WELLS v. ONE2ONE LEARNING FOUNDATION PART - III

WELLS v. ONE2ONE LEARNING FOUNDATION

Filed 8/31/06 (this opn. should precede companion case, S131807, also filed 8/31/06)

IN THE SUPREME COURT OF CALIFORNIA

JOEY WELLS, a Minor, etc., et al., )

)

Plaintiffs and Appellants, )

) S123951

v. )

) Ct.App. 3 C042504

ONE2ONE LEARNING FOUNDATION )

et al., )

) Sierra County

Defendants and Respondents; ) Super. Ct. No. S46-CV-5844

)

STATE OF CALIFORNIA, )

)

Real Party in Interest and Respondent. )

_ )

Continue from Part II ………

6. May charter schools and their operators be sued under the UCL?

The Court of Appeal determined that the charter school defendants are not “persons” subject to suit under the UCL. But reasons similar to those applicable under the CFCA persuade us the Court of Appeal erred in this respect.

In language similar to the CFCA’s, the UCL defines “persons” subject to that law to “mean and include natural persons, corporations, firms, partnerships, joint stock companies, associations and other organizations of persons.” (Bus. & Prof. Code, § 17201.) The charter school defendants either are, or are operated by, corporations, and they also constitute “associations” or “organizations.” They are within the plain meaning of the statute.

Noting that several cases have held government entities are not “persons” who may be sued under the UCL (e.g., Community Memorial Hospital v. County of Ventura (1996) 50 Cal.App.4th 199, 209 (Community Memorial); see also People for the Ethical Treatment of Animals, Inc. v. California Milk Producers Advisory Bd. (2005) 125 Cal.App.4th 871, 877-883; California Medical Assn. v. Regents of University of California (2000) 79 Cal.App.4th 542, 551; Trinkle v. California State Lottery (1999) 71 Cal.App.4th 1198, 1203-1204; Janis v. California State Lottery Com. (1998) 68 Cal.App.4th 824, 831; Santa Monica Rent Control Bd. v. Bluvshtein (1991) 230 Cal.App.3d 308, 318; but see Notrica v. State Comp. Ins. Fund (1999) 70 Cal.App.4th 911, 939-945), the charter school defendants insist they are entitled, as part of the public school system, to this “public entity” exemption.[1] The Court of Appeal agreed. We do not.

As we have indicated, charter schools are operated, pursuant to the CSA, by nongovernmental entities. Though, by statutory mandate, these institutions are an alternative form of public schools financed by public education funds, they and their nongovernmental operators are largely free and independent of management and oversight by the public education bureaucracy. Indeed, charter schools compete with traditional public schools for students, and they receive funding based on the number of students they recruit and retain at the expense of the traditional system. Insofar as their nongovernmental operators use deceptive business practices to further these efforts, the purposes of the UCL are served by subjecting them to the provisions of that statute.

Nor is the state’s sovereign educational function thereby undermined. Even if governmental entities, in the exercise of their sovereign functions, are exempt from the UCL’s restrictions on their competitive practices (see Community Memorial, supra, 50 Cal.App.4th 199, 209-211 [county was not “person” for purposes of UCL, such that county hospital’s treatment of paying patients in competition with private hospitals would be subject to statute], no reason appears to apply that principle to nongovernmental entities, covered by the plain terms of the statute, who compete with the traditional public schools for students and funding. We conclude that the charter school defendants are “persons” covered by the UCL.[2]

7. Did statutory restrictions on independent study programs apply to charter schools before Education Code section 51747.3 was amended in 1999?

The Court of Appeal agreed with the trial court that plaintiffs may not pursue, as part of their CFCA cause of action, allegations that the charter school defendants claimed ADA funding in violation of the “independent study” requirements of Education Code section 51747.3. The appellate court reasoned that section 51747.3 applied to charter schools only after a 1999 amendment, effective in 2000, and that all the pertinent allegations of the complaint preceded this effective date. We conclude, contrary to the Court of Appeal, that section 51747.3, as in effect before 2000, did include charter schools. Our analysis proceeds against the following backdrop.

In 1989, article 5.5 (§ 51745 et seq.), dealing with independent study programs, was added to title 2, part 28, division 4, chapter 5 of the Education Code. (Stats.1989, ch. 1089, § 5, p. 3775.)[3] Section 51745, subdivision (a), provides that, beginning with the 1990-1991 school year, local school districts may offer independent study programs “to meet the educational needs of pupils in accordance with the requirements of this article.”

