Court Opinion

ID: 4169503
Source: CourtListenerOpinion
Date Created: 2017-05-18 13:22:31.58457+00
Date Added: 2024-06-11T09:36:38.838337
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Insight PA Cyber Charter School,               :
                        Petitioner             :
                                               :
             v.                                :   No. 1866 C.D. 2015
                                               :   Argued: February 8, 2017
Department of Education,                       :
                        Respondent             :

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge
        HONORABLE ROBERT SIMPSON, Judge
        HONORABLE P. KEVIN BROBSON, Judge
        HONORABLE PATRICIA A. McCULLOUGH, Judge
        HONORABLE MICHAEL H. WOJCIK, Judge
        HONORABLE JULIA K. HEARTHWAY, Judge
        HONORABLE JOSEPH M. COSGROVE, Judge

OPINION BY JUDGE BROBSON                                    FILED: May 18, 2017

             Insight PA Cyber Charter School (Insight) petitions this Court for
review of the adjudication of the Pennsylvania State Charter School Appeal Board
(CAB), which denied Insight’s cyber charter school1 application, because the CAB
concluded that (a) the trustees of Insight will lack “real and substantial authority

      1
        A “cyber charter school” is defined in Section 1703-A of the Charter School Law
(CSL), Act of March 10, 1949, P.L. 30, added by the Act of June 19, 1997, P.L. 225, as
amended, 24 P.S. § 17-1703-A, as follows:
      [A]n independent public school established and operated under a charter from the
      Department of Education and in which the school uses technology in order to
      provide a significant portion of its curriculum and to deliver a significant portion
      of instruction to its students through the Internet or other electronic means.
      A cyber charter school must be organized as a public, nonprofit corporation.
      A charter may not be granted to a for-profit entity.
over the management of the cyber charter school,” and (b) “fundamental budgeting
issues exist which affect the ability of Insight to provide a comprehensive learning
experience to its students.” (CAB Op. at 22-23, 30.) For the reasons set forth
below, we now reverse and remand with direction that Respondent Pennsylvania
Department of Education (Department) issue a charter to Insight.

                                  I. BACKGROUND

              On October 1, 2014, Insight, a Pennsylvania nonprofit corporation,
filed an application with the Department, seeking to establish a cyber charter
school serving grades kindergarten through 12. The application provides that
pursuant to a September 29, 2014 Amended and Restated Educational Products and
Services Agreement (Agreement), K12 Virtual Schools LLC (K12), a for-profit
educational products and          services company, would provide the school’s
curriculum, educational materials, and educational management services through
June 30, 2020.
              On November 14, 2014, the Department held a public hearing on
Insight’s application.     On January 17, 2015, Insight and K12 executed an
amendment to the Agreement (2015 Amendment). On January 29, 2015, the
Department issued a decision denying Insight’s application for the following
reasons: (1) Insight lacked real and substantial authority over the school’s
operations; (2) Insight failed to demonstrate compliance with technology
requirements; (3) Insight failed to demonstrate an ability to meet the needs of
special education students; (4) Insight failed to demonstrate an ability to meet
the needs of students who are not fluent in English; (5) Insight failed to
demonstrate      a   sufficient    understanding   of   academic   assessment   and

                                           2
accountability; and (6) Insight failed to demonstrate necessary financial support
and planning.
                On February 27, 2015, Insight appealed to the CAB.                     In an
 Opinion and Order entered on August 31, 2015 (Opinion), the CAB rejected
 most of the Department’s asserted grounds for denial. Nonetheless, the CAB
 affirmed the denial of the charter, concluding that Insight’s governing body, its
 Board of Trustees (Board), lacked real and substantial authority over the
 school’s staffing, budget, and curriculum and that Insight failed to demonstrate
 the necessary financial support and planning to operate a cyber charter school.2
 Insight now petitions for review of the CAB’s decision.3
                                    II. DISCUSSION
                      A. “Real and Substantial Authority” Test
              The first issue in this appeal relates to the contractual arrangement
between Insight and its chosen service provider, K12. This Court first addressed
the subject of charter school contracts with for-profit service providers in West
Chester Area School District v. Collegium Charter School, 760 A.2d 452 (Pa.
Cmwlth. 2000) (Collegium), aff’d, 812 A.2d 1172 (Pa. 2002).

       2
         With respect to the other bases for the Department’s denial, the CAB concluded that
Insight demonstrated compliance with technology requirements and the ability to meet the needs
of special education students and students who are not fluent in English. (CAB Op. at 23-28.)
The CAB declined to consider whether Insight demonstrated a sufficient understanding of
academic assessment and accountability because the Department did not raise that issue
before the CAB. (CAB Op. at 5 n.7.)
       3
          Our review of the CAB’s decision is limited to determining whether constitutional
rights were violated, whether the CAB committed an error of law, or whether the CAB’s
decision is supported by substantial evidence. New Hope Acad. Charter Sch. v. Sch. Dist. of the
City of York, 89 A.3d 731, 736 (Pa. Cmwlth. 2014).

                                              3
             In Collegium, the CAB reversed a local school district decision and
directed that the school district award a charter to Collegium Charter School
(Collegium). On appeal, taxpayers and the school district complained that the
CAB erred because Collegium was not an independent nonprofit entity. The
petitioners argued that Collegium was, instead, “a mere shell for a for-profit entity
rather than a non-profit corporation.” Collegium, 760 A.2d at 468. That for-profit
entity was Mosaica Education, Inc. (Mosaica). According to the charter school
application, Collegium intended to enter into a management agreement with
Mosaica under which Mosaica would provide the charter school with educational
and administrative services, including access to its proprietary Paragon
Curriculum. Id. at 455. The petitioners contended that the relationship between
Mosaica and the charter school vested too much authority in Mosaica and divested
Collegium’s board of trustees of ultimate control over the major decisions affecting
the school. Id. at 469.
             In evaluating the petitioners’ challenge, this Court first looked to the
Charter School Law (CSL).4 We recognized provisions of the CSL that place the
ultimate authority over the governance of a charter school in the hands of the
school’s board of trustees:
             Clearly, . . . the legislature did not want to entrust the
             management and operation of the charter school itself to
             entities seeking to make money from the school’s
             management and operation; rather, that power is granted
             to the charter school’s board of trustees who, as public
             officials,[ ] have a single purpose to promote the interests
             of pupils.

      4
        Act of March 10, 1949, P.L. 30, added by the Act of June 19, 1997, P.L. 225, as
amended, 24 P.S. §§ 17-1701-A to -1732-A.

                                          4
Id. at 468 (footnote omitted). Section 1716-A(a) of the CSL, 24 P.S. § 17-1716-A,
for example, vests the charter school’s board of trustees with “the authority to
decide matters relating to the operation of the school, including, but not limited to,
budgeting, curriculum and operating procedures, subject to the school’s charter.”
That provision also vests with the board “the authority to employ, discharge and
contract with necessary professional and nonprofessional employees subject to the
school’s charter and the provisions of this article.” Id. In Collegium, we also
noted that the board of trustees has the power to set staff compensation and terms
and conditions of employment.              See Section 1724-A(a) of the CSL, 24 P.S.
§ 17-1724-A(a). Nonetheless, like the CAB, we recognized that the board of
trustees also has the option to contract with for-profit entities for goods and
services. See Section 1714-A(a)(3) and (5) of the CSL, 24 P.S. § 1714-A(a)(3),
(5).5
                 Reconciling these powers within the board of trustees, we adopted the
CAB’s articulation of the governing legal test:

        5
            These portions of the CSL provide:
               A charter school established under this act is a body corporate and shall
        have all powers necessary or desirable for carrying out its charter, including, but
        not limited to, the power to:
                 ...
                 (3)    Acquire real property from public or private sources by purchase,
        lease, lease with an option to purchase or gift for use as a charter school facility;
                 ...
              (5)    Make contracts and leases for the procurement of services,
        equipment and supplies.
Section 1714-A(a)(3), (5) of the CSL.

