The opinion of the court was delivered by: Baylson, J.
MEMORANDUM RE: FINAL APPROVAL OF CLASS ACTION SETTLEMENT
Like opening a window in a dark, stuffy room, a trial brings light and fresh air to the resolution of disputes, different from any other form of dispute resolution. The public testimony of a witness under oath, supported or contradicted by documents and cross examination, is invaluable.
Even though this case is now before the Court for approval of a class action settlement, the benefits of a ten-day trial have been immense. The trial brought out into public light:
* A school system in dire financial straits
* Dysfunctional fiscal controls
* Lack of committed and consistent leadership
* Some public concern, but also a lot of public apathy
* Education of children with disabilities-the principal focus of this case-that did not follow the mandates of federal law
Running a school system is not an easy job. Competing interests from parents, teachers and students as well as program demands and financial constraints, pose problems and challenges. School board members serve long hours, without pay, and sometimes without any citizen appreciation, either.
Although this Court claims no expertise about education in general or running a school system specifically, this case, and an earlier case, have given the Court insights in to how schools are run.*fn1
The Chester Upland School District ("District") faces unique issues and problems, many of which are detailed below. The District has a long history of a declining tax base, a poor, if not poverty stricken, population, and of low success rates in standard achievement tests and post-secondary education. Yet, its students still deserve the best opportunities that a nation, state and community can provide.
Out of these problems will grow successes but also frustrations, failures, and, as experience has shown, law suits. Courts are not necessarily the best places, and certainly not the only places, to resolve these disputes. However, when negotiation, arbitration and other forms of dispute resolution fail, courts must try to reach reasoned and fair decisions.
When a trial of a case brought as a class action has taken place, and witnesses have been presented, but the trial is followed by a settlement, in some ways this is the best of all possible outcomes. Public testimony exposed the issues, but the settlement avoids labeling one side as the winner and the other side as the loser. A class action requires the Court to scrutinize the settlement carefully to make sure that the result is fair to members of the class as they are bound by the result. In the context of a suit concerning the operation of a school system, there is obviously also a great deal of public interest and public concern, if only because there are likely to be consequences for the settlement to students, parents, teachers, and taxpayers in terms of finances, expenses, program content, etc.
This controversy, arising out of the District's near insolvency earlier this year, has resulted in a constructive settlement that has the potential of giving thousands of school children a quality education. However, the near disaster which threatened to close the District's schools this year will be repeated if the lessons learned are forgotten, and if the conduct which led to the dire financial circumstances, including the District's own acts and omissions, is repeated.
Although this case was brought against the Pennsylvania Department of Education ("Department"), the Court must, in all fairness, note that there was little if any testimony to support the allegations against the Department. The main thrust of Plaintiffs' case was that the District was underfunded, and that may well be true. However, as the Court made clear in several hearings and orders in this case, funding to public schools in Pennsylvania is determined by the Legislature, and no judge has the power to require additional funds be appropriated to a school system. Although the Court appreciates that the parties have voluntarily reached a settlement which will result in infusion of funds into the District, money does not solve all problems. This settlement must be accompanied by continued supervision by the Department, dedication by local school officials, commitment and participation by parents and teachers, and hard work by the students.
Faced with the catastrophic possibility that its empty coffers would necessitate closing school mid-year, the District, along with its School Board ("Board"), and other related individual Plaintiffs (collectively, "Plaintiffs") filed an emergency suit in this Court in January 2012. Plaintiffs sought a temporary retraining order and preliminary injunction enjoining the Commonwealth of Pennsylvania, Department of Education, Secretary of Education Ronald Tomalis (collectively, "Commonwealth Defendants"), Governor Tom Corbett, President Pro Tempore of the Senate Joseph Scarnatti, and Speaker of the House Samuel Smith, from withholding funding to the District. After a preliminary hearing, the Court approved the parties' agreement that the Commonwealth would release $3.2 million to the District to cover the District's next payroll and other immediate critical expenses. (ECF No. 17).
A host of other parties intervened in the case, including the group of parents of District-educated students with disabilities that this Court eventually certified as a class ("class") and the Pennsylvania State Conference of the National Association for the Advancement of Colored People ("PA-NAACP") (together, "Intervenor Plainiffs"), and the Chester Community Charter School.