Three years later, in 1992, the Legislature enacted the CSA. One section of that law, Education Code section 47610, provided that a charter school must comply with its charter, but was “otherwise exempt from the laws governing school districts except as specified in [s]ection 47611 [dealing with participation in the State Teacher’s Retirement System].” (Stats. 1992, ch. 781, § 1, p. 3760.) Since its inception, the CSA has further stated that, with specified exceptions, “[a]dmission to a charter school shall not be determined according to the place of residence of the pupil, or of his or her parent or guardian, within this state.” (Ed. Code, § 47605, subd. (d)(1).)

In 1993, Education Code section 51747.3 was added to the independent study provisions. (Stats. 1993, ch. 66, § 32, p. 923.) As then enacted, section 51747.3 provided that “[n]o local education agency may claim state funding for the independent study of a pupil . . . if the agency has provided any funds or other thing of value to the pupil or his or her parent or guardian that the agency does not provide to students who attend regular classes or to their parents or guardians.” (Stats. 1993, ch. 66, § 32, p. 923 adding Ed. Code, § 51747.3, subd. (a), italics added.) Further, the new statute specified that “[n]otwithstanding any other provision of law, . . . independent study average daily attendance shall be claimed by school districts and county superintendents of schools only for pupils who are residents of the county in which the apportionment claim is reported, or . . . of a county immediately adjacent to [such] county . . . .” (Id., adding § 51747.3, subd. (b), italics added.) Finally, the statute stated that “[t]he provisions of this section are not subject to waiver by the State Board of Education, by the State Superintendent of Public Instruction, or under any provision of Part 26.8 [of the Education Code] (commencing with [s]ection 47600) [i.e., the CSA].” (Id., adding § 51747.3, subd. (d), italics added.)

A 1995 Attorney General’s opinion concluded that Education Code section 51747.3’s restrictions on the provision of special “funds or other thing[s] of value” to independent study pupils applied to charter schools. The opinion observed that although, in section 47610, the CSA purported to exempt charter schools from all but a few specified school district laws, subdivision (d) of section 51747.3 expressly provided that the provisions of that statute could not be waived under the CSA.

As the opinion indicated, “[w]hatever may comprise the ‘laws governing school districts’ from which charter schools are exempt, it is clear that for purposes of the state funding of independent study programs, a charter school must comply with the particular requirements of [Education Code] section 51747.3. The last sentence of subdivision (d) of section 51747.3 would otherwise be devoid of meaning, contrary to the rule of statutory construction that every word, phrase, sentence and part of a statute must be accorded significance if reasonably possible. [Citations.]” (78 Ops.Cal.Atty.Gen. 253, 257-258 (1995).)[4]

In 1996, the Legislature amended Education Code section 47610, part of the CSA, to add certain additional statutes to the list of laws from which charter schools, in derogation of the general rule, were not exempt. (Stats. 1996, ch. 786, § 5.) Section 51747.3 was not included.

In this setting, the Legislature amended Education Code section 51747.3 in 1999. (Stats. 1999, ch. 162, § 2.) As amended in 1999, subdivision (a) of section 51747.3 specifies that “[n]otwithstanding any other provision of law,” “charter schools” are among the “local educational agencies” barred from claiming state funding for pupils who have received “funds or other things of value” not provided to regular classroom students. (Stats. 1999, ch. 162, § 2.) A new sentence in subdivision (a) further declares that “[a] charter school may not claim state funding for the independent study of a pupil . . . if the charter school has provided any funds or other thing of value to the pupil or his or her parent or guardian that a school district could not legally provide to a similarly situated pupil of the school district, or to his or her parent or guardian.” In subdivision (b), the amendment added “charter schools” to “school districts” and “county superintendents of schools” as entities ineligible to claim state apportionment funds for independent study pupils who reside outside the county from which the apportionment claim is reported, or an adjacent county. (Stats. 1999, ch. 162, § 2.)[5]

The Legislative Counsel’s Digest for Senate Bill No. 434 (1999-2000 Reg. Sess.) (Senate Bill No. 434), which incorporated the 1999 amendment to Education Code section 51747.3, stated that the amendment (1) “would make . . . applicable to charter schools” the preexisting statutory restriction on ADA funding for independent study students who have received money or things of value not provided to traditional classroom students, (2) “would apply . . . also to charter schools” the preexisting ban on ADA funding for independent study students who live outside the county in which funding is sought, or an adjacent county, and (3) would additionally prevent charter schools from receiving ADA funding for independent study pupils to whom they provided money or things of value which a school district could not legally provide to similarly situated students.

