Alternatives Unlimited-Special, Inc. v. Ohio Department of Education

[Cite as Alternatives Unlimited-Special, Inc. v. Ohio Dept. of Edn., 163 Ohio Misc.2d 10, 2011-Ohio-886.]
Court of Claims of Ohio
The Ohio Judicial Center
65 South Front Street, Third Floor
Columbus, OH 43215
614.387.9800 or 1.800.824.8263
www.cco.state.oh.us
ALTERNATIVES UNLIMITED-SPECIAL, Case No. 2009-03410
INC., et al.,
February 7, 2011
v.
OHIO DEPARTMENT OF EDUCATION
Aaron D. Plasco and Amy L. Tumey; and Luther L. Liggett Jr., for plaintiffs.
Michael DeWine, Attorney General, and Christopher P. Conomy, Assistant Attorney
General, for defendant.
CLARK, Judge.
{¶ 1} On August 19, 2010, plaintiffs, Alternatives Unlimited-Special, Inc. (“AU-
Special”) and Alternatives Unlimited, Inc. (“AU, Inc.”) filed a motion for partial summary
judgment pursuant to Civ.R. 56(A). On September 3, 2010, defendant, the Ohio
Department of Education (“ODE”) filed a response and a cross-motion for partial
summary judgment.1 On September 20, 2010, plaintiffs filed a response to defendant’s
cross-motion and a motion for leave to file the same, and a motion for leave to file an
1
On September 1, 2010, defendant filed a motion to stay the proceedings pursuant to Civ.R.
41(D) pending payment of costs that were assessed in case No. 2002-0482. Inasmuch as those costs
were subsequently paid by plaintiffs, defendant’s motion is denied as moot.
amended motion for partial summary judgment. Plaintiffs’ motions for leave are hereby
granted instanter. On December 22, 2010, the court held an oral hearing on the
motions.
{¶ 2} Civ.R. 56(C) states:
{¶ 3} “Summary judgment shall be rendered forthwith if the pleadings,
depositions, answers to interrogatories, written admissions, affidavits, transcripts of
evidence, and written stipulations of fact, if any, timely filed in the action, show 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. No evidence or stipulation may be considered except as
stated in this rule. A summary judgment shall not be rendered unless it appears from
the evidence or stipulation, and only from the evidence or stipulation, that reasonable
minds can come to but one conclusion and that conclusion is adverse to the party
against whom the motion for summary judgment is made, that party being entitled to
have the evidence or stipulation construed most strongly in the party’s favor.” See also
Gilbert v. Summit Cty., 104 Ohio St.3d 660, 2004-Ohio-7108, citing Temple v. Wean
United, Inc. (1977), 50 Ohio St.2d 317. As an initial matter, in its response to plaintiffs’
motion for summary judgment, defendant asserts that plaintiffs have improperly relied
on trial transcripts from case No. 2002-04682. However, on September 20, 2010,
plaintiffs filed both an amended motion for partial summary judgment and a transcript of
proceedings in case No. 2002-04682. Inasmuch as Civ.R. 56(C) provides that
“transcripts of evidence” may be considered in ruling on a motion for summary
judgment, the transcripts from case No. 2002-04682 shall be considered as evidence in
this case.
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{¶ 4} Plaintiffs’ claims arise from a contract that was executed by the parties in
1999. In this case, plaintiffs have refiled claims that were originally filed in case No.
2002-04682. On December 9, 2008, the Tenth District Court of Appeals issued a
decision in case No. 2002-04682 affirming the May 2, 2008 judgment of this court,
which granted partial summary judgment to defendant. In its decision, the court of
appeals summarized the procedural history of the case as follows:
{¶ 5} “On May 7, 2002, appellants filed suit against ODE in the Court of Claims,
asserting two causes of action for breach of contract, which included claims for
promissory estoppel and unjust enrichment. Appellants generally sought declaratory
judgment and monetary damages for ODE’s failure to pay for all of the students actually
enrolled and taught at [the Cleveland Alternatives Learning Academy] CALA, as well as
the alleged invalid, unilateral rescission of the contract. ODE countered that it owed no
obligation to provide funding for students improperly enrolled in grades two, seven, and
eight, and that certain individuals associated with appellants were entitled to rescind the
contract as the governing authority. ODE also asserted that appellants lacked standing
to bring suit on the contract.
{¶ 6} “The issues of liability and damages were bifurcated, and the case
eventually proceeded to trial regarding liability only on July 12, 2004. On September
15, 2005, the trial court issued its judgment in favor of ODE, concluding that neither AU-
Special nor AU, Inc. was a party to the contract as the governing authority for CALA,
and, thus, they lacked standing to pursue their claims for breach of contract. Appellants
appealed, and in Alternatives Unlimited-Special, Inc. v. Ohio Dep’t of Educ., 168 Ohio
App. 3d 592, 2006 Ohio 4779, 861 N.E.2d 163 (‘Alternatives I’), this court reversed the
judgment of the trial court, finding ODE was estopped from denying appellants’ standing
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based upon an unrelated case in another appellate jurisdiction, in which the state and
appellants agreed that appellants were the ‘governing authority’ for CALA, and, thus,
were the proper party in the present case. This court remanded the matter to the Court
of Claims.
