Deron Sch. of New Jersey, Inc. v. United States Dep't of Agriculture, Civ. Action No. 09-3477 (KSH) (PS)

CourtUnited States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
Writing for the CourtKatharine S. Hayden
Decision Date30 March 2012
Docket NumberCiv. Action No. 09-3477 (KSH) (PS)


Civ. Action No. 09-3477 (KSH) (PS)


Date: March 30, 2012


I. Introduction

The core facts of this case date back to 1984, when an official at a regional office of the United States Department of Agriculture ("USDA") authorized a plan that permitted plaintiffs The Deron School of New Jersey, ELO Incorporated, and KDDS Inc. (collectively "the Plaintiff-Schools") to participate in federally funded lunch and breakfast programs that are statutorily available only to public schools and non-profit schools. Under that "workaround," the Plaintiff-Schools, which serve students with disabilities, received federally subsidized meals for financially eligible students even though the schools are for-profit entities. Then, in 2007, the New Jersey Department of Agriculture, which serves as a conduit for the federal subsidies, notified the Plaintiff-Schools that they would no longer receive the federal subsidies.

In their federal lawsuit, the Plaintiff-Schools are challenging the cancellation of the federal subsidies on a variety of grounds. Three motions are now before the Court. The first is a motion for summary judgment brought by defendants the New Jersey Department of Agriculture, the New Jersey Secretary of Agriculture, the New Jersey Department of Education, and the New Jersey Commissioner of Education (collectively "the State Defendants"). The second is a motion

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to dismiss for lack of jurisdiction, or in the alternative, a motion for summary judgment, brought by the USDA and the United States Secretary of Agriculture (collectively "the Federal Defendants"). The third is a motion by the Federal Defendants to strike the reports of plaintiffs' two expert witnesses.

After carefully reviewing the record and holding oral argument, the Court concludes that the Plaintiff-Schools have carried their burden of establishing Article III standing to sue on behalf of themselves and their students, and that summary judgment should be denied as to the Rehabilitation Act, Americans with Disabilities Act, and Administrative Procedure Act claims. Summary judgment is granted as to the remainder of the claims.

II. Factual Background and Procedural History

Many of the critical facts are undisputed and are drawn from the parties' statements of undisputed facts and supporting documentation.

A. The Parties

The plaintiffs are for-profit private schools serving students with disabilities. Plaintiff The Deron School of New Jersey, Inc. founded in the 1960s, operates two schools, Deron I and Deron II, located in Union and Montclair respectively. (State Defs.' Stmt. Material Facts ¶ 1; Pls.' Resp. Stmt. Material Facts ¶ 1.) Plaintiff ELO Incorporated operates The Gramon School in Fairfield and plaintiff KDDS Inc. operates Glenview Academy, also in Fairfield. (State Defs.' Stmt. Material Facts ¶ 2; Pls.' Resp. Stmt. Material Facts ¶ 2.) Under mechanisms authorized by New Jersey law, each school is permitted to enroll "special needs students from public schools" and charge tuition to the public school districts. (State Defs.' Stmt. Material Facts ¶ 3 (citing N.J.S.A. 18A:46-15; N.J.S.A. 18A:46-21); Pls.' Resp. Stmt. Material Facts ¶ 3.) The Plaintiff-Schools largely enroll the children of disadvantaged families; in the school year 2009-2010, 80%

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of the students attending Deron I, 85% of the students attending Deron II, 92% of students attending The Gramon School, and 100% of students attending Glenview Academy met the household income requirements for free or reduced-price meals under the pertinent federal programs. (Alter Cert. ¶ 7, appended to Pls.' Br. Opp. to Federal Defs.' Mot. Summ. J., Exh. 1; Weeks Cert. ¶ 7, appended to Pls.' Br. Opp. to Federal Defs.' Mot. Summ. J., Ex. 2.) The Plaintiff-Schools are suing on behalf of themselves and, on some counts, their students.

To varying degrees discussed in more detail below, both sets of defendants are responsible for administration of the National School Lunch Program and the School Breakfast Program. (Federal Defs.' Stmt. Material Facts ¶ 1; Pls.' Resp. Stmt. Material Facts ¶ 1.)