                                                 5
             “[N]othing in the [CSL] prohibits the involvement of
             for-profit entities in the establishment and operation of a
             charter school, so long as the school itself is not
             for-profit, the charter school’s trustees have real and
             substantial authority and responsibility for the
             educational decisions, and the teachers are employees of
             the charter school itself.”
Collegium, 760 A.2d at 468 (quoting CAB decision) (second alteration in original)
(emphasis added). Applying this test, we agreed with the CAB and rejected the
petitioners’ challenge:
                    After a review of the record, we agree with the
             CAB that there is nothing to indicate that the
             arrangement between Mosaica and Collegium would
             deprive Collegium’s trustees of ultimate control of the
             charter school, and we see nothing in the CSL to prevent
             a for-profit entity such as Mosaica from assuming the
             role that it will have here. Specifically, Collegium’s
             articles of incorporation state that Collegium is organized
             as a non-profit corporation under Pennsylvania law.
             Further, Collegium’s bylaws and its charter school
             [a]pplication both state that the board of trustees has full
             authority to operate the school, including determining
             general, academic, financial, personnel and other
             policies, as outlined in the CSL. In addition, Mosaica’s
             agreement with the charter school in Bensalem, which
             was represented as a model for the agreement between
             Mosaica and Collegium, makes clear that the board of
             trustees is independent from Mosaica and that Mosaica
             can exercise no authority which may not be delegated by
             the [Public] School Code [of 1949, Act of
             March 10, 1949, P.L. 30, as amended, 24 P.S. §§ 1-101
             to 27-2702,] and other applicable laws and resolutions.
             Mosaica representatives also responded to concerns of
             the District Board, assuring the District Board that none
             of Collegium’s board of trustees would have any
             financial interest in, or receive compensation from,
             Mosaica, and that the trustees retained the power to
             negotiate the terms of the contract with Mosaica and to
             terminate that contract.

                                          6
Id. at 469-70.    The Pennsylvania Supreme Court affirmed our decision in
Collegium, observing:
            The management agreement contracted for educational
            and administrative services to be performed by Mosaica.
            Contrary to Appellants’ contentions, nothing in the
            management agreement supports the claim that
            Collegium was not an independent, nonprofit corporation
            or that Mosaica would retain the ultimate control over
            operation of the charter school. To the contrary, the
            agreement affords Mosaica all authority and power
            necessary to undertake its obligations under the
            agreement, “except in cases wherein such authority may
            not be delegated by the Code and other applicable laws
            and resolutions.” Further, the agreement expressly
            clarifies that the charter school “is not a division or a part
            of [Mosaica],” and that neither party has the power to
            bind or legally operate the other. It goes on to state that
            Mosaica “will not have any role or relationship with the
            Charter School that, in effect, substantially limits the
            Charter School’s ability to exercise its rights, including
            cancellation rights under this Agreement.”
West Chester Area Sch. Dist. v. Collegium Charter Sch., 812 A.2d 1172, 1185
(Pa. 2002) (citations omitted) (emphasis in original) (Collegium II); see also
Brackbill v. Ron Brown Charter Sch., 777 A.2d 131, 137 (Pa. Cmwlth. 2001)
(applying Collegium and rejecting contention that management agreement stripped
board of trustees of its authority over school operations), appeal denied,
821 A.2d 588 (Pa. 2003).
            We applied the “real and substantial authority” test in Carbondale
Area School District v. Fell Charter School, 829 A.2d 400 (Pa. Cmwlth. 2003)
(Fell), again affirming the CAB’s award of a charter to a school that proposed to
enter into a management agreement with Mosaica. Fell, 829 A.2d at 401. In Fell,
the school district that denied that charter school application contended that the
management agreement delegated too much responsibility to Mosaica, including,

                                          7
inter alia, responsibility for preparing budgets, supervision and discipline of school
personnel, determining staffing levels at the school, and selection and employment
of the school principal. Id. at 406. Engaging in a similar analysis to that in
Collegium, we opined:
                    With regard to the specific responsibilities the
             District alleges will be transferred to Mosaica, our review
             of the record reveals that nothing in the charter would
             prevent the Board of Trustees from exercising ultimate
             control of the charter school.           Fell’s articles of
             incorporation list it as a non-profit corporation in
             Pennsylvania. Additionally, Fell’s by-laws state that the
             Board of Trustees “has ultimate responsibility to
             determine general, academic, financial[,] personnel and
             related policies deemed necessary for the administration
             and development of the Charter School in accordance
             with its stated purpose and goals.”            Further, the
             Management Agreement specifically provides that Fell’s
             Board of Trustees is independent from Mosaica and that
             none of Mosaica’s directors, officers or employees shall
             be members of the Board of Trustees. Because the
             evidence establishes that Fell is organized as an
             independent, non-profit school, the CAB did not err in
             determining that the Management Agreement between
             Fell and Mosaica is permitted under the Law.
Id. at 407-08 (citations omitted) (alteration in original).
             In School District of City of York v. Lincoln-Edison Charter School,
798 A.2d 295 (Pa. Cmwlth. 2002) (Lincoln-Edison), the CAB reversed a decision
by a local school district and directed the school district to award a charter to
Lincoln-Edison Charter School (Lincoln-Edison), notwithstanding the school
district’s contention that Lincoln-Edison’s management agreement with Edison
Schools, Inc. (Edison), a for-profit corporation, delegated too much authority to
Edison over the management and operation of the charter school. The school
district appealed. Pressing its case, the school district contended that

                                            8
             Lincoln-Edison’s board of trustees does not have
             adequate control over the charter school because it is not
             free to establish rules, regulations and procedures, it did
             not maintain budgetary control of the charter school, and
             its power to terminate the agreement as a way to assure
             Edison’s performance was an illusory and inadequate
             remedy.
Lincoln-Edison, 798 A.2d at 298-99.        After discussing Collegium, this Court
looked to the terms of the proposed management agreement and rejected the school
district’s challenge:
                    In this case, nothing in the Management
             Agreement would deprive Lincoln-Edison trustees of
             ultimate control of the charter school. Section 1.2 of the
             Management Agreement. Lincoln-Edison must approve
             any rules, regulations and procedures adopted by Edison
             for the day-to-day operations of the charter school.
             Lincoln-Edison must approve annual projected budgets
             submitted by Edison and must approve any material
             changes to the approved budgeted expenditures.
             Moreover, Lincoln-Edison has the authority to terminate
             the Management Agreement if Edison fails to make
             reasonable progress toward student achievement,
             provided Edison is allowed one academic year to remedy
             any such failures, or if Edison substantially breaches any
             material terms and conditions and fails to remedy the
             breach within 90 days.
                    Initially, in each of the provisions cited by the
             School District, although Edison is entrusted with the
             authority to make necessary decisions regarding the
             day-to-day operation of the charter school, the board of
             trustees, at all times, retains the authority to oversee and
             approve those decisions. Based upon our review of the
             Management Agreement, there is sufficient evidence to
             support the Board’s finding that Lincoln-Edison’s board
             of trustees retained ultimate control over the charter
             school, and, therefore, the Board did not err in granting
             Lincoln-Edison’s appeal on that basis.
Id. at 300-01(footnotes omitted) (citations to record omitted).

                                          9
              Applying this precedent here, we conclude that the CAB erred in its
application of Collegium and its progeny. These opinions arose from a concern
that for-profit entities might attempt to circumvent the CSL’s requirements that all
charter schools must be nonprofit corporations led by a board of trustees by setting
up shell, or puppet, nonprofits.        The for-profit entity would then control the
nonprofit charter school in such a way that the focus would be on maximizing the
for-profit service provider’s revenues, rather than educating the enrolled students.
The CAB and then this Court implemented the Collegium test to prevent this,
recognizing the statutory authority of charter schools to contract with for-profit
service providers, but requiring that the charter school board of trustees retain real
and substantial authority over the charter school’s operations.
              Under our precedent, the Collegium test requires examination of the
corporate documents for the charter school as well as the (proposed) management
agreement with the for-profit service provider to determine whether the charter
school board of directors retains ultimate control over the direction of the school.
In conducting this critical examination, however, the chartering authority (whether
the Department or a local school district), the CAB, and this Court should be
mindful not to interject ourselves into the role of a contract scrivener or negotiator.
Under the CSL and Collegium, management agreements must be products of
arms-length negotiations between separate and independent entities.                    In the
absence of any express or specific provision in statute, regulation,6 or precedent

       6
        The Court notes here that although the Department has the express authority to
promulgate regulations to implement the portions of the CSL relating to cyber charter schools,
the Department has not yet done so. See Section 1751-A of the CSL, 24 P.S. § 17-1751-A.
Promulgated regulations, setting forth the Department’s view of what provisions must and must
(Footnote continued on next page…)

