Court Opinion

ID: 4440907
Source: CourtListenerOpinion
Date Created: 2019-09-24 15:04:02.619581+00
Date Added: 2024-06-11T09:36:48.831208
License: Public Domain

FILED
                                                                   Sep 24 2019, 9:11 am

                                                                         CLERK
                                                                    Indiana Supreme Court
                                                                       Court of Appeals
                                                                         and Tax Court

ATTORNEYS FOR APPELLANTS                                   ATTORNEYS FOR APPELLEE
Curtis T. Hill, Jr.                                        INDIANA CONNECTIONS
Attorney General of Indiana                                ACADEMY, INC.
Natalie F. Weiss                                           Wayne C. Turner
Frances Barrow                                             Michael R. Limrick
Deputy Attorneys General                                   Amanda L.B. Mulroony
Indianapolis, Indiana                                      Hoover Hull Turner LLP
                                                           Indianapolis, Indiana
                                                           ATTORNEYS FOR APPELLEE
                                                           ANDREW J. BROWN CHARTER
                                                           SCHOOL, INC., ASPIRE CHARTER
                                                           ACADEMY, INC., AND NATIONAL
                                                           HERITAGE ACADEMIES, INC.
                                                           Alan S. Brown
                                                           Darren A. Craig
                                                           Alexander P. Will
                                                           Indianapolis, Indiana

                                            IN THE
    COURT OF APPEALS OF INDIANA

State of Indiana; Indiana                                  September 24, 2019
Department of Education; Eric                              Court of Appeals Case No.
Holcomb, in his official capacity                          18A-PL-2634
as Governor of Indiana; and                                Appeal from the Marion Superior
Jennifer McCormick, in her                                 Court
official capacity as Indiana                               The Honorable Heather A. Welch,
Superintendent of Public                                   Judge
Instruction,

Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019                      Page 1 of 18
      Appellants-Defendants,                                     Trial Court Cause No.
                                                                 49D01-1606-PL-20822
              v.

      Indiana Connections Academy,
      Inc.; Rural Community Schools;
      Andrew J. Brown Charter
      School, Inc.; Aspire Charter
      Academy, Inc.; and National
      Heritage Academies, Inc.,
      Appellees-Plaintiffs

      Baker, Judge.

[1]   Indiana Connections Academy, Inc. (INCA), Andrew J. Brown Charter

      School, Inc. (AJB), Aspire Charter Academy, Inc. (Aspire), and National

      Heritage Academies, Inc. (NHA) (collectively, the Charter Schools), instituted

      litigation against the State, seeking to recover six months of tuition support

      funding that they argue they are owed.

[2]   The trial court ruled in favor of the Charter Schools and the State appeals,

      raising multiple arguments, one of which we find dispositive: that the trial court

      erroneously determined that the tuition support funding formula resulted in a

      six-month funding lag. We find as a matter of law that the General Assembly

      did not intend the statutory funding formula to result in a six-month funding

      lag, meaning that the Charter Schools are not entitled to recover the disputed

      amounts. Therefore, we reverse and remand with instructions to enter

      judgment in favor of the State.

      Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019             Page 2 of 18
                                                      Facts     1

                               Charter School Funding From 2002-2013

[3]   In 2001, the General Assembly enacted the Charter School Act (the Act) to

      provide an alternative option to traditional public schools. Ind. Code art. 20-

      24. A charter school is a nonreligious public elementary or secondary school

      that operates under a charter, which is a “contract between an organizer and an

      authorizer for the establishment of a charter school.” Appellants’ App. Vol. VI

      p. 58. An “organizer” is a nonprofit group that enters into the contract to

      operate the charter school, id. at 59, and an “authorizer” is an entity enabled

      under the Act to grant a charter to an organizer to operate a charter school, Ind.

      Code §§ 20-24-1-2.5, 20-24-3-1.

