Court Opinion

ID: 2728267
Source: CourtListenerOpinion
Date Created: 2014-09-08 21:30:57.135766+00
Date Added: 2024-06-11T09:53:07.436613
License: Public Domain

NO. COA13-893

                     NORTH CAROLINA COURT OF APPEALS

                           Filed: 3 June 2014

THOMAS JEFFERSON CLASSICAL ACADEMY
CHARTER SCHOOL, PIEDMONT COMMUNITY
CHARTER SCHOOL AND LINCOLN CHARTER
SCHOOL,
     Plaintiffs,

     v.                                 Cleveland County
                                        No. 12 CVS 41
CLEVELAND COUNTY BOARD OF
EDUCATION, D/B/A CLEVELAND COUNTY
SCHOOLS,
     Defendant.

     Appeal by defendant from Judgment entered on or about 13

February 2013 and Order and Judgment entered 2 April 2013 by

Judge   Jesse   B.   Caldwell   III,   in    Superior   Court,   Cleveland

County.   Heard in the Court of Appeals 23 January 2014.

     Robinson Bradshaw & Hinson, P.A., by Richard A. Vinroot and
     Matthew F. Tilley, for plaintiffs-appellees.

     Tharrington Smith, L.L.P.,         by    Deborah   R.   Stagner,   for
     defendant-appellant.

     Allison B. Schafer and Christine T. Scheef for N.C. School
     Boards Association, for amicus curiae.

     STROUD, Judge.

     The Cleveland County Board of Education, d/b/a Cleveland

County Schools (“CCS” or “defendant”), appeals from the judgment
                                         -2-
entered by the trial court on or about 13 February 2013, wherein

it concluded that certain funds that CCS had placed in Fund 8

should have been placed into the local current expense fund and

distributed on a pro rata basis to the plaintiff charter schools.

CCS also appeals from an order awarding plaintiffs attorneys’

fees. We remand to allow the trial court to apply the correct

legal    standard.     We   reverse    the     trial     court’s   order   awarding

attorneys’ fees.

                                I.      Background

        On   9    January   2012,     Thomas    Jefferson     Classical     Academy

Charter School, Piedmont Community Charter School, and Lincoln

Charter      School    (“plaintiffs”)        filed   a   complaint   in    superior

court, Cleveland County, alleging that CCS had failed to pay

them the proper per-pupil amount required by statute. Plaintiffs

specifically contended that CCS wrongfully moved approximately

$4.9 million from the local current expense fund, which must be

shared with the charter schools, to a “special revenue fund,”

which is         not shared.   Plaintiffs alleged that they were owed

approximately $102,480. Plaintiffs sought a declaratory judgment

that CCS must allocate the funds as plaintiffs contended the

statute      required,      recovery    in     the   amount   of   $102,480,    and

attorneys’ fees under N.C. Gen. Stat. § 6-19.1. CCS answered,
                                          -3-
denying that their transfer of the funds to the special revenue

fund violated any of the applicable statutes and that plaintiffs

were owed anything.

       The case was tried by the superior court sitting without a

jury.    The      parties   each   presented       evidence    to    support    their

claims. Plaintiffs primarily relied on the testimony of David

Lee,    financial     director     for    CCS.   Mr.   Lee    prepared     an    audit

report of CCS’ finances, which used various state budget codes

for different revenue sources. Many of the funding sources that

CCS had placed in the special revenue fund were classified by

Mr.    Lee   as     “unrestricted.”      Defendant     presented      a   number   of

witnesses      who    administered       various    programs    within     the     CCS

system who testified about their funding sources and the use of

those funds. After two days of testimony, the trial court took

the matter under advisement.

