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Pocono Mountain Charter School, Inc. v. Pocono Mountain School District

Commonwealth Court of Pennsylvania

February 26, 2014

Pocono Mountain Charter School, Inc. d/b/a Pocono Mountain Charter School, Petitioner
Pocono Mountain School District, Respondent

Argued December 11, 2013.

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[Copyrighted Material Omitted]

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Appealed from No. CAB 2010-06. State Charter School Appeal Board.

Daniel Fennick, York, for petitioner.

Ellen C. Schurdak, Bethlehem, for respondent.



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In this statutory appeal with unique procedural twists, Pocono Mountain Charter School, Inc. d/b/a Pocono Mountain Charter School (Charter School) petitions for review of the State Charter School Appeal Board's (CAB) 2013 order revoking its charter. The CAB thus upheld the Pocono Mountain School District's (District) school board's (Board) adjudication.

Originally, the CAB stated there was insufficient basis for revocation, and it voted to sustain the Charter School's appeal. Upon the District's application to reconsider and reopen the record, the CAB rescinded its prior vote and accepted supplemental evidence. Subsequently, the CAB issued the decision and order revoking the charter. The CAB concluded the Charter School violated the Charter School Law (CSL)[1] based upon religious entanglement with its landlord, the Shawnee Tabernacle Church (Church), expending public funds for sectarian purposes, exposing students to religious symbols, and failing to meet generally accepted standards of fiscal management.

The Charter School argues the proceedings violated its constitutional due process rights at both levels of administrative review. Upon review, we vacate and remand to the CAB in accordance with the following opinion.

I. Background

A. The Charter School and Church Relationship

In 2003, Dennis Bloom (Bloom) submitted the charter application on behalf of the

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Charter School and became its first Chief Executive Officer (CEO). Since it opened, the Charter School leased space from the Church. The Church operated in the same building and shared facilities with the Charter School. Significantly, Bloom simultaneously served the Charter School as CEO and the Church as Senior Pastor. Bloom thus represented the Church while also representing the Charter School, including in business deals where their interests diverged ( e.g ., lease negotiations). The Charter School also employed Bloom's wife and his children at certain times.

In 2006, the District renewed the Charter School's charter for five years, subject to 65 conditions. At that time, the District knew of the Charter School's relationship with the Church and of Bloom's dual role. It challenged neither.

The District initiated revocation proceedings in May 2008. The revocation resolution concerned religious entanglement and financial improprieties of Bloom given his apparent conflicts of interest.

Bloom resigned from his position as CEO in December 2010, two months after the Board issued its adjudication revoking the Charter School's charter. However, benefits Bloom received from the Charter School did not completely terminate upon his resignation.

The parties do not dispute that the Charter School is working to remedy its financial history with a Court-monitored custodian. Judge Arthur L. Zulick of the Court of Common Pleas of Monroe County is monitoring the financial and educational status of the Charter School.

B. Procedural Overview

The timing of events is important. In May 2008, the District adopted a resolution containing 27 reasons to revoke the charter.[2] In June 2009, the Board commenced public hearings on the revocation. Primarily, the hearings focused on the alleged unconstitutional entanglement between the Charter School and the Church. The hearings also involved alleged financial mismanagement and improper expenditures by then-CEO Bloom.

After holding 16 hearings over a year's time, on October 6, 2010, the Board issued an adjudication to revoke the charter. The Charter School appealed to the CAB.

On September 27, 2011, at a public meeting, the CAB acted on the revocation. By majority vote, the CAB sustained the Charter School's appeal. The CAB did not issue a written decision explaining its disagreement with the Board.

Significantly, the Charter School received a confidential draft copy of a Performance Audit Report from the State Auditor General in December 2011. Before the CAB issued a written decision in support of its September action, in January 2012, the District sought reconsideration of the CAB's action and moved to reopen the record for the purpose of admitting the anticipated final audit (referenced by an article in The Morning Call ). Supplemental Reproduced Record (S.R.R.) at 52b-53b, 60b. The District revised its request to reopen the record to include the Performance Audit Report issued on February 8, 2012 (Final Audit). The Final Audit covered transactions from July 2006 through August 2010.

