State of Indiana Indiana Department of Education Eric Holcomb, in his official capacity as Governor of Indiana v. Indiana Connections Academy, Inc. Rural Community Schools

FILED
Sep 24 2019, 9:11 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANTS ATTORNEYS FOR APPELLEE
Curtis T. Hill, Jr. INDIANA CONNECTIONS
Attorney General of Indiana ACADEMY, INC.
Natalie F. Weiss Wayne C. Turner
Frances Barrow Michael R. Limrick
Deputy Attorneys General Amanda L.B. Mulroony
Indianapolis, Indiana Hoover Hull Turner LLP
Indianapolis, Indiana
ATTORNEYS FOR APPELLEE
ANDREW J. BROWN CHARTER
SCHOOL, INC., ASPIRE CHARTER
ACADEMY, INC., AND NATIONAL
HERITAGE ACADEMIES, INC.
Alan S. Brown
Darren A. Craig
Alexander P. Will
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
State of Indiana; Indiana September 24, 2019
Department of Education; Eric Court of Appeals Case No.
Holcomb, in his official capacity 18A-PL-2634
as Governor of Indiana; and Appeal from the Marion Superior
Jennifer McCormick, in her Court
official capacity as Indiana The Honorable Heather A. Welch,
Superintendent of Public Judge
Instruction,
Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019 Page 1 of 18
Appellants-Defendants, Trial Court Cause No.
49D01-1606-PL-20822
v.
Indiana Connections Academy,
Inc.; Rural Community Schools;
Andrew J. Brown Charter
School, Inc.; Aspire Charter
Academy, Inc.; and National
Heritage Academies, Inc.,
Appellees-Plaintiffs
Baker, Judge.
[1] Indiana Connections Academy, Inc. (INCA), Andrew J. Brown Charter
School, Inc. (AJB), Aspire Charter Academy, Inc. (Aspire), and National
Heritage Academies, Inc. (NHA) (collectively, the Charter Schools), instituted
litigation against the State, seeking to recover six months of tuition support
funding that they argue they are owed.
[2] The trial court ruled in favor of the Charter Schools and the State appeals,
raising multiple arguments, one of which we find dispositive: that the trial court
erroneously determined that the tuition support funding formula resulted in a
six-month funding lag. We find as a matter of law that the General Assembly
did not intend the statutory funding formula to result in a six-month funding
lag, meaning that the Charter Schools are not entitled to recover the disputed
amounts. Therefore, we reverse and remand with instructions to enter
judgment in favor of the State.
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Facts 1
Charter School Funding From 2002-2013
[3] In 2001, the General Assembly enacted the Charter School Act (the Act) to
provide an alternative option to traditional public schools. Ind. Code art. 20-
24. A charter school is a nonreligious public elementary or secondary school
that operates under a charter, which is a “contract between an organizer and an
authorizer for the establishment of a charter school.” Appellants’ App. Vol. VI
p. 58. An “organizer” is a nonprofit group that enters into the contract to
operate the charter school, id. at 59, and an “authorizer” is an entity enabled
under the Act to grant a charter to an organizer to operate a charter school, Ind.
Code §§ 20-24-1-2.5, 20-24-3-1.
[4] Because charter schools are considered public schools, which may not charge
tuition to their students, the State provides tuition support on behalf of their
students. Each two-year budget cycle, the General Assembly determines the
amount of tuition support to be divided among and distributed to all public
schools, including charter schools. The Indiana Department of Education
(DOE) is tasked with the ministerial duty of distributing the tuition support
funds. The amount of support is determined annually by the DOE and is based
on the Average Daily Membership (ADM) of a charter school.
1
We held oral argument in Indianapolis on September 9, 2019. We thank the attorneys for all parties for
their superb written and oral advocacy.
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[5] Before 2013, charter schools conducted their ADM count in September. They
received tuition from the State for their students on a calendar year basis, with
the first monthly distribution occurring in January and the final distribution
occurring in December. Thus, the ADM count conducted in September
triggered a payment stream that began in January. Before 2013, the law
provided that the DOE would not make the first distribution of state tuition
support until “after December 31 of the calendar year in which a charter school
begins its initial operation.” I.C. § 20-24-7-2(b) (2011). In other words, a new
charter school that opened its doors in the autumn of an academic year would
receive its first DOE tuition support payment the following January.