       The trial court entered its judgment on 21 February 2013,

wherein        it     found    that       defendant      had        misappropriated

approximately $2,781,281 that should have been placed in the

current expense fund rather than the special revenue fund. It

found that Mr. Lee had admitted that $2,109,377 of the funds,

called “Column A,” were “unrestricted.” It further found, based

on Mr. Lee’s testimony and that of the other CCS administrators,
                                                -4-
that $671,904 of the funds, listed under “Column B” and “Column

C” were “(a) part of ‘moneys made available to CCS for its

‘current operating expenses, (b) used by CCS to operate its

general K-12 programs and activities, and (c) not restricted to

purposes       outside       CCS’s       general        educational      programs.”           It

concluded that defendant owed plaintiffs $57,836 collectively

and entered judgment against CCS in that amount.                                     Defendant

filed    written       notice       of    appeal        from   the    21      February      2013

judgment on 18 March 2013.

       Plaintiffs then filed a petition for attorneys’ fees under

N.C.    Gen.    Stat.    §     6-19.1(a).         The    trial    court,       by   order   and

judgment entered 2 April 2013, granted plaintiffs’ petition and

awarded    them    $47,195.90            in     attorneys’       fees.     Defendant     filed

written notice of appeal from the 2 April 2013 judgment and

order on 30 April 2013.

                              II.        “Restricted” Funds

       Defendant argues that the trial court erred in finding that

various    revenue       sources         were    not    “restricted”          and   concluding

that    these     funds        were       therefore        subject       to     a   per-pupil

distribution      to     the    plaintiff          charter       schools.      Recently      the

Legislature      has     amended         the    statute     the    Judge      applied    below
                                     -5-
clarifying the definition of “restricted” funds, so we remand

for the trial court to apply this definition to the facts here.

A.     Standard of Review

             When the trial court sits without a jury,
             the standard of review on appeal is whether
             there was competent evidence to support the
             trial court’s findings of fact and whether
             its conclusions of law were proper in light
             of such facts. . . . Evidence must support
             the findings, the findings must support the
             conclusions of law, and the conclusions of
             law must support the ensuing judgment.

Jackson v. Culbreth, 199 N.C. App. 531, 537, 681 S.E.2d 813, 817

(2009) (citations, quotation marks, and brackets omitted).

B.     Charter School Funding and the Uniform Budget Statute

       The allocation of funds between local school administrative

units and charter schools is governed by N.C. Gen. Stat. § 115C-

238.29H      (2009).   That     statute    requires     the   local      school

administrative unit to “transfer to the charter school an amount

equal to the per pupil local current expense appropriation to

the local school administrative unit for the fiscal year.” N.C.

Gen. Stat. § 115C-238.29H(b).             This Court has interpreted the

phrase “local current expense appropriation” to be “synonymous

with   the    phrase   ‘local   current    expense    fund’   in   the   School

Budget and Fiscal Control Act, N.C.G.S. § 115C–426(e).” Francine

Delany New School for Children, Inc. v. Asheville City Bd. of
                                     -6-
Educ., 150 N.C. App. 338, 347, 563 S.E.2d 92, 98 (2002), disc.

rev.   denied,   356   N.C.   670,   577    S.E.2d   117    (2003).   We   have

further held that charter schools “are entitled to an amount

equal to the per pupil amount of all money contained in the

local current expense fund.” Sugar Creek Charter School, Inc. v.

Charlotte-Mecklenburg Bd. of Educ., 188 N.C. App. 454, 460, 655

S.E.2d 850, 854 (Sugar Creek I), disc. rev. denied, ___ N.C.

___, 667 S.E.2d 460 (2008).          It is immaterial that the school

board has earmarked particular funds for a specific purpose if

the funds have been deposited in the local current expense fund.

Sugar Creek Charter School, Inc. v. Charlotte-Mecklenburg Bd. of

Educ., 195 N.C. App. 348, 360-61, 673 S.E.2d 667, 676 (Sugar

Creek II) (holding, inter alia, that the trial court did not err

in concluding that funds designated for students affected by

Hurricane   Katrina    were   subject      to   per-pupil   distribution    to

charter schools because they were placed in the current local

expense fund, as opposed to a separate fund), disc. rev. denied,

363 N.C. 663, 687 S.E.2d 296 (2009).

       The local   current expense fund is defined by N.C. Gen.

