Charter Day School, Inc. v. New Hanover County Board of Education ( 2014 )

NO. COA13-488
NORTH CAROLINA COURT OF APPEALS
Filed: 18 February 2014
CHARTER DAY SCHOOL, INC.,
Plaintiff-Appellee,
v. New Hanover County
No. 11 CVS 2777
THE NEW HANOVER COUNTY BOARD OF
EDUCATION and TIM MARKLEY,
SUPERINTENDENT IN HIS OFFICIAL
CAPACITY, d/b/a “New Hanover
County Schools,”
Defendant-Appellants.
Appeal by defendant from order and judgment entered 4 December
2012 by Judge W. Douglas Parsons in New Hanover County Superior
Court. Heard in the Court of Appeals 23 October 2013.
Shipman & Wright, LLP, by Gary K. Shipman and Gregory M.
Katzman, for plaintiff-appellee.
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by Jill
R. Wilson, Robert J. King, III, and Jennifer K. Van Zant, for
defendant-appellant.
Allison B. Schafer and Christine T. Scheef for the North
Carolina School Boards Association, amicus curiae.
McCULLOUGH, Judge.
Defendant, New Hanover County Board of Education d/b/a New
Hanover County Schools (“NHCS”), appeals from the order and
judgment entered by the trial court on 4 December 2012. For the
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following reasons, we reverse in part and affirm in part.
I. Background
Plaintiff, Charter Day School, Inc. (“Charter Day”), is a
charter school in Brunswick County that provides free public
education to students from various southeastern North Carolina
counties, including New Hanover County. As a public school, see
N.C. Gen. Stat § 115C-238.29E(a) (2013) (“A charter school that is
approved by the State shall be a public school within the local
school administrative unit in which it is located.”), Charter Day
is entitled to state and local funding. Specifically, for the
time period pertinent to this case, N.C. Gen. Stat. § 115C-238.29H
(the “Charter School Funding Statute”) provided, “[i]f a student
attends a charter school, the local school administrative unit in
which the child resides shall transfer to the charter school an
amount equal to the per pupil local current expense appropriation
to the local school administrative unit for the fiscal year.” N.C.
Gen. Stat. § 115C-238.29H(b) (2007).1
On 30 June 2011, Charter Day commenced this action against
NHCS and Al Lerch, in his official capacity as Superintendent of
1The years at issue in this appeal are the 2007-2008 through 2009-
2010 fiscal years. Thus, we cite to the 2007 version of the North
Carolina General Statutes, which were unaltered during the
relevant time period.
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NHCS, by filing a complaint in New Hanover County Superior Court.2
In the complaint, Charter Day asserted two claims for relief: (1)
a declaratory judgment that NHCS failed to transfer all amounts
owed to Charter Day under the Charter School Funding Statute from
the time Charter Day opened, the 2001-2002 fiscal year ending 30
June 2002, through the 2010-2011 fiscal year ending 30 June 2011;
and (2) a judgment against NHCS to recover the amount Charter Day
alleged to be underfunded. By amended complaint filed shortly
thereafter, Charter Day replaced defendant Al Lerch, who retired
prior to the commencement of the action, with Tim Markley, the
superintendent of NHCS at the time. NHCS and Tim Markley (together
“defendants”) answered the complaint on 1 September 2011.
On 12 April 2012, Charter Day filed a motion for partial
summary judgment on defendants’ seventh and eighth defenses, in
which defendants alleged “Charter Day School is not a legitimate
non-profit entity, as required by North Carolina law for the
operation of a charter school.” Thereafter, on 25 April 2012,
defendants filed their own motion for partial summary judgment on
Charter Day’s claims for the 2001-2002 through 2006-2007 fiscal
years on the ground that the claims were barred by the applicable
2Columbus Charter School initially joined Charter Day as a
plaintiff in the lawsuit; however, on 11 April 2012, Columbus
Charter voluntarily dismissed its claims without prejudice.
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three-year statute of limitations. Both partial summary judgment
motions came on for hearing in New Hanover County Superior Court
on 7 May 2012, the Honorable W. Allen Cobb, Jr., Judge presiding.
