment, and facilities
necessary for the provision of the educational service to students, and the
management, operation and maintenance of the Charter School . . . .
[Doc. 8-1, at p. 1]; [Doc. 88-1, ¶ 4]. Imagine Schools was also required to assist the
Renaissance Board in locating a facility suitable for the operation of the school, [Doc. 81; at p. 3], was authorized to make purchases on behalf of the Board, Id., had access to
Renaissance’s financial and educational records, Id. at pp. 2, 9, and used Renaissance’s
funds – which were deposited in an account established by Imagine Schools – to
regularly pay the school’s operating expenses, Id. at 10-11. Imagine Schools was also
required to select and hire personnel to perform services at the school, and those
personnel, including the principal, teachers, and non-instructional staff, were Imagine
Schools’ employees, unless otherwise agreed upon by the parties. Id. at p. 12.
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The Operating Agreement was signed by Board President Tomika Booker after the
Renaissance Board voted to approve it. Before Booker signed the Operating Agreement,
the Renaissance Board received the Operating Agreement and discussed it at least once.
[Doc. 88-1, ¶¶ 18-19]. The Renaissance Board was comprised of people from various
backgrounds and experiences, such as a state legislator, an experienced educator and
administrator and member of the Board of Trustees of the Kansas City Public School
Retirement System, a former teacher, an associate pastor, and a PTA treasurer. Id. at ¶
13. Before chairing the Renaissance Board, Booker served on the board of another
charter school. Id. Under the Operating Agreement, the Renaissance Board of Directors
was responsible for overseeing Imagine Schools’ provision of management services, Id.
at ¶ 5, and was responsible for ensuring that Imagine Schools fulfilled its obligations
under the Operating Agreement, Id. at ¶ 16.
II.

Discussion
In Count I, Renaissance alleges Imagine Schools breached its fiduciary duty to

Renaissance by using its access to Renaissance’s funds to pay or loan itself and its
employees unauthorized amounts of money. Counts II and III allege Imagine Schools
breached its fiduciary duty by negotiating leases and amended leases detrimental to
Renaissance and in favor of Renaissance’s sister company, SchoolHouse Finance, while
failing to disclose the relationship between Imagine Schools and SchoolHouse Finance.
To succeed on a breach of fiduciary duty claim, Renaissance must establish the existence
of a fiduciary duty between it and Imagine Schools, a breach of that duty by Imagine