Stat. § 115C-426(e) (2009):

            The local current expense fund shall include
            appropriations sufficient, when added to
            appropriations from the State Public School
            Fund, for the current operating expense of
                                           -7-
              the public school system in conformity with
              the educational goals and policies of the
              State and the local board of education,
              within    the    financial    resources   and
              consistent with the fiscal policies of the
              board   of    county   commissioners.   These
              appropriations shall be funded by revenues
              accruing to the local school administrative
              unit by virtue of Article IX, Sec. 7 of the
              Constitution, moneys made available to the
              local school administrative unit by the
              board of county commissioners, supplemental
              taxes levied by or on behalf of the local
              school administrative unit pursuant to a
              local act or G.S. 115C-501 to 115C-511,
              State money disbursed directly to the local
              school administrative unit, and other moneys
              made available or accruing to the local
              school administrative unit for the current
              operating expenses of the public school
              system.

       N.C. Gen. Stat. § 115C-426(c) also permits the creation of

“other funds . . . to account for trust funds, federal grants

restricted as to use, and special programs.”                 Thus, we have held

that “the provisions of Chapter 115C . . . do not require that

all monies provided to the local administrative unit be placed

into    the     ‘local    current    expense     fund’     (Fund   Two).”   Thomas

Jefferson Classical Academy v. Rutherford County Bd. of Educ.,

215    N.C.   App.     530,   543,   715   S.E.2d   625,    633    (2011)   (Thomas

Jefferson I), disc. rev. denied and app. dismissed, ___ N.C. ___,

724    S.E.2d    531     (2012).     “Restricted    funds”     kept    in   a   fund

separate from the local current expense fund are exempt from per-
                                                   -8-
pupil distribution to the charter schools. Id. at ___, 715 S.E.2d

at 630 (“[I]f funds are placed in the ‘local current expense

fund’ and not held in a ‘special fund,’ they must be considered

as   being    part      of    the       ‘local      current      expense       fund’    used    to

determine the pro rata share due to the charter schools.”). The

local school board has the authority to place such restricted

funds in a separate fund. Id. at ___, 715 S.E.2d at 634 (“Sugar

Creek I and II clearly indicate that it is incumbent upon the

local     administrative           unit       to    place   restricted         funds     into    a

separate fund.”); Sugar Creek I, 188 N.C. App. at 460-61, 655

S.E.2d at 855. However, we have never defined what “restricted

funds” are or who has the authority to make that determination.

         Thus, there are two fundamental questions we must address

here:      (1)   does        the    local          school   board       have    discretionary

authority to allocate funds into the local current expense fund

or   a    separate      fund       as    it    sees      fit?;    and    if     not,    (2)    did

defendant        here    properly          classify         the     funds      at      issue    as

restricted?

         N.C. Gen. Stat. § 115C-426(e) states that the local current

expense fund

             shall be funded by revenues accruing to the
             local school administrative unit by virtue
             of Article IX, Sec. 7 of the Constitution,
             moneys made available to the local school
                                             -9-
               administrative unit by the board of county
               commissioners, supplemental taxes levied by
               or   on   behalf   of   the   local  school
               administrative unit pursuant to a local act
               or G.S. 115C-501 to 115C-511, State money
               disbursed directly to the local school
               administrative unit, and other moneys made
               available or accruing to the local school
               administrative   unit   for    the  current
               operating expenses of the public school
               system.

       “It is well established that the word ‘shall’ is generally

imperative or mandatory.” Chandler ex rel. Harris v. Atlantic

Scrap & Processing, ___ N.C. App. ___, ___, 720 S.E.2d 745, 750

(2011)     (citation        and     quotation       marks       omitted),     aff’d       and

remanded, ___ N.C. ___, 749 S.E.2d 278 (2013). Consistent with

this Court’s decisions in Sugar Creek I, Sugar Creek II, and

Thomas Jefferson I, as well as the plain language of N.C. Gen.