Following the hearing, the trial court granted the motions in
separate 14 May 2012 orders.
On 22 June 2012, Charter Day filed a motion for summary
judgment on the remaining issues. Charter Day’s motion came on
for hearing in New Hanover County Superior Court before the
Honorable W. Douglas Parsons on 5 July 2012.
On 17 July 2012, the trial court filed an order for partial
summary judgment in favor of Charter Day. The trial court
concluded defendants’ “methods for calculating the per pupil local
current expense appropriation for the fiscal years in question
(2008, 2009 and 2010) [was] improper, as a matter of law[.]”
Specifically, defendants “were required to include the entire Fund
Balance for the fiscal years in question, and not just the
‘modified’ or ‘appropriated’ Fund Balance[,]” and defendants
“improperly included ‘pre-Kindergarten’ (‘pre-K’) students in
their total student enrollment[.]” The trial court did not,
however, grant Charter Day’s motion for summary judgment “as to
the amounts due from the [d]efendants[.]” Instead, the trial court
ordered defendants to “re-calculate its’ Funding Formula for the
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fiscal years in question[] . . . [and] provide its re-calculated
per pupil allocation for the years in question for the pupils
attending [Charter Day] to [Charter Day]” within ninety (90) days.
Defendants filed a submission regarding per pupil allocations
for the fiscal years in question on 12 October 2012 and a revised
submission on 20 November 2012.
Following the submissions of defendants’ recalculations, the
trial court filed a final order and judgment on 4 December 2012.
In the order and judgment, the trial court reiterated its prior
determination that “[d]efendants’ method for calculating the per
pupil local current expense appropriation for the fiscal years in
question was improper, as a matter of law, and failed to comply
with the requirements of [N.C. Gen. Stat.] § 115C-238.29H(b), in
that the [d]efendants did not include the entire Fund Balance in
the numerator and included pre-K students in the denominator.”
Then, based on defendants’ submissions regarding per pupil
allocations, the trial court entered judgment against NHCS in favor
of Charter Day in the amount of $138,878.91. Additionally, the
trial court dismissed all claims against Tim Markley and ordered
NHCS, “[s]ubject to any subsequent changes in the law,” to
“transfer to [Charter Day] an amount equal to the per pupil local
current expense appropriation for each student enrolled in a
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charter school operated by [Charter Day]” in accordance with the
order “for all subsequent fiscal years beyond those in question in
[the] action[.]”
NHCS filed notice of appeal on 21 December 2012 and execution
of the judgment was stayed pursuant to the terms of the order and
judgment.
II. Discussion
On appeal of the trial court’s grant of summary judgment in
favor of Charter Day, NHCS raises two issues: whether the trial
court erred by (1) including the entire fund balance in the
calculations of the per pupil local current expense appropriation,
and (2) excluding pre-K students from the calculations of the per
pupil local current expense appropriation.
Standard of Review
“Our standard of review of an appeal from summary judgment is
de novo; such judgment is appropriate only when the record shows
that ‘there is no genuine issue as to any material fact and that
any party is entitled to a judgment as a matter of law.’” In re
Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008)
(quoting Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385
(2007)). In the present case, the facts are not in dispute and we
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need only determine whether the trial court erred as a matter of
law in entering summary judgment in Charter Day’s favor.
Fund Balance
Fund balance results where money appropriated to the local
school administrative unit is not spent in the fiscal year in which
it was intended, but is saved for future use. Thus, the fund
balance is essentially a savings account. In this case, NHCS
acknowledges that the portion of the fund balance appropriated for
use in any given year is included in the local current expense
appropriation and shared pursuant to the Charter School Funding
Statute. Yet, NHCS argues the trial erred in ordering the entire
fund balance to be included in the local current expense
appropriation. Upon review, we hold the trial court erred.
As noted above, charter school funding is governed by statute.