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Schools, and harm caused by the breach. Zakibe v. Ahrens & McCarron, Inc., 28 S.W.3d
373, 381 (Mo. Ct. App. 2000).
Imagine Schools argues summary judgment on Counts I-III should be granted in
its favor because no fiduciary duty existed between Renaissance and Imagine Schools.
To establish a fiduciary duty under Missouri law, a plaintiff must satisfy five elements:
(1) as between the parties, one must be subservient to the dominant mind
and will of the other as a result of age, state of health, illiteracy, mental
disability, or ignorance;
(2) things of value such as land, monies, a business, or other things of
value which are the property of the subservient person must be
possessed or managed by the dominant party;
(3) there must be a surrender of independence by the subservient party to
the dominant party;
(4) there must be an automatic or habitual manipulation of the actions of the
subservient party by the dominant party; and
(5) there must be a showing that the subservient party places a trust and
confidence in the dominant party.
Chmieleski v. City Products Corp., 660 S.W.2d 275, 294 (Mo. Ct. App. 1983). Further,
absent these elements, a fiduciary relationship may still arise as a matter of law by virtue
of the parties’ relationship or as a result of the special circumstances of the parties’
relationship, such as when “one person relies upon and trusts the other with the
management of his property and attendance of his business affairs.” Shervin v. Huntleigh
Securities Corp., 85 S.W.3d 737, 740-41 (Mo. Ct. App. 2002). Imagine Schools argues
that Renaissance cannot meet elements (1), (3)-(5) and that no special relationship existed
between the parties beyond an arms-length business relationship.
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A. Subservience to Imagine Schools as a Result of Inexperience/Ignorance
Imagine Schools argues Renaissance was not subservient to Imagine Schools
because Renaissance Board President, Tomika Booker, had previous experience on
another charter school board, was recruited to serve on the Renaissance Board because of
that experience, and was therefore experienced with charter school management.
However, the fact that Booker had experience serving on a charter school board does not
mean that she was experienced in managing and facilitating the day-to-day educational,
financial, and personnel operations of Renaissance, which was the subject of the service
offered by Imagine Schools. Further, Imagine Schools concedes that the previous charter
school was also managed by Imagine Schools. [Doc. 88, at p. 6]. This fact suggests that
Booker did not have experience managing the operations of a charter school because her
previous experience also involved management by a party other than the board of
directors itself.
Imagine Schools also points to the credentials and backgrounds of other board
members. While these credentials, such as state legislator and former teacher, certainly
lead to the conclusion that the Renaissance Board was comprised of competent people, it
does not lead to the undisputed conclusion that these people could have established and
operated a charter school from the ground up without the substantial assistance of an
experienced charter school management company. Cf. Roth v. Equitable Life Assur. Soc.
of U.S., 210 S.W.3d 253, 260-61 (Mo. Ct. App. 2006) (plaintiffs were not subservient to
financial services company that sold plaintiffs investment vehicles because plaintiffs had
an investment background, regularly invested, engaged in financial and estate planning,
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and were familiar with complex contracts). The Operating Agreement between the
Parties is instructive; Imagine Schools was hired to “provide all of the charter school
management services” which included the procurement of facilities, equipment, and
personnel necessary for the “management, operation and maintenance” of the school.
[Doc. 8-1, at p. 1].
Imagine Schools also argues that Renaissance could not be subservient to Imagine
Schools because Renaissance retained the authority to hire and to fire it at any time and to
supervise its compliance with the Operating Agreement. While this is true, it is true for
many fiduciary relationships – i.e. attorneys, brokers, and senior employees. The issue is
not whether Renaissance, through the Board, had some authority to review the decisions
of or terminate Imagine Schools; rather, the issue is whether Renaissance was so
inexperienced and “ignorant” of the day-to-day operations of a charter school, that it
heavily relied on the expertise and influence of Imagine Schools. See Kratky v. Musil,
969 S.W.2d 371, 379 (Mo. Ct. App. 1998) (plaintiff was not subservient because
although plaintiff claimed he relied on advice of defendant, there was no evidence
plaintiff was in any way less capable in business matters or real estate transactions);
Gibson v. Gibson, 534 S.W.2d 100, 104 (Mo. Ct. App. 1976). Imagine Schools also
points to a governance flow chart submitted by Renaissance when it was seeking its
charter. The chart designates the University of Missouri as the sponsor, Renaissance
under the supervision of the University of Missouri, and Imagine Schools under the
supervision of the Renaissance Board. As discussed above, the fact that the Renaissance
Board had some supervisory power over Imagine Schools does not preclude a finding
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that Renaissance was subservient to Imagine Schools. A reasonable person, looking at
the relative experience of the parties, could conclude that Renaissance was subservient to
the mind and will of Imagine Schools.
B. Surrender of Independence to Imagine Schools
Imagine Schools next argues that Renaissance did not surrender its independence
to Imagine Schools because the Operating Agreement designates Imagine Schools as an
independent contractor with limited discretion and because the Parties’ relationship is
based solely on the terms of the Operating Agreement, which gave Renaissance the
authority to regulate, maintain, and manage the charter school.
As the Court said previously in its Order on Imagine Schools’ Motion to Dismiss
Counts I-III, [Doc. 24], while it is true that the Operating Agreement contains several
instances of the phrase “subject to Board approval” and provides that the Board has a
duty to assist Imagine Schools in certain aspects of management, Imagine Schools points
to no law requiring Renaissance to relinquish complete control of all its decision-making
authority to establish a fiduciary duty. In most instances of fiduciary relationships, the
person to whom the duty is owed retains some decision-making authority, but in large
part relies on the expertise of the dominant party to guide those decisions. Further,
Imagine Schools does not explain how Imagine Schools’ designation as an independent
contractor leads to the conclusion that Imagine Schools did not owe a fiduciary duty to
Renaissance.
Renaissance has submitted testimony from various Renaissance board members to
support the inference that the Board relied on Imagine Schools to make decisions. Board
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Member Frazier agreed that the Board relied on Imagine Schools to operate the school
and surrendered the responsibility of operating the school on a day-to-day basis to
Imagine Schools. [Doc. 82-3, at 57:15-58:2]. Board Member Rogers stated that Imagine
Schools was the party in charge of the finances of the school. [Doc. 82-4, at 90:6-9]. He
also testified that he “would imagine” that the Board could have voted not to allow
Imagine Schools to take some action, but was not sure “whether it would have stood”
because “without Imagine there wouldn’t be a Board.” Id. at 49:7-17. There is also
evidence that Imagine Schools operated beyond its responsibilities in the Operating
Agreement. For instance, Board President Booker testified that she was recruited to
serve on the Board by Imagine Schools’ vice president, that she did not initially know
what her duties would be, and that she later found out what her duties would be from
Imagine Schools’ vice president.