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By order dated February 29, 2012, the CAB rescinded its September 2011 vote, and it reopened the record to accept the Final Audit and any supplemental evidence related to its findings. The CAB remanded evidentiary issues to a hearing officer who made findings as to the supplemental evidence only.

After receiving the hearing officer's proposed findings, the CAB voted 6-0 in favor of revocation on July 30, 2013. It issued its written decision and order three days later. The Charter School promptly filed a petition for review and motion for stay, which this Court granted. Although its charter expired in 2011, the Charter School continues to operate pursuant to this Court's stay of the CAB's revocation decision.

In an effort to shed light on the many due process challenges and clarify the complex procedural history, we review the proceedings at each administrative stage in more detail.

1. Revocation Hearings (District Board)

The District's written resolution detailed 27 reasons for scheduling a hearing to revoke the Charter School's charter. Among the 27 grounds, the Board identified the following issues:

1. Entanglement of the Church with the Charter School's operations;
2. Excessive CEO Benefits and Salary;
3. Violations of State Ethics Law by employing Bloom's relatives, including his wife and children, creating conflicts of interest;
4. Benefit to Bloom or improper financial benefits to the Church, (payment of excessive rent and fees, e.g ., gym floor, LED sign used to display messages);
5. Paying more than fair market value rates for rent, and failing to negotiate at arm's length; and,
6. Operating Charter School to constitute an alter ego of the Church, its landlord.

See Reproduced Record (R.R.) at 150a-152a (Revocation Resolution). Prior to hearing, the parties engaged in discovery. Over the course of a year, the Board conducted 16 hearings, resulting in 2,000 pages of transcribed testimony.

The evidence during the revocation hearings revealed the following facts. The District renewed the charter for a period of five years, until 2011. R.R. at 16a-25a. After renewal, the District became concerned the Charter School did not comply with its charter. The District sent a letter dated April 10, 2007, seeking information to ensure charter compliance. The letter advised the Charter School that if it did not provide the requested information within 60 days, revocation proceedings may be commenced. S.R.R. at 752b-754b. The Charter School responded without disclosing its renegotiations of its most recent lease with the Church.

While simultaneously serving as CEO of the Charter School and Senior Pastor of the Church, Bloom transacted business for both entities related to the property they shared. This included signing leases with the Charter School on behalf of the Church, and undertaking the efforts for the LED message board sign, which displays Church and Charter School announcements.

The Church and the Charter School signed the Master Lease Agreement (Lease) on July 9, 2007. After the revocation process began, the Charter School disclosed the Lease. Pursuant to the Lease, the Charter School paid $18,756.56 per month to the Church for space that was under construction and uninhabitable.

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This rent was in addition to the $33,000.00 per month the Charter School paid for use of the original 30,000 square foot building, and the annual payment of $36,000.00 in rent for the athletic fields. The Lease restricted the Charter School's access to the premises to Monday through Friday, from 7:00 a.m. to 5:00 p.m., only on those days when school was in session. The Charter School did not have an appraisal when it executed the Lease or Lease amendments. There is no indication in the Charter School minutes that the Board of Trustees of the Charter School approved the Lease.

The Charter School spent more than $1.6 million on buildings and improvements for the year ending June 30, 2008. R.R. at 75a. For the year ending June 30, 2007, the Charter School expended approximately $970,000.00 for facilities, acquisition and construction-related costs associated with the Church's property. R.R. at 35a. The expenditures include approximately $125,000.00 for a gymnasium floor with 30-inch high lettering spelling " SHAWNEE TABERNACLE," S.R.R. at 780b-801b, and nearly $40,000.00 for a LED message sign to be placed at the end of the property along a public roadway. The name of the Church appears permanently at the top of the sign, and the name of the Charter School is below the message screen. At times, the sign posted religious messages as follows: " Did you remember Jesus Today? He remembers you[,]" " Come Home! God[,]" and " Jesus is the truth and the light" (Religious Messages). S.R.R. at 843b-853b. The Church did not make any payment toward the sign.

