Mosaica Education, Inc. v. Academy of Dover. ( 2015 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
IN AND FOR KENT COUNTY
MOSAICA EDUCATION, INC., :
a Delaware corporation, :
: C.A. No: K10J-00196 TBD
Plaintiff, :
:
v. :
:
ACADEMY OF DOVER, INC., :
d/b/a ACADEMY OF DOVER :
CHARTER SCHOOL, :
:
Defendant. :
Submitted: April 1, 2015
Decided: April 7, 2015
Upon Consideration of Garnishee’s
Motion to Dismiss
DENIED
ORDER
William W. Pepper, Sr., Esquire, Schmittinger & Rodriguez, P.A., Dover, Delaware
for Plaintiff.
James D. Taylor, Jr., Esquire, and Allison J. McCowan, Esquire, Saul Ewing, LLP,
Wilmington, Delaware for Defendant.
Laura L. Gerard, Esquire, Deputy Attorney General, Department of Justice,
Wilmington, Delaware for the Office of the State Treasurer.
Young, J.
Mosaica Education, Inc. v. Academy of Dover
C.A. No.: K10J-00196 TBD
April 7, 2015
SUMMARY
Mosaica Education, Inc. (“Plaintiff”) and Academy of Dover, Inc.,
(“Defendant”) entered into a contract relating to charter school management services
to be provided by Plaintiff to Defendant, a charter school operating in Delaware. At
some point, relations between the two parties broke down, leading, eventually, to the
award of damages against Defendant for breach of contract, ordered by an arbitrator.
The Delaware Court of Chancery affirmed this award in 2010. Since that time,
Plaintiff has been thwarted in its effort to satisfy this judgment.
Seeking satisfaction, Plaintiff filed a writ of garnishment directed at the Office
of the State Treasurer (“Garnishee,” or “Treasurer”). Garnishee responds to Plaintiff’s
writ by filing the present Motion to Dismiss. Citing to case law that is over one
hundred years old, Garnishee contends that Delaware, by virtue of sovereign
immunity, prevents the imposition of writs of garnishment upon the Treasurer. By
contrast, Plaintiff points to Delaware Supreme Court authority, as well as statutory
authority, which Plaintiff argues supercedes the century old prohibition against
garnishment.
The Supreme Court and the Legislature have modified the original rule that the
Treasurer is not subject to garnishment. Although the precise factual circumstances
forming this case were not specifically identified by the Supreme Court or the
Legislature, the extension of the overarching policy is a logical step. Thus,
Garnishee’s Motion to Dismiss is DENIED.
FACTS AND PROCEDURES
Preceding the current suit, on February 1, 2010, was a judgment for Plaintiff
2
Mosaica Education, Inc. v. Academy of Dover
C.A. No.: K10J-00196 TBD
April 7, 2015
against Defendant in the amount of $962,724.68, issued by the Delaware Court of
Chancery. The Court of Chancery confirmed the award of an arbitrator, arising from
Defendant’s breach of contract. Plaintiff had been retained by Defendant, a charter
school operating in Delaware, for charter management services.
Following this judgment, Plaintiff has been unable to collect the sums owed to
it. As per Plaintiff, the amount due has now, given the accrued interest, risen to
$2,019,956.30. On February 2, 2015, Plaintiff served the Treasurer with an
Attachment Facias Garnishment, directing the Treasurer to satisfy the amount owed
by Defendant. The Treasurer moves to dismiss this writ of garnishment.
DISCUSSION1
The question presented is plain: whether the State Treasurer is subject to a writ
of garnishment, where the State’s affiliate has a debt owing to a third party. The
parties are in agreement that this Court, albeit in 1900, considered the issue of
whether the Treasurer is subject to garnishment. In President, etc. of Farmers’ Bank
of Delaware v. Ball, that Court, addressing the issue before it, answered the question
in the negative.2 Since that time, however, both the Supreme Court of Delaware and
the Legislature have reviewed the concern. The Supreme Court in George & Lynch,
Inc. v. State, considered this Court’s holding in President, reversing it as it applied
1
Defendant filed a memorandum in support of Garnishee’s motion to dismiss. The
memorandum, largely, joins Garnishee’s arguments. Defendant does, however, raise an issue
concerning 14 Del. C. § 512(14). The Court address this contention infra.