During the years at issue in this case, subsection (b) of the
Charter School Funding Statute provided, in pertinent part, “[i]f
a student attends a charter school, the local school administrative
unit in which the child resides shall transfer to the charter
school an amount equal to the per pupil local current expense
appropriation to the local school administrative unit for the
fiscal year.” N.C. Gen. Stat. § 115C-238.29H(b) (2007). Similar
to previous charter school funding cases decided by this Court,
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the predominant issue for our determination is what comprises the
local current expense appropriation that must be shared pro rata.
In Francine Delany New School for Children, Inc. v. Asheville
City Bd. of Educ., 150 N.C. App. 338, 563 S.E.2d 92 (2002), this
Court addressed whether revenues from fines, forfeitures, and
supplemental school taxes accruing to the “local current expense
fund” pursuant to N.C. Gen. Stat. § 115C-426(e) of the Fiscal
Control Act were required to be shared on a per pupil basis with
charter schools pursuant to N.C. Gen. Stat. § 115C-238.29H(b) of
the Charter School Funding Statute as part of the “local current
expense appropriation.” In deciding the charter school was
entitled to a share of the supplemental revenues, this Court
affirmed the trial court’s conclusion “that the phrase ‘local
current expense appropriation’ in the Charter School Funding
Statute, [N.C. Gen. Stat.] § 115C-238.29H(b), is synonymous with
the phrase ‘local current expense fund’ in the [Fiscal Control
Act], [N.C. Gen. Stat.] § 115C-426(e).” Id. at 347, 563 S.E.2d at
98. Accordingly, charter schools are entitled to a pro rata share
of the local current expense fund under the Charter School Funding
Statute.3
3Subsequent to the time period at issue in this case, the General
Assembly amended N.C. Gen. Stat. § 115C-238.29H(b) to replace “per
pupil local current expense appropriation to the local school
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Subsequent to Francine Delany, this Court has decided several
additional charter school funding cases determining whether
certain funds held in the local current expense fund must be shared
pro rata with charter schools. See Sugar Creek Charter School,
Inc. v. Charlotte-Mecklenburg Bd. of Educ., 188 N.C. App. 454, 655
S.E.2d 850 (Sugar Creek I), disc. review denied, 362 N.C. 481, 667
S.E.2d 460 (2008), (holding the charter school was entitled to a
share of funds earmarked for Bright Beginnings, a special program
for at-risk pre-K children, and a High School Challenge grant
because the funds were included in the local current expense fund);
Sugar Creek Charter School, Inc. v. Charlotte-Mecklenburg Bd. of
Educ., 195 N.C. App. 348, 673 S.E.2d 667 (Sugar Creek II), appeal
dismissed and disc. review denied, 363 N.C. 663, 687 S.E.2d 296(2009) (holding the charter school was entitled to a share of funds
carried over from previous years into the current year’s local
current expense fund and other earmarked funds included in the
local current expense fund). As this Court noted in Thomas
Jefferson Classical Academy v. Rutherford County Bd. of Educ., _
N.C. App _, _, 715 S.E.2d 625, 630 (2011), appeal dismissed and
administrative unit” with “per pupil share of the local current
expense fund of the local school administrative unit[.]” 2013
N.C. Sess. Laws c.355 s. 1(h).
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disc. review denied, _ N.C. _, 724 S.E.2d 531 (2012), “[t]he common
thread running through each of these holdings is that if funds are
placed in the ‘local current expense fund[,]’ . . . they must be
considered as being part of the ‘local current expense fund’ used
to determine the pro rata share due to the charter schools.”
The present case, however, is unlike the previous cases.
Here, the issue is not whether certain funds in the local current
expense fund must be shared, but rather what portion of the fund
balance is included in the local current expense fund and subject
to allocation pursuant to the Charter School Funding Statute.
The Fiscal Control Act provides guidance.