B. The National School Lunch Act and the Child Nutrition Act

In 1946, Congress enacted the National School Lunch Act ("NSLA"), 42 U.S.C. § 1751 et seq. The NSLA sets forth a policy of safeguarding "the health and well-being of the Nation's children" in part "through grants-in-aid and other means, in providing an adequate supply of foods and other facilities for the establishment, maintenance, operation, and expansion of nonprofit school lunch programs." 42 U.S.C. § 1751. To that end, the NSLA establishes a federal program directing money to the states to pay for all or part of eligible students' lunches. See 42 U.S.C. § 1757-58. The states may distribute the money only to "schools" as defined under the statute. See, e.g., 42 U.S.C. § 1756. Under the NSLA,

'[s]chool' means (A) any public or nonprofit private school of high school grade or under, and (B) any public or licensed nonprofit private residential child care institution (including, but not limited to, orphanages and homes for the mentally retarded, but excluding Job Corps Centers funded by the Department of Labor). For purposes of this paragraph, the term "nonprofit," when applied to any such private school or institution, means any such school or institution which is exempt from tax under section 501(c)(3) of Title 26.

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42 U.S.C. § 1760(d)(5) (emphasis added).

Because the Plaintiff-Schools are for-profit private schools, they do not fit within the NSLA's definition of "schools." (Federal Defs.' Stmt. Material Facts ¶ 2; Pls.' Resp. Stmt. Material Facts ¶ 2.)

In 1966, Congress enacted the Child Nutrition Act ("CNA"), 42 U.S.C. § 1771 et seq. The CNA provides for the creation of a federally subsidized school breakfast program that operates similarly to the NSLA's lunch program. See 42 U.S.C. § 1773. The CNA's definition of a "school" is identical to the NSLA's definition, see 42 U.S.C. § 1784(3), and the CNA thus also precludes the Plaintiff-Schools from participation.

C. Plaintiffs' Participation Through the "Workaround"

On September 17, 1984, officials from the Deron School met with employees of the USDA Food and Nutrition Service ("FNS") Mid-Atlantic Regional Office regarding the meals programs. (Federal Defs.' Stmt. Material Facts ¶ 4; Pls.' Resp. Stmt. Material Facts ¶ 4.) The USDA representatives at the meeting were not attorneys. (Federal Defs.' Stmt. Material Facts ¶ 5; Pls.' Resp. Stmt. Material Facts ¶ 5.) Three days later, Sallie Ellner, a food program specialist at the USDA, entered a "Memo for the File" regarding the meeting. (See Federal Defs.' App., Ex. 1.) Ellner first observed that under New Jersey law, "all State monies received by the Derone [sic] School must be used for educational purposes and not for the food service." (Id.) She further noted, however, that the Deron School had reached an agreement with the Montclair School District under which it continued collecting federal subsidies for school lunches:

Derone School and the Montclair S.D. have reached an agreement wherein, in order to receive reimbursement under the NSLP for children attending the Derone School, the Montclair District will completely take over the entire food service from the Derone

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School; this will include the purchasing of food and the placement of District personnel in the Derone School kitchen and cafeteria. Free and reduced price applications will be disseminated and evaluated by the Derone School, but the Montclair District will check the determinations. Montclair S.D. will claim all children who participate, including those from other districts.


The USDA officials at the meeting agreed "that this arrangement will be satisfactory and would fulfill the requirements of Section 504 [of the Rehabilitation Act], which addresses the handicapped." (Id.) The Plaintiff-Schools refer to this arrangement as "the workaround." (Federal Defs.' Stmt. Material Facts ¶ 6; Pls.' Resp. Stmt. Material Facts ¶ 6.) The Montclair Board of Education reached similar arrangements with the other Plaintiff-Schools in the early-to mid-1990s. (Pls.' Supp. Stmt. Disputed Material Facts ¶ 32; Federal Defs.' Resp. Stmt. Material Facts ¶ 32; Federal Defs.' Stmt. Material Facts ¶ 8; Pls.' Resp. Stmt. Material Facts ¶ 8.) The Plaintiff-Schools continued to use this system until 2007.

D. The USDA 2002 Memorandum

On November 1, 2002, Stanley C. Garnett, the Director of the Child Nutrition Division of the FNS, distributed a memorandum to all regional directors, prompted by "[q]uestions . . . regarding the eligibility for reimbursement of meals served to children who are placed by a public school district in special schools or institutions . . . which are either not eligible to participate or choose not to participate" in meals programs. (See Federal Defs.' App., Ex. 5.) The memorandum explained that "[w]hen a public school district is unable to provide needed services directly to children, it may contract with a school to provide the needed educational services." (Id.) As an example, Garnett observed that schools "may place children who are discipline problems in an alternative school or place disabled children in a specialized school." (Id.) The memorandum noted that...

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