Columbus: A reluctant and divided Ohio Supreme Court on Tuesday ruled that for-profit management companies are able to take possession of the assets of charter schools — assets purchased with public money — and then charge the public to buy them back.
Some of the justices expressed outrage at the concept, with one calling it “fraudulent conversion” of public property.
In opinions that were sometimes blistering attacks on Akron-based White Hat Management, the justices took issue with Ohio’s system of charter schools.
The court ruled in favor of White Hat, one of the largest for-profit school management companies in the country, against 10 of its former Hope academies and Life Skills Centers, mostly in the Akron and Cleveland areas.
The dispute arose when the school boards and White Hat parted ways. The school boards wanted to change management companies, but White Hat said that by virtue of its contract, it owned the assets of the schools, and the boards would need to move to a new location and acquire their own equipment and supplies, or buy the assets of the school from White Hat.
The schools argued that the assets, purchased with public money, did not belong to White Hat.
A White Hat attorney said the court properly upheld the contract between the schools and the company, the Associated Press reported.
Justice Judith Ann Lanzinger, who wrote the majority opinion, said, “It is evident that the schools have granted broad discretion to White Hat, placing special confidence and trust in the management companies and placing them in positions of superiority and influence.”
While the ownership of assets, as stipulated in the contracts that White Hat negotiated with the school board, “can be questioned, we hold that the term is enforceable and that this case must be returned to the trial court for an inventory of the property and its disposition.”
In essence, assets such as furniture and supplies, purchased with public money that had been turned over to White Hat would have to be repurchased from White Hat by the boards with more public money.
Her opinion was based on a legal term known as “fiduciary trust,” in which one party trusts another to perform a function in the best interest of the other.
“We rule narrowly on the issues before us, leaving public-?policy matters to the General Assembly,” she wrote.
Chad Aldis, vice president for public policy at the Thomas B. Fordham Institute, said that the court was in a tough position regarding contract law. His organization, while supporting the charter school movement, has been highly critical of the academic and financial failure of the schools in Ohio.
“The fundamental contract issues in the case loomed large and would have required a fair bit of judicial gymnastics to overcome. It’s not a surprise that the court chose to allow the contract to be enforced on its face.”
The ruling, he said, highlights the need for legislative change in Ohio, including requirements for transparency and specification as to who retains the assets.
Only two of the six other justices signed onto her majority opinion. They were Chief Justice Maureen O’Connor and Judge John Wise. Wise was sitting in for Terrence O’Donnell.
It was the other justices who attacked.
Justice Sharon Kennedy, who wrote the concurring opinion, said that the school boards literally turned all money and responsibilities over to White Hat as an independent contractor with no expectation of transparency in how the business would be conducted. There was no fiduciary trust, she said.
No inventory needed to be conducted, she said, because White Hat owned it all.
Justice Judith French joined Kennedy.
Justice William O’Neill, the only Democrat on the court, was highly critical, calling the White Hat-charter school relationship “a fraudulent conversion of public funds into personal profit.”
“It is presumed that there are good [charter] schools,” he said. “These White Hat schools are not in that category. The record is clear: White Hat provides substandard service for outrageous fees in the name of profit.
“Against this backdrop of failed promises and termination for failure to deliver, a majority of this court intends to reward White Hat with the termination bonus that White Hat arranged for itself in the contract. Neither public policy nor contract law can ever be stretched far enough to reach that preordained result.”
Justice Paul Pfeifer, who dissented completely, said the majority opinion defies common sense.
He said of the White Hat agreements: “The contracts in this case are plainly and obviously unconscionable. The contracts require that after the public pays to buy those materials for a public use, the public must then pay the companies if it wants to retain ownership of the materials. This contract term is not merely unwise as the opinion would have us believe; it is extremely unfair, so unfair, in fact, as to be unconscionable. The contract term is so one-sided that we should refuse to enforce it.”
Beacon Journal education writer Doug Livingston contributed to this report. He can be reached at 330-996-3792 or firstname.lastname@example.org.