                                             10
that requires or prohibits a specific term, the parties have the freedom to negotiate
and to contract.
               The CAB in its Opinion and the Department in its brief raise fair
points about the complexity of the proposed arrangement between Insight and K12,
particularly with respect to reporting structures, rights of termination, and
budgeting.      Many provisions of the proposed Agreement, as amended by
the 2015 Amendment, could be rewritten to reduce bureaucracy, add clarity, and
streamline the operations of the charter school. The same can probably be said of
many government contracts or government agency reporting structures.
Nonetheless, based on our reading of the Agreement and the 2015 Amendment, the
Insight bylaws, and the above precedent, we conclude that the arrangement
satisfies the Collegium test and does not violate any express provisions of the CSL.
The CAB, therefore, erred in affirming the Department’s denial of Insight’s
application.
               The first Collegium factor is not in dispute.              Insight is, itself, a
nonprofit corporation. Unlike the allegations in Collegium, there is no contention
here that Insight, or its Board, is a mere shell of a nonprofit, existing to do the
bidding of K12, and thus incapable of negotiating and entering into a management
services agreement that is both commercially reasonable and consistent with the
Board’s duty to promote the interests of the students that Insight will serve. The

(continued…)

not be included in a provider agreement to satisfy the “real and substantial authority” test would
be beneficial to charter school applicants and chartering authorities.

                                               11
third Collegium factor also is not in dispute. All teachers at the charter school will
be employees of Insight and not K12.
             The sticking point is the second factor—that being whether Insight’s
Board will have real and substantial authority and responsibility for the educational
decisions at Insight.    As noted above, this factor does not preclude K12’s
involvement in any or even all aspects of the management and operation of the
charter school. Lincoln-Edison, 798 A.2d at 300-01. Instead, this factor requires
us to consider whether Insight’s Board, in executing the Agreement and 2015
Amendment, ceded ultimate control over the charter school to K12. See Fell, 829
A.2d at 407-08.
             The Bylaws for Insight (Bylaws) provide:
             The Board . . . shall have the ultimate responsibility to
             determine general, academic, financial, personnel and
             related policies deemed necessary for the administration
             and development of [Insight] in accordance with its
             stated purposes and goals.
(R.R. 52a.) Similarly, Section 2.2 of the Agreement provides:
             The Board, pursuant to the Charter, is fully responsible
             for all governance of [Insight] and the employment of
             [Insight] employees, including certified teachers, the
             Chief Executive Officer and a Chief Financial Officer.
             Accordingly, the Board is ultimately responsible for
             overseeing all of [Insight’s] management, policy and
             budgeting decisions impacting [Insight] and its Students,
             as detailed herein.
(R.R. 5a (emphasis added) (Insight Br. Appendix F).)           Notwithstanding these
provisions, the CAB identified three areas in its Opinion where it believes that the
Insight Board has abdicated control to K12 in violation of the CSL and, more
specifically, the Collegium test: (a) staffing, (b) budgeting, and (c) curriculum.

                                          12
                                    1. Staffing
             In its Opinion, the CAB concluded that the proposed reporting
structure for Insight’s teachers is too cumbersome, with too many layers of
bureaucracy between Insight’s teachers and Insight’s Chief Executive Officer
(CEO), causing the CAB to reach the following legal conclusion under Collegium:
“The organizational scheme creates a detachment between the teachers and the
Board, . . . such that the Board lacks real and substantial managerial authority over
the teaching staff.” (CAB Op. at 19.) The CAB also concluded that Insight’s
Board lacks adequate control over K12 employees assigned to the school,
particularly over their employment status, compensation, and discipline.
(CAB Op. at 20.)
             To support denial of a charter school application that includes a
contract for management services, the proposed organizational structure must be
more than merely cumbersome; it must actually violate some legal standard. The
CAB’s criticisms are not supported by any established statutory or regulatory
standards. In its discussion of staffing, the CAB cited only two provisions from
the   CSL,    made     applicable   to   cyber    charter   schools    pursuant   to
Section 1749-A(a)(1) of the CSL, 24 P.S. § 17-1749-A(a)(1). (CAB Op. at 18.)
The first is Section 1716-A(a) of the CSL, 24 P.S. § 17-1716-A(a), which provides:
                    The board of trustees of a charter school shall have
             the authority to decide matters related to the operation of
             the school, including, but not limited to, budgeting,
             curriculum and operating procedures, subject to the
             school’s charter. The board shall have the authority to
             employ, discharge and contract with necessary
             professional and nonprofessional employees subject to
             the school’s charter and the provisions of this article.
The second is Section 1724-A(a) of the CSL, which provides:

                                         13
                     The board of trustees shall determine the level of
               compensation and all terms and conditions of
               employment of the staff except as may otherwise be
               provided in this article.
(Emphasis added). We see nothing in the CAB’s Opinion or in the record that
would support a conclusion that Insight’s application runs afoul of either of these
provisions.
               Certainly, the board of trustees of a charter school has the power
under Section 1716-A(a) of the CSL to hire employees and, pursuant to
Section 1724-A(a), to set its employees’ compensation and terms and conditions of
employment. As this Court recognized in Collegium and its progeny, a charter
school board of trustees also has the authority to contract out for services.
Section 1714-A(a)(5) of the CSL. Insight’s Board, in its judgement, has elected to
employ Insight’s teachers, its student counselors, a CEO, and a Chief Financial
Officer (CFO). (Agreement §§ 7.1, 7.4; R.R. 10a-11a, 211a.) Within two years of
operation, Insight will also employ the school’s principals and attendance and
truancy coordinators. (Agreement § 7.4; R.R. 11a-12a, 211a.) Should it become
necessary for other staff at the school to become employees of Insight, Insight may
directly employ other staff at the school as well. (Id.)
               Insight’s Board has also, using its judgment, elected to contract with
K12 for K12 to provide certain support staff, including, inter alia, an on-site
executive director, principals (for up to two years),7 operations manager, and

       7
           The dissent contends that we should affirm the CAB’s decision because an
organizational structure where the principal of the charter school is an employee of a contracted
service provider, and not the charter school, for any period of time violates Section 1716-A(a) of
the CSL. (Dissent at 1-2.) Respectfully, the dissent diminishes the power of the board of
trustees to contract for services under Section 1714-A(a)(5) of the CSL, by interpreting the
Section 1716-A(a) power to employ as a mandate that the charter school must employ “to fulfill
(Footnote continued on next page…)

                                               14
director of student services. (Insight Application at 7-8; R.R. 89a-90a.) Insight
also meets the requirement of Collegium that the teachers be direct employees of
the charter school. There is nothing in Sections 1716-A(a) or 1724-A(a) of the
CSL or our precedent that requires those serving in all other positions within a
charter school to also be direct employees of the charter school and not employees
of a contracted service provider.8

(continued…)

its responsibilities as set forth in Section 1716-A.” (Dissent at 2.) More critically, however, the
CAB did not take this position anywhere in its Opinion, let alone assert it as a ground on which it
denied Insight’s charter application. Not even the Department in its brief advocates the legal
conclusion adopted by the dissent. Accordingly, not only do we disagree with the dissent’s legal
analysis and conclusion, we disagree with the dissent’s decision to raise an issue not properly
before the Court.
       8
          Section 1715-A(12) of the CSL, 24 P.S. § 17-1715-A(12), prohibits any person who
serves as an “administrator” of a charter school from receiving compensation from (a) another
charter school or (b) “a company that provides management or other services to another charter
school.” For purposes of this provision, “administrator” is defined to include “the chief
executive officer of a charter school and all other employees of a charter school who by virtue of
their provisions exercise management or operational oversight responsibilities.” Id. (emphasis
added). In this matter, the CAB expressly rejected in its Opinion the Department’s contention
below that the shared administrative and dual reporting structure proposed by Insight in its
application violated this prohibition, noting its view that the Section 1715-A(12) prohibition, by
its express terms, only applies to charter school employees who serve the school in an
administrative capacity and not to employees of a contracted management company assigned to a
charter school. (CAB Op. at 17, n.12.) The Department does not challenge the CAB’s
determination in this regard in its brief, nor does it anywhere in its brief cite the prohibition set
forth in Section 1715-A(12) of the CSL. Accordingly, the Court will not consider this issue in
this appeal.
        We note, however, that in Richard Allen Preparatory Charter School v. School District of
Philadelphia, 123 A.3d 1101 (Pa. Cmwlth. 2015) (en banc), appeal denied, 145 A.2d 169
(Pa. 2016), this Court cited Section 1715-A(12) of the CSL in addressing a charter school’s
challenge to a charter condition that required, inter alia, teachers to be direct employees of the
charter school and not the for-profit management company. The only issue before the Court
relative to staffing in Richard Allen was the argument by the charter school that teachers are not
(Footnote continued on next page…)

