MAGNOLIA EDUCATIONAL & RESEARCH FOUNDATION VS L A UNIFIED SCHOOL DISTRICT

Case Number: BS149626    Hearing Date: July 24, 2014    Dept: 82

Magnolia Educational & Research Foundation
v.
Los Angeles Unified School District

Tentative Decision Granting Petitioner’s Motion for a Preliminary Injunction

Petitioner Magnolia Educational & Research Foundation moves to enjoin Respondent Los Angeles Unified School District from taking any action to implement its non-renewal of the charters of Magnolia Science Academy 6 (“MSA 6”) and Magnolia Science Academy 7 (“MSA 7”), (collectively the “Charter Schools”), and interrupt their funding or property. Petitioner also seeks a preliminary injunction directing LAUSD to recognize that the Charter Schools’ petitions are deemed automatically renewed pending the outcome of the underlying action.

The Court rules as follows:

Requests for Judicial Notice

The Court grants Petitioner’s unopposed requests for judicial notice.

Evidentiary Objections

The parties have submitted numerous evidentiary objections. Most of the objections serve no purpose other than to inundate the Court with inconsequential or improper written evidentiary objections. For example, LAUSD objects, for lack of foundation, to the following statement by Dr. Mehmet Argin: “I hold the position of [Petitioner’s] Chief Executive Officer (“CEO”).” Similarly, Petitioner objects, for lack of personal knowledge, to the following statement by LAUSD’s Associate General Counsel: “I work closely with the District’s Charter Schools Division.”

It is well settled that evidentiary objections must be specific and accompanied by a reasonable, definite statement of the grounds. See Evidence Code § 353 (a) (objections must “make clear the specific ground of the objection”). Accordingly, if a party objected to several sentences or an entire paragraph in a declaration and one of the sentences is not objectionable, or if a party simply listed a litany of boilerplate objections, the Court overruled the objection. It is not the Court’s duty to parse those sentences that are objectionable, or divine the specific basis for an objection, if the moving party has not done so. See People v. Porter, (1947) 82 Cal. App.2d 585, 588 (“An objection must usually be specific and point out the ground or grounds relied upon in a manner sufficient to advise the trial court and opposing counsel of the alleged defect so that the ruling may be made understandingly and the objection obviated if possible.”). In addition, objections to evidence that was then cited by the objecting party in its papers are deemed waived and are overruled.

The Court overrules all of the parties’ objections except as set forth below:

Devora Navera Reed’s July 3, 2014 Declaration—sustained as to ¶ 5(12:26-13:3), ¶ 8(13:13-15); and

Devora Navera Reed’s July 16, 2014 Declaration—sustained as to ¶ 5 (2:16-25), Exhibit J,
¶ 8(13:15-16).

Statement of the Case

Petitioner operates eleven California public charter schools, including MSA 6 and MSA 7, both of which have operated under LAUSD’s authorization since 2009 and 2010, respectively. (Argin Decl., ¶¶ 2, 6, 11, 32). On November 6, 2013, Petitioner submitted charter renewal petitions for MSA 6 and MSA 7 to LAUSD. (Argin Decl., ¶ 15). On December 3, 2013, the authorized representative and Chief Executive Officer for the Charter Schools, Doctor Mehmet Argin, signed waivers allowing LAUSD to exceed the statutory time limits for acting on the charter renewal petitions established by Education Code section 47605(b). (Reed Decl., ¶ 2, Exhibits A and B; see also Argin Decl., ¶ 16, Exhibit A). Through Dr. Argin’s execution of the waivers, the Charter Schools also agreed to waive application of the automatic charter renewal provision set forth in Section 11966.4(c) of Title 5 of the California Code of Regulations. (Reed Decl., ¶ 2, Exhibits A and B).

