Source: http://law.justia.com/cases/new-york/other-courts/2008/2008-28154.html
Timestamp: 2014-08-01 22:30:27
Document Index: 448776558

Matched Legal Cases: ['§ 33', '§ 2854', '§ 1', '§ 2850', '§ 2851', '§ 2851', '§ 2852', '§ 2852', '§ 2853', '§ 216', '§ 216', '§ 2853', '§ 2853', '§ 2853', '§ 2853', '§ 2853', '§ 2853', '§ 2853', '§ 2851', '§ 2854', '§ 2854', 'arts 6', '§ 2853', '§ 2853', '§ 2853', '§ 2854', '§ 2854', '§ 2854', '§ 2854', '§ 2854', '§ 2854', '§ 2856', '§ 3602', '§ 2856', '§ 2853', '§ 2855', '§ 2851', '§ 33', '§ 33', '§ 2854', '§ 33', '§ 1', '§ 1', '§ 1', '§ 33', '§ 2854', '§ 1', '§ 2853', '§ 216', '§ 33', '§ 2854', '§ 1']

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Matter of New York Charter Schools Assn. Inc. v DiNapoliMatter of New York Charter Schools Assn., Inc. v DiNapoli
2008 NY Slip Op 28154 [20 Misc 3d 235]
Platkin, J.
As corrected through Wednesday, August 27, 2008
In the Matter of New York Charter Schools Association, Inc., et al., Petitioners-Plaintiffs,vThomas P. DiNapoli, as Comptroller of the State of New York, et al., Respondents-Defendants.Supreme Court, Albany County, April 29, 2008
Whiteman, Osterman & Hanna, LLP, Albany (John J. Henry, Christopher W. Meyer and Christopher M. McDonald of counsel), for petitioners-plaintiffs. Andrew M. Cuomo, Attorney General, Albany (Adrienne J. Kerwin of counsel), for respondents-defendants. James R. Sander, Latham (Richard E. Casagrandre of counsel), for New York State United Teachers, amicus curiae.
{**20 Misc 3d at 236} OPINION OF THE COURT
This is a combined CPLR article 78 proceeding and action by which petitioners-plaintiffs (petitioners) seek a judgment: (1) declaring that the State Comptroller lacks authority to audit charter schools, and that the legislative direction to conduct such audits, set forth in General Municipal Law § 33 (2) and Education Law § 2854 (1) (c), was enacted in violation of article V, § 1 of the New York State Constitution; and (2) permanently enjoining the Comptroller from conducting or attempting to conduct audits of charter schools.{**20 Misc 3d at 237}
Pursuant to the New York Charter Schools Act of 1998 (L 1998, ch 4), the State Legislature "authorize[d] a system of charter schools to provide opportunities for teachers, parents, and community members to establish and maintain schools that operate independently of existing schools and school districts" (Education Law § 2850 [2]). In order to evaluate the claims and defenses asserted in this proceeding, it is necessary to review the act in some detail.
The process of establishing a charter school begins with an application submitted "by teachers, parents, school administrators [or] community residents" (Education Law § 2851 [1]). The organizers of the charter school submit an application to a "charter entity," which the act defines as: (1) the Board of Regents; (2) the Board of Trustees of the State University of New York; or (3) the board of education of a school district or, in the case of the City of New York, the Chancellor of the Department of Education (§ 2851 [3]).
"Upon approval of an application by a charter entity, the applicant and charter entity shall enter into a proposed agreement allowing the applicants to organize and operate a charter school" (Education Law § 2852 [5]). This written agreement between the organizers of a charter school and the charter entityknown as the "charter"controls all aspects of the governance, organization and operation of the school. The charter also includes "the specific commitments of the charter entity relating to its obligations to oversee and supervise the charter school" (id.).
A proposed charter must be approved by the Board of Regents before it becomes effective (§ 2852 [5-a]). Upon such approval, "the board of regents shall incorporate the charter school as an education corporation for a term not to exceed five years" (Education Law § 2853 [1]).[FN1]
The Education Law defines an "education corporation" as a corporation "chartered or{**20 Misc 3d at 238} incorporated by the regents or otherwise formed under [the Education Law]" (Education Law § 216-a [1] [a]).[FN2] An education corporation is governed by the Not-For-Profit Corporation Law, subject to certain limited modifications and exceptions that reflect the unique role of the Board of Regents in supervising and overseeing public and private education in New York State (Education Law § 216-a [4]). The trustees of a charter school are required to obtain federal tax-exempt status for the education corporation within one year of issuance of the charter (Education Law § 2853 [1]).
Pursuant to the act, "[a] charter school shall be deemed an independent and autonomous public school, except as otherwise provided" (Education Law § 2853 [1] [c]). "The powers granted to a charter school under [the act] constitute the performance of essential public purposes and governmental purposes of this state" (§ 2853 [1] [d]), and a charter school is exempt from taxation to the same extent as other public schools (id.).