[Doc. 82-1, at 29:15-20; 32:23-33:11]. She also

testified:
The discussion was that, when we signed this operating agreement, we had
given pretty much predominantly our control, as a board of directors, to the
management company to manage both of the properties, to include the
personnel, the budget and loans; that our primary responsibility in
accordance to this operating agreement would be to hold our monthly
meetings, to approve the budget that management company will put
together, and to allow them to their - - to adhere to this agreement as far as
running the school on behalf of the board of directors.
Id. at 49:13-50:4. This is not a case where an established school board, with concrete
goals in mind, conducted a search for a management company to manage its schools,
outlined its expectations with that company, and negotiated a mutually acceptable
agreement where each party acted within and understood its own sphere of authority. To
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the contrary, a reasonable person could conclude that while the Board supervised Imagine
Schools, there was also significant influence exerted by Imagine Schools over the Board
due to the Board’s inexperience in starting and operating a charter school.
Imagine Schools relies heavily on Chmieleski v. City Prods. Corp., 660 S.W.2d
275 (Mo. Ct. App. 1983). In Chmieleski, a store franchisee sued the franchisor alleging,
among other counts, breach of fiduciary duty. Concluding that no fiduciary relationship
existed between the franchisor and franchisee, the Missouri Court of Appeals remarked
that there was no evidence which supported a finding that the franchisor ran the
franchisee’s store on a daily basis. Id. at 294. The franchisee was free in management
decisions, including the hiring of personnel. Id. There was also evidence that the
franchisee refused the advice of the franchisor and viewed its representatives as
“useless.” Id. The operating agreement also stated that the franchisee retained “full
responsibility for the financing, management and operation of the” store and that the
franchisor was not responsible for the results obtained in the operation of the store. Id.
The relationship between Imagine Schools and Renaissance is distinguishable.
Not only does the testimony above create the inference that the Board relied heavily on
Imagine Schools to make decisions for it, but the Operating Agreement itself gave
Imagine Schools the power to “provide all of the charter school management services.”
[Doc. 8-1, at p. 1]. Imagine Schools employees were “agents” of the school and were
entitled access to educational records. Id. at 2. Imagine Schools was “responsible and
accountable” to Renaissance for the “administration, operation and performance” of the
school. Id. Imagine Schools assisted the Board in locating a facility for the school, and
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Renaissance was required to consult with Imagine Schools prior to making or accepting
any material modification to the facility or to the terms of any lease. Id. at 3.
Renaissance was required to abide by the terms and conditions of equipment leases
between Imagine Schools and third parties. Id. at 4. Imagine Schools could make
purchases “on behalf of” the Board. Id. at 3. Renaissance retained the authority to “make
reasonable regulations” relative to the operation of the school, but only “after prior good
faith consultation” with Imagine Schools. Id. at 7. Revenue was required to be deposited
in an account established by Imagine Schools to be used by Imagine Schools to pay
Renaissance’s operating costs. Id. at 10. Imagine Schools selected Renaissance’s
principal, teachers, and staff, who were employees of Imagine Schools. Id. at 12. Based
on the evidence presented by Renaissance, a reasonable person could conclude
Renaissance surrendered its independence to Imagine Schools.
C. Automatic or Habitual Manipulation of Renaissance’s Actions
Imagine Schools argues it did not automatically or habitually manipulate
Renaissance’s actions because Imagine Schools was only doing what it was hired to do
under the contract. However, Board Member Frazier testified that Imagine Schools hired
the school’s personnel, was responsible for the “day-to-day” operation of the school, and
regularly paid Renaissance’s bills using funds in an account set up by Imagine Schools to
receive Renaissance’s revenue. [Doc. 82-3, at 57:6-59:22]. The Operating Agreement is
also instructive. For instance, Imagine Schools was required to assist Renaissance in
procuring equipment and supplies. Imagine Schools could make purchases on behalf of
Renaissance using its funds. [Doc. 8-1, at p. 3]. Imagine Schools was required to
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regularly pay facility payments, equipment lease payments, and other operating expenses.
Id. at 10-11.
Imagine Schools appears to argue that because these duties were outlined in the
Operating Agreement, no fiduciary relationship can exist. However, just because the
duties of the Parties were outlined in an agreement does not preclude a finding that a
