Supreme Court rules charter schools must buy back taxpayer-funded charter school equipment

MarketsAssociated Press

A specific group of charter schools must buy back equipment like textbooks and computers from their management company, even though the company used taxpayer dollars to purchase the items originally, the Ohio Supreme Court ruled Tuesday.

In a 5-2 decision that looked only at contract language, the court ruled in favor of Akron-based White Hat Management by holding that the contract the schools signed with the company requires them to purchase the equipment such as textbooks, computers and furniture from the business.

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But in a second, 4-3 decision with broader implications that favored the schools, the court said White Hat had so much control over the schools' operations that it amounted to a business partnership known as a fiduciary relationship.

"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," Justice Judith Lanzinger wrote for the majority.

But Lanzinger said it was unclear whether that relationship was breached, according to the facts argued before the court.

That resulted in an ambiguous outcome, with the court agreeing that White Hat had the kind of relationship with the schools that should have required the company to provide them the equipment but that under the specific contract in question, it didn't have to.

Justice William O'Neill, the court's only Democrat, wasn't convinced.

"This is not an enforceable contract," O'Neill said. "It is a fraudulent conversion of public funds into personal profit."

Justice Paul Pfeifer agreed, saying the majority opinion "is antithetical to common sense."

At issue before the court were arguments by several schools formerly run by White Hat that taxpayer dollars remain public when management companies use them for operating publicly funded charter schools.

"The schools were represented by their own legal counsel, and they agreed to the provisions in the contract," Lanzinger wrote, referring to the buy-back issue. "They may not rewrite terms simply because they now seem unfair."

Lanzinger questioned whether the schools would knowingly agree to such a clause, but she concluded that it "was an agreed-upon term."

The schools said items such as textbooks, computers and furniture purchased by a management company using taxpayer dollars belong to the charter school they were bought for.

White Hat said in almost all circumstances it owns the property because the public money it receives for operating schools becomes private when it takes control of it.