The local current expense fund shall include
appropriations sufficient, when added to
appropriations from the State Public School
Fund, for the current operating expense of the
public school system in conformity with the
educational goals and policies of the State
and the local board of education, within the
financial resources and consistent with the
fiscal policies of the board of county
commissioners. These appropriations shall be
funded by revenues accruing to the local
school administrative unit by virtue of
Article IX, Sec. 7 of the Constitution, moneys
made available to the local school
administrative unit by the board of county
commissioners, supplemental taxes levied by or
on behalf of the local school administrative
unit pursuant to a local act or G.S. 115C-501
to 115C-511, State money disbursed directly to
the local school administrative unit, and
other moneys made available or accruing to the
local school administrative unit for the
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current operating expenses of the public
school system.
N.C. Gen. Stat. § 115C-426(e) (2007) (emphasis added). Thus, fund
balance is included in the local current expense fund when it is
“made available or accruing to the local school administrative
unit for the current operating expenses[.]”
Charter Day contends the entire fund balance is available to
the local school administrative unit for current operating
expenses because it can be appropriated for use. NHCS, on the
other hand, contends only that portion of the fund balance that is
appropriated for use is available to the local school
administrative unit for current operating expenses. We agree with
NHCS.
The Fiscal Control Act mandates “[e]ach local school
administrative unit shall operate under an annual balanced budget
resolution[.]” N.C. Gen. Stat. § 115C-425(a) (2007). “A budget
resolution is balanced when the sum of estimated net revenues and
appropriated fund balances is equal to appropriations.” Id.
Moreover, “no local school administrative unit may expend any
moneys, regardless of their source . . . , except in accordance
with a[n adopted] budget resolution.” N.C. Gen. Stat. § 115C-
425(b). A budget resolution must be adopted by the local board of
education. See N.C. Gen. Stat. § 115C-432 (2007).
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Considering these provisions together, we hold the fund
balance is not available to the local school administrative unit
for current operating expenses until it is appropriated for use in
a budget resolution adopted by the local board of education.
Therefore, only that portion of the fund balance that is actually
appropriated in a particular year is to be included in the local
current expense fund and subject to pro rata allocation pursuant
to the Charter School Funding Statute. That portion of the fund
balance that is not appropriated remains a balance sheet entry,
subject to appropriation in future years.
In addition to deciding the issue on appeal, we take this
opportunity to reconcile the holding in Sugar Creek II, which
Charter Day argues already resolved the issue at hand. Because we
determine the issue presented to this Court in Sugar Creek II is
different from the issue in the present case, we are not bound by
Sugar Creek II. See In re Civil Penalty, 324 N.C. 373, 384, 379
S.E.2d 30, 37 (1989) (“Where a panel of the Court of Appeals has
decided the same issue, albeit in a different case, a subsequent
panel of the same court is bound by that precedent, unless it has
been overturned by a higher court.”).
In Sugar Creek II, this Court addressed, among other issues,
whether the trial court properly included the fund balance in the
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local current expense fund for purposes of calculating its award
to the charter school. 195 N.C. App. at 360, 673 S.E.2d at 675.
Following a brief discussion, this Court held “the trial court did
not err in including the fund balance in its calculation of its
award.” Id. The Court reasoned, “[a]s the fund balance is carried
over from the previous fiscal year to the current fiscal year, it
constitutes moneys in [d]efendants’ local current expense fund.”
Id.Charter Day argues that, because Sugar Creek II does not
specify appropriated fund balance, the opinion requires the entire
fund balance to be included in the local current expense fund. We
disagree. Although we acknowledge the court did not specify
appropriated fund balance, it is clear that this court upheld the
trial court’s decision. Upon careful review of the record in Sugar
Creek II, it is evident the trial court determined only that the
“fund balance appropriated” was “other local revenue” to be
included in the local current expense fund and shared pursuant to
the Charter School Funding Statute. Thus, in holding “the trial
court did not err in including the fund balance in its calculation
of its award[,]” this Court considered only that portion of the
fund balance that was appropriated for use in the current fiscal
year.
