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Chester Community Charter School v. Commonwealth

June 3, 2010

CHESTER COMMUNITY CHARTER SCHOOL, PETITIONER
v.
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF EDUCATION, SECRETARY OF EDUCATION GERALD L. ZAHORCHAK, CHESTER-UPLAND SCHOOL DISTRICT, CHESTER UPLAND SCHOOL DISTRICT EDUCATION EMPOWERMENT BOARD, RESPONDENTS



The opinion of the court was delivered by: Judge Leavitt

Argued: November 10, 2009

BEFORE: HONORABLE MARY HANNAH LEAVITT, Judge, HONORABLE JAMES R. KELLEY, Senior Judge, HONORABLE JIM FLAHERTY, Senior Judge.

OPINION

Chester Community Charter School (Chester School) has filed an action in this Court's original jurisdiction, seeking a writ of mandamus to compel the Secretary of Education to withhold state subsidies from the Chester-Upland School District (School District) because it has failed to fund Chester School in the amounts required by law. Chester School also seeks a writ of prohibition, a declaratory judgment and a permanent injunction, to stop the Department's administrative hearing, scheduled to consider, inter alia, whether state subsidies should be withheld from the School District and disbursed to Chester School. In response, the Department of Education, the School District and the Chester-Upland School District Education Empowerment Board (Empowerment Board) have filed preliminary objections in the form of a demurrer. Concluding that the Secretary has failed to follow the statutory procedure established for the situation where a charter school documents that it has not been properly funded by a school district, we overrule the preliminary objections in part and sustain them in part.

Background

The Secretary of Education serves as receiver for the School District.*fn1

To manage the operations of the School District, the Secretary has appointed a three-member Empowerment Board that serves at the Secretary's pleasure. One of the Empowerment Board's responsibilities is to ensure that the School District makes monthly payments to charter schools within the district as required by Section 1725-A(a)(5) of the Charter School Law.*fn2 It states:

Payments shall be made to the charter school in twelve (12) equal monthly payments, by the fifth day of each month, within the operating school year. A student enrolled in a charter school shall be included in the average daily membership of the student's district of residence for the purpose of providing basic education funding payments and special education funding pursuant to Article XXV. If a school district fails to make a payment to a charter school as prescribed in this clause, the secretary shall deduct the estimated amount, as documented by the charter school, from any and all State payments made to the district after receipt of documentation from the charter school.

24 P.S. §17-1725-A(a)(5) (emphasis added). Chester School asserts that the School District has failed to remit the payments required by this statutory provision.

Chester School's pleading explains that in May 2002, the Auditor General discovered in the course of an audit that the School District had deliberately miscalculated the average daily payment owed for each student enrolled in another charter school in the School District, Village Charter School.*fn3

Specifically, the Auditor General found that the School District had incorrectly calculated the amount owed for special education students enrolled in Village Charter School. The School District did so because it believed it could not afford to pay the amount required by the Department of Education's formula for funding a charter school's education of special education students.

On the basis of the Auditor General's report, Village Charter School requested the Department to withhold the state subsidies from the School District in accordance with Section 1725-A(a)(5). By letter of February 2, 2005, the Department responded that it agreed with the Auditor General's findings and concluded that the School District owed the Village Charter School more than $300,000.*fn4 The Department urged the School District and Village Charter School to "resolve this matter amicably in the coming days." Amended Petition for Review, Exhibit 4, at 4.

Because the Auditor General's findings applied with equal force to Chester School, it sought a correction. In April 2007, Chester School notified the Department of Education that the School District had failed to make monthly payments as required by Section 1725-A(a)(5) because the School District had used the same daily rate for special education students that was found to be incorrect by the Auditor General. It also documented the estimated amount that was owed by the School District. Chester School demonstrated that it was owed $4.7 million for the period from September 1998 to June 2006. In July 2007, the Department responded, directing Chester School to present its claim to the School District.