[4]   Because charter schools are considered public schools, which may not charge

      tuition to their students, the State provides tuition support on behalf of their

      students. Each two-year budget cycle, the General Assembly determines the

      amount of tuition support to be divided among and distributed to all public

      schools, including charter schools. The Indiana Department of Education

      (DOE) is tasked with the ministerial duty of distributing the tuition support

      funds. The amount of support is determined annually by the DOE and is based

      on the Average Daily Membership (ADM) of a charter school.

      1
        We held oral argument in Indianapolis on September 9, 2019. We thank the attorneys for all parties for
      their superb written and oral advocacy.

      Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019                          Page 3 of 18
[5]   Before 2013, charter schools conducted their ADM count in September. They

      received tuition from the State for their students on a calendar year basis, with

      the first monthly distribution occurring in January and the final distribution

      occurring in December. Thus, the ADM count conducted in September

      triggered a payment stream that began in January. Before 2013, the law

      provided that the DOE would not make the first distribution of state tuition

      support until “after December 31 of the calendar year in which a charter school

      begins its initial operation.” I.C. § 20-24-7-2(b) (2011). In other words, a new

      charter school that opened its doors in the autumn of an academic year would

      receive its first DOE tuition support payment the following January.

[6]   This system created financial hardship for new charter schools, which, unlike

      traditional public schools, do not have the authority to levy local taxes. When

      the DOE realized that there was a funding gap for new charter schools, it

      requested an advisory opinion from the Attorney General in 2002 (the Advisory

      Opinion). In relevant part, the Advisory Opinion states as follows:

              . . . It cannot be assumed that the General Assembly intended to
              have the new public schools operate without state tuition funds
              absent clear language to that effect in the Charter School Act.
              Therefore, the [DOE] is required both to distribute tuition
              support and other state funding upon verification of the required
              information from the charter school organizer and to make full
              state tuition payments to public school corporations.

                                                        ***

      Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019      Page 4 of 18
        . . . Any analysis of charter school funding requirements must
        begin with the basic and irrefutable fact that charter schools are
        public schools, “wherein tuition shall be without charge.”

                                                  ***

        In the absence of a specific legislative directive which indicates
        that charter schools must operate without state tuition support
        during the first semester of operation, one may only conclude
        that charter schools, like all other public schools, are required to
        be funded with public funds during the first semester of a school
        year. Indeed, any other reading would require the inference that
        the General Assembly intended charter schools with inadequate
        private start-up monies to never open.

                                                  ***

        . . . Of equal importance is the fact that the General Assembly
        did not provide that charter schools specifically be required to
        operate without state tuition funding during the first semester
        they are in operation.

                                                  ***

        The fact that an already-existing school corporation must wait
        until January for funding adjustments based on September’s
        ADM does not support the argument by correlation that a charter
        school must wait until January for any state tuition support.

                                                  ***

        . . . [T]he statutory framework established by the General
        Assembly has an inherent time lag of roughly one semester
        between the time a public school starts a school year and the time
Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019         Page 5 of 18
        it receives a distribution of state tuition support based on
        September ADM.

                                                  ***

        I am fully aware that the General Assembly has created what
        may be termed an “unfunded legislative mandate.” It has
        created a new variety of public school without either (1)
        addressing the fiscal impact these schools may have on
        entitlements to existing school corporations, or (2) expressing an
        intent that charter schools will not receive state tuition support
        during the first semester of operations.

        It is possible, given current budget projections, that the
        appropriations cap set by the General Assembly in 2001 may be
        inadequate. This is an issue that the General Assembly created,
        and one that may require its action to remedy.

        The [DOE] may find in the performance of its ministerial duties
        that it is impossible to satisfy the State’s financial obligations to
        all public schools as required by the General Assembly. In such
        an event, the General Assembly must supply the [DOE] with the
        necessary funds to satisfy these obligations. . . .

        Therefore, . . . it is my legal opinion that the Charter School Act
        obligates the [DOE] to distribute tuition support and other state
        funding upon verification of the required information from the
        charter school organizer . . . .