[6] This system created financial hardship for new charter schools, which, unlike
traditional public schools, do not have the authority to levy local taxes. When
the DOE realized that there was a funding gap for new charter schools, it
requested an advisory opinion from the Attorney General in 2002 (the Advisory
Opinion). In relevant part, the Advisory Opinion states as follows:
. . . It cannot be assumed that the General Assembly intended to
have the new public schools operate without state tuition funds
absent clear language to that effect in the Charter School Act.
Therefore, the [DOE] is required both to distribute tuition
support and other state funding upon verification of the required
information from the charter school organizer and to make full
state tuition payments to public school corporations.
***
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. . . Any analysis of charter school funding requirements must
begin with the basic and irrefutable fact that charter schools are
public schools, “wherein tuition shall be without charge.”
***
In the absence of a specific legislative directive which indicates
that charter schools must operate without state tuition support
during the first semester of operation, one may only conclude
that charter schools, like all other public schools, are required to
be funded with public funds during the first semester of a school
year. Indeed, any other reading would require the inference that
the General Assembly intended charter schools with inadequate
private start-up monies to never open.
***
. . . Of equal importance is the fact that the General Assembly
did not provide that charter schools specifically be required to
operate without state tuition funding during the first semester
they are in operation.
***
The fact that an already-existing school corporation must wait
until January for funding adjustments based on September’s
ADM does not support the argument by correlation that a charter
school must wait until January for any state tuition support.
***
. . . [T]he statutory framework established by the General
Assembly has an inherent time lag of roughly one semester
between the time a public school starts a school year and the time
Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019 Page 5 of 18
it receives a distribution of state tuition support based on
September ADM.
***
I am fully aware that the General Assembly has created what
may be termed an “unfunded legislative mandate.” It has
created a new variety of public school without either (1)
addressing the fiscal impact these schools may have on
entitlements to existing school corporations, or (2) expressing an
intent that charter schools will not receive state tuition support
during the first semester of operations.
It is possible, given current budget projections, that the
appropriations cap set by the General Assembly in 2001 may be
inadequate. This is an issue that the General Assembly created,
and one that may require its action to remedy.
The [DOE] may find in the performance of its ministerial duties
that it is impossible to satisfy the State’s financial obligations to
all public schools as required by the General Assembly. In such
an event, the General Assembly must supply the [DOE] with the
necessary funds to satisfy these obligations. . . .
Therefore, . . . it is my legal opinion that the Charter School Act
obligates the [DOE] to distribute tuition support and other state
funding upon verification of the required information from the
charter school organizer . . . .
Appellants’ App. Vol. IV p. 83-88 (emphases original, internal citations
omitted).
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[7] In the 2003 legislative session after the Advisory Opinion was issued, the
General Assembly declined to amend the statute providing that the DOE could
not make the first distribution of state tuition support until after December 31 of
the calendar year in which a charter school begins its initial operation. It also
did not supply the DOE with the necessary funds to enable payment of tuition
support for the first semester of new charter schools. Instead, it created the
Charter School Advancement Account, which was essentially a government
loan available for charter schools to cover operational costs incurred during
their opening semester. Ind. Code §§ 20-5.5-7.5-5, -6 (2003).
Parties’ Interpretations
[8] Although we generally do not inject argument into the Facts section of our
opinions, we believe it would be helpful in this case to explain the parties’
respective interpretations of what the above statutory scheme means in practical
terms.
[9] The State believes that it means that charter schools are wholly unfunded for
the first semester they are open. Then, beginning in January, they would
receive monthly payments based on the ADM count from September, but the
tuition support funds would not cover the first semester; instead, they would be
real-time payments.
[10] The Charter Schools, on the other hand, argue that this process merely resulted
in a funding lag:
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Under this methodology, a school would submit an ADM from
the September count date, and then IDOE would distribute each
school’s tuition support in 12 roughly equal monthly payments in
the following calendar year. Thus, by way of example, a school
would submit its September ADM and IDOE would distribute
12 monthly payments from January through December of the
following calendar year.
AJB, Aspire, NHA Appellees’ Br. p. 11 (internal citations omitted). Thus, the
Charter Schools insist that this system resulted in a six-month funding lag.