                                                15
               Under the terms of the Agreement, Insight’s CEO will oversee the
day-to-day operations of the school and assist the Board in its oversight and
supervision of the Board’s chosen management company, K12. The CEO will also
be responsible for the school’s compliance with applicable laws and its charter.
The CFO will be responsible for the oversight and control of the school’s fiscal
affairs, including revenues, audits, and payments to K12.                   (Agreement § 7.1;
R.R. 10a-11a.) K12 will employ an executive director and other administrative
personnel, but only with the Board’s agreement, and assign them to the school.
(Agreement § 7.2; R.R. 11a (emphasis added).) The executive director “will be
responsible for the overall implementation of [Insight’s] programs and initiatives
that are focused on achieving the educational goals, in each case, as agreed upon
in collaboration with the Board and the [CEO].” (Agreement § 1.7; R.R. 5a
(emphasis added).) The responsibilities of K12 staff working at the school as set
by applicable law and “school policies,” the latter of which are established by
Insight’s Board. (Agreement §§ 2.3, 3.5.1, 7.2; R.R. 6a, 7a, 210a.) All K12 staff

(continued…)

administrators and, therefore, need not be direct employees of the charter school. Richard
Allen, 123 A.3d at 1118. In upholding this condition, the Court quoted from Collegium, which,
as noted above, requires only that teachers be direct employees of the charter school. The Court,
however, opined: “As established in [Collegium], the teachers in the [c]harter [s]chools, as well
as the administrators, must be direct employees of each [c]harter [s]chool’s board of trustees.”
Id. (emphasis added). Had the Department, in its brief in this matter, pressed its challenge to the
CAB’s interpretation and application of Section 1715-A(12) of the CSL, we would have been
forced to reconcile the CAB’s interpretation with this one sentence from our decision in Richard
Allen. It is clear, however, that the staffing issue before the Court in Richard Allen was whether
teachers must be direct employees of a charter school, an issue the Court had already resolved in
Collegium, and not whether a management company is prohibited from employing
administrative personnel and assigning them to a charter school under a contract for services.

                                               16
assigned to the school must, in addition to reporting to their employer, K12, also
report to Insight’s CEO, a direct employee of the school and Insight’s Board.
(Agreement § 7.2; R.R. 210a; Application at 9; R.R. 91a.)
              As noted above, the CAB took issue with the reporting structure of the
school, particularly an organizational chart that depicts Insight’s teachers reporting
to the school principals, who will be K12 employees for up to two years under the
Agreement. (R.R. 90a-91a.) The CAB extrapolated from this chart a conclusion
that Insight’s Board lacks real and substantial control over its own employees—
that there is a “detachment between the teachers and the Board.” (CAB Op.
at 18-19.) Only by looking exclusively to the illustrative organizational chart,
while at the same time ignoring the actual terms of the Agreement between K12
and Insight, can the Board’s finding of a detachment between Insight’s CEO and
Insight’s teachers be credited. By reading the illustrative organizational chart with
the parties’ Agreement,9 it is clear that Insight, through its employed CEO,
maintains real and substantial authority over Insight’s employed teachers.
              Under the management agreement in Lincoln-Edison, all staff of the
charter school, save one, were employees of the charter school and not the service
provider, Edison.       The management agreement, however, extended certain
employment authority over the charter school’s employees to Edison.                       For

       9
          “The relationship between the Parties was developed and entered into through
arms-length negotiations and is based solely on the terms of this Agreement.” (Agreement § 9.2
(emphasis added); R.R. 13a.) The dissent incorrectly claims that we have “dismiss[ed]” the
organizational chart. As noted above, we have given the organizational chart appropriate
consideration within the context of the parties’ Agreement. The dissent commits the same error
as the CAB, looking exclusively to the organizational chart while ignoring the terms of the
Agreement.

                                             17
example, Edison had the authority to determine school staffing levels and to select,
supervise, evaluate, assign, and discipline personnel, up to and including the power
to dismiss staff. Lincoln-Edison, 798 A.2d at 301 n.14. The school district in
Lincoln-Edison complained that by granting this power to Edison, the board of
trustees of the charter school ceded control over school employees to a third-party
in violation of the CSL.     As noted above, however, this Court rejected that
contention, noting that the very same provisions in the management agreement
reserved to the charter school’s board of trustees final decision-making authority
with respect to hiring and firing of personnel. With respect to compensation, the
Court noted that compensation of employees was a budgetary matter and that the
management agreement provided the board of trustees with final budget approval
authority.   Accordingly, this Court rejected the school district’s challenge.
Id. at 302-03.
             If the level of supervision of the board of trustees in Lincoln-Edison
was sufficient as a matter of law, then the same conclusion must be reached in this
case, as the Agreement between Insight and K12 does not delegate to K12
anywhere near the level of supervisory power over Insight’s employees that the
board of trustees delegated to Edison in Lincoln-Edison. The Agreement in this
case is quite clear: “The Board . . . is fully responsible for all governance of
[Insight] and the employment of [Insight] employees, including certified teachers.”
(Agreement § 2.2; R.R. 5a.) K12 only “assist[s]” in the evaluation of Insight’s
teachers if so requested by Insight. (Agreement § 7.4; R.R. 12a.) Finally, as noted
above, the CEO, a direct employee of the Board, broadly oversees the day-to-day
operations of the school, which must be interpreted to include its employed
teachers.

                                        18
              The CAB made much of the fact that the organizational chart depicts
Insight’s teachers as reporting only to the principals of the school and then up
through the K12 academic chain of command. This fact, however, is of no legal
significance for several reasons. First, as noted above, the Agreement provides
that while the principals will be employed by K12 initially, within two years they
will become employees of Insight.      Second, as noted above, the Agreement
provides that the CEO will have day-to-day supervisory authority over the school.
Third, as noted above, the Agreement does not delegate any employment-related
responsibilities to K12 with respect to Insight’s teachers. And fourth, but perhaps
most significantly, the CAB appears to ignore the fact that in addition to
contracting for management services, Insight is contracting with K12 for
educational products—i.e., curriculum. (Agreement Part 3; R.R. 6a-7a.) It makes
sense that K12 employees would oversee the implementation of this curriculum by
Insight’s teachers. We see nothing in the CSL that would prohibit the contracted
curriculum provider from overseeing the implementation of its curriculum by the
teachers within the school. Moreover, we cannot conclude that permitting such
oversight deprives a charter school’s board of trustees, which voluntarily entered
into the agreement to procure the curriculum, of real and substantial control over
the school.
              The CAB also rejected the application because, in the CAB’s
assessment, the Board lacks real and substantial authority over K12’s employees.
Not surprisingly, the Agreement provides that K12 has the authority to exercise the
typical powers one would expect of an employer as to its employees—i.e., to
determine compensation, hire, discipline, etc. See Am. Road Lines v. Workers’
Comp. Appeal Bd. (Royal), 39 A.3d 603, 615 (Pa. Cmwlth. 2012) (emphasizing

                                        19
entity’s ability to hire, fire, discipline, and set standards of conduct as indicia of
employment relationship). We reject the CAB’s legal conclusion that a contracted
service provider must delegate these inherent employment rights to the charter
school in order for a charter to issue. There is simply nothing in precedent or the
CSL that requires a charter school board of trustees to insist, by way of an
arms-length        contract    with    a    service    provider,10     on     superseding     the
employment-related decisions of the contracted service provider vis-à-vis the
provider’s employees. Indeed, adopting such a requirement would essentially
eviscerate the statutory option of charter schools, as recognized in Collegium, to
contract for services.
                 The very concept of contracting for services envisions oversight over
the contracted service provider’s overall performance, not the individual
performance of each employee of that service provider.                      In this regard, the
Agreement vests in Insight’s Board the “ultimate responsibility” for adopting
policies governing the operation of the charter school, to which K12 (and its
employees) must adhere.               (Agreement §§ 2.3, 3.5.1; R.R. 6a, 7a.)                 See
Lincoln-Edison, 798 A.2d at 300 (noting provision in management agreement

       10
            Section 9.1 of the Agreement provides:
       K12 is not a division or any part of [Insight]. [Insight] is a nonprofit corporation
       organized under State law and is independently governed by the Board. Neither
       [Insight] nor the Board is a division or a part of K12. The relationship between
       the Parties was developed and entered into through arms-length negotiations and
       is based solely on the terms of this Agreement. The Parties are independent
       contractors. Nothing herein will be construed to create a partnership or joint
       venture by or between [Insight] or the Board, on one hand, and K12 on the other
       hand.
(R.R. 13a.)