Recognizing the significant public interest in the case, and the need to resolve the issues before the start of the 2012-13 school year, this Court encouraged the parties to come to a settlement agreement, and set an expedited schedule for additional pleadings, motions, discovery, and trial.
Eventually, ruling on a motion to dismiss on subject matter jurisdiction, a more general motion to dismiss, a motion for summary judgment, and Plaintiffs' voluntary motion to dismiss the legislative branch defendants, the Court narrowed the parties involved in the case, as well as the remaining claims. Only the executive-branch Commonwealth Defendants remained in the case.
B. Parties' Joint Efforts to Ensure District Remained Open for 2012-13 School Year
At a February 1, 2012 hearing, the Secretary of Education agreed to comply with the Court's suggestion that he promptly convene settlement discussions with all parties.On February 2, 2012, the Court entered an Order to this effect, and directed the Secretary to issue a report and recommendation on the District's financial status by mid-March 2012 if no settlement could be reached. (ECF No. 49). The Secretary appointed as his Designee Stephen J. Harmelin, Esquire, a distinguished member of the Philadelphia Bar, to facilitate the settlement discussions and then draft the report. Mr. Harmelin prepared an extremely thorough "Report and Recommendations to the Secretary of Education Regarding Funding for Chester Upland District and Charter Schools for 2011-12 Fiscal Year." The Secretary then adopted this Report as his own "Report and Recommendation Regarding Funding for District and Charter Schools Serving Children in the Chester Upland School District (March 1 - June 30, 2012)" ("Report") (ECF No. 81).
Constrained by the fact that he could not increase the Commonwealth's remaining appropriation to the District for the 2011-12 school year, nor could he resolve the pending legal claims, Mr. Harmelin nevertheless endeavored to prioritize funding among the relevant District-run schools and charter schools. Report at 1-4.In preparing the Report, Mr. Harmelin was assisted by Public Financial Management ("PFM"), a financial consultant firm the Department retained to assess the District's fiscal performance.Id. at 1.PFM discovered a number of inefficiencies and other problems within the District's financial infrastructure, which are detailed later in this Memorandum. Id. at 28-30. Strikingly, the District's spending practices caused Mr. Harmelin "to conclude that the District's former leadership team adopted the strategy of failing to pay the District's known financial obligations; redirecting those funds to pay other expenses that were less essential; and dealing with the consequence of this conduct only when the funds appropriated to [the District] inevitably ran out." Id. at 12. He further reasoned that "[i]t is not unreasonable to infer that the District leadership consciously determined that PDE could not recoup money that had already been spent and believed that it would leave the Commonwealth with no option but to locate additional, non-appropriated funds in order to avoid a catastrophic shutdown of the District's schools." Id. Mr. Harmelin did acknowledge some "necessary and often painful spending cuts" the District implemented. Id.
Mr. Harmelin reviewed the available funds, essential costs, and apparent opportunities for savings. He then recommended how the District's remaining state subsidy should be divided among the District-run schools and relevant charter schools, including recommending that the Commonwealth pay directly certain creditors such as the Delaware County Intermediate Unit, which provides special education services to some of the District's students with disabilities. Id. at 3. Mr. Harmelin recognized that the funds he suggested the Commonwealth should pay the District exceeded the District's remaining state subsidy for 2011-12, and consequently urged the Secretary to use up to $4.5 million in unallocated state "empowerment funds" to bridge that funding gap. Id. at 4. Mr. Harmelin also proposed that, as a cautionary measure, a third party receive the designated funds and apply them to expenses approved by the Commonwealth. Id. at 3-4.
On March 28, 2012, Defendants filed a motion requesting the Court to establish a process for disbursement and expenditure of funds in a manner consistent with the Report. (ECF No. 101). Defendants contended that such a process was needed to further the parties' shared objective that the District schools continue to operate through the end of the 2011-12 school year. After receiving input from all counsel, the Court entered an Order setting up a procedure for processing payments from the Department to the District to cover the costs of critical vendors. (ECF No. 117).