INCA offered this example by way of explanation: “schools did not receive all
the tuition support for the 2011-12 school year—the tuition support tied to its
fall 2011 ADM—until December 2012 (halfway through the 2012-13 school
year).” INCA Appellee’s Br. p. 11.
Charter School Funding After 2013
[11] Effective July 1, 2013, the General Assembly changed the tuition support
payment schedule from a calendar year (January through December) to the
State’s fiscal year (July through June). From that date forward, charter schools
would conduct two ADM counts, one in September and one in February.
Viewed through the lens of the Charter Schools’ interpretation of the former
legislative scheme, this change meant that there would no longer be a funding
lag; viewed through the lens of the State’s position, the change meant that the
first semester of operation would no longer be unfunded.
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[12] When that law went into effect, charter schools had completed the 2012-2013
school year and had received tuition support through the end of Spring 2013
based on the September 2012 ADM count.
[13] The DOE explained in a memorandum that the September 2013 ADM count
would be used to determine tuition support funding from July 1 through
December 31, 2013. After the September 2013 ADM count was finalized, the
DOE reconciled any remaining payments in November and December to
account for any over or underpayments of tuition support.
[14] The DOE continued to use the September 2013 ADM count until the February
2014 ADM count was finalized, which, in turn, was used to determine the
tuition support funding for January 1 through June 30, 2014. Again, after the
February ADM count was finalized, the DOE accounted for any over or
underpayments of tuition support.
[15] In short, charter schools were provided tuition support during this transitional
period as follows:
• First half of 2013: under the pre-July 1, 2013, statutes, based on the
September 2012 ADM count.
• Second half of 2013: under the 2013 law, based on the September 2013
ADM count.
• First half of 2014: under the 2013 law, based on the February 2014
ADM count.
• Second half of 2014 and beyond: as prescribed by the 2013 law.
Therefore, charter schools were paid tuition support for all times during the
transition from the prior statute to the new one.
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[16] This transitional period, however, did not account for the six-month funding lag
that the Charter Schools believe was occurring in the prior legislative scheme.
Thus, they argue that the State still owes them tuition support funds for a full
semester.
The Parties and the Litigation
[17] Indiana Connections Academy began operating in the 2010-2011 school year as
part of a Virtual School Pilot Program.2 It began receiving basic tuition support
in January 2011 based on its September 2010 ADM count. When the pilot
program ended, the academy applied to become a charter school. In December
2011, INCA entered into a charter agreement with Ball State University to
establish and operate Indiana Connections Academy. INCA became the
organizer of Indiana Connections Academy in January 1, 2012.
[18] In 2003, AJB entered into a charter agreement with the City of Indianapolis.
AJB began educating students in August 2003 and received its first tuition
support payments in February 2004 based on its September 2003 ADM count.
In March 2008, Aspire entered into a charter agreement with Ball State
University. It began educating students in August 2008 and received its first
tuition support payments in January 2009 based on its September 2008 ADM
count. Through a contractual arrangement, NHA operates AJB and Aspire.
2
The Academy’s organizer and fiscal agent under the pilot program was Rural Community Schools (Rural).
When it was decided that the Academy would apply to become a full-fledged charter school, it transitioned
from Rural to INCA as its organizer.
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[19] Each of the Charter Schools has received continuous tuition support from the
DOE except for their respective first semesters of operation. They all argue that
the 2013 transitional period did not account for their first six months of
operation and maintain that they should be compensated for that semester.
[20] On June 10, 2016, INCA filed a complaint against the State for breach of
contract and declaratory judgment. In its answer, the State asserted
counterclaims for unjust enrichment and negligence and filed a third-party
complaint against Rural. INCA and Rural both filed motions to dismiss. On
October 24, 2017, the trial court granted the motions to dismiss the negligence
counterclaim and denied the motion to dismiss the unjust enrichment
counterclaim and the third-party complaint.
[21] In August 2017, AJB, Aspire, and NHA filed a motion for permissive
intervention and a complaint against the State for mandate, damages, and
declaratory, injunctive, and equitable relief. The trial court granted the motion
for permissive intervention.