In concluding that the 1999 amendment extended Education Code section 51747.3 to charter schools for the first time, the Court of Appeal cited (1) the CSA’s express exemption of charter schools from all but a few specified provisions governing school districts, (2) the express CSA provision that charter school enrollment cannot be limited by residence, (3) the 1999 amendment’s express addition of charter schools to the entities subject to section 51747.3, and (4) the Legislative Counsel’s Digest quoted above. The concurring and dissenting opinion applies a similar analysis. But that approach overlooks language section 51747.3 has contained since its adoption in 1993—i.e., that its provisions are not subject to waiver under the CSA.

As the Attorney General observed in his 1995 opinion, the only possible meaning of this language is that, from and after the effective date of the 1993 enactment, charter schools were, and remain, subject to the statutory restrictions on independent study programs then set forth in that law. Any other conclusion would deprive this phrase of significance, contrary to the principle of statutory construction that interpretations which render any part of a statute superfluous are to be avoided. (E.g., In re Young (2004) 32 Cal.4th 900, 907; Hunt v. Superior Court (1999) 21 Cal.4th 984, 1002; People v. Aguilar (1997) 16 Cal.4th 1023, 1030.)

This construction of Education Code section 51747.3 does not overlook certain provisions of the CSA, noted by the Court of Appeal, and by the concurring and dissenting opinion, which were already in effect in 1993, including sections 47605 (eligibility for enrollment in particular charter school not to be determined by residence) and 47610 (charter school exempt from laws governing school districts except as expressly provided). In harmonizing the disparate, and sometimes discordant, statutory provisions, we are guided by the maxim that, where statutes are otherwise irreconcilable, later and more specific enactments prevail, pro tanto, over earlier and more general ones. (See, e.g., Pacific Lumber Co. v. State Water Resources Control Bd. (2006) 37 Cal.4th 921, 942-943 (Pacific Lumber); Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 568; Department of Alcoholic Beverage Control v. Alcoholic Beverage Control Appeals Bd. (1999) 71 Cal.App.4th 1518, 1524.)

Applying those principles, we conclude that the 1993 version of Education Code section 51747.3, including its provision for nonwaiver under the CSA, is a more recent and specific enactment on the subjects it addresses than the pertinent provisions of sections 47605 and 47610. The latter statutes, enacted in 1992, provided generally that charter schools were exempt from most school district laws and must accept nonresident students. But section 51747.3 later placed restrictions, including residence restrictions, on the circumstances under which charter schools, like other public schools, could obtain ADA funding for independent study programs and pupils in particular. To that extent, section 51747.3 superseded the earlier statutes. Indeed, section 51747.3 has always expressly provided that its residency restrictions apply notwithstanding any other provision of law. (Id., subd. (b).)[6]

We are not persuaded otherwise by the 1996 amendment to Education Code section 47610, which added certain statutes to the list of laws from which charter schools are not exempt, but did not include section 51747.3. Section 51747.3, by its express terms, already applied to charter schools. There was no need to say so again in section 47610.

Nor are we dissuaded by the language, the Legislative Counsel’s Digest, or the legislative history[7] of the 1999 amendment to Education Code section 51747.3, insofar as they might suggest the 1999 Legislature believed charter schools were being added to the statute for the first time. A later expression of legislative purpose is not binding as to what prior legislation meant when it was adopted. (E.g., Pacific Lumber, supra, 37 Cal.4th 921, 940; Cummins, Inc. v. Superior Court (2005) 36 Cal.4th 478, 492.) We therefore conclude that the restrictions on independent study programs set forth in the 1993 version of Education Code section 51747.3 applied to charter schools even prior to the 1999 amendment.[8]

Plaintiffs’ CFCA cause of action appears properly tailored to the pre-1999 version of the statute. The complaint alleges that the charter school defendants submitted false ADA claims for independent study pupils who (1) received “funds or other thing[s] of value” not provided to classroom students, and (2) resided outside the counties designated by the statute. The trial court and the Court of Appeal thus erred in holding that plaintiffs’ “independent study” claims were barred because Education Code section 51747.3 did not apply to charter schools until it was amended in 1999.[9]

8. Is plaintiffs’ CFCA claim barred as one for “educational malfeasance”?

The complaint alleges that the charter school defendants submitted false claims to obtain ADA funds for pupils who “were not [actually] students enrolled in and receiving instruction, educational materials, or services from [the defendants’] schools.” As noted above, the gravamen of this claim is that, in the operation of their distance learning schools, the defendants did little more than collect attendance forms from their ostensible pupils, while failing to provide the educational services, equipment, and supplies promised in the schools’ charters and promotional materials, and required by law. Among other things, the complaint asserts that the defendants overcharged for educational software readily available from other sources, never furnished promised computers for online learning and testing at home, and failed to provide the services of “educational facilitators” who, for each student, were supposed to order necessary equipment and supplies, develop an individualized curriculum plan, and make weekly home visits for personal instruction, testing, and evaluation.