However, a charter school cannot levy taxes or acquire property by eminent domain (§ 2853 [1] [e]). The act also provides that a charter school shall be deemed a nonpublic (i.e., private) school for a variety of purposes, including student transportation and the provision of student instructional materials (§ 2853 [4]). Further, "[f]or purposes of local zoning, land use regulation and building code compliance, a charter school shall be deemed a nonpublic school" (§ 2853 [3] [a]).
Governance of the charter school is vested in its board of trustees, which has "final authority for policy and operational decisions of the school" (§ 2853 [1] [f]). The composition of the initial board of trustees of a school is determined by the organizers, and the charter is required to set forth "the qualifications, terms and method of appointment or election of trustees [and] the organizational structure of the school" (Education Law § 2851 [2] [c]).
Charter schools enjoy a broad exemption from the state and local laws, rules and regulations that govern public and private schools, but "shall meet the same health and safety, civil rights, and student assessment requirements applicable to other public schools" (Education Law § 2854 [1] [b]). In addition, the act{**20 Misc 3d at 239} makes charter schools subject to certain other laws applicable to governmental entities, including the Open Meetings Law and Freedom of Information Law (§ 2854 [1] [e]; see Public Officers Law arts 6, 7).
"The charter entity and the board of regents shall be deemed to be the public agents authorized to supervise and oversee the charter school" (Education Law § 2853 [1] [c]). Thus, the "board of regents and charter entity shall oversee each school approved by such entity, and may visit, examine into and inspect any charter school, including the records of such school" (§ 2853 [2]). "Oversight by a charter entity and the board of regents shall be sufficient to ensure that the charter school is in compliance with all applicable laws, regulations and charter provisions" (id.). Further, a local school district also has the right to "visit, examine into, and inspect" charter schools located within the district (§ 2853 [2-a]).
The act provides that a "charter school shall be subject to the financial audits, the audit procedures, and the audit requirements set forth in the charter," which "shall be consistent with generally accepted accounting and audit standards" (Education Law § 2854 [1] [c]). Further, the act requires "[i]ndependent fiscal audits" at least once annually (id.). The 2005 amendments to these provisions, discussed infra, added a requirement of audits by the Comptroller.
For purposes of labor-management relations, the act provides that charter school personnel shall be the employees of "the education corporation formed to operate the charter school" (Education Law § 2854 [3] [a]). The act further provides:
"An employee of a charter school shall be deemed to be a public employee solely for purposes of article fourteen of the civil service law, except for section two hundred twelve of such law, and for no other purposes unless otherwise specified in this article, the board of trustees of the charter school shall constitute a board of education solely for purposes of article fourteen of the civil service law, except for section two hundred twelve of such law, and for no other purposes unless otherwise specified in this article, a charter school shall be deemed to be a public employer solely for purposes of article fourteen of the civil service law, except for section two hundred twelve of such law, and for no other purposes unless otherwise specified in this article, and the chief executive officer of the charter school{**20 Misc 3d at 240} shall be the person designated as such by the board of trustees of the charter school." (Id.)
Teachers of a charter school generally "shall be certified in accordance with the requirements applicable to other public schools," but a specified percentage may be credentialed in an alternative manner (Education Law § 2854 [3] [a-1]). A charter school has the option of treating its staff as either public or private sector employees for the purpose of providing pension and other retirement benefits (§ 2854 [3] [c]; 8 NYCRR 119.2).
Any child eligible for admission to a public school is qualified for admission to a charter school (Education Law § 2854 [2] [b]). "The school shall enroll each eligible student who submits a timely application . . . , unless the number of applications exceeds the capacity" of the [*2]school; "[i]n such cases, students shall be accepted from among applicants by a random selection process," subject to certain statutory preferences (id.). A charter school may not charge tuition or fees, but may require the payment of fees on the same basis and to the same extent as other public schools (§ 2854 [2] [a]).
Charter schools receive both public and private funding. With respect to public funding, the act provides that the school district of residence shall pay "basic tuition" directly to the charter school for each child in attendance (Education Law § 2856 [1] [a]; § 3602 [1] [f]). The amount of this tuition payment is determined by reference to the school district's per-pupil approved operating expenses, which are supported by the local property tax levy, as well as by federal and state education funds appropriated to the school district (id.). Charter schools also may accept funding from private sources (Education Law § 2856 [3]). In fact, the Legislature specifically has encouraged "[p]rivate persons and organizations . . . to provide funding and other assistance to the establishment or operation of charter schools" (Education Law § 2853 [4] [d]).
A charter may be revoked at any time by the Board of Regents or the charter entity for inadequate educational outcomes or material violations of the charter, including fiscal mismanagement (Education Law § 2855 [1]). Upon the expiration of the term of the charter, the operators of the school may submit an application for renewal (Education Law § 2851 [4]).