One of the Charter School's experts as to real estate appraisal (Appraiser) conceded the lease agreements between the Church and Charter School did not constitute arm's length transactions given Bloom's relationship to both parties. S.R.R. at 173b-174b; 177b; 180b-181b. Although he defended the rent as reasonable, Appraiser did not review any local charter school lease agreements to develop an opinion as to fair market value for the rent. When determining fair market rental value, Appraiser also did not consider the costs that the Charter School paid for substantial improvements. Appraiser also did not consider the age of the building, or use comparable properties, or take into account that the Lease limited use to certain days and hours.

Moreover, Bloom and his family also received allegedly excessive benefits as a result of his dual role. CEO Bloom and members of his family received payments or other benefits directly from the Charter School or through the Church.

The Church established a separate, nonprofit corporation known as Tobyhanna Impact Athletic Center, listing Bloom's daughter as President. The Athletic Center charged the public for use of the gym. Despite receiving payments, the Athletic Center did not pay the Charter School for use of the gym. Thus, it received an indirect benefit from the Charter School.

Bloom's wife served as Assistant CEO of the Charter School until 2008. The Charter School paid her a salary of more than $67,000.00 for the 2006-07 school year, and $76,000.00 for the 2007-08 school year. The Charter School previously employed Bloom's daughter and son. Bloom's daughter received a bonus from the Charter School. There is no evidence of the Board of Trustees' approval of this bonus.

Further, Bloom did not have experience in instructional leadership, regulatory compliance, contract negotiation or personnel administration. Despite these deficiencies, Bloom received an annual salary of $107,993.00 for the 2006-07 school year,

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and $120,000.00 for the 2007-08 and 2008-09 school years.

In its adjudication dated October 6, 2010, the Board voted to revoke the Charter School's charter. The Board concluded the Charter School repeatedly engaged in transactions that resulted in an inappropriate entanglement of the Charter School's operations with the Church in violation of Section 1715-A(4) of the CSL, 24 P.S. § 17-1715-A(4), which states, " a charter school shall be nonsectarian in all operations." The Board also concluded the Charter School violated Section 1715-A(5) of the CSL, 24 P.S. § 17-1715-A(5), prohibiting exposure of students to religious objects and symbols on school premises. Lastly, the Board held the Charter School failed to meet generally accepted standards of fiscal management as required by Section 1729-A(a)(3) of the CSL, 24 P.S. § 17-1729-A(a)(3).

2. CAB Proceedings

The Charter School appealed the Board's adjudication to the CAB. Before the CAB, the parties filed a number of motions regarding supplemental evidence, consolidation with non-renewal proceedings,[3] and alleged noncompliance with hearing officer orders. A hearing officer ruled on a number of the procedural motions. The Charter School petitioned to reopen the record to include evidence of the public support for the school, and changes subsequent to CEO Bloom's resignation, including removing signs of its affiliation with the Church. The District petitioned to submit evidence post-dating the adjudication. The CAB denied both parties' petitions.

On September 27, 2011, a majority of the quorum of the CAB voted at a public meeting to reverse the Board's decision revoking the charter (CAB-1).[4] In that meeting, then-Secretary of Education Ronald J. Tomalis called for a final roll call vote. Then-Secretary Tomalis made a statement recorded in the meeting minutes as follows: " [U]pon review and careful consideration of the matter, he concluded the record did not contain substantial evidence supporting the District's grounds for revocation which were improper religious entanglement, exposure of students to religious symbols or objects, and disbursement of funds for non-Charter School purposes." R.R. at 344a. The CAB-1 then voted 5-2 against revocation.

The CAB did not issue a written decision explaining its disagreement with the Board. In November 2011, the Charter School contacted the CAB's counsel regarding status of a written decision. Counsel replied the opinion would be forthcoming, stating the office was " really inundated." R.R. at 313a.[5] There was no ...

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