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Kipp Philadelphia Charter Schools v. Commonwealth, Department of Education

Commonwealth Court of Pennsylvania

May 1, 2017

KIPP Philadelphia Charter Schools, Petitioner
v.
Commonwealth of Pennsylvania, Department of Education; and Pedro A. Rivera, in his official capacity as Secretary of Education, Respondents

          Argued: December 14, 2016

          BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE ROBERT SIMPSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE ANNE E. COVEY, Judge HONORABLE MICHAEL H. WOJCIK, Judge HONORABLE JULIA K. HEARTHWAY, Judge.

          OPINION

          ANNE E. COVEY, Judge.

         Before the Court is KIPP Philadelphia Charter Schools' (Charter Schools)[1] Application for Summary Relief (Application) seeking payment from the Commonwealth of Pennsylvania, Department of Education (Department) and Pedro A. Rivera, in his official capacity as Secretary of Education (Secretary) (collectively, Respondents) of reconciliation monies for the 2014-2015 school year pursuant to Section 1725-A of the Charter School Law (CSL).[2] Also before the Court are Respondent's preliminary objections (Preliminary Objections) to the Charter Schools' Petition for Review in the Nature of an Appeal and a Complaint for Direct Payment, Mandamus, Declaratory and Injunctive Relief (Complaint).

         I. Background

         "Pursuant to [S]ection 1725-A of the . . . CSL . . ., a school district that has any resident students enrolled in a charter school must pay the charter school for each enrolled student." Waslow v. Pa. Dep't of Educ., 984 A.2d 575, 576 (Pa. Cmwlth. 2009). Section 1725-A(a)(5) of the CSL requires that "[p]ayments 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." 24 P.S. § 17-1725-A(a)(5). Under former Governor Thomas W. Corbett's administration, [3] the Department permitted charter schools to conduct end-of-year reconciliations and then seek to have any underfunded amounts withheld by Respondents from school districts' state subsidies pursuant to Section 1725-A(a)(5) of the CSL, which provides:

If a school district fails to make a payment to a charter school as prescribed in this clause, the [S]ecretary shall deduct the estimated amount, as documented by the charter school, from any and all [s]tate payments made to the district after receipt of documentation from the charter school.

24 P.S. § 17-1725-A(a)(5).[4]

         On July 14, 2015, the Charter Schools submitted a reconciliation report to the Department for $425, 658.74 they claimed they were owed by the School District of Philadelphia (District) for the 2014-2015 school year. See Complaint Ex. A. On January 8, 2016, the Department notified Pennsylvania charter schools and school districts (January 2016 Notice):

In 2012, the Pennsylvania Commonwealth Court [in Chester Community Charter School v. Pennsylvania Department of Education, 44 A.3d 715 . . . [(Pa. Cmwlth. 2012) (Chester II)]] determined that the mandatory withholding requirements of [S]ection 1725-A(a)(5) of the [CSL] apply only to claims on current year funding. The prior administration delayed the implementation of the [C]ourt's decision.
[The Department] cannot contravene the law, and therefore will cease the end-of-year reconciliation process. Instead, charter schools may work directly with resident school districts to reconcile each school year's tuition payments based on the number of days that each student was enrolled in the charter school.
Charter schools may continue to submit invoices to [the Department] for deduction of estimated amounts related to current school year enrollment. However, pursuant to the law, charter schools must first provide resident school districts with an invoice and must have provided the resident school district with sufficient time and opportunity to make a payment before requesting subsidy redirection from [the Department]. Therefore, [the Department] will only process charter school withholding requests that relate to the enrollment of students in the current school year.

Complaint Ex. B (emphasis added). Effectively, the Department declared it would only redirect delinquent school districts' funding under Section 1725-A(a)(5) of the CSL during the current fiscal year and a school district's failure to pay outstanding prior-year balances would be a matter for the charter schools and the school districts to resolve.

         On January 8, 2016, the Charter Schools made an email inquiry to the Department regarding the status of its fund redirection request. By January 20, 2016 email, the Department notified the Charter Schools that the Department would not pay the Charter Schools' 2014-2015 reconciliation. See Complaint Ex. C.