2
46 A. 751, 752 (Del. Super. Ct. 1900) (“[w]e hold, therefore, that the state treasurer in
this case is not liable to attachment”).
3
Mosaica Education, Inc. v. Academy of Dover
C.A. No.: K10J-00196 TBD
April 7, 2015
to the case before it.3 The Legislature specifically acted on the garnishment question
by enacting 10 Del. C. § 3503, which subjects public officers to the attachment laws
of the State. It is with these three authorities, and their respective effects on one
another, that the Court must contend.
By its Motion to Dismiss, Garnishee, here the State Treasurer, argues that
President is controlling. That 1900 decision declared that the Treasurer was protected
by sovereign immunity from writs of garnishment.4 Therefore, as per Garnishee,
Plaintiff could not require the Garnishee to satisfy the debt owed it by Defendant, a
charter school, operating under the auspices of the State. Plaintiff, by contrast, argues
that this Court’s holding in President is archaic, having been supplanted by both the
Supreme Court and the Legislature. Plaintiff’s point is well taken. Therefore,
Garnishee’s motion is DENIED.
The exact extent of George & Lynch’s overruling of President is arguable.
However, it is evident that the Supreme Court’s decision was intended to supercede
President’s ruling, in situations such as the case at bar. The George & Lynch Court
stated that President was overruled where, “it should be contrary to the views we
have expressed....”5 The views expressed by George & Lynch were that government
entities are not immune, as per the doctrine of sovereign immunity, from suits by
private third parties sounding in breach of contract. The Supreme Court so held as,
3
197 A.2d 734 (Del. 1964).
4
President, 46 A. at 752.
5
Id., at 736-737.
4
Mosaica Education, Inc. v. Academy of Dover
C.A. No.: K10J-00196 TBD
April 7, 2015
“any other conclusion would ascribe to the General Assembly an intent to profit the
State at the expense of its citizens.” 6 This policy reasoning, applied to the facts in the
instant matter, calls for the grant of Plaintiff’s writ of garnishment. To hold otherwise,
would be to prevent Plaintiff indefinitely from recovery against Defendant – a party
judicially found to have breached a valid contract. It would, plainly, be unjust to
allow Defendant to continue to avoid the consequences of its adjudicated breach.
Government entities, just as private parties, must perform their contractual
obligations, or else be subject to damages for breach. As concerns the instant matter,
a conclusion more consistent with the holding in President, that the Treasurer is
immune from writs of garnishment, would offend the concept expressed in George
& Lynch, indicating that the Supreme Court’s reversal of President applies here.
Additionally, 10 Del. C. § 3503 supports the grant of the writ of garnishment.
§ 3503(a) directs “any officer of the State...whose duty it is to pay such employees
compensation from funds of the State,” to “appear and answer as other garnishees are
required to do.” That would seem to be a clear manifestation of the Legislature’s
intent to abrogate holdings such as President’s, shielding the Treasurer from
garnishment under the doctrine of sovereign immunity. There does exist § 3503(b)’s
definition of “employee” as “any and every person performing any and every form
of labor and work for the State.”7 Defendant, as a charter school, certainly performs
a service for the State – to wit, the education of its young citizens. Moreover, in most
6
Id., at 736.
7
10 Del. C. § 3503(b) (emphasis added).
5
Mosaica Education, Inc. v. Academy of Dover
C.A. No.: K10J-00196 TBD
April 7, 2015
contexts, unless otherwise specified, “persons” includes all legal entities, including
charter schools. There is no indication of the contrary here. Section 3503 displays the
Legislature’s statement that the Treasurer may be subject to writs of garnishment.
Given George & Lynch’s policy declaration, this is an appropriate application of the
writ of Garnishment to the Treasurer.
