Insight PA Cyber Charter Sch. v. Dep't of Educ., 1866 C.D. 2015

162 A.3d 591

INSIGHT PA CYBER CHARTER SCHOOL, Petitioner

v.DEPARTMENT OF EDUCATION, Respondent

No. 1866 C.D. 2015

Commonwealth Court of Pennsylvania.

Argued: February 8, 2017

Filed: May 18, 2017

Robert L. Byer, Pittsburgh, for petitioner.

Roberto T. Datorre, Deputy Chief Counsel, Harrisburg, for respondent.

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge, HONORABLE ROBERT SIMPSON, Judge, HONORABLE P. KEVIN BROBSON, Judge, HONORABLE PATRICIA A. McCULLOUGH, Judge, HONORABLE MICHAEL H. WOJCIK, Judge, HONORABLE JULIA K. HEARTHWAY, Judge, HONORABLE JOSEPH M. COSGROVE, Judge

OPINION BY JUDGE BROBSON

Insight PA Cyber Charter School (Insight) petitions this Court for review of the adjudication of the Pennsylvania State Charter School Appeal Board (CAB), which denied Insight's cyber charter school¹ application, because the CAB concluded that (a) the trustees of Insight will lack "real and substantial authority over the management of the cyber charter school," and (b) "fundamental budgeting issues exist which affect the ability of Insight to provide a comprehensive learning experience to its students." (CAB Op. at 22–23, 30.) For the reasons set forth below, we now reverse and remand with direction that Respondent Pennsylvania Department of Education (Department) issue a charter to Insight.

I. BACKGROUND

On October 1, 2014, Insight, a Pennsylvania nonprofit corporation, filed an application with the Department, seeking to establish a cyber charter school serving grades kindergarten through 12. The application provides that pursuant to a September 29, 2014 Amended and Restated Educational Products and Services Agreement (Agreement), K12 Virtual Schools LLC (K12), a for-profit educational products and services company, would provide the school's curriculum, educational materials, and educational management services through June 30, 2020.

On November 14, 2014, the Department held a public hearing on Insight's application. On January 17, 2015, Insight and K12 executed an amendment to the Agreement (2015 Amendment). On January 29, 2015, the Department issued a decision denying Insight's application for the following reasons: (1) Insight lacked real and substantial authority over the school's operations; (2) Insight failed to demonstrate compliance with technology requirements; (3) Insight failed to demonstrate an ability to meet the needs of special education students; (4) Insight failed to demonstrate an ability to meet the needs of students who are not fluent in English; (5) Insight failed to demonstrate a sufficient understanding of academic assessment and accountability; and (6) Insight failed to demonstrate necessary financial support and planning.

On February 27, 2015, Insight appealed to the CAB. In an Opinion and Order entered on August 31, 2015 (Opinion), the CAB rejected most of the Department's asserted grounds for denial. Nonetheless, the CAB affirmed the denial of the charter, concluding that Insight's governing body, its Board of Trustees (Board), lacked real and substantial authority over the school's staffing, budget, and curriculum and that Insight failed to demonstrate the necessary financial support and planning to operate a cyber charter school.² Insight now petitions for review of the CAB's decision.³

II. DISCUSSION

A. "Real and Substantial Authority" Test

The first issue in this appeal relates to the contractual arrangement between Insight and its chosen service provider, K12. This Court first addressed the subject of charter school contracts with for-profit service providers in West Chester Area School District v. Collegium Charter School , 760 A.2d 452 (Pa. Cmwlth. 2000) (Collegium ), aff'd , 571 Pa. 503, 812 A.2d 1172 (2002).

In Collegium , the CAB reversed a local school district decision and directed that the school district award a charter to Collegium Charter School (Collegium). On appeal, taxpayers and the school district complained that the CAB erred because Collegium was not an independent nonprofit entity. The petitioners argued that Collegium was, instead, "a mere shell for a for-profit entity rather than a non-profit corporation." Collegium , 760 A.2d at 468. That for-profit entity was Mosaica Education, Inc. (Mosaica). According to the charter school application, Collegium intended to enter into a management agreement with Mosaica under which Mosaica would provide the charter school with educational and administrative services, including access to its proprietary Paragon Curriculum. Id. at 455. The petitioners contended that the relationship between Mosaica and the charter school vested too much authority in Mosaica and divested Collegium's board of trustees of ultimate control over the major decisions affecting the school. Id. at 469.