                                                20
granting power of board of trustees to adopt policies governing day-to-day
operations as evidence of “ultimate control” over charter school). Section 2.4 of
the Agreement expressly grants oversight power to the Board with respect to K12:
             The Board, together with its [CEO], shall be responsible
             for monitoring and supervising K12’s performance
             under, and compliance with, the terms of this Agreement
             in accordance with Applicable Law. The Board, together
             with its [CEO], shall also be responsible for overseeing
             [Insight’s] and the K12 Executive Director’s quality,
             operational and financial performance.        K12 shall
             cooperate with such monitoring and oversight.
(R.R. 6a.) In the event K12 fails to fulfill its obligations under the Agreement,
Insight may invoke its right to terminate for cause under Section 11.2 of the
Agreement. (R.R. 14a-15a.) Thus, Insight has real and substantial control over
K12’s employees through its oversight of K12’s performance under the
Agreement.
             We note, however, that several provisions in the Agreement actually
cede to Insight some of K12’s authority to hire, supervise, and discipline its
employees. Section 7.2 of the Agreement provides that in addition to reporting to
K12 as their employer, all K12 staff assigned to the charter school, for purposes of
the charter school’s operations, must report to Insight’s CEO, an employee of
Insight and direct report to the Insight Board. (R.R. 210a.) Under the Agreement,
the CEO oversees the day-to-day operations of the charter school and assists the
Board with its oversight and supervision of K12. Thus, the CEO, an Insight
employee, oversees and supervises K12’s employees at the charter school.
             Moreover, Section 7.3 of the Agreement (R.R. 210a-11a) is a
significant concession by K12 that gives Insight a real and substantial role in the
discipline of K12 employees working at Insight. First, and critically, it recognizes

                                        21
Insight’s authority to demand removal of any K12 employee from the school
should the employee’s conduct threaten the immediate health or well-being of the
enrolled students. Second, with respect to matters less serious and urgent, the
Agreement recognizes Insight’s authority to deal directly with a K12 employee and
attempt to resolve performance concerns internally. Third, if efforts to resolve the
matter internally fail, the Agreement provides a process for Insight to bring its
concerns to K12, as the employer. Fourth, if K12 does not resolve the matter to the
satisfaction of Insight, Insight may pursue mediation and, if unsuccessful, binding
arbitration. This contractual right to force K12 to binding arbitration, where an
arbitrator, and not K12, will make the ultimate determination over the fate of a
K12 employee, is not trivial or inconsequential.
            In short, Insight, directly and through its CEO who oversees the
day-to-day operations of the school, has real and substantial control of its
employees at the school, including the teachers. Insight has real and substantial
control over K12’s performance under the Agreement and, by extension, over the
performance of K12’s employees at the charter school.            Finally, assuming
arguendo that a charter school board of trustees must have some authority over
disciplinary action against a contracted service provider’s employees, the
Agreement gives Insight real and substantial power over discipline of K12
employees, including the ability to invoke a process that takes discipline decisions
out of the hands of K12 and places them in the hands of an arbitrator. The CAB
erred in concluding otherwise.
                                   2. Budgeting
            With respect to the budgeting provisions of the Agreement and the
related question of whether the Insight Board has real and substantial control over

                                        22
the school budget, the CAB noted in its Opinion: “CAB finds the situation more
complicated than either [the Department] or Insight postulates.” (CAB Op. at 14.)
It appears to the Court, however, that it is the CAB that has overcomplicated this
inquiry.
             The CAB concluded that the Agreement, with respect to the budget
process, renders Insight a hostage to K12’s budget demands, with no meaningful
recourse. In support, the CAB cited language in the Agreement that authorizes
K12 to terminate the Agreement if the Insight Board adopts a budget that fails to
account for the payment of the fees due and owing to K12 under the Agreement.
(Agreement § 11.1; R.R. 211a.) The CAB also pointed to a lack of any provision
in the Agreement that would require, in the event Insight cannot afford to pay K12
what it is due under the Agreement, K12 to “reduce its fees to any extent necessary
to achieve a positive operating result and allow the deficit to K12 to be carried over
to the next year.” (CAB Op. at 14-15.) The CAB concluded that Insight’s Board
“has little authority to dispute any proposed budget or budgetary changes.” (Id. at
14.) The CAB expressed concern over what a termination of the Agreement by
K12 for a budget inadequacy would mean to Insight, noting that such a termination
would mean that Insight would be without necessary staff and services to run a
charter school. (Id.) The CAB concluded, therefore, “that there is a discrepancy in
bargaining power between K12 and Insight that is not adequately remedied in the
Agreement.” (Id. at 16.)
             Another deficiency that the CAB identified was the lack of any
alternative dispute resolution process in the Agreement for resolving budget
disputes. As the CAB noted, Section 8.6 of the Agreement provides that Insight
may submit a claim in writing to K12, challenging any charge invoiced by K12.

                                         23
(R.R. 13a.) The provision is silent, however, on how such disputes are to be
resolved. The CAB lamented as “problematic” that the Agreement provides no
recourse for Insight and K12 to resolve such disputes other than resorting to
“formal legal proceedings.” (CAB Op. at 16.)
             Each of these concerns is a legally insufficient ground to deny Insight
a charter. As noted above, the test for “real and substantial” control requires
consideration only of whether Insight cedes ultimate budgetary control to K12.
Pursuant to the Agreement, it most certainly does not. The ultimate power to enact
a budget lies in the Board, and not K12: “The Board will adopt an annual School
budget for each Fiscal Year during the term.” (Agreement § 4.1; R.R. 8a.) Under
this provision and another provision that allows for budget modifications
(Agreement § 4.2; R.R. 8a), then, and in furtherance of its fiduciary duty to the
charter school and the students, Insight’s Board has the power to enact a budget
that reflects the school’s fiscal reality. Insight’s Board is under no contractual
obligation to sacrifice the charter school’s own financial stability to benefit K12.
             The CAB found it significant that the Agreement allows K12 to
terminate the Agreement if Insight fails to pass a budget that anticipates paying
K12 for its services. Failure to pay for services would ordinarily trigger some sort
of “for cause” termination in any services contract. The existence of this provision
in the Agreement, therefore, would seem inconsequential and thus not newsworthy
if not for the fact that the CAB seems to take the position that a chartering
authority may lawfully deny a charter to a charter school applicant unless the
service provider is bound to perform services for the charter school regardless of
whether the charter school pays the service provider what the service provider is
owed. This is a remarkable proposition and, like the CAB’s apparent belief that a

                                          24
charter school board of trustees must be able to exert employer-like authority over
a service provider’s employees, would essentially eviscerate the statutory option
available to charter schools, as recognized in Collegium, to contract for services.
             Equally unavailing is the CAB’s complaint that the Agreement does
not provide for a contracted dispute resolution process when it comes to budget
disputes under Section 8.6 of the Agreement. First, there is no provision in the
CSL that requires an alternative dispute resolution process. Further, we do not
believe that the absence of such a process, leaving formal legal proceedings in the
courts as the only avenue to address disputes, deprives charter schools of “real and
substantial” control over budgetary matters. The courts of this Commonwealth are
both adequate and appropriate venues to resolve contractual disputes. Second,
however, and most compelling, is the fact that the Agreement between Insight and
K12 does include an extensive alternative dispute resolution process in part 21,
titled “Dispute Resolution, Venue and Governing Law” (R.R. 24a-25a), which
applies to “any and all disputes arising in connection with this Agreement.”
(Agreement § 21.1; R.R. 24a.) It is clear from the CAB’s analysis that it did not
consider part 21.
             Before the CAB, the Department contended that the Agreement does
not provide Insight with the ability to terminate the Agreement if it lacks financial
resources to pay K12. In its Opinion, the CAB did not expressly adopt this
concern as a basis for upholding the denial of the charter to Insight. If it had,
however, we would find this concern also inadequate as a matter of law to support
denial of the charter. Part 4 of the Agreement provides that Insight is to work
cooperatively with K12 in developing Insight’s annual school budget.
(R.R. 7a-9a.) This part also makes clear, however, that should Insight’s Board

