Case Title: SOUTHERN CORRECTIONS SYSTEMS, INC. v. UNION CITY PUBLIC SCHOOLS

Citation: 

Docket Number: 97890

State: oklahoma

Court: Oklahoma Supreme Court

Date: 2002-11-26T00:00:00Z

Document:
SOUTHERN CORRECTIONS SYSTEMS, INC. v. UNION CITY PUBLIC SCHOOLS  SOUTHERN CORRECTIONS SYSTEMS, INC. v. UNION CITY PUBLIC SCHOOLS 2002 OK 93 64 P.3d 1083 Case Number: 97890 Decided: 11/26/2002 IN THE SUPREME COURT OF THE STATE OF OKLAHOMA [64 P.3d 1083] SOUTHERN CORRECTIONS SYSTEMS, INC., Plaintiff/Appellant v. UNION CITY PUBLIC SCHOOLS, OKLAHOMA INDEPENDENT SCHOOL DISTRICT NO. 57, JOE WALL, an individual, MIKE DAWSON, an individual, PATSY ALEXANDER, an individual, and DALE DEBORD, an individual, Defendants/Appellees APPEAL FROM THE DISTRICT COURT OF CANADIAN COUNTY Honorable Edward C. Cunningham, Trial Judge ¶0 In 1998, the appellant, Southern Corrections Systems, Inc. (Southern/SCS) contracted with the Union City Public School [64 P.3d 1084] District (school district) for the 1998-1999 school year to provide education for children who resided at a juvenile treatment center (juvenile facility) which Southern operated. The contract provided for Southern's costs to be reduced by an amount equal to any funds which the school district received, or became eligible to receive from any State aid during the term of the contract which was attributable to the children residing at the juvenile facility. No aid was received by the school district during the 1998-1999 school year because aid is determined by the number of children residing in the district in the preceding year. Another contract was entered into for the 1999-2000 school year and the school district reimbursed Southern by an agreed amount. However, when the school district refused to enter into a contract for the 2000-2001 school year, Southern sought reimbursement for $238,323.31 it had expended in the 1998-1999 school year. After the school district refused to pay, Southern sued. The trial court determined that requiring the school district to pay would be unconstitutional because it would create an illegal financial obligation for more than one fiscal year. Southern appealed and we retained the cause. We hold that, under the facts presented, the school district's obligation is not a "debt" for purposes of the constitutional debt limitation pursuant to the Okla. Const. art.10, §26. REVERSED AND REMANDED FOR PROCEEDINGS CONSISTENT WITH THIS PRONOUNCEMENT. Thomas J. Daniel IV, Eric Gray, Oklahoma City, Oklahoma, for Plaintiff/Appellant Frederick J. Hegenbart, Tulsa, Oklahoma, for Defendants/Appellees KAUGER, J: ¶1 This cause concerns Union City Public School District's contract with Southern Correctional Systems, Inc., to provide educational services to a juvenile correctional facility. The agreement provided for the facility's costs to be reduced by an amount equal to the funds the school district received from State aid which was attributable to the children residing at the facility. FACTS ¶2 In 1998, the appellant, Southern Corrections Systems, Inc. (Southern/SCS) constructed an eighty bed medium security residential treatment center for juveniles (juvenile facility) in Union City, Oklahoma. On July 15, 1998, Southern contracted with the Union City Public School District (school district) to provide education to the children who lived at the juvenile facility. ¶3 Although Southern was required to pay the school district for educational costs, the contract also provided for the costs to be reduced by the amount equal to any funds which the school district received, or became eligible to receive, from any State aid during the term of the contract which was attributable to the children residing within the school district's boundaries. ¶4 Southern paid the school district $238,323.31 for the 1998-1999 school year. However, it is undisputed that state educational funding is based on a periodic census of the number of students in attendance in the school district and adjusted based on a variety of factors. ¶5 Another contract was negotiated for the 1999-2000 school year. Because the school district received aid during the 1999-2000 school year, it reimbursed Southern by an agreed amount. In January of 2000, the school district informed Southern that it did not wish to contract for the 2000-2001 school year. However, it is undisputed that the school district received State aid for the 2000-2001 school year attributable to the children residing at the juvenile facility. ¶6 Initially, Southern had trouble finding another school system to provide education for the children. The State Department of Education informed the school district that it would be required to provide education to the children at the juvenile facility if Southern could not reach an agreement with another school system. Ultimately, Southern contracted with the Butler Public School District for the 2000-2001 school year, and it sought reimbursement from the Union City School District for the $238,323.31 it had spent during the 1998-1999 school year. ¶7 In April of 2000, the Union City school board voted to pay Southern $238,323.31, contingent upon the receipt of State aid and court approval. Subsequently, the attorney