Board of Trustees Sabis Intern. Sch. v. Montgomery
| Decision Date | 14 June 2002 |
| Docket Number | No. 02-CV-411.,02-CV-411. |
| Citation | 205 F.Supp.2d 835 |
| Parties | BOARD OF TRUSTEES SABIS INTERNATIONAL SCHOOL, Plaintiff, v. Betty D. MONTGOMERY, et al., Defendants. |
| Court | U.S. District Court — Southern District of Ohio |
James R. Greene, III, James R. Greene III & Associates, Dayton, OH, for Plaintiff.
David Sherman Timms, Ohio Attorney General, Roger Francis Carroll, Ohio Attorney General, Columbus, OH, Carl Joseph Stich, Jr., White Getgey & Meyer, Michael Wesley Hawkins, Dinsmore & Shohl, Cincinnati, OH, for Defendants.
This matter is before the Court on the Plaintiff's Motion for a Preliminary Injunction. Beginning on May 22, 2002, and ending on May 24, 2002, the Court held a hearing on the Plaintiff's motion. By agreement of the parties, the hearing was merged with a trial on the merits. Also pending is the Defendant's Motion to Dismiss, in which the Defendant challenges, inter alia, this Court's jurisdiction over this matter.
Based on the following analysis, the Court GRANTS the Defendant's Motion to Dismiss the Plaintiff's claims, and DENIES the Plaintiff's Motion for an Injunction.
In June 1997, the Ohio General Assembly enacted legislation, currently codified as Ohio Revised Code Chapter 3314, that allowed for the creation of community schools.1 Pursuant to Ohio Rev.Code § 3314.01(B):
A community school created under this chapter is a public school, independent of any school district, and is part of the state's program of education. A community school may sue and be sued, acquire facilities as needed, contract for any services necessary for the operation of the school, and enter into contracts with a sponsor pursuant to this chapter. The governing authority of a community school may carry out any act and ensure the performance of any function that is in compliance with the [Ohio law], and the contract entered into under this chapter establishing the school.
To create a new start-up school, a group of individuals must present a proposal to one of six public entities, which, if it accepts the proposal, will become the sponsor of the school. OHIO REV.CODE § 3314.02(C). The sponsor then enters into a contract with the school's governing authority. Ohio Rev.Code § 3314.03 requires a provision in the contract between the sponsor and the governing authority that establishes procedures for resolving disputes or differences of opinion between the sponsor and the governing authority. OHIO REV.CODE § 3314.03(18). According to the Defendant, Dr. Susan Zelman, the Ohio Superintendent of Public Instruction, currently, ninety-two community schools operate in Ohio. The State Board of Education sponsors seventy-four of these schools.
Pursuant to Ohio Rev.Code § 3314.03, the State Board of Education entered into a contract ("Sponsorship Contract") with the Plaintiff, the Board of Trustees of the SABIS® International School of Cincinnati ("the Board"), whereby the State Board of Education agreed to sponsor the community school established by the Board, the governing authority of the school. The State Board of Education drafted the contract. The Sponsorship Contract was signed by Defendant Zelman on behalf of the State Board of Education, and by Defendant Carol Kerlakian, the former Board Chair, along with Susan Moore and Tracey Lowe, on behalf of the governing authority of the SABIS International School. Pursuant to the statutory requirement that the Sponsorship Contract set forth the manner in which disputes between the sponsor and the governing authority will be resolved, the Sponsorship Contract contains the following provision:
Any dispute involving [SABIS] and the SPONSOR regarding this contract, shall be resolved in the following manner:
The parties shall mutually agree upon a fair and impartial arbitrator in an effort to resolve the dispute and reach an amicable agreement. If the parties are unable to agree upon an arbitrator, the Superintendent of Public Instruction shall appoint one;
If an agreement cannot be reached within sixty (60) days from the date the arbitrator is appointed, the arbitrator shall render a decision that shall be binding upon both parties and such decision shall be final and nonappealable.