On March 4, 2014, LAUSD’s Board of Education (“Board”) conducted a public hearing concerning the Charter Schools’ renewal petitions. (Reed Decl., ¶ 4). At the hearing, LAUSD’s Board decided to approve the Charter Schools’ petitions on the condition that a further review of the schools’ fiscal processes and operations result in no negative material findings. (Id., ¶ 3, Exhibits C and D; Argin Decl., ¶¶ 21, 23, Exhibits B and C). The Charter Schools’ representatives did not object to the Board’s conditional approvals of the schools’ petitions. (See Reed Decl., ¶ 4; see general July 16, 2014 Reed Decl., ¶ 4, Exhibit E).

On March 21, 2014, LAUSD’s Office of the Inspector General (“OIG”) sent Dr. Argin a letter informing Petitioner that the OIG, through the private firm Vicenti, Lloyd & Stutzman LLP (“VLS”), would be conducting a review of the Charter Schools’ financial status and activities for the schools’ periods of operation through February 28, 2014. (Argin Decl., ¶ 25, Exhibit D).

On June 27, 2014, LAUSD’s Charter Schools Division sent Petitioner a letter informing it that MSA 6 and MSA 7 did not meet LAUSD’s March 4, 2014 renewal conditions due to the schools’ poor financial conditions. (Reed Decl., ¶ 6, Exhibit E; Argin Decl., ¶ 32, Exhibit E). The letter also informed Petitioner that the petitions were deemed denied as of March 4, 2014. (See Reed Decl., ¶ 6, Exhibit E).

According to the June 27, 2014 letter, both schools met the IRS’s definition of insolvency due to their liabilities substantially exceeding their assets. (See Reed Decl., ¶ 6, Exhibit E). The letter also cited the following reasons for LAUSD’s decision not to renew the schools’ charters: (1) the schools failed to disclose certain negative notes and comments about their financial status and activities generated during the schools’ prior external financial audits; (2) the schools failed to properly document and issue loans made between each other and with Petitioner; (3) the schools failed to abide by the generally accepted accounting principles (“GAAP”) as required by Education Code section 47607(c)(1); (4) the schools’ principals exceeded their school-funded spending limits and the schools failed to properly monitor their principals’ spending activities; and (5) the schools engaged in questionable and unexplained transactions, including spending several hundreds of thousands of dollars on immigration fees and immigration lawyers during the past four years. (See Id., ¶ 6, Exhibit E). Despite the schools’ financial problems, the June 27, 2014 letter recognized that the schools’ academic performances were satisfactory during the review period. (See Id., ¶ 6, Exhibit E). Nevertheless, the letter concluded that the schools’ financial deficiencies outweigh the schools’ academic success and dictate that the schools’ petitions should not be renewed. (See Id., ¶ 6, Exhibit E). Although LAUSD sent Petitioner the June 27, 2014 letter, it has yet to provide Petitioner with a copy of OIG’s final review report. (Argin Decl., ¶¶ 30-31). Further, LAUSD’s Board never reviewed or approved the June 27, 2014 findings.

On July 3, 2014, Petitioner filed a verified petition for writ of mandate and complaint for injunctive and declaratory relief. That same day, Petitioner filed an ex parte application for a temporary restraining order (“TRO”) and order to show cause regarding preliminary injunction (“OSC re PI”). After considering Petitioner’s application and LAUSD’s opposition, the Court denied Petitioner’s request for a TRO but set a hearing on an OSC re PI for July 24, 2014.

Petitioner filed an appeal with the Los Angeles Board of Education challenging LAUSD’s June 27, 2014 denial letter on July 14, 2014. (See July 16, 2014 Reed Decl., ¶¶ 9-10, Exhibits G and H).

By its OSC re PI, Petitioner seeks to restrain LAUSD from enforcing its June 27, 2014 denial letter claiming that the Charter Schools, the schools’ students, and the schools’ staffs will suffer irreparable harm if immediate injunctive relief is not issued. Indeed, the Charter Schools are scheduled to commence the 2014/2015 school year on August 12, 2014. (Argin Decl., ¶¶ 44, 53). Further, the Charter Schools enrolled students for the 2014/2015 school year in March 2014 and confirmed the students’ enrollment with the students’ parents in April 2014.

The matter was argued and submitted on July 24, 2014.