Stat.     §    115C-426(e),         we     conclude     that      the      local    school

administrative unit may deposit any “restricted” funds into a

fund     separate     from        the     current     expense      fund.     See    Thomas

Jefferson I, 215 N.C. App. at 544, 715 S.E.2d at 634; Sugar

Creek I, 188 N.C. App. at 460, 655 S.E.2d at 855.                           By contrast,

any    funds    covered     by     N.C.    Gen.     Stat.   §    115C-426(e)       must    be

deposited      into   the    local        current    expense      fund.      We    further

conclude that the determination of which funds may be placed in

a separate fund is not solely in the discretion of the local
                                         -10-
school board, given the mandatory language found in the budget

statute. See Chandler, ___ N.C. App. at ___, 720 S.E.2d at 750

(holding that the Industrial Commission has no discretion in

determining an interest award when the relevant statute employed

the word “shall”).

C.     Defining “restricted” funds

       “Restricted” is not a term found in any of the relevant

statutes.    Rather,    it    is    a    gloss   this   Court   has   put    on    the

statutory definitions found in N.C. Gen. Stat. § 115C-426(c). It

was the Court’s shorthand for those monies that can be placed in

a separate fund, i.e. those from “trust funds, federal grants

restricted    as   to   use,       and   special   programs”     which      must   be

accounted for separately.           N.C. Gen. Stat. § 115C-426(c).

       The guidance from the Department of Public Instruction that

we reviewed in Thomas Jefferson I indicated that Fund 8 was a

new,   separate    fund      “to    separately     maintain     funds    that      are

restricted in purpose and not intended for the general K–12

population in the LEA.” Thomas Jefferson I, 215 N.C. App. at

537, 715 S.E.2d at 630.            Such funds included:

            (a) State funds that are provided for a
            targeted non–K–12 constituency such as More–
            at–Four funds;
                                   -11-
              (b) Funds targeted for a specific, limited
              purpose, such as a trust fund for a specific
              school within the LEA;

              (c) Federal or other funds not intended for
              the general K–12 instructional population,
              or a sub-group within that population, such
              as funds for a pilot program;

              (d) Indirect cost, such as those associated
              with   a   federal  grant  that   represent
              reimbursement for cost previously incurred
              by the LEA.

Id.

      After    the   extensive   litigation   over   the   definition   of

“restricted” and “unrestricted” funds, the Legislature passed an

amendment to N.C. Gen. Stat. § 115C-426 in 2010 and again in

2013. N.C. Sess. Laws 2010-31, § 7.17(a); N.C. Sess. Laws 2013-

355, § 2(a).     The statute now clarifies that:

              other funds may be used to account for
              reimbursements, including indirect costs,
              fees for actual costs, tuition, sales tax
              revenues distributed using the ad valorem
              method pursuant to G.S. 105-472(b)(2), sales
              tax refunds, gifts and grants restricted as
              to use, trust funds, federal appropriations
              made directly to local school administrative
              units,     and     funds    received     for
              prekindergarten programs. In addition, the
              appropriation or use of fund balance or
              interest   income    by  a    local   school
              administrative unit shall not be construed
              as a local current expense appropriation
              included as a part of the local current
              expense fund.

N.C. Gen. Stat. § 115C-426 (c) (2013).
                                   -12-
             In construing a statute with reference to an
             amendment   it   is    presumed   that   the
             legislature intended either (a) to change
             the substance of the original act, or (b) to
             clarify the meaning of it. A clarifying
             amendment, unlike an altering amendment, is
             one that does not change the substance of
             the law but instead gives further insight
             into the way in which the legislature
             intended the law to apply from its original
             enactment.