Between April and August 2007, Chester School sent a series of invoices to the School District. Chester School invoiced the School District $4,753,721.82 for the period from September 1998 to June 2006; $2,608,078.90 for the 2006-2007 school year; and $390,879.50 for July to September 2007.

In September 2007, acknowledging its underpayment for school year 2006-2007, the School District notified Chester School that it would pay $739,486.99, in twelve monthly payments of $61,623.91. After making two monthly payments, the School District paid the balance in a lump sum payment of $616,239.17. However, it refused to pay Chester School the remaining $1,868,591.91 claimed to be owed for the 2006-2007 school year. The School District did not make any payment on Chester School's claim for the periods covering 1998-2006 or July to September 2007. At that point, Chester School requested the Secretary to withhold the state subsidies from the School District in the amount Chester School had documented in its April 2007 submission to the Department and to direct their disbursement to Chester School.

With respect to Chester School's claim for the $4,753,721.82, covering the period from September 1998 to June 2006, the Department did not respond. Chester School repeated its demand, in writing, six times between April 2007 and May 2008.

With respect to the claim for $1,868,591.91, covering the 2006-2007 school year, the Department directed Chester School to provide a reconciliation report. Chester School's pleading explains that it did not do a reconciliation for good reasons: an online reconciliation would be a futile exercise because the system would automatically use the School District's incorrect daily funding rate for special education students and, in any case, the online submission system for the 2006-2007 school year had already been shut down when the Department made its request.

Finally, with respect to the claim for $390,879.50, covering the period from July through September 2007, the Department directed Chester School to submit an invoice, using the Department's procedures that were posted on its website.

In August 2008, on its own initiative, the Department appointed a hearing officer to conduct an administrative hearing on Chester School's claims against the School District. Chester School then filed a petition for review with this Court, challenging the Department's authority to hold a hearing without first withholding the funds documented by Chester School. The Department and the School District each filed a demurrer to the petition for review. However, before the objections were briefed, Chester School filed an amended petition for review, to which the Department and the School District filed new preliminary objections. Chester School filed preliminary objections to the School District's preliminary objections. This Court sustained Chester School's preliminary objections and directed the School District to respond to the amended petition by September 10, 2009.*fn5 It did so with amended preliminary objections.

At the root of this controversy is the scope and meaning of Section 1725-A(a)(5) of the Charter School Law. Chester School's amended petition for review raises four counts. Count I seeks a writ of mandamus, asserting that the Secretary has failed to fulfill his ministerial and mandatory duty to withhold subsidies from the School Board upon receipt of Chester School's documentation of the estimated underpayment. In Count II, Chester School seeks to stop the Department's scheduled hearing because it does not conform to the statutory procedure. A hearing, Chester School asserts, takes place after the withholding of subsidies and only upon request of a school district; the Department lacks authority to schedule a hearing sua sponte. In Count III, Chester School requests a declaratory judgment that the Department's refusal to withhold the subsidies violates Section 1725-A(a)(5). In Count IV, Chester School seeks a permanent injunction, asserting, inter alia, that it cannot receive a fair or unbiased hearing from the Secretary, who has appointed the members of the Empowerment Board and is responsible for the Board's actions, including its refusal to fund Chester School in the correct amount.

The School District and the Department seek the dismissal of each count of the amended petition for review. They assert that the amended petition for review fails to state a cause of action in any respect.

A demurrer tests the legal sufficiency of the complaint. Insurance Adjustment Bureau, Inc. v. Allstate Insurance Company, 588 Pa. 470, 480, 905 A.2d 462, 468 (2006). A demurrer admits every well-pleaded material fact set forth in the complaint as well as all inferences reasonably deducible. Chichester School District v. Chichester Education Association, 750 A.2d 400, 402 n.8 (Pa. Cmwlth. 2000). The question presented by the demurrer is whether, on the facts averred, the law ...


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