Opinion ID: 6109717
Heading Depth: 2
Heading Rank: 1

Heading: AYW's Constitutional Claims

Text: The Texas Constitution provides that [n]o citizen of this State shall be deprived of life, liberty, property, privileges or immunities ... except by the due course of  the law of the land. TEX. CONST. art. I, § 19. Our due course clause is nearly identical to the federal due process clause, which provides: No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law.... U.S. CONST. amend. XIV, § 1. Because the two are so similar, we have traditionally followed contemporary federal due process interpretations of procedural due process issues. Univ. of Tex. Med. Sch. at Houston v. Than , 901 S.W.2d 926 , 929 (Tex. 1995) ; see also Patel v. Tex. Dep't of Licensing & Regulation , 469 S.W.3d 69 , 86 (Tex. 2015) (noting the typical alignment of federal and state law in this area). Before any substantive or procedural due-process rights attach, however, the citizen must have a liberty or property interest that is entitled to constitutional protection. Klumb v. Hous. Mun. Emps. Pension Sys. , 458 S.W.3d 1 , 15 (Tex. 2015). Property interests are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law .... Bd. of Regents of State Colls. v. Roth , 408 U.S. 564 , 577, 92 S.Ct. 2701 , 33 L.Ed.2d 548 (1972). To have a constitutionally protected property interest, a person must have a legitimate claim of entitlement rather than a mere unilateral expectation. Id. Texas law similarly states that a vested right is something more than a mere expectancy based upon an anticipated continuance of an existing law. City of Dallas v. Trammell , 129 Tex. 150 , 101 S.W.2d 1009 , 1014 (1937). AYW asserts that it was denied due process in the revocation of its charter, but before determining what process was due, we first consider whether AYW has a property interest that is entitled to procedural due process protection. Klumb , 458 S.W.3d at 15 . In other words, we must determine that AYW possessed a vested right to its charter. The court of appeals concluded that AYW's charter was not a vested or constitutionally protected property interest. 496 S.W.3d at 262 . To the contrary, the court stated that specific provisions in the charter and the Education Code conclusively negate[d] any such possible property interest. Id. at 261 . The court noted that [s]ome substantive limit on the State's discretion is an essential characteristic of a property interest warranting constitutional protection, Id. (quoting Grounds v. Tolar Indep. Sch. Dist. , 856 S.W.2d 417 , 418 (Tex. 1993), and that here, state law and the charter itself gave the State[ ] unlimited discretion over the charters. Id. AYW, of course, disagrees. AYW views its charter as a contract with the State for an open-enrollment charter school that vested upon execution and, according to AYW's argument, could not be divested or impaired thereafter absent due process of law. AYW's original charter incorporated by reference all applicable requirements of state and federal law, and although the charter did not specifically mention Education Code § 12.115, it did paraphrase some of that section's requirements, providing: Charterholder understands that the Board may modify, place on probation, revoke or deny renewal to a charter if the Board 5 determines that a material violation of the charter has occurred, that Charterholder has failed to satisfy generally accepted accounting standards of fiscal management, or that the Charterholder  has failed to comply with an applicable law or rule. AYW's subsequent charter renewal in 2002 did not again paraphrase the revocation grounds, but rather simply incorporated applicable law. AYW contends that its charter incorporated a for cause provision, specifically the limitations on revocation found in its original charter and in Education Code § 12.115, asserting that these limitations on State discretion created its vested right. The Commissioner responds that AYW's charter is not a property right that can be distinguished from the legislative mandate creating such right. Because the charter-school system is a legislative creation, AYW's right to operate a school rests entirely on the Legislature's decision to continue the system. Moreover, AYW's right to any particular terms rests on the Legislature's decision to continue the current law because a charter's terms are governed by statute. Thus, although AYW's charter and its renewal take the form of a contract, both documents anticipate and incorporate changes to the law governing charters as they arise. The original charter incorporated amendments to the state and federal law governing charter schools, while the charter renewal incorporated all applicable law, which included Education Code § 12.1071. Under that section, AYW's acceptance of state funds constitutes its agreement to any amendments to the laws governing charter schools. TEX. EDUC. CODE § 12.1071. Because AYW's original charter and subsequent renewal recognize the Legislature's authority to alter the charter's terms, the Commissioner submits the documents are inextricably intertwined with the Legislature's regulatory authority, rendering AYW's interest