Prior to 2005, General Municipal Law § 33 required the State Comptroller to "cause the accounts of all officers of each such municipal corporation, industrial development agency, district,{**20 Misc 3d at 241} agency and activity to be inspected and examined by one or more examiners of municipal affairs for such periods as the comptroller shall deem necessary."
By section 3 of chapter 267 of the Laws of 2005, the Legislature added the following requirements:
"a. . . . [T]he comptroller shall cause the accounts of every school district, BOCES and charter school in the state to be examined pursuant to a plan developed by the comptroller. Such audits shall be conducted in a manner so as to provide, that every school district, BOCES and charter school shall be audited at least once by March thirty-first, two thousand ten. The priority and frequency of such audits, and any audits conducted thereafter, shall be based upon a risk assessment process conducted by the comptroller which may include investigations of alleged improprieties, previous audit findings and recommendations, or other financial performance indicators. . . .
"b. In undertaking such audits the comptroller's review shall include, but not be limited to: "(1) examining, auditing and evaluating financial documents and records of school districts, BOCES and charter schools, "(2) assessing the current financial practices of school districts, BOCES and charter schools to ensure that they are consistent with established standards, and "(3) determining that school districts, BOCES, and charter schools provide for adequate protections against any fraud, theft, or professional misconduct." (General Municipal Law § 33 [2] [a], [b].)
Conforming amendments were made to Education Law § 2854 (1) (c), so as to provide that charter schools "shall be subject to the audits of the comptroller as set forth" in the amended General Municipal Law § 33.
By letter dated July 1, 2007, the Office of the State Comptroller advised charter schools located in the City of New York of its intention to audit their performance. The letter cited the statutory authority conferred by chapter 267, as well as the Comptroller's claim of constitutional authority, founded on article V, § 1 of the New York Constitution. Some of the charter schools that received this correspondence disputed the Comptroller's authority to undertake such audits.{**20 Misc 3d at 242}
By letter dated September 27, 2007, the Comptroller's counsel responded to the objections posited by some of the charter schools. In this response the Comptroller's counsel not only delineated the constitutional and statutory claims of authority for the audits but also specified some of the scope of the intended review, which focused on the educational outcomes of students attending charter schools:
"This audit will assess the extent to which the New York City charter schools at issue have met the specific, quantifiable goals explicitly set forth in their charters. As I understand it, these goals establish grade-specific target student success rates in meeting or exceeding certain scoring levels on identified standardized or non-standardized tests or Regents' Examination requirements. In addition to ascertaining whether the above measurable target goals have been attained, the audit will examine into whether the charter schools have complied with their own selection procedures and criteria in admitting students. These are matters that have clear fiscal implications for the public as well as the governmental entities that fund the charter schools and have programmatic and oversight responsibilities with respect to them."
Petitioners Opportunity Charter School, New Heights Academy Charter School, Renaissance Charter School, International Leadership Charter School, Hellenic Classical Charter School, Harlem Children's Zone/Promise Academy Charter School, Harlem Children's Zone/Promise Academy II Charter School, John V. Lindsay Wildcat Academy Charter School, Hyde Leadership Charter School, New York Center for Autism Charter School, Brooklyn Charter School, Manhattan Charter School, South Bronx Charter School for International Cultures and the Arts, Community Roots Charter School and Ross Global Academy Charter School (charter school petitioners) are charter schools located in the City of New York that received an audit demand letter from the Office of the State Comptroller.
The remaining two petitioners are not-for-profit associations that advocate on behalf of charter schools. New York Charter Schools Association, Inc. is a statewide organization that engages in public outreach, education and advocacy on behalf of its member charter schools and provides technical assistance{**20 Misc 3d at 243} and support to charter schools. The charter school petitioners are members of this association. New York City Center for Charter School Excellence, Inc. is a partnership between the City of New York and its philanthropic community with the mission of stimulating the supply of high quality charter schools and advocating on behalf of New York City's charter schools.
By amended verified petition and complaint, petitioners commenced this hybrid action-proceeding against respondents-defendants Thomas P. DiNapoli, as Comptroller of the State of New York, the Office of the State Comptroller and the State of New York (hereinafter respondents). The sole claim asserted by petitioners is that the Comptroller lacks the constitutional authority to conduct audits of charter schools.
Specifically, petitioners argue that charter schools are independent, not-for-profit education corporations and are not agencies of the State of New York or political subdivisions of the State. On that basis, petitioners contend that article V, § 1 of the New York Constitution prohibits the Legislature from assigning the Comptroller the power or duty of auditing charter schools. Further, petitioners contend that the task of auditing charter schools is an administrative duty that is not incidental to the Comptroller's constitutionally prescribed functions and, therefore, is prohibited by article V, § 1.