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We find this Court’s analysis in Sugar Creek II further
supports both our interpretation of the Sugar Creek II decision
and our holding in this case. In deciding the fund balance issue
in Sugar Creek II, this Court was guided by its observation “that
the General Assembly intended that charter school children have
access to the same level of funding as children attending the
regular public schools of this State.” 195 N.C. App at 357, 673
S.E.2d at 673. This Court then focused on each year individually
and determined whether the fund balance at issue must be included
in the local current expense fund, discounting defendants’ “double
dip” argument and stating, “[d]efendants’ argument is double-
edged. If [d]efendants do not share the fund balance with
[p]laintiff’s, then [d]efendants’ students will receive more per
pupil funds in the current fiscal year than [p]laintiff’s
students.” Id. at 360, 673 S.E.2d at 675.
Looking at each year individually, it is evident that when
the appropriated portion of the fund balance is included in the
local current expense fund, “charter school children have access
to the same level of funding as children attending the regular
public schools of this State.” On the other hand, when the entire
fund balance is included in the local current expense fund, charter
school students receive greater funding than students attending
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regular public schools because charter school students receive a
share of the unappropriated fund balance that is not available to
students attending regular public schools. Thus, the only
interpretation of Sugar Creek II that gives effect to the
recognized intent of the General Assembly is that this Court
considered only the appropriated fund balance when it stated, “[a]s
the fund balance is carried over from the previous fiscal year to
the current fiscal year, it constitutes moneys in [d]efendants’
local current expense fund.”4
We hold the trial court erred in ordering NHCS to include the
entire fund balance in the calculations of the per pupil local
current expense appropriation.
Pre-Kindergarten Students
4We further note that following the Sugar Creek II decision,
effective beginning with the 2010-2011 school year, 2010 N.C. Sess.
Laws c.31 s. 7.17(c), the General Assembly amended N.C. Gen. Stat.
§ 115C-426(c) to include the following language: “In addition,
the appropriation or use of fund balance or interest income by a
local school administrative unit shall not be construed as a local
current expense appropriation.” 2010 N.C. Sess. Laws c.31 s.
7.17(a). Although we recognize the amendment does not apply
retroactively, the amendment supports our interpretation of Sugar
Creek II, as the legislature acted to prevent appropriations from
the fund balance from being apportioned pursuant to the Charter
School Funding Statute. Had Sugar Creek II considered the entire
fund balance, following the amendment to N.C. Gen. Stat. § 115C-
426(c), the unappropriated portion of the fund balance would
continue to be included in the local current expense appropriation
while the appropriated fund balance would not. This would be an
absurd and illogical result.
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NHCS acknowledges that, during the time period at issue in
this case, money it received to fund pre-K programs was included
in the local current expense fund and, pursuant to this Court’s
holding in Sugar Creek I, 188 N.C. App. at 461, 655 S.E.2d at 855,
is subject to allocation under the Charter School Funding Statute.
Yet, in the second issue on appeal, NHCS argues the trial court
erred in ordering pre-K students to be excluded from the number of
pupils in the calculations of the per pupil local current expense
appropriation. Upon review, we hold the trial court did not err.
Simple math demonstrates the inclusion of pre-K students in
the calculations of the per pupil local current expense
appropriation increases the denominator in the funding formula and
results in a smaller per pupil appropriation. In turn, where
Charter Day does not operate a pre-K program, the smaller per pupil
appropriation results in a lesser share of the local current
expense appropriation to Charter Day and a greater share of the
local current expense appropriation to NHCS. It is for this reason
that NHCS argues pre-K students should be included in the
calculations of the per pupil local current expense appropriation.
NHCS, however, cites no authority in support of its argument.
Instead, NHCS relies merely on the facts that the pre-K funds are
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included in the calculations pursuant to Sugar Creek I and the
appropriation is “per pupil.” In NHCS’s own words,
[F]or the relevant year, the funds for the
pre-Kindergarten programs are included in the
local current expense fund. That fund must be
shared pro rata with Charter Day School[,]
which means it is divided by the sum of the
total number of students enrolled in NHCS and
the total number of students enrolled at
Charter Day School. If the funds are in, the
students should be in.
We are not persuaded by NHCS’s argument.