The trial court concluded that these were all impermissible claims for “educational malfeasance” (see Peter W., supra, 60 Cal.App.3d 814), but the Court of Appeal disagreed. The Court of Appeal reasoned that the complaint’s allegations required no judgments about the methodology or quality of defendants’ educational services—a matter upon which reasonable persons could disagree. Rather, the appellate court observed, the complaint presented only the “straightforward and comprehensible” claim that the defendants defrauded the state by collecting public education funds for pupils to whom they provided no service beyond the timely collection of attendance forms.

We agree in principle with the Court of Appeal. Insofar as the complaint alleges, not that the defendants provided a substandard education, but instead that they (1) offered no significant educational services, (2) did, or failed to do, specific, quantifiable acts in violation of their charters or applicable law, or (3) improperly caused students, parents, or guardians to incur monetary charges or overcharges for particular educational materials and equipment supplied by or through the defendants, it does not state a barred claim for educational malfeasance. We explain our reasoning in detail.

In Peter W., supra, 60 Cal.App.3d 814, an 18-year-old former public school student sued his school district, asserting causes of action for negligence, breach of mandatory duty, and fraud. The complaint alleged as follows: The district “negligently and carelessly” failed to perceive the plaintiff’s learning disabilities, assigned him to classes beyond his reading abilities with instructors unqualified to meet his special needs, passed him from grade to grade with knowledge that he had not achieved necessary skills, and permitted him, in violation of state law, to graduate even though he could not read above the eighth grade level. During this time, the district made representations to plaintiff’s mother, which representations the district knew were false or had no basis to believe were true, that he was performing at or near his grade level. As a result, he graduated with fifth grade reading and writing skills, thus permanently limiting his employment opportunities and earning capacity.

Defendant’s demurrer was sustained, the suit was dismissed, and the plaintiff appealed. The Court of Appeal affirmed. The court concluded that the complaint failed to allege the district’s breach of a duty the law would recognize. As the court noted, “classroom methodology affords no readily acceptable standards of care, or cause, or injury.” Pedagogical science, the court observed, is “fraught with different and conflicting theories” about how children should be taught; moreover, educational success or failure “is influenced by a host of factors,” both personal and external, “which affect the pupil subjectively” and often are beyond the control of educators. (Peter W., supra, 60 Cal.App.3d 814, 824.) “We find in this situation,” said the court, “no conceivable ‘workability of a rule of care’ against which defendants’ alleged conduct may be measured [citation], no reasonable ‘degree of certainty that . . . plaintiff suffered injury’ within the meaning of the law of negligence [citation], and no such perceptible ‘connection between the defendant’s conduct and the injury suffered,’ as alleged, which could establish a causal link between them within the same meaning [citation].” (Id. at p. 825.)

To be continue as Part IV ..

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[1] Plaintiffs made no UCL claim against the school district defendants. Hence, whether governmental entities, as such, are “persons” covered by the UCL is not at issue in this appeal.

[2] We do not, however, decide whether the particular allegations of plaintiffs’ complaint state a cause of action under the UCL. That issue is beyond the scope of this appeal.

[3] A former article 5.5, also dealing with independent study, was simultaneously repealed. (Stats. 1989, ch. 1089, § 4, p. 3775.)

[4] The opinion concluded, however, that the “things of value” referred to in Education Code section 51747.3, subdivision (a), did not include special educational materials, such as laptop computers and other learning aids, for the purpose of facilitating independent study in particular. Noting that the resources necessary for independent study are inherently different from those appropriate to the classroom setting, the opinion concluded that “[s]ection 51747.3 may not be construed as limiting the educational resources of an independent study program expressly intended by the Legislature” to expand educational choices and opportunities. (78 Ops.Cal.Atty.Gen., supra, at pp. 259-260.) Such a result, the opinion asserted, would be “absurd.” (Id. at p. 260.) The statute’s legislative history, the opinion observed, revealed “[n]othing [to] suggest that educational resources are to be withheld from students in an independent study program under the circumstances presented. Rather, the language of section 51747.3, subdivision (a), was adopted to prevent schools from offering ‘sign up bonuses’ to the parents of home study children in order for the schools to obtain state funding for the attendance of the children in their independent study programs. The prohibition was intended to prevent schools from offering incentives unrelated to education, not to preclude schools from spending funds on special educational aids and materials for independent study students.” (Ibid.)