Analysis

The purpose of a preliminary injunction is to preserve the status quo pending a decision on the merits. Major v. Miraverde Homeowners Ass’n., (1992) 7 Cal. App. 4th 618, 623. In determining whether to issue a preliminary injunction, the trial court is to consider the likelihood that the plaintiff will prevail on the merits at trial and to weigh the interim harm to the plaintiff if the injunction is denied against the harm to the defendant if the injunction is granted. King v. Meese, (1987) 43 Cal. 3d 1217, 1226. “In seeking a preliminary injunction, [the party seeking the injunction] bore the burden of demonstrating both likely success on the merits and the occurrence of irreparable harm.” Savage v. Trammell Crow Co., (1990) 223 Cal.App.3d 1562, 1571; Citizens for Better Streets v. Board of Sup’rs of City and County, (2004) 117 Cal.App.4th 1, 6.

Petitioner contends that a preliminary injunction should issue because LAUSD improperly denied the Charter Schools’ renewal petitions. Specifically, Petitioner argues that LAUSD’s June 27, 2014 findings fail to comply with Title 5 of the California Code of Regulations (“5 CCR”) Section 11966.5 because they were never reviewed or approved by LAUSD’s Board. Petitioner also argues that regardless of whether LAUSD’s Board approved the June 27, 2014 findings, the Charter Schools’ petitions were automatically renewed 90 days after the schools submitted their petitions on November 6, 2013 because the schools’ waiver of the automatic renewal provision set forth in 5 CCR Section 11966.4 was invalid.

In turn, LAUSD argues that the June 27, 2014 findings are valid because the Board properly delegated its power to issue written findings to LAUSD’s staff. LAUSD also argues that Petitioner prematurely seeks judicial review of LAUSD’s denial of the schools’ petitions because the Charter Schools have failed to exhaust their administrative remedies by appealing the June 27, 2014 findings to the Los Angeles County Office of Education (“LACOE”). Finally, LAUSD argues that the petitions were never automatically renewed because the Charter Schools voluntarily waived the application of 5 CCR Section 11966.4 to their renewal petitions.

For the reasons discussed below, the Court finds that Petitioner is likely to succeed on the merits because LAUSD’s Board failed to issue proper written findings. That is, the June 27, 2014 written findings by the District’s staff are ineffective and the Charter Schools are not required to, and cannot, avail themselves of the administrative appeal procedures provided under 5 CCR Section 11966.5. However, the Court finds that Petitioner has failed to prove that the Charter Schools’ petitions were automatically renewed 90 days after the schools submitted their petitions to LAUSD on the basis that the waivers are invalid. Nevertheless, because LAUSD’s Board never rescinded its conditional approval of the schools’ petitions, LAUSD is enjoined from enforcing its June 27, 2014 decision.

a. LAUSD’s June 27, 2014 Retroactive Denial Has No Legal Effect

On March 4, 2014, LAUSD’s Board issued a conditional approval of the Charter Schools’ renewal petitions pending further investigation of the schools’ financial activities and conditions. The conditional approval provided for two possible outcomes following LAUSD’s investigation. (See e.g., July 16, 2014 Reed Decl., ¶ 3, Exhibit C [p. 5]). If LAUSD’s investigation revealed no material findings concerning the schools’ financial activities and conditions, the schools’ charter petitions would be approved and deemed renewed as of July 1, 2014. (Id., ¶ 3, Exhibit C [p.5]). On the other hand, if the investigation revealed material findings, the schools’ charter petitions would be denied and deemed expired as of June 30, 2014. (Id., ¶ 3, Exhibit C [p.5]). Although not expressly required by the terms of the conditional approval, members of the Board requested that, in the event material findings were made during LAUSD’s staff’s investigation of the Charter Schools, the staff bring its findings before the Board. (See Id., ¶ 4, Exhibit E [pp. 53:8-17, 58:16-24]).