Admission into North Carolina’s public school system is
governed by statute. The admission requirements provide that only
those children who have “reached the age of 5 on or before August
31 of that school year” or those children who had “been attending
school during that school year in another state in accordance with
the laws or rules of that state before the child moved to and
became a resident of North Carolina[]” may enroll in public
schools. N.C. Gen. Stat. § 115C-364(a) (2007). Furthermore, when
a child is enrolled, “[t]he initial point of entry into the public
school system shall be at the kindergarten level.” N.C. Gen. Stat.
§ 115C-364(c). Admission into North Carolina’s charter schools is
subject to these same restrictions. See N.C. Gen. Stat. § 115C-
238.29F(g)(1) (2007) (“Any child who is qualified under the laws
of this State for admission to a public school is qualified for
admission to a charter school.”). Based on these statutes, it is
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evident pre-K students are not entitled to enrollment in North
Carolina’s public school system or charter schools.
Although charter school funding is calculated on a “per pupil”
basis, because pre-K students are not entitled to enrollment in
North Carolina’s public school system or charter schools, we hold
pre-K students should not be included in the pupil count for
purposes of calculating the per pupil local current expense
appropriation.
To this point, NHCS does not dispute that pre-K students are
not entitled to enrollment under the statutes, but instead argues
that because it is required to serve a population of pre-K students
under this Court’s holding in Hoke County Bd. of Educ. v. State of
North Carolina, _ N.C. App. _, 731 S.E.2d 691 (2012), appeal
dismissed and opinion vacated, _ N.C. _, 749 S.E.2d 451 (2013), it
should be allowed to include them in its calculations of the per
pupil local current expense appropriation. Again, we disagree.
In Hoke County, this Court upheld the trial court’s order
“mandating the State to not deny any eligible ‘at-risk’ four year
old admission to the North Carolina Pre-Kindergarten Program.” _
N.C. App. at _, 731 S.E.2d at 695. That decision, however, is not
controlling in the present case for two reasons. First, the trial
court’s mandate in Hoke County was issued by order dated 18 July
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2011 and upheld by this Court in 2012, subsequent to the years at
issue in this case. Second, and more importantly, our Supreme
Court recently vacated this Court’s Hoke County decision and
remanded the case to this Court with instructions to vacate the
trial court’s order. See Hoke County Bd. of Educ. v. State of
North Carolina, _ N.C. _, 749 S.E.2d 451 (2013). As a result,
there is no mandate that the State admit at-risk students into the
North Carolina Pre-Kindergarten Program.
Without a mandate requiring pre-K admissions, we are left
with the holdings of Leandro v. State of North Carolina, 346 N.C.
336, 488 S.E.2d 249 (1997) (Leandro I), and Hoke County Bd. of
Educ. v. State of North Carolina, 358 N.C. 605, 599 S.E.2d 365(2004) (Leandro II). In Leandro I, our Supreme Court held “Article
I, Section 15 and Article IX, Section 2 of the North Carolina
constitution combine to guarantee every child of this state an
opportunity to receive a sound basic education in our public
schools.” 346 N.C. at 347, 488 S.E.2d at 255. Thereafter, in
Leandro II, our Supreme Court recognized that the issue with pre-
K programs was “whether the State must help prepare those students
who enter the schools to avail themselves of an opportunity to
obtain a sound basic education.” 358 N.C. at 639, 599 S.E.2d at
391. Yet, while recognizing the challenges of at-risk enrollees
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in Leandro II, the Court expressly rejected the portion of the
trial court’s order mandating a pre-K program. Id. at 645, 599
S.E.2d at 395. Thus, while NHCS was required to prepare students
to obtain a sound basic education, they were not required to enroll
any students in a pre-K program.
We hold the trial court did not err in ordering NHCS to
exclude pre-K students from the calculations of the per pupil local
current expense appropriation.
III. Conclusion
For the reasons discussed above, we reverse the trial court’s
decision to the extent it includes the entire fund balance in the
per pupil local current expense appropriation calculations and we
affirm the trial court’s decision to the extent it excludes pre-K
students from the per pupil local current expense appropriation
calculations.
Reversed in part, affirmed in part.
Judges ELMORE and DAVIS concur.