[5] As amended in 1999, Education Code section 51747.3 read, in pertinent part, as follows (added language in italics, omissions noted by brackets): “(a) [No] Notwithstanding any other provision of law, a local education agency, including, but not limited to, a charter school, may not claim state funding for the independent study of a pupil . . . if the agency has provided any funds or other thing of value to the pupil or his or her parent or guardian that the agency does not provide to pupils who attend regular classes or to their parents or guardians. A charter school may not claim state funding for the independent study of a pupil . . . if the charter school has provided any funds or other thing of value to the pupil or his or her parent or guardian that a school district could not legally provide to a similarly situated pupil of the school district, or to his or her parent or guardian. [¶] (b) Notwithstanding paragraph (1) of subdivision (d) of Section 47605 or any other provision of law, community school and independent study average daily attendance shall be claimed by school districts [and], county superintendents of schools, and charter schools only for pupils who are residents of the county in which the apportionment claim is reported, or who are residents of a county immediately adjacent to the county in which the apportionment claim is reported. [¶] . . . [¶] (d) . . . The provisions of this section are not subject to waiver by the State Board of Education, by the State Superintendent of Public Instruction, or under any provision of Part 26.8 (commencing with Section 47600).” (Stats. 1999, ch. 162, § 2.) A 2003 amendment substituted “educational” for “education” between “local” and “agency.” (Stats. 2003, ch. 529, § 4.)

[6] We have found nothing in the contemporaneous legislative history of Senate Bill No. 399 (1993-1994 Reg. Sess.), through which Education Code section 51747.3 was first adopted, that adds or detracts from the conclusion that the section was intended, from its inception, to apply to charter schools.

[7] See, e.g., the Senate Education Committee’s analysis of Senate Bill No. 434 as amended June 28, 1999, pages 1-2.

[8] As originally adopted in 1993, Education Code section 51747.3 referred to “local education agenc[ies],” “school districts,” and “county superintendents of schools,” but not specifically to charter schools, as entities precluded from claiming state funds for independent-study pupils under the circumstances described in the statute. (Stats. 1993, ch. 66, p. 923.) However, nothing in the 1993 version of the section indicated that these provisions, as in effect prior to 2000, did not apply equally to the independent-study pupils of charter schools operating under the jurisdiction of the “local education agencies,” “school districts,” and “county superintendents of schools” responsible for claiming state funds on behalf of such schools. In 1999, section 51747.3 was amended, among other things, expressly to include charter schools among the “local education agencies” covered by the section, and to place charter schools within the statute’s limitations on claiming state funds for independent-study pupils. (Stats. 1999, ch. 162, § 2.) But it appears this express statement of limitations on charter schools’ ability to claim state funding was simply part of a contemporaneous overhaul of the way charter schools were funded in general. Another 1999 measure, Assembly Bill No. 1115 (1999-2000 Reg. Sess.) (Assembly Bill No. 1115)—a trailer to the 1999 Budget Bill—added section 47651, providing that a charter school may elect to receive its share of state funding directly, rather than through the “local educational agency” under which it operates. (Stats. 1999, ch. 78, § 32.8.) The legislative history of Senate Bill No. 434, by which section 51747.3 was amended, made specific reference to the change in funding methodology adopted in Assembly Bill No. 1115. (See Sen. Com. on Education, analysis of Sen. Bill No. 434, as amended June 28, 1999, p. 4.) Under these circumstances, it became logical for section 51747.3 to mention charter schools directly as claimants of state funds. In sum, we are not persuaded that either the pre-1999 version of section 51747.3, or the 1999 amendments to that section, evidence the Legislature’s intent to exclude charter schools, prior to 2000, from this statute’s funding restrictions on independent-study programs.

[9] We realize the 1999 amendment to Education Code section 51747.3 did not simply insert “charter schools” as entities subject to the 1993 version of the statute. The amendment also added that “[a] charter school may not claim state funding for the independent study of a pupil, whether characterized as home study or otherwise, if the charter school has provided any funds or other thing of value to the pupil or his or her parent or guardian that a school district could not legally provide to a similarly situated pupil of the school district, or to his or her parent or guardian.” (Stats. 1999, ch. 162, § 2, italics added.) This new sentence may apply restrictions to charter school independent study programs beyond those imposed by the original version of the statute. We need not address that issue, however, because plaintiffs’ complaint is not framed in the terms of this amended language. Moreover, we need not consider whether special educational materials may be provided to independent study pupils, though not to classroom students, without violating the “funds or other thing[s] of value” proscription in the original version of the statute, as suggested by the 1995 Attorney General’s opinion. That question is beyond the scope of the issues presented by this appeal.