in its charter entirely contingent on State discretion, and not a vested property right. See 496 S.W.3d at 262 . An open-enrollment charter school is indisputably part of the Texas public-education system. LTTS Charter Sch., 342 S.W.3d at 76 . Thus, AYW's contention is that its charter with the State created a contractual relationship that vested its place in that system. The nature of that relationship and AYW's underlying rights therein thus require an examination of the laws that made AYW a part of public education. The State's relationship with its open-enrollment charter schools is principally set forth in chapter 12 of the Education Code (the Charter Schools Act). Enacted as part of major reforms to the Texas education system in 1995, the chapter's stated purposes included the establishment of a new form of accountability for public schools and the encouragement of different and innovative learning methods. TEX. EDUC. CODE § 12.001(a)(4)-(5). State oversight of this new component of the public school system remained, however, to ensure[ ] the fiscal and academic accountability of the charters. Id. § 12.001(b). That oversight, however, was not to be applied in a manner that unduly regulates the instructional methods or pedagogical innovations of the charter schools. Id. A charter is obtained by application to the Commissioner, who, along with a designated member of the Board of Education, is charged with throughly investigating and evaluating an applicant. Id. § 12.101(b). As already mentioned, applicants are typically nonprofit, 501(c)(3) corporations. See id. § 12.101(a)(3). Any charter the Commissioner proposes to grant may be reviewed and denied by the Board, but if not, the charter takes effect 90 days after notice. Id. § 12.101(b-0). The number of charters the Commissioner may grant, however, is limited by statute. See id. § 12.101.(b-1)-(b-2).  The charter for an open-enrollment charter school is in the form of a written contract signed by the commissioner and the chief operation officer of the school. Id. § 12.112. The initial term is for five years, and if the charter is renewed, the renewal is for ten years. Id. §§ 12.101(b-5), .1141(i). Once chartered, the school is authorized to provide instruction to students under the charter's described structure, and the school retains that authority subject to renewal under section 12.1141, revocation under section 12.115, and Chapter 39A, which pertains to other actions the Commissioner may take when a school fails to meet academic and financial accountability standards. Id. § 12.102. Open-enrollment charter schools do not have the power to tax, Id. § 12.102, but they generally are entitled to state funding, Id. § 12.106, and services, Id. § 12.104(c), as if they were school districts. Open-enrollment charter schools are subject to the Education Code and the rules adopted under it only to the extent specifically provided. Id. § 12.103(b). Open-enrollment charter schools also accept changes to applicable law made after the effective date of their charters by accepting state funds. Id. § 12.1071(a). This legislative scheme indicates that an open-enrollment charter is a new and innovative form of public schooling rather than a mere contract to outsource public education to a private entity. And while charter schools are designed to foster greater flexibility through less regulation, they are regulated nonetheless. Rather than create an ownership interest or vested right in public education, the charter is in the nature of a license or permit to operate a charter school subject to applicable laws and regulations. Cf. Pocono Mountain Charter Sch. v. Pocono Mountain Sch. Dist. , 908 F.Supp.2d 597 , 609 (M.D. Pa. 2012) (holding that relationship is regulatory, not contractual). We accordingly agree with the court of appeals that the Legislature has neither bargained away its discretion over this aspect of public education nor created vested private-property rights in the creation of the charter school system. 496 S.W.3d at 261 . AYW maintains, however, that the Legislature created its vested right in the charter by establishing a for cause limitation on its revocation. AYW argues further that the Commissioner's discretion in applying that for cause limitation is what is at issue rather than the Legislature's authority over the public school system. AYW submits that where an official or administrator is the decision-maker charged with administering a right, the proper analysis for determining whether the right is vested is the existence of limitations placed on the decision-making official or administrator's discretion to impair the right, citing Grounds v. Tolar Independent School District , 856 S.W.2d 417 , 418 (Tex. 1993), in support. The Texas League of Community Charter Schools 6 and the Texas Charter Schools Association 7 have filed amicus briefs that similarly rely on our decision in Grounds to support AYW's due process claim. The amici argue that an open-enrollment charter is a contract that creates a vested property interest in the charter issued by the Commissioner. See TEX. EDUC. CODE § 12.112 (providing that an open-enrollment charter shall be in