Finally, Defendant requests this Court, pursuant to 14 Del. C. § 512(14), to
declare Plaintiff’s execution of judgment temporarily estopped, until Defendant has
acquired sufficient funds. That is not called for.
14 Del. C. § 512(14) states in relevant part that the board of each charter school
shall certify annually to the Department of Education that, “prior to any payment of
fees or other sums to any management company employed by the board, the board
will insure that sufficient revenues of the school are devoted to adequately support
the school’s proposed education program.”8 Defendant claims that, given this
requirement, any satisfaction of the debt owed Plaintiff would, without a more
thorough investigation of Defendant’s financial wherewithal, put Defendant in danger
of violating this section of the statute. Therefore, Defendant seeks a formal
declaration that no funds are to be used to satisfy the debt to Plaintiff, a management
company, until § 512(14)’s demands are met.
A review of § 512 in its entirety undercuts Defendant’s interpretation of
subsection § 512(14). The opening lines of the statute read as follows: “charter school
applications shall be in the form established by the approving authority and shall be
8
14 Del. C. § 512(14) (emphasis added).
6
Mosaica Education, Inc. v. Academy of Dover
C.A. No.: K10J-00196 TBD
April 7, 2015
approved if, after the exercise of due diligence and good faith, the approving
authority finds the proposed charter demonstrates that...”9 Opening this prologue are
subsections (1)-(16), articulating the necessary elements to be included in the charter,
in order for it to be approved. The very nature of this statute, which is prescriptive
referring to the planning stages of a charter school’s existence, does not seem to fit
the circumstances presented by Plaintiff’s and Defendant’s dispute. The statute speaks
to an application for a charter school. Section 512(14) requires the charter to
demonstrate that it will have a system in place for annual reports of financial status
to the Department of Education. Granted, this financial status explicitly refers to
management companies, such as Plaintiff, but it appears to focus on a different period
of time in this relationship. That is, the statute would seem to warn against the precise
situation Defendant finds itself in – accruing debt to a management company, and
being unable to meet both this debt, and the expense of the school’s education
program. Indeed, the statute implies that such a situation would be “grounds for
revocation of the charter.”10 Most importantly, it would be a stretch to hold that a
statute, which concerns the application for a charter school, controls events following
the grant of the charter, and the incursion of debt to management companies. At best,
the statute can be said to govern the debt as it first comes due; that is, the initial
determination that Defendant could not both pay Plaintiff, and have funds for its
programs. However, at this point, there has been an adjudication of this relationship,
9
14 Del. C. § 512.
10
14 Del. C. § 512(14).
7
Mosaica Education, Inc. v. Academy of Dover
C.A. No.: K10J-00196 TBD
April 7, 2015
finding a breach of contract. We are further along in the life of this School, than § 512
contemplates.
Given the determination that Defendant breached its contractual relationship
with Plaintiff, it would, further, be against Delaware policy to declare Defendant
absolved of liability until that time when Defendant is somehow determined to be
financially able. As has been mentioned previously, the Supreme Court made clear
the inequity in permitting state entities to enter into contracts with private third
parties, and then escape liability by the doctrine of sovereign immunity.11 Interpreting
§ 512(14) in the manner suggested by Defendant, would offend that Supreme Court
reasoning. Defendant, as a government affiliate, would be free to contract with a
management company, while maintaining the possibility that the performance of its
obligations under the contract, could be indefinitely postponed. Such a “conclusion
would ascribe to the General Assembly an intent to profit the State at the expense of
its citizens.”12
CONCLUSION
For the foregoing reasons, Garnishee’s motion is DENIED.
IT IS SO ORDERED.
/s/ Robert B. Young
J.
RBY/lmc
oc: Prothonotary
11
George & Lynch, 197 A.2d at 736.
12
Id.8
Mosaica Education, Inc. v. Academy of Dover
C.A. No.: K10J-00196 TBD
April 7, 2015
cc: Counsel
Opinion Distribution
9