Ohio School Districts Sue Facebook Over Failed Online Charter School
Cuyahoga Falls, Woodridge and six other Ohio school districts are suing Facebook for about $250,000 in public education funding lost when the Electronic Classroom of Tomorrow imploded last year.
The districts, which may never be made whole for state funding they lost when ECOT inflated attendance, are alleging that Facebook knew the online charter school was financially failing when it sold ads to help ECOT boost enrollment. That, under Ohio law, would be an illegal and “fraudulent transfer.”
Founded in 2000, ECOT grew to be the largest charter school in Ohio, claiming 15,239 students enrolled in 2016 when the Ohio Department of Education ran an attendance audit.
The virtual headcount found students spending as little as an hour a day on home computers. But the state was funding the charter school, using tax dollars diverted from local school districts, as if kids were attending full time.
The attendance scandal forced ECOT founder Bill Lager, who had donated $2.1 million to school choice supporters, to return $2.5 million monthly until taxpayers got back the $80 million the school overbilled the state in just 2016 and 2017.
ECOT folded in January 2018 before making the first repayment.
Now, every public school district in Ohio that lost students and state funding to ECOT is in line for what’s left. Governor and then-Attorney General Mike DeWine announced in August a lawsuit to hold Lager, his companies and top ECOT executives personally liable for the lost public funds.
A Franklin County prosecutor dropped a criminal case against ECOT pending a federal investigation, which was requested by U.S. Sen. Sherrod Brown, D-Cleveland.
Newly elected Attorney General and former Ohio Auditor Dave Yost inherited DeWine’s lawsuit against Lager, which is in the early stages of discovery.
The state superintendent and school board are challenging an appeal ECOT recently won. And the charter school’s headquarters in Columbus was auctioned last summer to Columbus City Schools for $3.5 million, which should be used to pay ECOT’s debts and — if anything is left — the school districts waiting at the end of the line of creditors under Ohio law.
Superintendents in Cuyahoga Falls, Woodridge, Dayton, Toledo, Logan Hocking, Springfield (in Clark County), Lake and Northern Local (in Perry County) sued Facebook Monday in Summit County, citing a unique Ohio law that says vendors who take payment (or sell ads) to companies potentially facing insolvency have committed a “fraudulent transfer” of funds.
“Our group of districts is trying to look at every opportunity we have to recapture public funds that we believe were used inappropriately,” said Walter Davis, superintendent of Woodridge Local Schools.
Even after the damning attendance audit came to light, Facebook sold ECOT $92,903 in ads in 2016 to recruit students and “at least $150,000” more in 2017 amid the state’s public crackdown on ECOT, according to the lawsuit.
Facebook sent a standard, automatic email reply to a Beacon Journal request for comment. The case, which has been assigned to Summit County Common Pleas Judge Jill Flagg Lanzinger, depends on whether the social media company knew ECOT was in dire financial straits when it sold the digital ads.
“Facebook knew what was going on,” said Ellen Kramer, the lead attorney hired by the school districts. “There was all sorts of stuff being posted about the demise of ECOT on Facebook and yet they still took this money. So Facebook knew or should have known of the financial difficulties ECOT was experiencing at the time they accepted the payments.”
Starting in 2016, ECOT’s critics and supporters used Facebook to spread or discredit news of the attendance scandal and the ensuing regulatory action.
Kramer expects to find more ECOT ad buys when the plaintiffs request records from Facebook in the case. Plaintiffs are seeking an unspecified amount of punitive damages on top of the roughly $250,000 in known ad buys.
If successful, these eight school districts would share the spoils with every school district that lost state funding to ECOT during the attendance scandal.
For Woodridge, anything is better than what it lost. Because the state looks at high property values when setting funding for the suburban school district, it gets about $800 in state aid per student and loses more than $6,000 for each local kid who goes to a charter school instead.
The closest brick-and-mortar charter schools to Woodridge are in Akron. Most Woodridge students who attend charter schools attend online schools. When ECOT closed, many came back.
Davis is the past president of Real Choice Ohio, a group of ardent public school supporters, like those on the Facebook lawsuit, which pushes strategies to recapture students lost to charter schools.
In his nine years as superintendent, after sending out postcards and meeting face-to-face with charter school parents in his district, the number of local students Davis has lost has dropped from 78 annually to 11 today. Because of the differential in state funding, that’s like losing the equivalent state funding of 83 students today instead of 587 when Davis was hired in 2010.