Appellants’ App. Vol. IV p. 83-88 (emphases original, internal citations

omitted).

Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019        Page 6 of 18
[7]    In the 2003 legislative session after the Advisory Opinion was issued, the

       General Assembly declined to amend the statute providing that the DOE could

       not make the first distribution of state tuition support until after December 31 of

       the calendar year in which a charter school begins its initial operation. It also

       did not supply the DOE with the necessary funds to enable payment of tuition

       support for the first semester of new charter schools. Instead, it created the

       Charter School Advancement Account, which was essentially a government

       loan available for charter schools to cover operational costs incurred during

       their opening semester. Ind. Code §§ 20-5.5-7.5-5, -6 (2003).

                                             Parties’ Interpretations

[8]    Although we generally do not inject argument into the Facts section of our

       opinions, we believe it would be helpful in this case to explain the parties’

       respective interpretations of what the above statutory scheme means in practical

       terms.

[9]    The State believes that it means that charter schools are wholly unfunded for

       the first semester they are open. Then, beginning in January, they would

       receive monthly payments based on the ADM count from September, but the

       tuition support funds would not cover the first semester; instead, they would be

       real-time payments.

[10]   The Charter Schools, on the other hand, argue that this process merely resulted

       in a funding lag:

       Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019    Page 7 of 18
               Under this methodology, a school would submit an ADM from
               the September count date, and then IDOE would distribute each
               school’s tuition support in 12 roughly equal monthly payments in
               the following calendar year. Thus, by way of example, a school
               would submit its September ADM and IDOE would distribute
               12 monthly payments from January through December of the
               following calendar year.

       AJB, Aspire, NHA Appellees’ Br. p. 11 (internal citations omitted). Thus, the

       Charter Schools insist that this system resulted in a six-month funding lag.

       INCA offered this example by way of explanation: “schools did not receive all

       the tuition support for the 2011-12 school year—the tuition support tied to its

       fall 2011 ADM—until December 2012 (halfway through the 2012-13 school

       year).” INCA Appellee’s Br. p. 11.

                                    Charter School Funding After 2013

[11]   Effective July 1, 2013, the General Assembly changed the tuition support

       payment schedule from a calendar year (January through December) to the

       State’s fiscal year (July through June). From that date forward, charter schools

       would conduct two ADM counts, one in September and one in February.

       Viewed through the lens of the Charter Schools’ interpretation of the former

       legislative scheme, this change meant that there would no longer be a funding

       lag; viewed through the lens of the State’s position, the change meant that the

       first semester of operation would no longer be unfunded.

       Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019   Page 8 of 18
[12]   When that law went into effect, charter schools had completed the 2012-2013

       school year and had received tuition support through the end of Spring 2013

       based on the September 2012 ADM count.

[13]   The DOE explained in a memorandum that the September 2013 ADM count

       would be used to determine tuition support funding from July 1 through

       December 31, 2013. After the September 2013 ADM count was finalized, the

       DOE reconciled any remaining payments in November and December to

       account for any over or underpayments of tuition support.

[14]   The DOE continued to use the September 2013 ADM count until the February

       2014 ADM count was finalized, which, in turn, was used to determine the

       tuition support funding for January 1 through June 30, 2014. Again, after the

       February ADM count was finalized, the DOE accounted for any over or

       underpayments of tuition support.

[15]   In short, charter schools were provided tuition support during this transitional

       period as follows:

           • First half of 2013: under the pre-July 1, 2013, statutes, based on the
             September 2012 ADM count.
           • Second half of 2013: under the 2013 law, based on the September 2013
             ADM count.
           • First half of 2014: under the 2013 law, based on the February 2014
             ADM count.
           • Second half of 2014 and beyond: as prescribed by the 2013 law.

       Therefore, charter schools were paid tuition support for all times during the

       transition from the prior statute to the new one.
       Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019   Page 9 of 18
[16]   This transitional period, however, did not account for the six-month funding lag

       that the Charter Schools believe was occurring in the prior legislative scheme.