On June 27, 2014, LAUSD’s Charter Schools Division issued a letter containing material findings concerning the Charter Schools’ financial conditions and activities. (Argin Decl., ¶ 32, Exhibit E). The letter found that the Charter Schools were insolvent and had mismanaged their finances during the period subject to the investigation. (Id., ¶ 32, Exhibit E). Based on these findings, LAUSD’s Charter Schools Division stated that LAUSD’s conditional approval of the schools’ charters was rescinded and that the schools’ renewal petitions were deemed inoperative effective July 1, 2014. (Id., ¶ 32, Exhibit E). The June 27, 2014 letter does not indicate that the Charter Schools Division’s findings were reviewed or approved by LAUSD’s Board, and LAUSD presents no evidence demonstrating that LAUSD’s Board took such action with respect to the findings.

5 CCR Section 11966.5(a) provides: “When the governing board of a school district denies a charter school’s petition for renewal, the charter school may submit a petition for renewal to the county board of education not later than 30 calendar days after the district governing board makes its written factual findings.” (Emphasis added). Here, Petitioner contends that LAUSD’s June 27, 2014 written findings carry no legal effect under 5 CCR Section 11966.5 because those findings were issued by LUASD staff—i.e., the Charter Schools Division—and were never approved by LAUSD’s Board. In its opposition, LAUSD argues that the June 27, 2014 findings triggered the Charter Schools’ 30-day appeal window under Section 11966.5 because LAUSD’s Board properly delegated the task of investigating the schools’ financial conditions and issuing written findings about those conditions to LAUSD staff. The Court agrees with Petitioner’s position.

It is well established that “powers conferred upon public agencies and officers which involve the exercise of judgment or discretion are in the nature of public trusts and cannot be surrendered or delegated to subordinates in the absence of statutory authorization.” California Sch. Employees Assn. v. Personnel Commission (1970) 3 Cal.3d 139, 144. However, an agency may delegate certain of its powers so long as “there has been no ‘total abdication’ of [the agency’s] authority.” Taylor v. Crane, (1979) 24 Cal.3d 442, 452. Generally, an agency “may delegate the performance of ministerial tasks, including the investigation and determination of facts preliminary to agency action.” California Sch. Employees Assn., supra, 3 Cal.3d at p. 144. Further, an agency may adopt the delegated act of a subordinate as its own by later approving or ratifying the subordinate’s act. Ibid.

Contrary to LAUSD’s contentions, there is no evidence that the LAUSD Board delegated the power to rescind the March 4, 2014 conditional approval to the Charter Schools Division. Further, there is no evidence that LAUSD’s Board approved or ratified the Charter Schools Division’s June 27, 2014 findings. The transcript from the March 4, 2014 meeting indicates that the Board intended for LAUSD staff to conduct an investigation of the Charter Schools’ financial conditions and activities and draft findings concerning that investigation. (July 16, 2014 Reed Decl., ¶ 4, Exhibit E [p. 48]). However, there is nothing in that transcript, or any other communications issued by the LAUSD Board, that demonstrates that LAUSD staff was authorized to make a final decision concerning the conditional approval of the schools’ renewal petitions. In fact, the March 4, 2014 meeting transcript contains several comments from Board members and LAUSD staff concerning what action would be taken following the staff’s investigation of the Charter Schools. Many of these comments indicate that the Board intended for LAUSD staff to report back to the Board in the event material findings were made. (See e.g., Id., ¶ 4, Exhibit E [p. 48 (“. . . and then then staff will report back to the Board with the findings.”); p. 53 (“And the Inspector General looks into matters, and if anything should happen, it should come back for revocation. Period.”); p. 58 (“. . . well, we’re just going to assume that any findings would come to you and to the Board.”)]). Further, the language of the March 4, 2014 conditional approval indicates that the Board intended to review the staff’s investigation and findings prior to finally approving or denying the schools’ petitions. For example, the conditional approval states that “[s]taff will provide the Board of Education an update as soon as possible and prior to June 30, 2014, as to the status of the school’s meeting the condition of this action.” (Reed Decl., ¶ 3, Exhibit C [p. 5]).