         On February 8, 2016, the Charter Schools filed the Complaint seeking: (1) an order directing the Department and/or the Secretary to pay the Charter Schools $425, 658.74 owed by the District for the 2014-2015 school year (Count I); (2) a mandamus order directing the Secretary to withhold the District's state funds until the Charter Schools are paid in full, redirect the Charter Schools' overdue payments, make all outstanding payments to the Charter Schools and pay the Charter Schools all costs and attorney's fees (Count II); (3) a declaration from this Court that the Department is in violation of the CSL's mandatory fund withholding provisions, that Chester II does not prevent its 2014-2015 school year claims, that the Department's January 8, 2016 statement that Chester II precludes it from withholding the Charter Schools' funds is incorrect, that the Department must withhold the funds as mandated by the CSL, and that the Charter Schools are entitled to costs and attorney's fees (Count III); (4) a permanent injunction from Respondents delaying or refusing the Charter Schools' withholding requests and from refusing to make future reconciliation payments (Count IV); and, (5) to the extent that the January 2016 Notice is the Department's final determination of the Charter Schools' rights to funds for the 2014-2015 school year, an appeal therefrom (Count V).

         On March 7, 2016, the Department issued a letter to charter schools, including the Charter Schools (March 2016 Notice), clarifying:

On January 8, 2016, the [Department] notified charter schools and school districts that it would no longer be performing an end-of-year reconciliation process. However, prior to issuing this notification, the Department received documentation from charter schools for the 2014-2015 school year. As a result, the Department is providing school districts with the information received prior to January 8, 2016. One or more charter schools have prepared the enclosed report(s) related to payments made and the amount claimed to be due for students enrolled during the 2014-2015 school year.
As indicated in its previous communication, the Department will not be withholding funds related to the documentation submitted by charter schools because there are no 2014-[20]15 funds from which to withhold. This matter will proceed to an administrative hearing as prescribed by [Chester II].
As a result of the record established through the administrative hearing process, the Secretary will then issue a decision. Since there are no 2014-[20]15 funds from which to withhold, the manner in which funds are paid based on the Secretary's decision will be decided by the respective charter school and school district.

Application Ex. A (emphasis added).

         On March 14, 2016, Respondents filed their Preliminary Objections to the Complaint arguing that: (1) the Charter Schools failed to exhaust their statutory remedies since the matter has not been submitted to a hearing (Objection I); (2) this Court lacks jurisdiction because the January 2016 Notice was not a final, appealable order (Objection II); (3) not all of the Charter Schools have a direct interest and, thus, lack standing (Objection III); (4) Complaint Counts I through IV fail to state claims upon which relief may be granted because, inter alia, Respondents have sovereign immunity (Objections IV-IX); and, (5) the Charter Schools failed to join necessary parties (Objection V).

         On April 13, 2016, the Charter Schools filed the Application seeking judgment in its favor and against Respondents because Respondents have denied its reconciliation request for the 2014-2015 school year in violation of Section 1725-A(a)(5) of the CSL.[5] On April 14, 2016, the Department notified the Charter Schools and the District that there were no funds from which payments could be made, and the parties were entitled to a hearing. See Respondents' Ans. to Application Ex. 1. On April 27, 2016, Respondents filed an answer to the Application, in which they claimed that withholding can only be made against available funds appropriated for the subject school year, and that Respondents are not obligated to pay anything to the Charter Schools pending the hearing process.

         II. Summary Relief

[Pennsylvania Rule of Appellate Procedure (Pa.R.A.P.)] 1532(b) provides that '[a]t any time after the filing of a petition for review in an . . . original jurisdiction matter the court may on application enter judgment if the right of the applicant thereto is clear.' Pa.R.A.P. 1532(b). 'An application for summary relief is properly evaluated according to the standards for summary judgment.' Myers v. Commonwealth, 128 A.3d 846, 849 (Pa. Cmwlth. 2015). That is, in ruling on a[n application] for summary relief, the evidence must be viewed in the light most favorable to the non-moving party and the court may enter judgment only if: (1) there are no genuine issues of material fact; and (2) the right to relief is clear as a matter of law. N[w.] Youth Serv[s.], Inc. v. Dep['t] of Pub[.] Welfare, 1 A.3d 988, 990 n.1 (Pa. Cmwlth. 2010).