In addition to the Sponsorship Contract, the Board entered into a separate contract ("Service Provider Agreement") with Cincinnati Education Management, LLC ("CEM," "Management Company," or "Service Provider"),2 whereby CEM agreed to manage the day-to-day operations of the community school. The Service Provider Agreement was signed by Defendant Carol Kerlakian on behalf of SABIS, in her capacity as the Chair of the Board, and by Udo Schulz on behalf of CEM, in his capacity as its manager. The Plaintiff states that Ms. Kerlakian negotiated and signed all other contractual agreements between the Board and CEM and its affiliates. In particular, Ms. Kerlakian signed a $600,000 promissory note on behalf of the Board, and signed a lease agreement, pursuant to which the Board paid the Management Company approximately $98,000 per month for use of the school building.
In September of 1999, the Board consisted of three members—Ms. Kerlakian, a Caucasian woman, Susan Moore, also Caucasian, and Tracey Lowe, an African-American woman. In or around October of 1999, Ms. Moore left her position on the Board to become Sabis' director. Ms. Moore was replaced by Andrea Carter, an African American. Subsequently, the Board grew to include five members, all of whom were African American other than Ms. Kerlakian.
In or around August 2001, Ms. Kerlakian was removed from her position on the Board by the remaining Board members. The Plaintiff contends that this removal was due to certain alleged conflicts of interests that affected Ms. Kerlakian's decision to contract with CEM, and her subsequent relationship with the Management Company. Specifically, Ms. Kerlakian's uncle founded the SABIS Corporation, and another relative is currently the President of the corporation. The Plaintiff claims that Ms. Kerlakian could not serve on the board in an objective capacity, as she explicitly told members of the Board that she could not do anything to hurt members of her family, including those who worked for the Management Company.
On December 6, 2001, the Board terminated the Service Provider Agreement with CEM, effective upon the close of the 2001-2002 school year. As a result of that termination, the working relationship between CEM and the Board has disintegrated to the point that the Board determined that it could no longer perform its role as the governing authority of the school.
On January 17, 2001, Mr. Steve Burigana, the Executive Director of the Office of Community Schools, visited the SABIS International School. Mr. Burigana testified that he was interested in visiting the school in an effort to help resolve the issues between the Board and the Management Company so that the school might continue to operate in its current form. During his visit to the school, Mr. Burigana met, separately, with teachers, parents, representatives from the Management Company, and the Board. According to Mr. Burigana, the parents and teachers with whom he met expressed concern over their understanding that the school is to close at the end of the current school year. He also stated that, based on his meeting with the representatives from the Management Company, Mr. Burigana got the impression that the problems between CEM and the Board arose from disagreements over how to draw the line between the Board's involvement with the school, and the Board's micro-management of the school.
During his meeting with the Board, the Board members stated that there was no possibility of mediating their problems with the Management Company. They declared that they wanted to terminate their relationship with CEM and the SABIS Corporation, and find a new method of operating the school. They also indicated that they were having difficulties obtaining important financial information from the Management Company.3 Mr. Burigana indicated that he would attempt to obtain the necessary financial information from the Management Company on behalf of the Board. Ultimately, however, Mr. Burigana was unable to get that information from CEM.4
On April 25, 2002, the Plaintiff filed a Complaint with this Court. The Complaint names as defendants Betty D. Montgomery, the Attorney General of Ohio, Susan Zelman, the Ohio Superintendent of Public Instruction, James Petro, the State Auditor, and Carol Kerlakian, the former Chair of the Plaintiff Board. On April 26, 2002, the Plaintiff filed a motion seeking to amend its Complaint to specify that the action is brought against the Defendants in their official and individual capacities. The Complaint alleges the following claims against the Defendants: (1) violation of 42 U.S.C. § 1983 based on an infringement of the Plaintiff's rights to equal protection and due process under the Fourteenth Amendment to the United States Constitution; (2) violation of 42 U.S.C. § 1981; (3) violation of Ohio's Pattern of Corrupt Activities Act, Ohio Rev.Code § 2923.32; and (4) fraud or fraudulent inducement and misrepresentation.5 These claims were based, in part, on the fact that, despite the inclusion of a binding arbitration provision in the Sponsorship Contract, the state now claims that it cannot be subject to binding arbitration because it cannot waive its sovereign immunity. More generally, the claims are based on the failure of Defendants Petro, Montgomery, and Zelman to take certain action to protect the Plaintiff from the allegedly harmful Service Provider Agreement entered into by the Board, and signed by Defendant Kerlakian on its behalf. The Plaintiff seeks: (1) an injunction that (a) requires Defendants Montgomery, Petro,...
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