The District and Department were each required to designate a representative to communicate regularly and negotiate the applicable funding issues. The protocol also provided that any disputes should be resolved by an agreed-upon arbitrator or the Court. The District designated its Chief Financial Officer, Mr. Robert Bruchak, and the Department designated Dr. Carolyn Dumaresq, Deputy Secretary for Elementary and Secondary Education. At trial, Mr. Bruchak testified that he never had to resort to arbitration as a result of the Department's unwillingness to pay a vendor the District identified as critical. To the parties' great credit, they were indeed able to work through all funding issues and keep the District's school doors open through the end of June.
On April 25, 2012, the Court certified a class and two sub-classes pursuant to Rule 23(b)(2) of the Federal Rules of Civil Procedure (ECF No. 137). The class sought only injunctive relief. The Court appointed Michael Churchill and Sonja Kerr of the Public Interest Law Center of Philadelphia ("PILCOP") to serve as class counsel ("class counsel"). After Defendants moved for reconsideration of the class definition (ECF No. 141) and class counsel stated that they did not object to revising the class definition, on May 7, 2012, the Court entered an Order (ECF No. 155) modifying the class definition to include the following individuals:
All parents of students who attend Chester Upland School District who are obtaining or are eligible to obtain services under the IDEA/and or are protected by the Rehabilitation Act, (including rights to child find evaluations and other services), excluding parents of students attending a charter school.
T.F., a parent of a child receiving special education services in the District, became the sole named class representative.
In May 2012, the Court held a ten-day bench trial on Plaintiffs' and Intervenor Plaintiffs' claims arising under the Individuals with Disabilities Education Improvement Act*fn2 ("IDEA"), 20 U.S.C. § 1400 et seq., and Section 504 of the Rehabilitation Act*fn3 ("Section 504"), 29 U.S.C. § 794, as to the 2012-13 school year only.*fn4 Below, the Court has summarized the trial evidence.
After the testimony in the bench trial concluded, but before the parties made their closing arguments, the parties informed the Court that they had reached a settlement on all claims, including the class claim. At a conference in the Court's chambers on July 27, 2012, the parties presented the Court with a copy of the settlement ("Settlement Agreement"). The settlement terms are outlined below. During a hearing held on the record the same day, the parties discussed the form of notice to be made to the class. The Court the approved the proposed settlement on a provisional basis and authorized notice to the class members. (ECF No. 242).
On July 30, 2012, Plaintiffs and the class submitted a Joint Motion for Provisional Approval of Settlement Agreement (ECF No. 243), which this Court will treat as a motion for final approval of the settlement. No member of the class filed an objection to the proposed settlement. Some parties filed comments on the settlement, which are discussed in detail below. The Court held a fairness hearing on August 15, 2012. For the reasons that follow, the Court APPROVES the class settlement agreement.
III. Description of the Proposed Settlement Agreement
Under the Settlement Agreement, Defendants shall make direct payments to vendors and other payees in the amount of $20.5 million to cover the District's debt as of June 30, 2012. Without these payments from Commonwealth Defendants, the District expected it would have to carry this debt into the 2012-13 school year. In addition, the Commonwealth will give the District an addition $9.7 million to fund services in the 2012-13 school year.
In return for these funds, the District has promised to substantially implement the "2012-13 Special Education Enhancement Schedule," attached to the Settlement Agreement at Exhibit A, which consists of target deadlines for specific improvements to the District's special education program. These improvements include hiring a Director of Special Education, additional Special Education Supervisor, school psychologists, a special Education Assistant for ACCESS funds, guidance counselors, and addition special education staff members.
The Commonwealth Defendants have also agreed to designate and fund a Special Education Officer ("SEO") to work on-the-ground in the District. The SEO must be "an individual with significant experience in special education and Section 504." The Settlement Agreement charges the SEO with "the authority to direct such action within the District as is necessary to ensure a free appropriate public education for the District's students with disabilities." The SEO will monitor, among other things:
(1) staffing to ensure to ensure the provision of FAPE;
(2) revising the District's Special Education Plan and Special Education Manual, as well as completing implementation of the CUSD's IEP Writer Tracking Database;
(3) timeliness of initial evaluations and re-evaluations, authorization of Independent Educational Evaluations, and the provision of functional assessments and behavior intervention plans;
(4) timeliness and appropriate IEP development, with appropriate progress reporting;
(5) provision of education in the Least Restrictive Environment; and
(6) provision of extended school year programming.