Flagg v. Int'l Union, Sec., Police, Fire Prof'ls of Am., Local 506, 146 A.3d 300, 305 (Pa. Cmwlth. 2016) (emphasis added).

         A. Genuine Issues of Material Fact

         At December 14, 2016 oral argument before this Court, counsel for the Charter Schools represented, and Respondents acknowledged, that under Governor Corbett's administration, the Department's practice was to allow charter schools to conduct end-of-year reconciliations and, based upon the amounts charter schools documented they were owed, the Department would withhold state funding from delinquent school districts in the relevant amounts in accordance with Section 1725-A(a)(5) of the CSL. The Department deducted funds owed from prior-year budgets from future school district basic education subsidies. See Sch. Dist. of Phila. v. Dep't of Educ., 41 A.3d 222, 225 (Pa Cmwlth. 2012), rev'd on other grounds, 92 A.3d 746 (Pa. 2014) (the Department withheld past due amounts "from the [school d]istrict's next Basic Education Subsidy").

         Notwithstanding this Court's 2012 Chester II decision, the Department continued this reconciliation practice for the 2012-2013 and 2013-2014 school years. The Charter Schools made its reconciliation request with supporting documentation just days after the 2014-2015 school year ended. At that time, the Charter Schools were not aware of any change to the Department's end-of-year reconciliation procedure. The Charter Schools' first notice of the process modification was the Department's January 2016 Notice. Further, the Charter Schools had no notice that the matter was being submitted to a hearing until it received the Department's March 2016 Notice. However, to date, the Department has not scheduled or conducted a hearing. Moreover, the Department has not withheld the funds the Charter Schools requested in accordance with Section 1725-A(a)(5) of the CSL, [6] nor has the District disputed the requested reconciliation amounts.[7]

         Based on the foregoing, there are no genuine issues of material fact that would preclude this Court from deciding the Charter Schools' Application.

         B. Clear Right to Relief

         The Charter Schools' Complaint seeks declaratory, mandamus and injunctive relief against Respondents.[8]

         1. Declaratory Judgment

         The Charter Schools aver that Respondents are in violation of the CSL's mandatory fund withholding provisions, that Chester II does not prevent its 2014-2015 school year claims, and that the Department's reliance on the January 2016 Notice that Chester II precludes it from withholding the Charter Schools' funds is incorrect. The Charter Schools also seek

         an order from this Court that:

(1) [Respondents are] in violation of [their] mandatory obligations under the CSL by failing to withhold the funds sought by [the Charter Schools];
(2) this Court's decision in Chester II does not prevent Respondents from withholding state payments where the claim was made after the requisite school year;
(3)[Respondents'] statement in the January 8, 2016 email that the CSL or Chester II preclude [them] from withholding the funds sought by [the Charter Schools] is incorrect;
(4) [Respondents] must withhold the funds sought by [the Charter Schools] and pay them to [the Charter Schools] in order for Respondents to be in compliance with their mandatory obligations under the CSL[.]

         Complaint at 20. The Charter Schools also request "costs, attorney's fees, and such other relief as the Court shall deem appropriate for Respondents' failure to comply with the CSL." Complaint at 20.

         Respondents claim that Section 1725-A(a)(5) of the CSL requires only that Respondents deduct and withhold any and all of the District's state payments, but does not obligate Respondents to pay anything to the Charter Schools pending the hearing process. Moreover, based on Chester II, withholding for purported underfunding "can only be made against available funds appropriated for that school year." Respondents' Ans. to Application at 5.

         Section 7532 of the Declaratory Judgments Act provides: "Courts of record, within their respective jurisdictions, shall have power to declare rights, status, and other legal relations whether or not further relief is or could be claimed." 42 Pa.C.S. § 7532. Section 7541 of the Declaratory Judgments Act states that "[i]ts purpose is to settle and to afford relief from uncertainty and insecurity with respect to rights, status, ...


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