                                         25
decide that it can no longer financially sustain its obligations to K12, then it may
and should adjust the budget of the school accordingly. School districts make
these decisions every year. Ultimately, then, the vendor must decide whether it
wants to continue to provide services to the school under the financial terms set
forth in the budget or exercise its right to terminate.        This is exactly what
Section 11.1 of the Agreement provides for—i.e., the right of Insight’s Board to
make a budget decision that reflects the fiscal realities of the school and the ability
of K12 to either terminate the Agreement or continue to provide services under the
revised budget:
             K12 has the option to terminate this Agreement in whole
             or in part by providing written notice to [Insight] if the
             Board adopts an annual School budget, or budget
             modification, which reasonably anticipates the
             non-payment of K12’s fee due under this Agreement that
             would materially increase the financial risk to K12 in
             providing the Educational Products and Services. . . . In
             the event that K12 elects not to terminate this Agreement
             in accordance with this provision, K12 may reasonably
             revise and determine the level of products and services to
             be provided in accordance with Applicable Law and in
             consultation with the Board or CEO, considering the
             Board’s anticipated nonpayment of all fees due under this
             Agreement.
(R.R. 211a.) This hardly seems unreasonable, let alone unlawful under the CSL.
             Finally, the CAB expressed concern over the impact a termination by
K12 of the Agreement for nonpayment would have on Insight:
             Insight will be left with only a CFO and CEO and a
             teaching staff but no other administrative staff or
             curricular materials. Insight will then be without the
             services necessary to run a cyber charter school and
             maintain a comprehensive learning experience for its
             students. Even with the ninety-day buffer added to the
             Agreement, the majority of the staff and administration is
             employed by K12 and most if not all educational
                                          26
             materials belong to K12, leaving Insight essentially
             without operational capacity.
(CAB Op. at 15.) We acknowledge that K12’s exercise of its termination right,
should Insight conclude that it can no longer afford K12’s services, could lead to
the demise of Insight as a cyber charter school. Such, however, is not a fait
accompli. In its Opinion, the CAB essentially assumed the worst case scenario.
             There is some inconsistency in the CAB’s Opinion with respect to
termination rights under the Agreement. On one hand, the CAB suggested that
Insight should be permitted to terminate the Agreement with Insight at will so as to
have ultimate control over the school, but it does not express any concern over
what such a termination right, if exercised, would mean to Insight’s ability to
operate. On the other hand, the CAB expressed concern over what termination of
the Agreement by K12 for nonpayment could mean to Insight as a going concern.
The reality is that schools, even public schools, fail and, ultimately, may be forced
to close. In such an event, the focus must not be on the demise of the school, but
the impact to the students that it serves.
             The Agreement includes express provisions to mitigate against any
disruption to students during a school year in the event of an adverse budget
determination by the Insight Board. (Agreement § 11.1; R.R. 211a.)               The
Agreement provides first that K12 may not exercise its right to terminate without
first giving Insight’s Board 30 days’ advance written notice of its intent to
terminate, during which time K12 and Insight will attempt to work out their
funding dispute. Only after this 30-day period can K12, if it chooses to, notify
Insight of its decision to terminate the Agreement. Critically, the Agreement
prevents any disruption for students during the school year by requiring notice of at
least 90 days prior to the commencement of the new school year in order for the

                                             27
termination to be effective. Combining the 30-day period with the 90-day period,
Insight is afforded with at least 120-days of advance notice, during which time
Insight can attempt to secure an alternative service provider or hire staff. If,
however, K12 does not give 90-days’ advance notice, then Insight has even more
time—an entire school year—to contract with a new service provider or hire staff.
             The bottom line is that notwithstanding the right of the service
provider, K12, to terminate the Agreement for nonpayment—a right that is not
unreasonable, the Agreement includes protections for both Insight and, more
importantly, its students. Insight’s Board retains ultimate control over whether it
can   or   should   budget    to   pay K12      its   fees   under the   Agreement.
See Lincoln-Edison, 798 A.2d at 300 (noting provision in management agreement
granting board of trustees final budget approval authority as evidence of “ultimate
control” over charter school). The Agreement provides a sufficient lead time for
Insight to secure an alternative service provider or hire staff should K12 elect to
terminate the Agreement. There is, however, yet another significant piece of the
puzzle that the CAB overlooked. Even assuming Insight is unable to secure an
alternative service provider or hire staff in time for the next succeeding school year
following termination of the Agreement and, thus, must cease operation, Insight
students will have the time and the ability to enroll in other schools, perhaps even
brick and mortar public schools, within their local school district.
             In short, the Agreement expressly grants full and final budget
authority to the Insight Board. This is consistent with the management agreement
approved in Lincoln-Edison. The CAB’s grounds for concluding that Insight lacks
real and substantial authority over the school budget are not supported by the CSL,
are unrealistic and unreasonable in terms of a bargained-for relationship between a

                                          28
charter school and a service provider, and are directly in conflict with the terms of
the parties’ Agreement. We, therefore, reject them as grounds to deny the charter
in this case.
                                     3. Curriculum
                The CAB concluded that the Agreement fails to give Insight’s Board
real and substantial authority over the curriculum for the school in two ways. First,
the Agreement does not permit Insight to terminate the Agreement if Insight’s
students fail to make reasonable academic progress.           Second, the Agreement
provides K12 the right of first refusal should Insight wish to provide additional
educational products or services not contemplated in the Agreement, even if a
more competitive price is offered by a third-party vendor. (CAB Op. at 20-22.)
                Contrary to the CAB’s conclusion, the Agreement provides Insight’s
Board the authority to terminate its relationship with Insight if Insight’s students
fail to make reasonable progress toward academic standards. Section 1729-A(a)(2)
of the CSL, 24 P.S. § 17-1729-A(a)(2), grants a chartering authority the power to
nonrenew or even revoke a charter if the charter school fails to meet student
academic performance standards. See New Hope Academy Charter Sch., 89 A.3d
at 736-37. Section 2.8 of the Agreement expressly acknowledges this risk. K12
only gets paid if the charter school exists. (Agreement § 11.3 (relating to contract
termination upon revocation or nonrenewal of charter); R.R. 15a.) K12, thus, is
incentivized to ensure that students are succeeding at Insight.
                Section 2.8 of the Agreement sets forth how K12 and Insight will
work collaboratively to ensure that this doomsday scenario does not occur:
                The Parties understand and agree that [Insight] is subject
                to measurable academic performance standards,
                including those under 22 Pa. Code Ch. 4, the Elementary
                and Secondary Education Act of 1965, as amended by
                                           29
         [the] No Child Left Behind [Act] of 2001,[11] alternative
         standards approved for Pennsylvania under any waiver to
         such requirements as approved for Pennsylvania by the
         U.S. Department of Education, and academic
         accountability standards established by Pennsylvania, all
         as may be amended or superseded by the adoption of
         future requirements. At a minimum and for illustrative
         purposes, [Insight] shall be subject to a School
         Performance Profile (“SPP”) score, which shall be
         considered [Insight’s] academic performance score and
         details student performance through scoring of multiple
         measures that define achievement.           The SPP also
         includes support to permit schools to access materials
         and resources to improve in defined areas related to
         achievement. Pennsylvania also requires that [Insight]
         comply with defined Annual Measurable Objectives,
         which includes measures of Test Participation Rate,
         Graduation/Attendance Rate, Closing the Achievement
         Gap for All Students, and Closing the Achievement Gap
         for the Historically Underperforming Students. In
         addition, any charter granted to [Insight] will incorporate
         academic achievement goals included as part of
         [Insight’s] charter application and any amendments or
         renewals thereto.
         To the extent that [Insight] does not meet the academic
         performance standards applicable to cyber charter
         schools in Pennsylvania, as explained in part above, or to
         the cyber charter school individually through the
         requirements of any Charter granted to it, (referred to
         collectively as “Academic Goals”) the Charter may be
         subject to revocation or nonrenewal by action of the
         [Department] or [Insight] may be required to implement
         remedial actions satisfactory to the [Department].
         Accordingly, the Parties agree that in any year following
         the first year of operation of [Insight] in which the cyber
         charter school fails to meet the Academic Goals, the
         Parties shall mutually agree upon a reasonable corrective
         action plan which may include added remedial support or

11
     20 U.S.C. §§ 6301-7941.