Ray v. North Carolina Dept. of Transp., 366 N.C. 1, 8-9, 727

S.E.2d 675, 681 (2012) (citation and quotation marks omitted).

      The 2010 amendment to § 115C-426 is fully consistent with

the 2009 definition of “restricted” funds used by the Department

of Public Instruction that we approved of in Thomas Jefferson I

and   with    this   Court’s   gloss   on     that   statute.    See   Thomas

Jefferson I, 215 N.C. App. at 537, 715 S.E.2d                   at 630.     In

addition     to   being   consistent   with   the    prior   case   law,   the

amendment simply provided a more complete description of the

funds which may be excluded from the local current expense fund.

“To determine whether the amendment clarifies the prior law or

alters it requires a careful comparison of the                  original and

amended statutes. If the statute initially fails expressly to

address a particular point but addresses it after the amendment,

the amendment is more likely to be clarifying than altering.”

Ray, 366 N.C. at 10, 727 S.E.2d at            682. Therefore, we conclude
                                          -13-
that the 2010 amendments were clarifying amendments rather than

substantive       changes.       See     id.    at    11,       727   S.E.2d       at    683

(concluding that an amendment was a clarifying one “[b]ecause

the    legislature     left      essentially        all   our    pre-amendment          cases

intact”). “[S]uch amendments apply to all cases pending before

the courts when the amendment is adopted, regardless of whether

the underlying claim arose before or after the effective date of

the amendment.” Id. at 9, 727 S.E.2d at 681.

       It is not clear what definition of “restricted” the trial

court applied, but it is clear that the definition used was not

that    laid   out    by   the    2010    amendments.       In    some   instances        it

followed the budget code assigned by Mr. Lee, but not in others.

It     considered     some    reimbursements          “restricted,”          but    others

“unrestricted.”        Even      some     pre-K       programs        were    considered

“unrestricted.”

       The clarifying amendments provide the proper standard with

which to determine whether funds are “restricted.” “Restricted”

funds,    i.e.,      monies   that      may    be    properly     placed     in    a    fund

separate from the local current expense fund, are those that

fall into one of the categories mentioned in N.C. Gen. Stat. §

115C-426(c) as amended. It is clear that the trial court did not

apply this standard.             We therefore remand to allow the trial
                                         -14-
court to      make appropriate findings of fact and to                       determine

whether the funds at issues are “restricted” under the correct

standard of law. See Powe v. Centerpoint Human Services, 215

N.C. App. 395, 396, 715 S.E.2d 296, 298 (2011) (remanding for

the fact finder to apply the correct legal standard).

       On    remand,    the    trial    court    should     make    findings       about

whether the funds at issue here are “reimbursements, including

indirect      costs,    fees    for     actual    costs,    tuition,        sales    tax

revenues distributed using the ad valorem method pursuant to

G.S.    105-472(b)(2),         sales     tax     refunds,    gifts     and        grants

restricted as to use, trust funds, federal appropriations made

directly      to   local      school    administrative       units,        [or]     funds

received for prekindergarten programs.” N.C. Gen. Stat. § 115C-

426(c) (2013). If the funds fall into any of these categories,

they   may    be   properly     considered       “restricted,”      placed        into   a

separate fund, and not shared on a pro rata basis with the

charter schools. See Thomas Jefferson I, 215 N.C. App. at 544,

715 S.E.2d at 633.

                              III. Attorneys’ Fees

       Defendant       next    argues    that    the   trial       court    erred        in

awarding plaintiff attorneys’ fees under N.C. Gen. Stat. § 6-
                                      -15-
19.1 because a local school board is not a state agency. We

agree.