[22] In June 2018, INCA and Rural filed a joint motion for summary judgment and
NHA, Aspire, and AJB filed a joint motion for summary judgment. The State
filed a cross-motion for summary judgment. On October 2, 2018, the trial court
denied the State’s cross-motion for summary judgment. It granted the Charter
Schools’ summary judgment motions with respect to their implied contract
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claims and denied their motions with respect to their express contract claims
and claims for prejudgment interest.3
[23] The State now appeals the grant of summary judgment in favor of the Charter
Schools. The Charter Schools, in turn, cross-appeal the trial court’s order
regarding their express contract claims and argue that they are entitled to
statutory late payment penalties and prejudgment interest. INCA also argues
that the trial court erred in calculating the amount of damages it is owed.
Discussion and Decision
[24] The State argues that (1) the Charter Schools received all the funding they were
owed because there was no funding lag; (2) the trial court erroneously
determined that there were implied contracts between the State and the Charter
Schools; (3) there were no express contracts between the State and the Charter
Schools; (4) there is no constitutional provision supporting the Charter Schools’
claims; and (5) the Charter Schools are not owed interest, penalties,
prejudgment interest, a mandate, or recovery on an unjust enrichment claim.
As we find the first argument dispositive, we will not consider the remaining
issues or the Charter Schools’ cross-appeal.
[25] Our standard of review on summary judgment is well established:
3
The trial court also awarded summary judgment in favor of INCA and Rural on the State’s unjust
enrichment claim. The State does not appeal that portion of the order, meaning that Rural is no longer part
of the case.
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We review summary judgment de novo, applying the same
standard as the trial court: “Drawing all reasonable inferences in
favor of . . . the non-moving parties, summary judgment is
appropriate ‘if the designated evidentiary matter shows that there
is no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law.’” Williams v.
Tharp, 914 N.E.2d 756, 761 (Ind. 2009) (quoting T.R. 56(C)). “A
fact is ‘material’ if its resolution would affect the outcome of the
case, and an issue is ‘genuine’ if a trier of fact is required to
resolve the parties’ differing accounts of the truth, or if the
undisputed material facts support conflicting reasonable
inferences.” Id. (internal citations omitted).
Hughley v. State, 15 N.E.3d 1000, 1003 (Ind. 2014).
[26] The interpretation of a statute is a question of law to which we apply a de novo
standard of review. Kaser v. Barker, 811 N.E.2d 930, 932 (Ind. Ct. App. 2004).
[27] The crux of the State’s argument is that the public school funding law in effect
until July 2013 did not provide for any tuition support during a new public
school’s first semester of operation. Because there is no dispute that the Charter
Schools received tuition support for all but one semester of operation, the State
argues that they have received all monies they are owed. The trial court found
that the tuition support funding that begins in January of a charter school’s first
year of operation covered the education provided during the previous Fall
semester. In other words, it was tuition support funding in arrears.
[28] We agree with the State that there is no statutory authority suggesting that this
funding lag, in fact, existed: “payments were made in real time, for the present
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semester, but based on information from the previous September.” Appellant’s
Br. p. 22.4
[29] The trial court found, essentially, that the Charter Schools were owed twelve
months of tuition support based on the September 2012 ADM count. Because
of the change in the funding formula halfway through 2013, which (according
to the trial court and the Charter Schools) did not account for the second six
months of tuition owed, the Charter Schools are entitled to receive those funds.
We agree with the State that this is a fundamental misunderstanding of the
prior funding formula:
the old funding formula never guaranteed two full semesters of
tuition support based on a September ADM. Under the old
formula schools received twelve months of funding based on the
previous September’s ADM, but only because payments were based
on a calendar year. As of July 2013, tuition support for the fall
semester would be based on the September 2013 (not the
September 2012 ADM), and would be paid on a fiscal year basis.
Appellant’s Br. p. 29 (emphasis added).
[30] We also note that as a practical matter, budgets are prospective rather than
retrospective. Each two-year budget covers only those two years and cannot
reach back to the past to make payments in arrearage. Moreover, if an agency
4
By contrast, the new tuition support funding law effective July 2013 provides for the ADM count to be
reported in both September and February, meaning that the necessary information to calculate tuition
support is now being provided for the current semesters.
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such as the DOE has money left over at the end of a two-year cycle, that money
reverts to the State. Consequently, a six-month funding lag would not fit into
Indiana’s budgeting process.
