Family & Children's Center, Inc. v. School City of Mishawaka

• Decision Date: 15 March 1994
• Docket Number: No. 93-1843,93-1843
• Citation: 13 F.3d 1052
• Parties: 88 Ed. Law Rep. 974, 4 ADD 661 FAMILY & CHILDREN'S CENTER, INC., Plaintiff-Appellant, v. SCHOOL CITY OF MISHAWAKA, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1052

13 F.3d 1052

88 Ed. Law Rep. 974, 4 ADD 661

FAMILY & CHILDREN'S CENTER, INC., Plaintiff-Appellant, v. SCHOOL CITY OF MISHAWAKA, Defendant-Appellee.

No. 93-1843.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 27, 1993.

Decided Jan. 5, 1994.

Rehearing and Suggestion for Rehearing En Banc Denied March

15, 1994.

James M. Lewis (argued), Douglas D. Small, Barnes & Thornburg, South Bend, IN, for plaintiff-appellant.

John B. Drummy, Donald L. Dawson, Thomas E. Wheeler (argued), Kightlinger & Gray, Indianapolis, IN, for defendant-appellee.

Before CUMMINGS and FLAUM, Circuit Judges, and WILL, District Judge. ^*

FLAUM, Circuit Judge.

This case presents the narrow issue of whether Family & Children's Center, Inc. ("FCC"), an Indiana non-profit corporation which operates a licensed, private child care facility, should be accorded third-party standing to advocate the rights of children with disabilities ¹ who have been placed in its physical but not legal custody by court order or as a result of action by state or local child welfare departments. FCC seeks an order declaring that the Individuals with Disabilities Education Act ("IDEA"), 20 U.S.C. Secs. 1400-85 (1990 & Supp.1993), obligates School City of Mishawaka ("School City"): (1) to provide classrooms and related facilities for the education of the children with disabilities, and (2) to educate the children with disabilities placed with FCC who are periodically and temporarily cared for at two group homes owned by FCC and located in the City of South Bend. Following oral argument, the district court granted School City's motion to dismiss under Rule 12(b)(1) of the Federal Rules of Civil Procedure on the ground that FCC lacks standing to assert claims under the IDEA. We reverse.

I.

FCC is an Indiana non-profit corporation which operates a licensed, private child care facility. FCC's main campus and offices are located in Mishawaka, Indiana. In addition, FCC owns and operates three group homes, one in Mishawaka and two in South Bend. Between the main campus and the group homes, FCC cares for approximately 110 emotionally handicapped children at any given time. FCC has actual physical custody of the children as the result of either court order or action by state or local welfare departments, but FCC is neither legal guardian, parent, or surrogate parent to any of these children. Legal custody of these children, in fact, remains either with the courts, the placing agencies, ² or the parents under the laws of Indiana. School City is a consolidated school corporation operating pursuant to the laws of the State of Indiana. School City is primarily responsible for educating students from the City of Mishawaka.

Until 1979, children with disabilities in the Mishawaka area attended the Mishawaka public schools. In that year, responding to the large number of children with disabilities who had been suspended or expelled from school because of behavior related to their handicaps, FCC began its own school and started educating the children at its own expense. In 1982, FCC and School City entered into an Instructional Services Agreement (the "Agreement") by which School City agreed to provide FCC with 95% of transfer tuition monies received from the children's home counties and FCC agreed to continue its educational program for the children. The Agreement proved satisfactory for a number of years, but, by 1989, an increase in the number of children placed with FCC and the degree of emotional impairment suffered by many of the children caused FCC to seek a new arrangement.

Despite years of negotiation, FCC and School City have been unable to reach a new accord satisfactory to both parties. FCC insists that School City is shirking its statutory duty to provide a "free appropriate public education to children with disabilities." In particular, FCC and School City have locked horns over two issues: facilities and the group homes. School City contends that it has no obligation to provide classrooms and related facilities for the education of children on FCC's campus. According to School City, FCC must provide the facility at its own cost while School City would provide the staff and educational program. In other words, School City refuses to pay rent and related expenses associated with School City's use of FCC's facilities. School City also has taken the position that it has no obligation to educate the children placed with FCC who are periodically and temporarily treated at one of the South Bend group homes. FCC submits that the group home environment is an important facet of its overall treatment program. Prior to School City's refusal to educate children at the group homes, FCC frequently transferred children between the main campus and the group homes. Recently, however, FCC has chosen not to place many children in the group homes, despite the fact that their situation otherwise would call for such treatment, because of the anxiety and hardship associated with transferring to a different school system with different teachers and curriculum.