{¶ 7} “Upon remand, prior to trial, ODE moved for partial summary judgment,
arguing that the contract between the parties was never modified to include funding for
grades two, seven, and eight. After an oral hearing on ODE's motion for partial
summary judgment, at which appellants did not appear, the trial court granted ODE's
motion. On April 23, 2008, appellants moved to amend their complaint to dismiss
without prejudice all remaining claims not related to the funding for grades two, seven,
and eight. On May 2, 2008, the trial court entered judgment for ODE.” Alternatives
Unlimited-Special, Inc. v. Ohio Dept. of Edn., Franklin App. No. 08AP-396, 2008-Ohio-
6427 (“Alternatives II”), ¶ 4-6.
{¶ 8} In this case, plaintiffs are asserting the same claims regarding grades
three through six that were asserted in case No. 2002-04682, but were later dismissed
with the filing of an amended complaint pursuant to Civ.R. 15(A). Counts 1 through 3 of
the complaint in this case are identical to the first three counts in the complaint filed in
case No. 2002-04682.2
EQUITABLE CLAIMS
{¶ 9} Defendant asserts that it is entitled to judgment as a matter of law on
plaintiffs’ claims for unjust enrichment and promissory estoppel. At the December 22,
2010 oral hearing, plaintiffs conceded that they cannot prevail on their claims for
2
On March 5, 2010, the Tenth District Court of Appeals issued a decision finding that plaintiffs’
claims regarding grades three through six were timely filed pursuant to the saving statute, R.C.
2305.19(A).
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equitable relief (Counts 2 and 3) inasmuch as a valid contract existed. See Alternatives
II, 2008-Ohio-6427, ¶ 23. Accordingly, defendant is entitled to judgment as a matter of
law on plaintiffs’ claims for unjust enrichment and promissory estoppel.
LOST PROFITS
{¶ 10} Defendant also asserts that it is entitled to judgment as a matter of law on
plaintiffs’ claim for lost profits “because the contract and the governing statutes do not
permit community schools to operate as profit-making enterprises.”
{¶ 11} “The contract must also specify that ’the school shall be established as * *
* [a] nonprofit corporation established under Chapter 1702. of the Revised Code.’ R.C.
3314.03(A)(1)(a).” Alternatives I, 168 Ohio App.3d 592, 2006-Ohio-4779, 861 N.E.2d
163, ¶ 5.
{¶ 12} Defendant argues that inasmuch as AU-Special was established as a
nonprofit entity, “as a matter of public policy,” the governing authority of a public school
should not be “engaged in a profit-making enterprise.” However, defendant has not
identified any provision of the contract, nor has defendant identified any legal authority,
to support that argument.
{¶ 13} Although plaintiffs formed AU-Special as a nonprofit entity to operate
CALA, it does not follow that plaintiffs cannot recover damages in the form of lost profits
should they prevail on their claim for breach of contract. See Greene Cty. Guidance
Ctr., Inc. v. Greene-Clinton Community Mental Health Bd. (1984), 19 Ohio App.3d 1, 6
(A nonprofit corporation may recover lost profits as money damages when its funding
contract is unlawfully terminated or nonrenewed). Accordingly, defendant is not entitled
to judgment as a matter of law.
BREACH OF CONTRACT
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{¶ 14} “[I]n an action for breach of contract, the plaintiff has the burden of proving
four elements: (1) the existence of a contract; (2) performance by the plaintiff; (3)
breach by the defendant; and (4) damage or loss to the plaintiff.” Alternatives II, 2008-
Ohio-6427, at ¶ 12, citing Jarupan v. Hanna, 173 Ohio App.3d 284, 2007-Ohio-5081.
{¶ 15} The parties executed a five-year contract for the term September 1, 1999,
to June 30, 2004, which authorized plaintiffs to operate the school for students in grades
three through six. Pursuant to the contract, plaintiffs received funding for the 1999-2000
and 2000-2001 school years. However, on August 24, 2001, before CALA was
reopened for its third year of operation, defendant sent a letter stating, “Please be
advised the community school known as the Cleveland Alternatives Learning Academy
no longer has the authority to operate as a community school pursuant to Chapter 3314
of the Ohio Revised Code. The governing authority members of the school, Elijah Scott
and David Smith, rescinded the contract with the Sponsor, State Board of Education,
effective August 1, 2001.”3
{¶ 16} With regard to performance, plaintiffs assert that “AU Special operated the
community school contemplated in the agreement until it was no longer able to continue
due to lack of funding from ODE.” There is no dispute that plaintiffs operated CALA for
the 1999-2000 and 2000-2001 academic years. Furthermore, plaintiffs presented
evidence that CALA opened in the fall of 2001. Accordingly, the court finds that there is
no genuine issue of material fact as to whether plaintiffs operated CALA for the first two
3
Plaintiffs contended that the purported recision was invalid inasmuch as Scott and Smith were
not the governing authority of CALA. The Tenth District Court of Appeals subsequently determined that
defendant was collaterally estopped from denying that AU was the governing authority of CALA inasmuch
as the state had previously taken that position during litigation in a court of competent jurisdiction.