for the school district determined that the school district was constitutionally prohibited from making such a payment. On July 31, 2000, Southern filed a lawsuit against the school district as well as the individual school board members. Southern sought a declaratory judgment to recover $238,323.31, asserting claims of unjust enrichment, breach of contract, and breach of a settlement agreement. Southern later amended its petition to include claims for specific performance and recovery of funds which the school district received attributable to the school's lunch program. ¶8 The school district filed an answer, raising numerous affirmative defenses and counterclaims for breach of contract and declaratory judgment. On February 4, 2002, the school district moved for summary judgment. It argued that pursuant to the terms of the contract, it had met its financial obligations and even if it had not, requiring the school district to pay the $238,323.31 to Southern would create an illegal financial obligation for more than one fiscal year. On February 6, 2002, Southern moved for summary judgment asserting that it had a settlement agreement with the school district, and requesting that the court direct the school district to present a joint application and an agreed journal entry of judgment directing the district to make the payment. ¶9 The trial court heard the matter on April 12, 2002. On May 24, 2002, it entered an order granting summary judgment in favor of the school district and the individual school board members on all of the claims relating to the $238,323.31. The trial court determined that because it would be unconstitutional for the school district to reimburse Southern the $238,323.31, the school district had no legally enforceable obligation to pay it. It also granted partial summary judgment for Southern on the school district' s counterclaim, with the exception of $6,973.15. On June 24, 2002, Southern appealed and filed a motion to retain the cause in this Court. We granted the motion to retain on August 1, 2002. ¶10 UNDER THE FACTS PRESENTED, THE SCHOOL DISTRICT'S OBLIGATION IS NOT A "DEBT" FOR PURPOSES OF THE CONSTITUTIONAL DEBT LIMITATION PURSUANT TO THE OKLA. CONST. ART.10, §26. a. State aid and the school district's obligation under the contract. ¶11 The school district concedes that it cannot lawfully enter into a contract which obligates it to exceed the budgetary limitations of a fiscal year.8 Relying on the language of the contract, the school district asserts that it was not required to reimburse [64 P.3d 1087] Southern for the 1998-1999 school year because it did not actually receive any aid that year. Southern contends that, pursuant to the contract, the school district was obligated to reimburse it because its eligibility to receive State aid was determined during the 1998-1999 contract, even though it was not received until the next school year. ¶12 Southern also insists that it reached a settlement agreement with the school district regarding the payment of the $238,323.31 and that it is entitled to payment regardless of whether the underlying debt is constitutional. The school district argues that a settlement agreement was never reached. It also contends that it would be unlawful for it to pay a settlement if the underlying debt were unconstitutional. Even if a settlement agreement were reached,9 resolution of this cause depends upon the original contract because unconstitutional contractual obligations could not be subsequently validated by settlement of the contractual dispute.10 ¶13 The 1998-1999 contract provides in pertinent part: ". . .The amount owed by SCS to the District during the term of this Agreement shall be reduced by the sum of all funds the District receives or becomes eligible to receive during the term of this contract as State and/or Federal aid, textbook allocations, School Lunch Program reimbursements or any other allocations or reimbursements generated by the presence within the District's boundaries of those children residing at the Center. The sum of aid funds described above shall be the amount to which the District is entitled as determined by the State Department of Education, Finance Division. . . ." (Emphasis supplied.) ¶14 If the terms of a contract are unambiguous, clear and consistent, they are accepted in their plain and ordinary sense and the contract will be enforced to carry out the intention of the parties as it existed at the time it was negotiated.11 The interpretation of a contract, and whether it is ambiguous is a matter of law for the Court to resolve.12 Contractual intent is determined [64 P.3d 1088] from the entire agreement.13 If a contract is complete in itself and viewed in its entirety is unambiguous, its language is the only legitimate evidence of what the parties intended.14 The Court will not create an ambiguity by using a forced or strained construction, by taking a provision out of context, or by narrowly focusing on the provision.15 ¶15 Applying these general principles, we hold that the obvious purpose of the contract was to outline the specific terms by which the school district was to provide education for the children at the juvenile