FCC then turned to the administrative and judicial procedures available under the IDEA, 20 U.S.C. Sec. 1400 et seq. The IDEA was enacted:

to assure that all children with disabilities have available to them ... a free appropriate public education that emphasizes special education and related services designed to meet their unique needs, to assure that the rights of children with disabilities and their parents or guardians are protected, to assist States and localities to provide for the education of all children with disabilities, and to assess and assure the effectiveness of efforts to educate children with disabilities.

20 U.S.C. Sec. 1400(c). The IDEA conditions federal assistance upon a state's compliance with the substantive and procedural goals of the Act. See Hendrick Hudson Central Dist. Bd. of Educ. v. Rowley, 458 U.S. 176, 102 S.Ct. 3034, 73 L.Ed.2d 690 (1982). Section 1415(b) of the IDEA requires states to provide an impartial administrative process that assures compliance with the federal mandate of a "free appropriate public education" by the relevant state agencies. Indiana's procedural safeguards are codified at 511 IAC 7-1-7. According to the IDEA, the required process "shall include, but shall not be limited to" an opportunity for parents, guardians, or surrogates to examine records and file complaints with state or local education authorities. 20 U.S.C. Sec. 1415(b). As the district court noted, the scope of Indiana's regulatory scheme extends beyond the minimum required by Sec. 1415 in that it permits "[a]ny individual, group of individuals, agency, or organization" to file a complaint alleging violation of federal or state laws that apply to special education. 511 IAC 7-15-4. Finally, the IDEA provides a right of action in federal district court, 20 U.S.C. Sec. 1415(e), but only after a prospective plaintiff has exhausted state administrative remedies. See Doe By and Through Doe v. Smith, 879 F.2d 1340 (6th Cir.1989), cert. denied, 493 U.S. 1025, 110 S.Ct. 730, 107 L.Ed.2d 749 (1990).

On September 17, 1991, FCC filed a complaint with the Indiana State Department of Education (the "Department") pursuant to 511 IAC 7-15-4. FCC asked the Department to direct School City to (1) provide facilities, teachers, and staff for the education of the children, (2) educate the children who are housed from time to time in the group homes, (3) pay FCC for the fair rental value of FCC's facilities used to educate the children, (4) reimburse FCC for its expenses in educating the children, and (5) provide year-round education for those children who require it.

The Department addressed FCC's petition in a two-part manner. First, the Department referred the matter to its Division of Special Education (the "Division") for an investigation into whether School City had violated Indiana education regulations. On December 9, 1991, the Division entered its findings of fact, conclusions of law, and an order deciding against FCC. FCC filed a Request for Reconsideration which the Division denied on January 14, 1992. FCC then appealed the Division's findings, under 511 IAC 7- 15-4(j), to the United States Department of Education which declined to hear the appeal on July 22, 1992.

Second, the Department, over the objection of FCC, determined that the question of whether School City is obligated to provide classrooms and related facilities for the children should be resolved as a transfer tuition matter rather than as a special education matter. As a result of this determination, on May 15, 1992, the Department dismissed the part of FCC's petition dealing with facilities because transfer tuition only can be received by a school corporation and FCC was not a school corporation.

Having exhausted its state remedies, FCC filed suit in the United States District Court for the Northern District of Indiana, South Bend Division on May 29, 1992. In its original complaint, FCC asserted four claims under IDEA and three claims under Indiana law. On December 4, 1992, School City filed a motion to dismiss FCC's claims under IDEA for lack of standing. School City also requested that the district court decline to exercise supplemental jurisdiction over FCC's state law claims. On February 16, 1993, FCC moved for leave to amend its complaint and to dismiss without prejudice its state law claims. The district court granted FCC's motion on February 24, 1993. In its amended complaint, FCC narrowed its claim to a request for an order declaring that School City is obligated to: (1) provide classrooms and related facilities in educating the children with disabilities, and (2) educate the children with disabilities placed with FCC who are periodically and temporarily cared for at the South Bend group homes.

Following oral argument, on March 19, 1993, the district court granted School City's motion to dismiss for lack of standing....