                                     30
               Student intervention programs, academic labs,
               supplemental test preparation, and school improvement
               programs and resources available through the
               [Department]. Such intervention methods shall be
               financed by K12 at no cost to [Insight], except that K12
               shall not be required to finance the products or services if
               the failure to meet the Academic Goals is a result of
               actions or inactions of the Board, its CEO or its CFO. If
               the Academic Goals are not met because of one Party’s
               failure to perform its obligations under the applicable
               corrective action plan, then the other Party may terminate
               this Agreement in accordance with Section 11.2.
The Agreement accurately summarizes the risk attendant to a failure by Insight and
K12 to reach academic performance standards, it proposes a pathway to take
corrective action should the charter school fail to meet these standards in any
particular year, and it authorizes Insight to terminate the Agreement under
Section 11.2 (for cause termination) if K12 fails to perform its obligations under
any corrective plan.12         This process appears to be consistent with how the

       12
            It must be noted here that Insight and the Department negotiated the language in
Section 2.8 of the Agreement. The language that appears in the Agreement in Section 2.8 is, in
fact, the very language that the Department proposed to Insight, through Assistant Counsel
Robert T. Datorre, Esquire, copied to Department General Counsel Nicole Bordonaro, Esquire.
(R.R. 164a-67a.) Although not acknowledging in its brief that it proposed and thus acquiesced to
the language in Section 2.8 of the Agreement, the Department, responding to Insight’s
arguments, notes that Section 2.8 of the Agreement “is irrelevant because CAB based its
conclusion that Insight lacks ultimate control over curriculum on the fact that the Agreement
contains the exclusivity and right of first refusal provisions.” (Dep’t Br. at 21 n.8.) This
footnote passage, however, cannot be reconciled with the Department’s claim in the body of its
brief, wherein the Department contends that “the Agreement does not permit Insight to terminate
the Agreement if its students fail to make reasonable progress toward academic standards.” (Id.
at 18.) The Court is troubled, to say the least, that the Department would make such a claim, fail
to discuss in detail the very provision of the Agreement that addresses this subject (which it
drafted), while at the same time in a footnote claiming that the very section is “irrelevant” to the
discussion.

                                                31
Department monitors and measures adequate yearly progress (AYP) toward
educational goals of all public schools under the No Child Left Behind Act. See
Career Connections Charter High Sch. v. Sch. Dist. of Pittsburgh, 91 A.3d
736, 741-42 (Pa. Cmwlth. 2014); see also 22 Pa. Code Ch. 4 (providing standards
to measure public school academic performance).
              Lost in the CAB’s decision on this issue is context. Neither the CAB
in its Opinion nor the Department in its brief cites to any specific statutory section,
regulation, or legal precedent that requires all service provider agreements between
a charter school and a service provider to be terminable after one year of a charter
school’s failure to reach AYP.13 Certainly, a charter school and a service provider
are free to negotiate such a provision. In the absence of any legal authority to the
contrary, the charter school and its chosen service provider should also be free to
negotiate what Insight and K12 have negotiated here. In Lincoln-Edison, this
Court sided with the CAB in approving a charter school management agreement
that gave the service provider one year to improve academic performance in the
school.     The Agreement here appears to be more collaborative than that in
Lincoln-Edison, requiring both Insight’s Board and K12 to work together and
develop a plan to improve the academic performance of the charter school, under
the direction of the Department. A provision in a service agreement that affords
the service provider, working collaboratively with the school, an opportunity to
improve academic performance prior to termination of the service agreement does

       13
           The CSL does not authorize a chartering authority to revoke or nonrenew a charter if a
school fails to meet academic standards in a single year. See New Hope Academy, 89 A.3d
at 731 (noting that nonrenewal was based on pattern of poor academic performance and not
results from single year).

                                               32
not diminish the real and substantial control of the board of trustees over the
school. Lincoln-Edison, 798 A.2d at 300-01.
             The CAB’s concern that Insight cannot choose another management
company should budget constraints demand is also unfounded. As noted above,
Insight’s Board of Trustees retains full and final budgetary authority. If Insight
cannot afford K12’s services, it has the power to enact a budget that reflects that
fiscal reality. K12 must then decide whether it wishes to continue to provide
services to Insight or not. If the latter, Insight can choose another management
company that can provide similar services at a lower cost.
             Similarly, we find nothing legally deficient about Section 9.4 of the
Agreement, which grants K12 a right of first refusal with respect to products or
services not contemplated in the Agreement. (R.R. 14a.) This section provides, in
relevant part:
             Moreover, [Insight] shall be permitted to procure goods
             and services from any third party to the extent required
             by Applicable Law or the Charter, provided that such
             goods and services are not included in the Education
             Products and the Educational Services. Prior to any
             third party procurements, [Insight] shall give K12 a thirty
             (30) day right of first refusal to provide such services or
             goods not enumerated herein (or in the future), and, if
             K12 is able and willing to provide such services or
             goods, [Insight] shall procure them from K12.
(Agreement § 9.4 (emphasis added); R.R. 14a.) The CAB read this language as
requiring Insight to bypass a third-party product that may be a better fit for the
school and, more critically, less expensive than a K12 alternative. We see nothing
in this language, however, that would allow K12 to dictate the price that Insight
must pay if K12 invokes the right of first refusal provision. Rather, if K12 does
offer the good or service that Insight seeks, the language requires that Insight

                                         33
procure the good and service from K12 only if K12 is able and willing to provide
it. Given the fact that Insight has ultimate control over its budget, K12 may not be
able or willing to provide its good or service at a price that Insight can afford.
Insight would then be able to procure the good or service from an alternative
provider.
             The powers reserved to the Insight Board in this case with respect to
academic performance of the school and rights to terminate its chosen service
provider are consistent with the arrangement approved by this Court in
Lincoln-Edison.    As in this case, in Lincoln-Edison the chartering authority
claimed that the charter school did not have real and substantial control over the
school, ceding too much to the service provider. In rejecting that argument, we
specifically noted that Lincoln-Edison (the charter school) had the authority to
terminate Edison (the service provider) (a) if the school failed to make reasonable
academic progress, provided that Edison would have one academic year to remedy
the failure; and (b) if Edison materially breached its agreement with the school and
failed to remedy the breach within 90 days. Lincoln-Edison, 798 A.2d at 300-01.
Here, as noted above, Insight too has the contractual authority to terminate the
Agreement should the school fail to make reasonable academic progress, after a
period of corrective action. Insight may also terminate the Agreement in the event
of a material breach by Insight. Accordingly, consistency with Lincoln-Edison
requires that we reject the CAB’s conclusions in this case.
             In short, the Agreement expressly provides that Insight and K12
mutually share the risk that the school may lose its charter should it fail to meet
academic standards established by the Department—a risk that all public schools
bare.   The Agreement, however, expressly requires Insight and K12 to work

                                         34
cooperatively to implement corrective action, under the supervision of the
Department, should Insight fail to meet these standards. Failure of K12 to meet its
obligations in this regard is expressly defined as a material breach of the
Agreement, triggering Insight’s right to terminate the Agreement for cause.
Coupled with the Insight Board’s control over the budget, Insight’s Board will
have real and substantial control over the academic affairs of the school, and the
CAB erred in concluding otherwise.
                 B. Necessary Financial Support and Planning
            The other legal ground on which the CAB affirmed the Department’s
denial of Insight’s application was the CAB’s legal conclusion that “Insight failed
to demonstrate the necessary financial support and planning to operate a cyber
charter school.” (CAB Op. at 11 (conclusion of law 10).) To support its denial on
this basis, the CAB cited only to Section 1719-A(9) of the CSL, 24 P.S.
§ 17-1719-A(9). Section 1719-A(9) of the CSL provides that a charter school
application must include “[t]he financial plan for the charter school and the
provisions which will be made for auditing the school.”
            As the CAB recognized in its Opinion, this is not a rigorous
requirement. (CAB Op. at 29 (“[T]he CSL does not require a high degree of
specificity.”).) To satisfy it, the charter school need not even submit a specific
line-item budget. The CSL does not authorize, let alone require, the chartering
authority or the CAB to approve or disapprove a charter school’s proposed or final
budget plan. Perceived deficiencies in particular budget line items are not grounds
for denying a charter. To the contrary, at the charter school application phase, the
budget plan need only be detailed enough to allow the chartering authority and the
CAB on appeal to “determinate that the applicant is capable of providing a