       N.C. Gen. Stat. § 6-19.1 (2011) allows the trial court to

award attorney’s fees to a party prevailing over a state agency

in a civil action. This Court has held that the definition of

“agency”    for    the    purposes   of   §   6-19.1    is    the   same   as   the

definition of an “agency” under the Administrative Procedures

Act (APA). Izydore v. City of Durham (Durham Bd. of Adjustment),

___ N.C. App. ___, ___, 746 S.E.2d 324, 326, disc. rev. denied,

___ N.C. ___, 749 S.E.2d 851 (2013). The APA defines an “agency”

as

            an agency or an officer in the executive
            branch of the government of this State and
            includes   the   Council   of   State,   the
            Governor’s Office, a board, a commission, a
            department, a division, a council, and any
            other unit of government in the executive
            branch. A local unit of government is not an
            agency.

N.C.     Gen.     Stat.    §   150B-2(1a)      (2011)        (emphasis     added).

Accordingly, we have held that local governmental units, like

municipalities and counties, are not subject to the attorney’s

fees provisions of N.C. Gen. Stat. § 6-19.1. Izydore, ___ N.C.

App. at ___, 746 S.E.2d at 326 (holding that “local governmental

units—such as respondents—are not ‘agencies’ for purposes of §

6–19.1.”). Local school boards and local school administrative
                                       -16-
units    are    local    governmental       units,    and,    as    such,    are    not

“agencies” for the purpose of the APA.                  See N.C. Gen. Stat. §

115C-5(5)-(6) (defining “local school board” as                      “a city board

of education, county board of education, or a city-county board

of education” and a “local school administrative unit” as “a

subdivision of the public school system which is governed by a

local board of education. It may be a city school administrative

unit,    a    county    school    administrative      unit,    or   a   city-county

school       administrative      unit.”);    Coomer    v.    Lee    County    Bd.   of

Educ., ___ N.C. App. ___, ___, 723 S.E.2d 802, 803 (observing

that “local boards of education are generally excluded from the

requirements of the APA.”), disc. rev dismissed, 366 N.C. 238,

731 S.E.2d 427, disc. rev. denied, 366 N.C. 238, 731 S.E.2d 428

(2012).

      Plaintiffs contend that the local school boards are subject

to § 6-19.1        because we have held that they “are deemed agents

of the State for purposes of providing public education.” Kiddie

Korner Day Schools, Inc. v. Charlotte-Mecklenburg Bd. of Educ.,

55   N.C.      App.    134,   140,   285    S.E.2d    110,    114    (1981),       app.

dismissed and disc. rev. denied, 305 N.C. 300, 291 S.E.2d 150

(1982). Yet, our Supreme Court has noted that “[a]n agent of the

State and a state agency are fundamentally different . . . .”
                                       -17-
Meyer v. Walls, 347 N.C. 97, 107, 489 S.E.2d 880, 885 (1997);

see also Green v. Kearney, 203 N.C. App. 260, 272, 690 S.E.2d

755, 764 (2010) (noting the distinction between a state agent

and a state agency). In that same opinion, the Supreme Court

quoted a prior opinion for the proposition that “[i]n no sense

may    we   consider   the   [Local]    Board    of   Education     in    the   same

category as the State Board of Education . . . .” Meyer, 347

N.C. at 106, 489 S.E.2d at 885 (citation and quotation marks

omitted).      Thus, local school boards are not state agencies for

purposes of the APA and N.C. Gen. Stat. § 6-19.1 simply because

they    may    be   considered       agents     of    the   State    in    certain

circumstances.

       We hold that the trial court erred in awarding plaintiff

attorney’s fees under N.C. Gen. Stat. § 6-19.1 because defendant

is not an agency for purposes of that statute. Therefore, we

reverse the trial court’s order allowing plaintiff’s petition

for attorneys’ fees.

                               IV.     Conclusion

       For the foregoing reasons, we remand for the trial court to

enter a revised judgment with appropriate findings of fact and

conclusions of law applying the correct standard as laid out in
                              -18-
the 2010 amendments. We reverse the trial court’s order awarding

plaintiffs attorney’s fees.

    REVERSED in part; REMANDED.

    Judges HUNTER, JR., Robert N. and Judge DILLON concur.