       Thus, they argue that the State still owes them tuition support funds for a full

       semester.

                                        The Parties and the Litigation

[17]   Indiana Connections Academy began operating in the 2010-2011 school year as

       part of a Virtual School Pilot Program.2 It began receiving basic tuition support

       in January 2011 based on its September 2010 ADM count. When the pilot

       program ended, the academy applied to become a charter school. In December

       2011, INCA entered into a charter agreement with Ball State University to

       establish and operate Indiana Connections Academy. INCA became the

       organizer of Indiana Connections Academy in January 1, 2012.

[18]   In 2003, AJB entered into a charter agreement with the City of Indianapolis.

       AJB began educating students in August 2003 and received its first tuition

       support payments in February 2004 based on its September 2003 ADM count.

       In March 2008, Aspire entered into a charter agreement with Ball State

       University. It began educating students in August 2008 and received its first

       tuition support payments in January 2009 based on its September 2008 ADM

       count. Through a contractual arrangement, NHA operates AJB and Aspire.

       2
         The Academy’s organizer and fiscal agent under the pilot program was Rural Community Schools (Rural).
       When it was decided that the Academy would apply to become a full-fledged charter school, it transitioned
       from Rural to INCA as its organizer.

       Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019                       Page 10 of 18
[19]   Each of the Charter Schools has received continuous tuition support from the

       DOE except for their respective first semesters of operation. They all argue that

       the 2013 transitional period did not account for their first six months of

       operation and maintain that they should be compensated for that semester.

[20]   On June 10, 2016, INCA filed a complaint against the State for breach of

       contract and declaratory judgment. In its answer, the State asserted

       counterclaims for unjust enrichment and negligence and filed a third-party

       complaint against Rural. INCA and Rural both filed motions to dismiss. On

       October 24, 2017, the trial court granted the motions to dismiss the negligence

       counterclaim and denied the motion to dismiss the unjust enrichment

       counterclaim and the third-party complaint.

[21]   In August 2017, AJB, Aspire, and NHA filed a motion for permissive

       intervention and a complaint against the State for mandate, damages, and

       declaratory, injunctive, and equitable relief. The trial court granted the motion

       for permissive intervention.

[22]   In June 2018, INCA and Rural filed a joint motion for summary judgment and

       NHA, Aspire, and AJB filed a joint motion for summary judgment. The State

       filed a cross-motion for summary judgment. On October 2, 2018, the trial court

       denied the State’s cross-motion for summary judgment. It granted the Charter

       Schools’ summary judgment motions with respect to their implied contract

       Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019   Page 11 of 18
       claims and denied their motions with respect to their express contract claims

       and claims for prejudgment interest.3

[23]   The State now appeals the grant of summary judgment in favor of the Charter

       Schools. The Charter Schools, in turn, cross-appeal the trial court’s order

       regarding their express contract claims and argue that they are entitled to

       statutory late payment penalties and prejudgment interest. INCA also argues

       that the trial court erred in calculating the amount of damages it is owed.

                                      Discussion and Decision
[24]   The State argues that (1) the Charter Schools received all the funding they were

       owed because there was no funding lag; (2) the trial court erroneously

       determined that there were implied contracts between the State and the Charter

       Schools; (3) there were no express contracts between the State and the Charter

       Schools; (4) there is no constitutional provision supporting the Charter Schools’

       claims; and (5) the Charter Schools are not owed interest, penalties,

       prejudgment interest, a mandate, or recovery on an unjust enrichment claim.

       As we find the first argument dispositive, we will not consider the remaining

       issues or the Charter Schools’ cross-appeal.

[25]   Our standard of review on summary judgment is well established:

       3
        The trial court also awarded summary judgment in favor of INCA and Rural on the State’s unjust
       enrichment claim. The State does not appeal that portion of the order, meaning that Rural is no longer part
       of the case.

       Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019                         Page 12 of 18
               We review summary judgment de novo, applying the same
               standard as the trial court: “Drawing all reasonable inferences in
               favor of . . . the non-moving parties, summary judgment is
               appropriate ‘if the designated evidentiary matter shows that there
               is no genuine issue as to any material fact and that the moving
               party is entitled to judgment as a matter of law.’” Williams v.
               Tharp, 914 N.E.2d 756, 761 (Ind. 2009) (quoting T.R. 56(C)). “A
               fact is ‘material’ if its resolution would affect the outcome of the
               case, and an issue is ‘genuine’ if a trier of fact is required to
               resolve the parties’ differing accounts of the truth, or if the
               undisputed material facts support conflicting reasonable
               inferences.” Id. (internal citations omitted).

       Hughley v. State, 15 N.E.3d 1000, 1003 (Ind. 2014).

[26]   The interpretation of a statute is a question of law to which we apply a de novo

       standard of review. Kaser v. Barker, 811 N.E.2d 930, 932 (Ind. Ct. App. 2004).

[27]   The crux of the State’s argument is that the public school funding law in effect

       until July 2013 did not provide for any tuition support during a new public

       school’s first semester of operation. Because there is no dispute that the Charter

       Schools received tuition support for all but one semester of operation, the State

       argues that they have received all monies they are owed. The trial court found

       that the tuition support funding that begins in January of a charter school’s first

       year of operation covered the education provided during the previous Fall

       semester. In other words, it was tuition support funding in arrears.

[28]   We agree with the State that there is no statutory authority suggesting that this

       funding lag, in fact, existed: “payments were made in real time, for the present

       Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019    Page 13 of 18
       semester, but based on information from the previous September.” Appellant’s

       Br. p. 22.4

[29]   The trial court found, essentially, that the Charter Schools were owed twelve

       months of tuition support based on the September 2012 ADM count. Because

       of the change in the funding formula halfway through 2013, which (according

       to the trial court and the Charter Schools) did not account for the second six

       months of tuition owed, the Charter Schools are entitled to receive those funds.

       We agree with the State that this is a fundamental misunderstanding of the

       prior funding formula:

               the old funding formula never guaranteed two full semesters of
               tuition support based on a September ADM. Under the old
               formula schools received twelve months of funding based on the
               previous September’s ADM, but only because payments were based
               on a calendar year. As of July 2013, tuition support for the fall
               semester would be based on the September 2013 (not the
               September 2012 ADM), and would be paid on a fiscal year basis.

       Appellant’s Br. p. 29 (emphasis added).

[30]   We also note that as a practical matter, budgets are prospective rather than

       retrospective. Each two-year budget covers only those two years and cannot

       reach back to the past to make payments in arrearage. Moreover, if an agency

       4
         By contrast, the new tuition support funding law effective July 2013 provides for the ADM count to be
       reported in both September and February, meaning that the necessary information to calculate tuition
       support is now being provided for the current semesters.

       Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019                         Page 14 of 18
       such as the DOE has money left over at the end of a two-year cycle, that money

       reverts to the State. Consequently, a six-month funding lag would not fit into

       Indiana’s budgeting process.

[31]   Because there was no so-called funding lag, it is apparent that the Charter

       Schools received tuition support funding on a real-time basis. The DOE

       distributed those funds continuously throughout the transitional period.

       Therefore, the evidence undisputedly shows that they have received all funds to

       which they are entitled.

[32]   Adding support to this conclusion is the Advisory Opinion, which provided the

       Attorney General’s policy suggestion that the legislature provide funding for a

       charter school’s first semester of operations. But following the issuance of this

       opinion, the General Assembly did not make that change. Instead, the General

       Assembly created a program whereby a new charter school could apply for a

       government loan to help it through its first semester of operation, meaning that

       it did not—as advocated for by the Attorney General—provide the DOE with

       the necessary funds or authorization to pay tuition for that first semester.