facility.16 The provision in contest unambiguously required the school district to reimburse Southern by an amount equal to any State aid that it either received or became eligible to receive during the 1998-1999 contract which was attributable to the children living within the school district's boundaries. Clearly, the parties contemplated and intended that the school district would not recoup a double payment from Southern and from the State for the educational services it provided. ¶16 Funding for public education through State aid is appropriated by the Legislature and administered by the State Board of Education.17 State aid is calculated based in part on the average daily attendance of the school district of the two preceding school years.18 It is undisputed that a school district receives State aid in one year which is attributable to children who resided in the district in the previous year. ¶17 Pursuant to statute, the school district did not receive any aid attributable to the children living at the juvenile facility during the 1998-1999 school year. Eligibility for State aid attributable to those children was based and calculated on attendance in the 1998-1999 school year. Under the terms of the contract, the school district was obligated to reimburse Southern in an amount equal to the State aid, if any, which was attributable [64 P.3d 1089] to the children who resided at the juvenile facility during the 1998-1999 school year even though the funds were not actually received during that school year. b. The constitutional debt limitation and its application to the school district's obligation. ¶18 The school district also concedes that it is willing to resolve this dispute by paying Southern the money it sought ----- if it is lawful to make such a payment. However, it argues that it would be unconstitutional for it to pay Southern from funds which it did not receive during the year in which the contract was effective. Southern contends that it is not. ¶19 Article 1, §5 of the Oklahoma Constitution provides for the establishment and maintenance of a system of public schools within the State.19 Article 13, §1 of the Constitution places the obligation of establishing and maintaining a free public school system on the Legislature.20 Funding for mandated education is constitutionally and statutorily allocated based on the number of children attending school within a district for the preceding year.21 School districts are required to provide educational services to children who reside in a juvenile treatment facility.22 ¶20 Article 10, §26 of the Oklahoma Constitution prohibits school districts from becoming indebted, in any manner, or for any purpose, by an amount exceeding the income and revenue provided for a fiscal year without the assent of three fifths of the voters.23 This constitutional provision forces [64 P.3d 1090] school districts to operate on a cash basis, and it prevents indebtedness payable out of tax revenues from extending beyond one year.24 This section serves not only as a restriction on the school district, but also on the Legislature.25 ¶21 Southern relies on Willow Wind, Inc. v. City of Midwest City, ¶22 Four years after the ordinances were enacted, the city repealed them on the ground that they were unconstitutional. In addressing the constitutionality of the arrangement, the Court recognized that: 1) a debt is a promise to pay a certain amount, with interest, within a fixed time, out of taxes taken from all of the people, including those not benefitted; and 2) a city creates an indebtedness when it borrows money to be paid, with interest, from taxes in the future, whether such taxes are formally levied at one time, covering that future, or yearly, to meet the payments when about to mature. ¶23 Although the arrangement was a debt in the sense of an obligation, the Court held that the ordinance did not constitute deficit financing for purposes of the constitutional debt limitations because the ordinance provided: no promise to pay a certain amount; the amount to be paid was taken from those who directly benefitted from the water and sewer lines; and there was no guarantee that the developers would be paid anything. ¶24 Nothing in the agreement obligated the school district if the State determined that none of the allocations available were attributable to the children living at the facil-[64 P.3d 1091]-ity, or if the State were unable to make allocations because of budgetary shortfalls. Nor does the agreement attempt to bind the State from making appropriation decisions. ¶25 We are not persuaded that the obligation imposed by this type of arrangement is within the purview of those which are precluded by §26 CONCLUSION ¶26 Summary judgment is proper only when the pleadings, affidavits, depositions, admissions or other evidentiary material establish that there is no genuine issue as [64 P.3d 1092] to any material fact, and that the moving party is entitled to a judgment as a matter of law. REVERSED AND REMANDED FOR FURTHER PROCEEDINGS CONSISTENT WITH THIS PRONOUNCEMENT. WATT, V.C.J., HODGES, OPALA, KAUGER, SUMMERS, BOUDREAU, WINCHESTER, JJ., concur. LAVENDER, J., concurs in result. [ 64 P.3d 1093 ] FOOT