                                        35
comprehensive learning experience for students.” Central Dauphin Sch. Dist. v.
Founding Coal. Infinity Charter Sch., 847 A.2d 195, 202 (Pa. Cmwlth.) (en banc),
appeal denied, 860 A.2d 491 (Pa. 2004). As this Court recently stated in an
unreported panel decision, “[a] financial plan only has to show that it has
considered the budgeting issues and that based on reasonable assumptions, it will
have the necessary funds to operate the school it proposes.” McKeesport Area
Sch. Dist. v. Young Scholars of McKeesport Charter Sch., (Pa. Cmwlth.,
No. 373 C.D. 2015, filed July 13, 2015) (emphasis added).14
              The CAB, however, did not apply this standard. The CAB expressed
no concern in its Opinion that Insight’s application failed to show that Insight will
have the necessary funds to operate the charter school or that the Insight
application failed to provide sufficient information for the CAB to make such a
determination. Instead, the CAB approved the denial of the charter because the
CAB was “confus[ed]” by “multiple budget items” and the role of Insight’s CFO in
the financial operations of the school. (CAB Op. at 29.) Regardless of whether the
CAB’s concerns are well-founded, they do not, as a matter of law, justify denial of
a charter under Section 1719-A(9) of the CSL as the CAB and this Court have
previously interpreted and applied that provision. The CAB’s determination that
Insight failed to satisfy Section 1719-A(9) of the CSL must, therefore, be reversed.
                                 III.   CONCLUSION
              As part of Insight’s appeal from the Department’s denial, the CAB
rejected many of the reasons that the Department advanced for denial of Insight’s

       14
         Unreported decisions of this Court may be cited for their persuasive value. Internal
Operating Procedures of the Commonwealth Court § 414(a), 210 Pa. Code § 69.414(a).

                                             36
application. It should have, however, rejected all of them. The Collegium test
arose out of a concern that a for-profit service provider would exert ultimate
control over the operations of a charter school, in violation of provisions in the
CSL that require ultimate control to lie within the school itself through its board of
trustees. There is absolutely no evidence in the record of this case that Insight’s
Board lacks independence from K12. Where there is such independence, and in
the absence of evidence of unequal bargaining power, the board of trustees must be
permitted to exercise its best judgment in its negotiations with service providers.
Only where the exercise of that judgment conflicts with the law should the
Department and the CAB intervene and reject, or grant with conditions, a charter
application. Though couched in terms of legal deficiencies, both the Department’s
and the CAB’s objections to the terms of the Agreement, as amended, are in
actuality efforts by both to substitute their judgment for that of the independent
Insight Board.
              The CAB’s decision below and the Department’s objections to the
issuance of the charter in this case are not grounded in any specific provision of the
CSL, are inconsistent with how this Court has defined and applied the “real and
substantial” test in Collegium and its progeny, and, in some respects, if credited
would render illusory the statutory authority given to charter schools to contract for
services. Based on the terms of the Agreement, as amended,15 read in conjunction
with Insight’s application, Insight’s Board has real and substantial control over the

       15
          “[T]he interpretation of the terms of a contract is a question of law for which our
standard of review is de novo, and our scope of review is plenary.” McMullen v. Kutz, 985 A.2d
769, 773 (Pa. 2009).

                                             37
staffing at the school as well as academics and the budget.             The alleged
deficiencies that the CAB perceived in the arrangement between K12 and Insight
do not rise to the level of legal deficiencies that would justify outright denial of a
charter to Insight. Moreover, the CAB applied an improper legal standard when
evaluating compliance with Section 1719-A(9) of the CSL.
             For these reasons, the CAB’s August 31, 2015 Opinion and Order will
be reversed and the matter remanded to the CAB to direct the Department to issue a
charter to Insight.

                                P. KEVIN BROBSON, Judge

                                         38
           IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Insight PA Cyber Charter School,         :
                        Petitioner       :
                                         :
            v.                           :   No. 1866 C.D. 2015
                                         :
Department of Education,                 :
                        Respondent       :

                                     ORDER

            AND NOW, this 18th day of May, 2017, it is hereby ORDERED that
the Opinion and Order of the Charter School Appeal Board (CAB) is REVERSED,
and this matter is REMANDED to the CAB to direct Respondent the Pennsylvania
Department of Education to issue a charter to Insight PA Cyber Charter School.
            Jurisdiction relinquished.

                               P. KEVIN BROBSON, Judge
           IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Insight PA Cyber Charter School,             :
                  Petitioner                 :
                                             :
              v.                             :
                                             :
Department of Education,                     :   No. 1866 C.D. 2015
                 Respondent                  :   Argued: February 8, 2017

BEFORE:       HONORABLE MARY HANNAH LEAVITT, President Judge
              HONORABLE ROBERT SIMPSON, Judge
              HONORABLE P. KEVIN BROBSON, Judge
              HONORABLE PATRICIA A. McCULLOUGH, Judge
              HONORABLE MICAEL H. WOJCIK Judge
              HONORABLE JULIA K. HEARTHWAY, Judge
              HONORABLE JOSEPH M. COSGROVE, Judge

DISSENTING OPINION
BY JUDGE COSGROVE                                FILED: May 18, 2017

              Because I believe the Board of Trustees (Board) lacks real authority
over Insight’s necessary professional staff as required by Section 1716-A of the
Charter School Law (CSL),1 I respectfully dissent.

              Section 1716-A of the CSL unequivocally provides that the “board [of
trustees has] the authority to employ, discharge and contract with the necessary
professional and nonprofessional employes subject to the school’s charter and the
provisions of this article.” By the terms of the Amended and Restated Educational
Products and Services Agreement (Agreement) between Insight and K12, it is K12
(and not the Board) which is responsible for hiring all student support staff

       1
         Act of March 10, 1949, P.L. 30, as amended, added by the Act of June 19, 1997, P.L.
225, 24 P.S. § 17-1716-A.
(defined in Section 7.4 of the Agreement as any position which provides direct
services to the school and its students, with the exception of certified teachers or
student counselors).

             The Majority notes that, “[w]ithin two years of operation, Insight will
also employ the school’s principals…” See Majority, slip op. at 14. Section 1716-
A, simply does not permit such employment by another entity. Had this section
provided that the Board may contract for the necessary professional and
nonprofessional employees, it would suggest the Board had the authority to
delegate this responsibility and allow another entity to contract with the necessary
professional and nonprofessional employees, whether immediately or in two years’
time. Unfortunately, it does not. While West Chester Area School District v.
Collegium Charter School, 812 A.2d 1172 (Pa. 2002) recognized the authority of a
charter school board of trustees to contract for services, that case does not stand for
the proposition that a charter school may contract with another entity to fulfill its
responsibilities as set forth in Section 1716-A. See Collegium, 812 A.2d at 1185
(Section 1714-A of the CSL expressly permits a charter school to make contracts
and leases for the procurement of services, equipment and supplies).

             Neither can I dismiss, as does the Majority, the proposed
organizational chart provided by Insight when submitting its application and which
“helps to illustrate the school’s governance structure.” (Reproduced Record (R.R.)
at 90a.) This chart very clearly depicts all teachers as falling under the authority
of the principals, who will be K12 employees for the first two years of the school’s
inception. (R.R. at 91a.) The duties of the principals, as outlined in Insight’s
application, include “supervision… to the instructional staff.” (R.R. at 90a.) As a

                                        JMC - 2
result, while teachers may be employees of Insight, they will be governed and
supervised by employees of K12, the for-profit entity.
            Given these discrepancies, I cannot join the Majority.

                                      ___________________________
                                      JOSEPH M. COSGROVE, Judge

                                      JMC - 3