[31] Because there was no so-called funding lag, it is apparent that the Charter
Schools received tuition support funding on a real-time basis. The DOE
distributed those funds continuously throughout the transitional period.
Therefore, the evidence undisputedly shows that they have received all funds to
which they are entitled.
[32] Adding support to this conclusion is the Advisory Opinion, which provided the
Attorney General’s policy suggestion that the legislature provide funding for a
charter school’s first semester of operations. But following the issuance of this
opinion, the General Assembly did not make that change. Instead, the General
Assembly created a program whereby a new charter school could apply for a
government loan to help it through its first semester of operation, meaning that
it did not—as advocated for by the Attorney General—provide the DOE with
the necessary funds or authorization to pay tuition for that first semester.
[33] We acknowledge that this result may seem unfair. As noted by counsel at oral
argument, this result penalizes charter schools that had the financial
wherewithal to operate without State assistance for their first semester.
Specifically, charter schools that had to seek a loan from the State under the
Advancement Account ultimately had those loans forgiven, whereas the
schools that financed their own first semesters are left holding the proverbial
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bag with no recourse for recouping those funds. It may also seem unfair that
the State expected charter schools to open and operate for a full semester with
no tuition support from the government.
[34] But regardless of whether the process and result are fair or unfair, it is solidly
within the wheelhouse of the legislature to create a statewide budget and to
decide how to fund charter schools, which are a creation of the General
Assembly to begin with. The General Assembly has the discretion to decide
how to allocate State funds. In this case, it initially decided not to fund the first
semester of charter schools’ operations. Neither the fact that it decided in 2013
to change that formula nor the fact that the outcome may seem unfair means
that there was actionable error in the initial budgeting process.
[35] In sum, while the Charter Schools may argue that it is bad public policy for the
legislature to have decided that charter schools should not be funded for their
first semester of operation, that does not change the language of the relevant
public law, which does not provide for the so-called funding lag. There is no
statute providing that the tuition payments beginning in January paid for public
education provided the previous fall.
[36] As a final issue, we must address the Charter Schools’ argument that the State’s
interpretation of the tuition support funding formula is unconstitutional because
“Article 8, Section 1 requires the State to provide complete tuition support—not
tuition support except for one semester. The State cannot abrogate that
constitutional duty by statute.” AJB, Aspire, NHA Appellees’ Br. p. 26. They
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insist that the only way in which the tuition support funding formula is
constitutional is if we interpret it to impose the so-called funding lag, meaning
that charter schools are entitled to tuition support funding for every semester of
operation, albeit on a one-semester lag. Were we to agree with the State’s
interpretation, the Charter Schools argue that it would shift onto them the
General Assembly’s constitutional duty to provide tuition-free public education.
[37] Initially, we note that the Indiana Constitution does not confer a private right of
action for monetary damages. E.g., City of Indianapolis v. Cox, 20 N.E.3d 201,
212 (Ind. Ct. App. 2014); see also Hoagland v. Franklin Twp. Cmty. Sch. Corp., 27
N.E.3d 737, 741 (Ind. 2015) (holding that Indiana’s Education Clause does not
provide a private right of action for monetary damages).
[38] Nevertheless, we observe that while the State is obligated to provide a tuition-
free education for Hoosier children, it necessarily fulfills that obligation in the
guise of traditional public schools. In other words, even if the charter schools
had to be self-funded for their first semester, and even if the charter schools had
to close their doors as a result, the children of Indiana were always going to be
able to obtain a tuition-free education at traditional public schools. Because
traditional public schools have always been an option, the State did not violate
any constitutional obligations by structuring its charter school tuition funding in
a way that required those schools to fund their own first semesters. Therefore,
this argument is unpersuasive.
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[39] In sum, from 2002-2013, the way in which the General Assembly structured
charter school tuition support resulted in a system requiring those schools to
self-fund their first semesters of operation. Nothing in the budget for those
years indicates that the legislature intended the tuition support payments to be
made in arrears. It is within the purview of the legislature to structure its
budgets, and nothing here suggests that it exceeded its discretion. As such, the
trial court erred by determining that the Charter Schools are entitled to a
semester’s worth of tuition support. Therefore, we reverse.
[40] The judgment of the trial court is reversed and remanded with instructions to
enter judgment in favor of the State.
Vaidik, C.J., and Altice, J., concur.
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