the form of a written contract). They submit that a constitutionally protected property interest includes  an individual entitlement grounded in state law, which cannot be removed except 'for cause,'  Logan v. Zimmerman Brush Co. , 455 U.S. 422 , 430, 102 S.Ct. 1148 , 71 L.Ed.2d 265 (1982), and analogize the situation here to that in Grounds where we noted a substantive limit on the State's discretion as an essential characteristic of a protected property interest. Grounds , 856 S.W.2d at 418 . In Grounds , we considered the effect of the Term Contractual Renewal Act on a school district's right to terminate a teacher's employment. Id. at 420 . We found it constitutionally significant that the law required preestablished reasons for the nonrenewal of a teaching contract. Id. at 418 . Those previously established reasons limited the district's discretion to decline renewal for other reasons. Id. at 418-19 . In contrast, the statute here required the Commissioner to revoke the open-enrollment charters for the specific reason he applied. See TEX. EDUC. CODE § 12.115(c). But apart from that distinction, a more basic structural reason stands in the way of AYW's due process claim. The Education Code does not treat the charter holder or school like a private citizen; unlike the teacher in Grounds , they exist as a part of the public school system. Id. § 12.105. For most purposes, they function as governmental entities. Thus, we held in LTTS Charter School that an open-enrollment charter school was a governmental unit for purposes of the Tort Claims Act, entitled to an interlocutory appeal from an order denying its plea to the jurisdiction. LTTS Charter Sch., 342 S.W.3d at 74-75 . In reaching this conclusion, we pointed to specific legislative grants of authority to open-enrollment charter schools, including the grant of all powers given to traditional public schools under Title 2 of the Education Code. Id. at 77 (citing TEX. EDUC. CODE § 12.104(a) ). We commented further that open-enrollment charter schools have statutory entitlements to state funding and services that school districts receive, are generally subject to the laws and rules pertaining to public schools, and are obligated to comply with many of the requirements of educational programs that apply to traditional public schools, including accountability programs. Id. at 77-78 (citing TEX. EDUC. CODE §§ 12.103(a) - (b), .104, .106(a) ). Additionally, we noted that open-enrollment charter schools are subject to a host of statutes that govern governmental entities outside the Education Code, including statutes imposing open-meetings, public-information , and record-regulation requirements. Id. at 78 (citing TEX. EDUC. CODE §§ 12.1051, .1052). We noted further that the Legislature expressly granted open-enrollment charter schools the same immunity from liability as school districts. Id. at 78 n.44. We explained that open-enrollment charter schools are expressly considered governmental entit[ies] for ... [statutes] relating to property held in trust and competitive bidding, political subdivision[s] for ... [statutes concerning] procurement of professional services, and local government[s] for ... [statutes governing] authorized investments. Id. at 78 (citing TEX. EDUC. CODE § 12.1053 ) (internal quotation marks omitted). Finally, we expressed confiden[ce] that the Legislature considers open-enrollment charter schools institution[s], agenc[ies], or organ[s] of government under the Tort Claims Act given their statutory status as part of the public-school system, their authority to wield the powers given to public schools, and their right to receive and spend state tax dollars (and in many ways to function as a governmental entity). Id. (citing TEX. EDUC. CODE §§ 12.104(a), .105-.107, .1053). During the next legislative session, the Legislature essentially codified our holding  in LTTS , agreeing that an open-enrollment charter school is a governmental unit as defined in the Tort Claims Act and providing for its liability in the same manner as a school district. TEX. EDUC. CODE § 12.1056(b). In that same session, the Legislature also expanded charter-school immunity to include immunity from suit and added charter holders to the immunity granted: In matters related to operation of an open-enrollment charter school, an open-enrollment charter school or charter holder is immune from liability and suit to the same extent as a school district, and the [ ] employees and volunteers of the open-enrollment charter school or charter holder are immune from liability and suit to the same extent as school district employees and volunteers. A member of the governing body of an open-enrollment charter school or of a charter holder is immune from liability and suit to the same extent as a school district trustee. Act of May 29, 2015, 84th. Leg., R.S., ch. 922 (H.B. 1171), § 1, 2015 Tex. Gen. Laws 3187 (codified as TEX. EDUC. CODE § 12.1056(a) ). More recently, we have noted other instances in which the [Charter Schools Act] treats open-enrollment charter schools as governmental entities, making them • a governmental unit under the Tort Claims Act and subject to the same liability