Accordingly, petitioners seek a judgment declaring that the Comptroller has no authority to audit charter schools and that the grant of such authority contained in General Municipal Law § 33 and Education Law § 2854 (1) (c) is unconstitutional. Petitioners also seek a permanent injunction prohibiting the Comptroller from conducting or attempting to conduct audits of charter schools.
Respondents oppose the petition through an answer and also move for summary judgment dismissing petitioners' complaint pursuant to CPLR 3212. As a threshold matter, respondents contend that petitioners lack both capacity and standing to maintain this action. With respect to the merits, respondents argue that charter schools are political subdivisions of the State within the meaning of article V, § 1 and, in the alternative, the task of auditing charter schools is incidental to the Comptroller's duly assigned function of auditing school districts and his fundamental responsibility to superintend the fiscal affairs of the State.
Respondents contend that, as political subdivisions of the State, the petitioner charter schools lack the legal capacity to{**20 Misc 3d at 244} challenge the constitutionality of the statutes directing the Comptroller to audit charter schools.
"Capacity to sue is a threshold matter allied with, but conceptually distinct from, the question of standing. As a general matter, capacity 'concerns a litigant's power to appear and bring its grievance before the court' (Community Bd. 7 v Schaffer, 84 NY2d 148, 155). Capacity may depend on a litigant's status or . . . on authority to sue or be sued. In Community Bd. 7, we noted that capacity may be expressly conferred or 'inferred as a "necessary implication from [the agency's] power[s] and responsibilit[ies]," provided, of course, that "there is no clear legislative intent negating review" ' (id. at 156 [quoting Matter of City of New York v City Civ. Serv. Commn., 60 NY2d 436, 443-444, rearg denied 61 NY2d 759])." (Silver v Pataki, 96 NY2d 532, 537 [2001].)
It is well established that "municipalities and other local governmental corporate entities . . . lack capacity to mount constitutional challenges to acts of the State and State legislation" (City of New York v State of New York, 86 NY2d 286, 289 [1995]). In arguing that charter schools fall within this rule, respondents assert that charter schools are public schools that exercise governmental functions in the area of public education. Respondents also point to the fact that charter schools are incorporated by the Board of Regents pursuant to a detailed statutory scheme from which charter schools draw their powers and duties. On this basis, respondents argue that charter schools have no more capacity to maintain a constitutional action against the State than do municipalities (see City of New York, supra) or school districts (see New York State Assn. of Small City School Dists., Inc. v State of New York, 42 AD3d 648, 649 [3d Dept 2007]).
The flaw in this argument, however, is that charter schools are not political or governmental subdivisions of the State, a conclusion discussed in detail infra. Rather, charter schools are established as separate legal entities, governed in virtually all respects by the Not-For-[*3]Profit Corporation Law, that carry out their mission of providing educational services to the public in an independent and autonomous manner. "The lack of capacity of municipalities to sue the State is a necessary outgrowth of separation of powers doctrine: it expresses the extreme reluctance of courts to intrude in the political relationships between the Legislature, the State and its governmental subdivisions"{**20 Misc 3d at 245} (City of New York, 86 NY2d at 295-296). Since the corporate entities that operate charter schools are not subdivisions of the State, this rule is not implicated.
In any event, the general rule that municipalities lack capacity to maintain constitutional challenges against the State admits of several exceptions, one being an express statutory authorization to sue (id. at 291). Through application of the Not-For-Profit Corporation Law (see Education Law § 2853 [1]; § 216-a [4]), the Legislature expressly has conferred upon charter schools the power "[t]o sue and be sued in all courts and to participate in actions and proceedings . . . in like cases as natural persons" (N-PCL 202 [a] [2] [emphasis added]). While a general authorization to sue has been held insufficient to authorize a political subdivision to prosecute a constitutional action against the State (see City of New York at 293), the power of a charter school to sue "as a natural person" is a far more expansive grant of authority that encompasses the prosecution of constitutional claims. Indeed, had the Legislature intended to limit the capacity of charter schools to sue "in like cases as political subdivisions," it could easily have said so.
Respondents also argue that petitioners lack standing to maintain this action, contending that charter schools cannot allege an injury-in-fact that falls within the zone of interest of General Municipal Law § 33 (2) and Education Law § 2854 (1) (c). In proposing to examine the zone of interest of the challenged enactments, however, respondents misdirect their inquiry.
Petitioners are challenging the aforementioned statutes as having been enacted in violation of New York Constitution, article V, § 1, an express constitutional restriction on the Legislature's otherwise plenary lawmaking authority. Accordingly, the issue is not whether petitioners fall within the zone of interest of the statutes they claim to be unconstitutional; rather, the proper inquiry is whether petitioners are within the zone of interest of the constitu