The SEO will also serve as a resource to class members and class counsel, and will provide the parties monthly reports on the provision of FAPE in the District.
The class, as well as the other Plaintiffs, have also agreed to discontinue the present litigation as well as a host of related legal proceedings in the Pennsylvania Commonwealth Court and other fora. This Court does retain limited jurisdiction of this matter until June 20, 2013 to hear any complaints that the Settlement Agreement is not being implemented on a class-wide basis, although the Settlement Agreement sets up a procedure for the parties to attempt to resolve any conflicts internally before class counsel seeks Court enforcement of the Settlement Agreement.
Individual class members who believe their rights under the IDEA or Section 504 have been violated maintain the right to file due process hearings or complaints through the Commonwealth's administrative processes.
On top of the $20.5 and $9.7 million the District will receive, the Commonwealth will pay class counsel $260,000 in fees and expenses, which counsel represents constitutes a "substantial discount" from the lodestar.
The Court previously reserved decision on the question of which Plaintiffs and Intervenors have standing topursue their claims. The Court concludes and Defendants do not dispute that the certified class has standing. See Defs.' Proposed Findings of Fact, Legal Argument, and Proposed Conclusions of Law (ECF No. 236) at 20 & n.7. The IDEA provides a private right of action to children with disabilities and their parents. Lawrence Twp. Bd. of Educ. v. New Jersey, 417 F.3d 368, 371 (3d. Cir 2005).
To have standing, a plaintiff must satisfy three elements:
First, the plaintiff must have suffered a concrete, particularized injury-in-fact, which must be actual or imminent, not conjectural or hypothetical. Second, that injury must be fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court. Third, the plaintiff must establish that a favorable decision likely would redress the injury.
Toll Bros., 555 F.3d at 137-38 (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)) (internal quotation marks and citations omitted)).
In a class action for prospective relief, such as this, to satisfy the standing requirements, only one member of the class must demonstrate a "sufficiently real and immediate" threat of injury. McNair v. Synapse Group Inc., 672 F.3d 213, 223 (3d Cir. 2012) (quoting Roe v. Operation Rescue, 919 F.2d 857, 864 (3d Cir. 1990)). In this case, T.F., the only class member to testify, detailed the ways in which her son has been already deprived of special education services. Below, the Court describes the other evidence of special education rights violations that occurred during the 2011-12 school year. To be sure, "[p]ast exposure to illegal conduct does not in itself show a present case or controversy regarding injunctive relief ... if unaccompanied by any continuing, present adverse effects." Id. (citations omitted).
Still, troubling evidence of the District's ongoing financial problems, including Mr. Bruchak's testimony that the District would be broke by January 2013, and the lack of any final plan from the Department for providing special education services in the least restrictive environment in the event of such a closure, arose at trial. The Court consequently finds that the prospective injury to the class, in the form of imminent violations of their rights under the IDEA and Section 504, is "sufficiently real and immediate" to establish standing.
Having determined that the class has standing, and having found previously that the Court possesses jurisdiction over the subject matter, the Court will proceed to consider the proposed class settlement. Because the Court examines the fairness of the settlement only as it pertains to the class, and not any individual parties, the Court need not reach the issue of whether the District, the PA-NAACP, or other Plaintiffs outside the class possess standing.
V. Review of the Evidence Presented at Trial
Although the Court refrains from making formal factual findings at this stage, a review of the evidence presented at trial will provide a baseline from which to judge the fairness of the settlement, and hopefully aid the parties and the citizens of Chester Upland in avoiding the problems that led to this suit being filed.
A. The District's Demographics
The District has a total school-age population of approximately 7,000 students, who reside in the City of Chester, Township of Chester, or the Borough of Upland, in Delaware County, Pennsylvania. Approximately 3,500 children attend schools run by the District, while roughly fifty percent of the students eligible to attend District-run schools have chosen to enroll in charter schools. About 2,800 students attend Chester Community Charter School, 350 attend Widener Partnership Charter School, and 350 attend cyber charter schools.
Relevant to this case, the District has an elected school board, of which Ms. Wanda Mann is the President. Dr. Tony Watson is currently Acting Superintendent, Dr. Thomas Persing is Acting Deputy Superintendent, Mr. Robert Bruchak is Chief Financial ...