[33]   We acknowledge that this result may seem unfair. As noted by counsel at oral

       argument, this result penalizes charter schools that had the financial

       wherewithal to operate without State assistance for their first semester.

       Specifically, charter schools that had to seek a loan from the State under the

       Advancement Account ultimately had those loans forgiven, whereas the

       schools that financed their own first semesters are left holding the proverbial

       Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019   Page 15 of 18
       bag with no recourse for recouping those funds. It may also seem unfair that

       the State expected charter schools to open and operate for a full semester with

       no tuition support from the government.

[34]   But regardless of whether the process and result are fair or unfair, it is solidly

       within the wheelhouse of the legislature to create a statewide budget and to

       decide how to fund charter schools, which are a creation of the General

       Assembly to begin with. The General Assembly has the discretion to decide

       how to allocate State funds. In this case, it initially decided not to fund the first

       semester of charter schools’ operations. Neither the fact that it decided in 2013

       to change that formula nor the fact that the outcome may seem unfair means

       that there was actionable error in the initial budgeting process.

[35]   In sum, while the Charter Schools may argue that it is bad public policy for the

       legislature to have decided that charter schools should not be funded for their

       first semester of operation, that does not change the language of the relevant

       public law, which does not provide for the so-called funding lag. There is no

       statute providing that the tuition payments beginning in January paid for public

       education provided the previous fall.

[36]   As a final issue, we must address the Charter Schools’ argument that the State’s

       interpretation of the tuition support funding formula is unconstitutional because

       “Article 8, Section 1 requires the State to provide complete tuition support—not

       tuition support except for one semester. The State cannot abrogate that

       constitutional duty by statute.” AJB, Aspire, NHA Appellees’ Br. p. 26. They

       Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019     Page 16 of 18
       insist that the only way in which the tuition support funding formula is

       constitutional is if we interpret it to impose the so-called funding lag, meaning

       that charter schools are entitled to tuition support funding for every semester of

       operation, albeit on a one-semester lag. Were we to agree with the State’s

       interpretation, the Charter Schools argue that it would shift onto them the

       General Assembly’s constitutional duty to provide tuition-free public education.

[37]   Initially, we note that the Indiana Constitution does not confer a private right of

       action for monetary damages. E.g., City of Indianapolis v. Cox, 20 N.E.3d 201,

       212 (Ind. Ct. App. 2014); see also Hoagland v. Franklin Twp. Cmty. Sch. Corp., 27
N.E.3d 737, 741 (Ind. 2015) (holding that Indiana’s Education Clause does not

       provide a private right of action for monetary damages).

[38]   Nevertheless, we observe that while the State is obligated to provide a tuition-

       free education for Hoosier children, it necessarily fulfills that obligation in the

       guise of traditional public schools. In other words, even if the charter schools

       had to be self-funded for their first semester, and even if the charter schools had

       to close their doors as a result, the children of Indiana were always going to be

       able to obtain a tuition-free education at traditional public schools. Because

       traditional public schools have always been an option, the State did not violate

       any constitutional obligations by structuring its charter school tuition funding in

       a way that required those schools to fund their own first semesters. Therefore,

       this argument is unpersuasive.

       Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019     Page 17 of 18
[39]   In sum, from 2002-2013, the way in which the General Assembly structured

       charter school tuition support resulted in a system requiring those schools to

       self-fund their first semesters of operation. Nothing in the budget for those

       years indicates that the legislature intended the tuition support payments to be

       made in arrears. It is within the purview of the legislature to structure its

       budgets, and nothing here suggests that it exceeded its discretion. As such, the

       trial court erred by determining that the Charter Schools are entitled to a

       semester’s worth of tuition support. Therefore, we reverse.

[40]   The judgment of the trial court is reversed and remanded with instructions to

       enter judgment in favor of the State.

       Vaidik, C.J., and Altice, J., concur.

       Court of Appeals of Indiana | Opinion 18A-PL-2634 | September 24, 2019    Page 18 of 18