Management Firm Wins Ruling in Case on Charter School Equipment

By Mark Walsh — September 15, 2015 2 min read
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Cross-posted by Mark Walsh of The School Law Blog.

Ohio’s highest court ruled Tuesday that 10 charter schools must reimburse a school management company that formerly ran the schools for computers and other equipment purchased at taxpayer expense.

The Ohio Supreme Court ruled 5-2 that contracts between the governing authorities of the schools in Cleveland and Akron and White Hat Management LLC, a charter-management firm that operated the schools beginning in 2005, require that the schools “buy back” certain equipment and supplies.

The 10 schools are now closed, and their governing authorities—essentially non-profit boards that still have control of the school buildings—sued White Hat and various subsidiaries. The school authorities claim that the equipment belongs to them because it was purchased with state funds, while White Hat contends it retains the right to the property under the terms of the contract.

In its Sept. 15 decision in Hope Academy Broadway Campus v. White Hat Management LLC, the state high court said that while it questioned the wisdom of the buy-back contract terms, the contract was enforceable.

“The schools were represented by their own legal counsel, and they agreed to the provisions in the contracts,” the court majority said. “They may not rewrite terms simply because they now seem unfair.”

“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 according to the contracts,” the majority added.

The court said the trial court could consider the issue of the “unconscionability” of the contract.

One of the two members of the court who dissented from the majority’s judgment was critical of White Hat’s role in running the 10 schools.

“By contract, White Hat promised to safeguard and effectively utilize $90 million of public funds that were specifically set aside to educate the children of Ohio,” Justice William M. O’Neill wrote. “The only part of that contract that was fulfilled was that White Hat thoroughly and efficiently received the $90 million. There has been no quality education, there has been no safeguarding of public funds, and there most certainly has been no benefit to the children.”

The other dissenter, Justice Paul E. Pfeifer, said 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 ... so unfair, in fact, as to be unconscionable,” he wrote.

A version of this news article first appeared in the Charters & Choice blog.