fiduciary relationship existed, where, as here, there is evidence of unequal bargaining
power and extraneous circumstances. See In re Express Scripts, Inc., PBM Litig., 522
F.Supp.2d 1132, 1133 (E.D. Mo. 2007); see also [Doc. 24, at p. 8-10] for a discussion on
In re Express Scripts. While it is true that a contractual relationship does not
automatically give rise to a fiduciary duty, it is not true that a contractual relationship
precludes the existence of a fiduciary relationship. If Frazier’s testimony and that of
other board members is believed as true, a reasonable person could find that Imagine
Schools directly and indirectly manipulated Renaissance’s actions.
D. Trust and Confidence in Imagine Schools
Imagine Schools further contends that at most, Renaissance’s evidence shows only
that Renaissance unilaterally decided to repose trust and confidence in Imagine Schools.
A “[f]iduciary duty is not created by a unilateral decision to repose trust and confidence;
it derives from the conduct or undertaking of the purported fiduciary which is recognized
by the law as justifying such reliance.” Pool v. Farm Bureau Town & Country Ins. Co. of
Missouri, 311 S.W.3d 895, 907 (Mo. Ct. App. 2010). However, a reasonable person
could conclude that Renaissance did not unilaterally repose trust in Imagine Schools.
Board Member Frazier testified that the Board relied on Imagine Schools’ expertise,
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entrusted Imagine Schools with the managements of its supplies, equipment, and
finances, and placed its trust in Imagine Schools. [Doc. 82-3, at 56:3-25; 59:23-60:12].
The Operating Agreement – drafted by Imagine Schools – states that Imagine Schools
was given access to Renaissance’s budget, including state and federal funding and grants,
and student and financial records. It also states that Imagine Schools was “responsible
and accountable” to Renaissance’s Board. [Doc. 8-1, at p. 2].
Based on the evidence presented by Renaissance, a reasonable person could
conclude that a fiduciary relationship existed between Imagine Schools and Renaissance
and that Imagine Schools owed a fiduciary duty to Renaissance.
E. Purely Business Relationship
Imagine Schools argues that the relationship between the Parties is purely a
business relationship. It contends that in this case there is no exception to the general
rule that a business relationship does not create a fiduciary duty. However, Renaissance
has presented sufficient evidence for a reasonable person to conclude that the Parties’ had
a special relationship giving rise to a fiduciary duty. Renaissance reposed its trust in
Imagine Schools with respect to control of its property and business affairs. See Shervin
v. Huntleigh Sec. Corp., 85 S.W.3d 737, 741 (Mo. Ct. App. 2002). Renaissance has also
presented evidence that the relationship between Imagine Schools and Renaissance was
more than just an arms-length agreement. For example, after the Operating Agreement
was signed, Imagine Schools’ vice president met with the Board to explain the terms of
the agreement, suggesting the Board relied on Imagine Schools to explain the Parties’
roles. [Doc. 82-1, at 33:8-11; 54:6-24]. Imagine Schools’ representatives frequently
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attended board meetings and presented information. [Doc. 82-1, at 102:3-11]; [Doc. 824; 22:6-19; 82:24-83:4]. Imagine Schools’ vice president recruited Renaissance’s Board
President and explained what role she would play. [Doc. 82-1, at 29:15-20; 32:23-33:11].
Board Member Rogers was asked to join the Board by Renaissance’s principal, who was
an Imagine Schools employee. [Doc. 82-4, 16:25-17:17]. Board Member Rogers
believed that “without Imagine, there wouldn’t be a Board, wouldn’t be a school” and
that the school “originated out of Imagine.” [Doc. 82-4, at 49:13-17, 21-24]. This
evidence suggests that some members of the Renaissance Board were unaware that
Renaissance was even a separate entity from Imagine Schools, let alone an entity with
arms-length bargaining power. A reasonable person could conclude that Imagine
Schools, an experienced charter school management company, induced the Renaissance
Board into relying on that experience to handle its property and business and educational
affairs. Therefore, even if Renaissance had failed to present sufficient evidence to
survive Imagine Schools’ Motion for Partial Summary Judgment on the Chmieleski
factors, it also presented sufficient evidence to create the inference that a special
relationship between the Parties existed which could give rise to a fiduciary duty owed by
Imagine Schools. Accordingly, the Motion for Partial Summary Judgment is denied.
III.

Conclusion

For the reasons set forth above, Imagine Schools’ Motion for Partial Summary
Judgment on Counts I-III is DENIED.

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s/ Nanette K. Laughrey
NANETTE K. LAUGHREY
United States District Judge
Dated: August 4, 2014
Jefferson City, Missouri

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