as a school district; • a local government under statutes regarding payment of tort claims, interlocal cooperation contracts, and self-insurance (except for issuing public securities); • a local governmental entity under the Local Government Contract Claims Act and subject to the same liability as a school district; and • a political subdivision for purposes of the Texas Political Subdivisions Uniform Group Benefits Program, and at the school's election, for purposes of extending workers' compensation benefits. Neighborhood Ctrs. v. Walker , 544 S.W.3d 744 , 753, 2018 WL 1770309 (Tex. 2018) (footnotes and citations omitted). AYW's status as a public school and governmental entity implicates a line of U.S. Supreme Court cases which hold that neither the Contract Clause nor the Due Process Clause protect subordinate units of government from the acts of their creators. See Ysursa v. Pocatello Educ. Ass'n , 555 U.S. 353 , 363, 129 S.Ct. 1093 , 172 L.Ed.2d 770 (2009) (quoting Williams v. Mayor of Baltimore , 289 U.S. 36 , 40, 53 S.Ct. 431 , 77 L.Ed. 1015 (1933) ) (recognizing that a subordinate unit of government created by the State to carry out delegated governmental functions or a political subdivision, 'created by a state for the better ordering of government, has no privileges or immunities under the federal constitution which it may invoke in opposition to the will of its creator' ); Coleman v. Miller, 307 U.S. 433 , 441, 59 S.Ct. 972 , 83 L.Ed. 1385 (1939) (observing that municipal corporations have no standing to invoke the contract clause or the provisions of the Fourteenth Amendment of the Constitution in opposition to the will of their creator); City of Trenton v. New Jersey , 262 U.S. 182 , 188, 43 S.Ct. 534 , 67 L.Ed. 937 (1923) (same); and Hunter v. City of Pittsburgh , 207 U.S. 161 , 178-79, 28 S.Ct. 40 , 52 L.Ed. 151 (1907) (same). In Hunter , the Supreme Court held that a political subdivision could not invoke the Contract Clause to protect its contracts or the Fourteenth Amendment to protect its property because [t]he number, nature and duration of the powers conferred upon [municipal] corporations and the territory  over which they shall be exercised rests in the absolute discretion of the state. Hunter , 207 U.S. at 178 , 28 S.Ct. 40 . The state was therefore free to force the merger of Pittsburgh and Allegheny because the laws giving political subdivisions their powers and boundaries were not contract[s] with the state within the meaning of the Federal Constitution. Id. In Trenton , the Court followed its reasoning in Hunter to deny the city's claim that a state tax impaired an existing contract. There, Trenton had purchased the right to draw water from the Delaware River from a water company, which had received the right by grant from the state. Trenton , 262 U.S. at 184 , 43 S.Ct. 534 . The state subsequently required all entities drawing water from rivers to pay a fee if they drew over a specified amount. Id. at 183-84 , 43 S.Ct. 534 . Trenton protested that the fee impaired its contract with the water company and deprived the city of property without due process of law. Id. at 183 , 43 S.Ct. 534 . The Court denied the claim, writing that [t]he power of the state, unrestrained by the contract clause or the Fourteenth Amendment, over the rights and property of cities held and used for 'government purposes' cannot be questioned. Id. at 188 , 43 S.Ct. 534 . In the court of appeals, AYW argued that its open-enrollment charter school was not a governmental entity for all purposes and that the nonprofit corporation holding the charter was a private entity that did not owe its existence to the state. AYW, however, agrees that the powers and existence of its open-enrollment charter school are derived from the Legislature, but submits that its own powers and existence as a private, nonprofit corporation do not, particularly with respect to activities related to AYW's non-education components. In addition to its charter school, AYW states that it provides work training and community service opportunities for its youth and that the revocation of its charter has inhibited its ability to secure funding for the community services it continues to offer. But the court of appeals' decision says nothing about these activities or AYW's continued existence as a nonprofit corporation. Indeed, all that was before the court was AYW's right to continue operating its open-enrollment charter school, an entity owing its powers and existence to the Legislature. Entities created to perform a governmental function, though clearly subordinate to their creator, are not without recourse, however. For example, a state may revoke the charter of a political subdivision, but must preserve a means for the subdivision's creditors to satisfy their claims. Port of Mobile v. U.S. ex rel. Watson , 116 U.S. 289 , 305, 6 S.Ct. 398 , 29 L.Ed. 620 (1886). The Supreme Court has also found exceptions to the state's broad powers where their exercise clashed with important federal interests. See Gomillion v. Lightfoot, 364 U.S. 339 , 341, 81 S.Ct. 125 , 5 L.Ed.2d 110 (1960) (recognizing Fifteenth Amendment claim for gerrymandering city boundaries to exclude African-American citizens); Bd. of Educ. of Kiryas Joel Village Sch. Dist. v. Grumet, 512 U.S. 687 , 114 S.Ct. 2481 , 129 L.Ed.2d 546 (1994) (holding unconstitutional under the Establishment Clause a New York law that carved a school district around a community of Satmar Hasidic Jews). In Gomillion, the Supreme Court limited the holdings of Hunter and Trenton , explaining that the State's authority is unrestrained [as against political subdivisions] by the particular prohibitions of the Constitution considered in those cases, rather than granting the states plenary power to manipulate in every conceivable way ... the affairs of municipal corporations.  