Because the Board did not delegate the power to rescind the March 4, 2014 conditional approval to the Charter Schools Division, and because there is no evidence that the Board approved or ratified the Charter Schools Division’s June 27, 2014 findings and decision, the Court finds that LAUSD failed to properly rescind its March 4, 2014 conditional approval of the Charter Schools’ petition. Likewise, because the June 27, 2014 findings do not constitute findings of the LAUSD Board, the 30-day appeal provision set forth in 5 CCR Section 11966.5 was never triggered.

LAUSD’s contention that Petitioner has failed to exhaust its administrative remedies is without merit. As discussed above, since the LAUSD Board never issued written findings supporting its denial of the petitions, the Charter Schools do not have access to a statutorily authorized administrative remedy. See 5 CCR, § 11966.5(a) (administrative appeal available only after the local governing board issues written findings). Therefore, the requirement of exhaustion of administrative remedies does not bar Petitioner’s lawsuit or its request for injunctive relief. In any event, the requirement of exhaustion of administrative remedies does not apply if the remedy is inadequate (Glendale City Employees’ Assn., Inc. v. City of Glendale, (1975) 15 Cal.3d 328, 342), or when irreparable harm would result by requiring exhaustion of administrative remedies before seeking judicial relief. Department of Personnel Administration v. Superior Court, (1992) 5 Cal.App.4th 155, 169. Both exceptions apply here.

b. Petitioner’s Waivers are Valid

Section 11966.4(c) of Title 5 of the California Code of Regulations provides in relevant part:

If within 60 days of its receipt of a petition for renewal, a district governing board has not made a written factual finding as mandated by Education Code section 47605(b), the absence of written factual findings shall be deemed an approval of the petition for renewal.

(1) The district governing board and charter petitioner may extend this date by an additional 30 days only by written mutual agreement.

It is undisputed that LAUSD did not issue written findings within 90 days (original 60-day findings deadline plus 30-day mutual extension) of the Charter Schools’ submission of their renewal petitions. However, Dr. Argin executed waivers on December 3, 2013 that expressly waived the schools’ rights to have Section 11966.4(c) apply to their petitions. Dr. Argin claims that by signing the December 3, 2013 waivers he did not intend to waive application of the automatic renewal provision to the schools’ charter-renewal petitions. (See Argin Decl., ¶ 19). This claim is without merit. The second to last paragraph of each waiver expressly provides: “By executing this waiver, charter petitioner and charter school’s governing board are waiving the ‘automatic renewal’ provision of Title 5 California Code of Regulations section 11966.4(c).” (See Argin Decl., ¶ 16, Exhibit A). Further, LAUSD claims, and Petitioner does not refute, that the schools’ representatives did not object to LAUSD’s acting upon the schools’ waiver at the March 4, 2014 public hearing when LAUSD further delayed its issuance of written findings beyond Section 1966.4(c)’s deadline until it fully investigated the schools’ financial status and activities. (See Reed Decl., ¶ 4; see also July 16, 2014 Reed Decl., ¶ 4, Exhibit E). In addition, the Court finds that the waivers are not ambiguous. As the portions quoted above demonstrated, the waivers clearly state who they apply to and what effect they will have if they are executed.

Petitioner next argues that the December 3, 2013 waivers are ineffective because they violate established law. However, Petitioner directs the Court to no authority that precludes the schools from waiving Section 11966.4(c)’s automatic renewal provision. See Elliott & Ten Eyck Partnership v. City of Long Beach, (1997) 57 Cal.App.4th 495, 504. Indeed, neither Education Code section 47605 nor Section 11966.4 expressly precludes a school from waiving application of the automatic renewal provision.