Alternatives I, 168 Ohio App.3d 592, 2006-Ohio-4779, 861 N.E.2d 163, at ¶ 51.
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academic years of the five-year contract period, albeit not to defendant’s satisfaction,
and that they were prepared to continue operations when the contract was terminated.
{¶ 17} Plaintiffs assert that defendant failed to fulfill its contractual obligations
with regard to termination as set forth in Article VIII of the contract, which provides:
{¶ 18} “The expiration of this contract for Cleveland Alternatives Learning
Academy Community School between the SPONSOR and the GOVERNING
AUTHORITY shall be the date provided in this contract. * * * The termination of this
contract shall be effective only at the conclusion of a school year. At least 180 days
prior to the termination or non-renewal of this contract, the SPONSOR shall notify the
Cleveland Alternatives Learning Academy Community School of the proposed action in
writing. The notice shall include the reasons for the proposed action in detail and that
the Cleveland Alternatives Learning Academy Community School may, within fourteen
days of receiving the notice, request an informal hearing before the SPONSOR. Such
request shall be in writing.” (Boldface and capitalization sic.)
{¶ 19} The court notes that defendant has stipulated “that no termination letter
was sent.” Inasmuch as CALA did not receive written notice of the termination of the
contract, plaintiffs were never given the opportunity to request an informal hearing as
provided in Article VIII of the contract. Rather, defendant unilaterally terminated the
contract, without notice, with three academic years remaining before the contract period
ended.
{¶ 20} Furthermore, R.C. 3314.07 also provides limitations regarding the
expiration, termination, or nonrenewal of a contract establishing a community school as
follows:
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{¶ 21} “(A) The expiration of the contract for a community school between a
sponsor and a school shall be the date provided in the contract. A successor contract
may be entered into pursuant to division (E) of section 3314.03 of the Revised Code
unless the contract is terminated or not renewed * * *.
{¶ 22} “(B) (1) A sponsor may choose not to renew a contract at its expiration or
may choose to terminate a contract prior to its expiration for any of the following
reasons:
{¶ 23} “(a) Failure to meet student performance requirements stated in the
contract;
{¶ 24} “(b) Failure to meet generally accepted standards of fiscal management;
{¶ 25} “(c) Violation of any provision of the contract or applicable state or federal
law;
{¶ 26} “(d) Other good cause.
{¶ 27} “(2) A sponsor may choose to terminate a contract prior to its expiration if
the sponsor has suspended the operation of the contract under section 3314.072
[3314.07.2] of the Revised Code.
{¶ 28} “(3) At least ninety days prior to the termination or nonrenewal of a
contract, the sponsor shall notify the school of the proposed action in writing. The
notice shall include the reasons for the proposed action in detail, the effective date of
the termination or nonrenewal, and a statement that the school may, within fourteen
days of receiving the notice, request an informal hearing before the sponsor. Such
request must be in writing. The informal hearing shall be held within seventy days of the
receipt of a request for the hearing. Promptly following the informal hearing, the sponsor
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shall issue a written decision either affirming or rescinding the decision to terminate or
not renew the contract.
{¶ 29} “(4) A decision by the sponsor to terminate a contract may be appealed to
the state board of education. The decision by the state board pertaining to an appeal
under this division is final. If the sponsor is the state board, its decision to terminate a
contract under division (B)(3) of this section shall be final.
{¶ 30} “(5) The termination of a contract under this section shall be effective upon
the occurrence of the later of the following events:
{¶ 31} “(a) Ninety days following the date the sponsor notifies the school of its
decision to terminate the contract as prescribed in division (B)(3) of this section;
{¶ 32} “(b) If an informal hearing is requested under division (B)(3) of this section
and as a result of that hearing the sponsor affirms its decision to terminate the contract,
the effective date of the termination specified in the notice issued under division (B)(3)
of this section, or if that decision is appealed to the state board under division (B)(4) of
this section and the state board affirms that decision, the date established in the
resolution of the state board affirming the sponsor’s decision.” (Emphasis added.)
{¶ 33} Defendant had the authority to terminate the contract with plaintiffs prior to
its expiration for any of the reasons listed in R.C. 3314.07 (B) (1). However, defendant
was required to notify CALA of the proposed termination in writing at least 90 days prior
thereto. As stated above, defendant failed to provide any written notice of termination
prior to the August 24, 2001 letter that purported to rescind the contract. Thus,
defendant committed a breach of the contract by failing to provide plaintiffs with either
the required statutory or contractual notice of termination.
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{¶ 34} Based upon the foregoing, defendant’s motion for partial summary
judgment shall be granted as to plaintiffs’ claims for unjust enrichment and promissory
estoppel, and judgment shall be rendered in favor of plaintiffs on their breach-of-
contract claim as to grades three through six.
So ordered.
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