Gomillion, 364 U.S. at 344 , 81 S.Ct. 125 . But those concerns are not raised here. Although the Hunter / Trenton line of authority are no longer considered by most courts as an absolute bar to suit, they continue to deny suits by subordinate governmental entities based on the contractual and due process concerns raised by AYW. See City of Hugo v. Nichols , 656 F.3d 1251 , 1256 (10th Cir. 2011) (recognizing a political subdivision's right to sue its creator under the Supremacy Clause but not as an individual liberty interest); S. Macomb Disposal Auth. v. Twp. of Washington , 790 F.2d 500 , 504-05 (6th Cir. 1986) (suggesting Supremacy Clause claim allowed); United States v. Alabama, 791 F.2d 1450 , 1454-55 (11th Cir. 1986) (Fourteenth Amendment claims barred); Rogers v. Brockette , 588 F.2d 1057 , 1070 (5th Cir. 1979) ([T]he Constitution does not interfere with a state's internal political organization.); City of Alpine v. Abbot , 730 F.Supp.2d 630 , 632-33 (W.D. Tex. 2010) (noting that political subdivisions of a state are not protected by the Due Process Clause); City of Bristol v. Earley , 145 F.Supp.2d 741 , 744 (W.D. Va. 2001) (noting similar holdings); but see Burbank-Glendale-Pasadena Airport Auth. v. City of Burbank, 136 F.3d 1360 , 1363-64 (9th Cir. 1998) (no political subdivision suit against parent state allowed). For example, in Rogers v. Brockette , a school district challenged the constitutionality of a Texas statute that required the district's participation in a federally subsidized breakfast program. 588 F.2d at 1059 . The school district objected to being required by the state to participate in the program, arguing that because the federal program itself did not require participation, federal law should prevail under the Supremacy clause, and the district should be allowed to choose not to participate. Id. at 1060 . While cognizant of the Hunter / Trenton line of authority, the Fifth Circuit concluded the line was not an absolute bar to a political subdivision's suit against its state creator but rather substantive interpretations of the constitutional provisions involved. Id. at 1068 . The court distinguished between cases where a political subordinate brings a claim based on an individual right guaranteed by the Constitution and those in which a subordinate complains that a particular state law conflicts with federal law in violation of the Supremacy Clause. Id. at 1070 . The court concluded that only the latter present viable claims because Congress may interfere with a state's internal political organization in ways that the Constitution itself does not interfere. Id. After Rogers , the Tenth Circuit elaborated on the distinction:  '[A] municipality may not bring a constitutional challenge against its creating state when the constitutional provision that supplies the basis for the complaint was written to protect individual rights,' as opposed to constitutional provisions designed to protect 'collective or structural rights' (i.e. the Supremacy Clause). City of Hugo , 656 F.3d at 1256 (alteration in original) (quoting Branson Sch. Dist. RE-82 v. Romer, 161 F.3d 619 , 628 (10th Cir. 1998). Our state law similarly provides that Municipal Corporations do not acquire vested rights against the State. Deacon v. City of Euless, 405 S.W.2d 59 , 62 (Tex. 1966). In Deacon , this Court applied a statute retrospectively to invalidate a City's annexation ordinance that had been adopted before the statute's effective date. Id. at 59 . More recently, we applied this same principle to sovereign immunity: A governmental entity cannot complain of a retroactive waiver of immunity, since all governmental immunity derives from the State, and a governmental entity acquires no vested rights against the State.  Tooke v. City of Mexia , 197 S.W.3d 325 , 345 (Tex. 2006). And we have also cited Trenton when rejecting a governmental entity's due course of law claim under the Texas Constitution. See City of Fort Worth v. Zimlich, 29 S.W.3d 62 , 72 (Tex. 2000) (rejecting city's Article I, § 19 claim); see also Texas Workers' Comp. Comm'n v. City of Bridge City, 900 S.W.2d 411 , 414 (Tex. App.-Austin 1995, writ denied) (concluding that governmental entities cannot use Article I rights to invalidate the laws that govern them). From the foregoing authorities, we conclude that a charter school's charter is not a vested property right to which the due course of law or prohibition on retrospective laws apply, and we accordingly reject AYW's constitutional claims.