In addition, the Court cannot find that 5 CCR Section 11966.4’s automatic renewal provision is intended to primarily benefit the public and not a charter school operator seeking renewal of its school’s charter. Petitioner has not directed the Court to any authority or legislative commentary that sheds light on this issue. Although Petitioner cites to Education Code section 47601, that section addresses the overarching legislative intent in authorizing charter schools to operate in California; it does not address the purpose of the procedural regulations that govern a local school district’s authority to grant or deny a charter school’s petition for renewal of its charter. Indeed, the timing and automatic renewal provisions appear to directly benefit a charter school operator, as opposed to the public, as those provisions help to ensure that a charter school seeking renewal will be approved or denied with adequate time to either prepare for a new year of operation or for closure of its operations. See 5 CCR, § 11966.4. Further, as LAUSD points out, the public has a significant interest in ensuring that charter schools are properly approved and monitored—interests that can often be better accommodated through more rigorous and time-consuming review of a charter schools’ operations and qualifications. See California School Boards Ass’n v. State Bd. of Educ., (2010) 186 Cal.App.4th 1298, 1326 (“The chartering of a school and the charter school’s compliance with the law, the regulations, and the conditions imposed on its charter can be matters of serious concern to the public and to our public school system . . . It is, thus, the very control and oversight by public officials that legitimize charter schools. If monitoring and enforcement are, in reality, either lax or nonexistent, then the entire statutory scheme governing charter schools is called into question”).

c. Petitioner Will Suffer Irreparable Harm

The Court finds that Petitioner has made a significant showing of irreparable harm as a result of LAUSD taking the position that the Charter Schools’ charters expired. As noted above, the Charter Schools are set to begin operations for the 2014/2015 school year on August 1, 2014, with students expected to report to school on August 12, 2014. (Argin Decl., ¶¶ 44-46). As such, by the time of the hearing on the instant motion, Petitioner will have approximately one week to notify the schools’ staffs, and approximately three weeks to notify the schools’ students, that the schools will not operate for the 2014/2015 school year. Thus, even if LAUSD’s Board were to issue proper written findings in the near future, the schools would be unable to obtain administrative review of those findings to properly inform their students and staff of the schools’ status before the start of the 2014/2015 school year.

d. The balance of harms weighs in Petitioner’s favor

The Court acknowledges that LAUSD has presented evidence establishing financial mismanagement by the Charter Schools. However, the balance of harm weighs in the Charter Schools’ favor in allowing them to continue operations subject to the following conditions pending resolution of the underlying action:

1. In managing their financial affairs, the Charter Schools shall follow GAAP standards;
2. The Charter Schools shall track all expenditures of the schools’ funds, including loans extended to other entities operated by Petitioner and transactions entered into by the schools’ administrators; and
3. The Charter Schools shall ensure that their fiscal-control policies are followed by their employees.

See Hummell v. Republic Fed. Savings & Loan Assn., (1982) 133 Cal. App. 3d 49, 51-52 (“a court may exercise injunctive power upon conditions protecting all interests affected by the injunction”).

e. Undertaking

Code of Civil Procedure section 529(a) provides:

On granting an injunction, the court or judge must require an undertaking on the part of the applicant to the effect that the applicant will pay to the party enjoined any damages, not exceeding an amount to be specified, the party may sustain by reason of the injunction, if the court finally decides that the applicant was not entitled to the injunction. Within five days after the service of the injunction, the person enjoined may object to the undertaking. If the court determines that the applicant’s undertaking is insufficient and a sufficient undertaking is not filed within the time required by statute, the order granting the injunction must be dissolved.

LAUSD offers no argument or evidence concerning the amount of the undertaking. As such, Petitioner shall post a bond in the nominal amount of $1,000. See Smith v. Adventist Health System/West, (2010) 182 Cal.App.4th 729, 742 (injunction bond requirement can be waived or forfeited and, in certain situations, the trial court need not explicitly address the topic of the bond).

Disposition

Petitioner’s request for a preliminary injunction is granted insofar as LAUSD is enjoined from taking any action to implement its non-renewal of the charters of Magnolia Science Academy 6 and Magnolia Science Academy 7, subject to the following conditions:

1. In managing their financial affairs, the Charter Schools shall follow GAAP standards;
2. The Charter Schools shall track all expenditures of the schools’ funds, including loans extended to other entities operated by Petitioner and transactions entered into by the schools’ administrators; and
3. The Charter Schools shall also ensure that their fiscal-control policies are followed by their employees.

Until further order of the Court, the Charter Schools may continue to operate as if their charters had been renewed by LAUSD. Petitioner shall post an undertaking in the amount of $1,000.

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