In evaluating the petitioners' challenge, this Court first looked to the Charter School Law (CSL).⁴ We recognized provisions of the CSL that place the ultimate authority over the governance of a charter school in the hands of the school's board of trustees:

Clearly, ... the legislature did not want to entrust the management and operation of the charter school itself to entities seeking to make money from the school's management and operation; rather, that power is granted to the charter school's board of trustees who, as public officials,^{[ ]} have a single purpose to promote the interests of pupils.

Id. at 468 (footnote omitted). Section 1716–A(a) of the CSL, 24 P.S. § 17–1716–A, for example, vests the charter school's board of trustees with "the authority to decide matters relating to the operation of the school, including, but not limited to, budgeting, curriculum and operating procedures, subject to the school's charter."

That provision also vests with the board "the authority to employ, discharge and contract with necessary professional and nonprofessional employees subject to the school's charter and the provisions of this article." Id. In Collegium , we also noted that the board of trustees has the power to set staff compensation and terms and conditions of employment. See Section 1724–A(a) of the CSL, 24 P.S. § 17–1724–A(a). Nonetheless, like the CAB, we recognized that the board of trustees also has the option to contract with for-profit entities for goods and services. See Section 1714–A(a)(3) and (5) of the CSL, 24 P.S. § 1714–A(a)(3), (5).⁵

Reconciling these powers within the board of trustees, we adopted the CAB's articulation of the governing legal test:

"[N]othing in the [CSL] prohibits the involvement of for-profit entities in the establishment and operation of a charter school, so long as the school itself is not for-profit, the charter school's trustees have real and substantial authority and responsibility for the educational decisions , and the teachers are employees of the charter school itself."

Collegium , 760 A.2d at 468 (quoting CAB decision) (second alteration in original) (emphasis added). Applying this test, we agreed with the CAB and rejected the petitioners' challenge:

After a review of the record, we agree with the CAB that there is nothing to indicate that the arrangement between Mosaica and Collegium would deprive Collegium's trustees of ultimate control of the charter school, and we see nothing in the CSL to prevent a for-profit entity such as Mosaica from assuming the role that it will have here. Specifically, Collegium's articles of incorporation state that Collegium is organized as a non-profit corporation under Pennsylvania law. Further, Collegium's bylaws and its charter school [a]pplication both state that the board of trustees has full authority to operate the school, including determining general, academic, financial, personnel and other policies, as outlined in the CSL. In addition, Mosaica's agreement with the charter school in Bensalem, which was represented as a model for the agreement between Mosaica and Collegium, makes clear that the board of trustees is independent from Mosaica and that Mosaica can exercise no authority which may not be delegated by the [Public] School Code [of 1949, Act of March 10, 1949, P.L. 30, as amended , 24 P.S. §§ 1–101 to 27–2702,] and other applicable laws and resolutions. Mosaica representatives also responded to concerns of the District Board, assuring the District Board that none of Collegium's board of trustees would have any financial interest in, or receive compensation from, Mosaica, and that the trustees retained the power to negotiate the terms of the contract with Mosaica and to terminate that contract.

Id. at 469–70. The Pennsylvania Supreme Court affirmed our decision in Collegium , observing:

The management agreement contracted for educational and administrative services to be performed by Mosaica. Contrary to Appellants' contentions, nothing in the management agreement supports the claim that Collegium was not an independent, nonprofit corporation or that Mosaica would retain the ultimate control over operation of the charter school. To the contrary, the agreement affords Mosaica all authority and power necessary to undertake its obligations under the agreement, "except in cases wherein such authority may not be delegated by the Code and other applicable laws and resolutions. " Further, the agreement expressly clarifies that the charter school "is not a division or a part of [Mosaica]," and that neither party has the power to bind or legally operate the other. It goes on to state that Mosaica "will not have any role or relationship with the Charter School that, in effect, substantially limits the Charter School's ability to exercise its rights, including cancellation rights under this Agreement."

West Chester Area Sch. Dist. v. Collegium Charter Sch. , 571 Pa. 503, 812 A.2d 1172, 1185 (2002) (citations omitted) (emphasis in original) (Collegium II ); see also Brackbill v. Ron Brown Charter Sch. , 777 A.2d 131, 137 (Pa. Cmwlth. 2001) (applying Collegium and rejecting contention that management agreement stripped board of trustees of its authority over school operations), appeal denied...