Honors Acad., Inc. v. Tex. Educ. Agency

• Decision Date: 27 April 2018
• Docket Number: NO. 16–0519,16–0519
• Citation: 555 S.W.3d 54
• Parties: HONORS ACADEMY, INC., d/b/a/ Honors Academy and American YouthWorks, Inc., d/b/a American YouthWorks Charter School, Petitioners, v. TEXAS EDUCATION AGENCY and Michael Morath, in His Official Capacity as Texas Commissioner of Education, Respondents
• Court: Texas Supreme Court

555 S.W.3d 54

HONORS ACADEMY, INC., d/b/a/ Honors Academy and American YouthWorks, Inc., d/b/a American YouthWorks Charter School, Petitioners,

v.TEXAS EDUCATION AGENCY and Michael Morath, in His Official Capacity as Texas Commissioner of Education, Respondents

NO. 16–0519

Supreme Court of Texas.

Argued January 10, 2018

Opinion Delivered: April 27, 2018

Rehearing Denied September 28, 2018

Thomas Anthony Fuller, The Fuller Law Group, PLLC, 2000 E. Lamar Blvd., Suite 600, Arlington, TX 76006, Richard L. Arnett, Richard Arnett, Attorney, LLC, 3262 Nebo Road, Boulder, CO 80302, for Amicus Curiae.

David Jay Campbell, Kevin T. O'Hanlon, Leslie L. McCollom, Susan G. Morrison, O'Hanlon, Demerath & Castillo, 808 West Avenue, Austin, TX 78701, Robert Allen Schulman, Maia K. Levenson, Schulman, Lopez, Hoffer & Adelstein, LLP, 517 Soledad Street, San Antonio, TX 78205–1508, for Petitioners.

Beth E. Klusmann, Assistant Solicitor General, Amanda Joy Cochran–McCall, Brantley D. Star, Deputy First Assistant Attorney General, James E. Davis, Jeffrey C. Mateer, First Assistant Attorney General, Joseph David 'Jody' Hughes, Assistant Solicitor General, Scott A. Keller, Solicitor General, Shelley Nieto Dahlberg, General Litigation Division, W. Kenneth Paxton Jr., Attorney General of Texas, Office of the Attorney General, P.O. Box 12548, Austin, TX 78711–2548, for Respondents.

Justice Devine delivered the opinion of the Court.

Section 12.115 of the Texas Education Code requires the Commissioner of Education to revoke an open-enrollment charter school's charter after three consecutive years of "an unacceptable performance rating," an unsatisfactory "financial accountability performance rating," or any combination of the two. TEX. EDUC. CODE § 12.115(c). The Commissioner's revocation decision is subject to an administrative review, but the decision may not be appealed beyond that. Id. § 12.116(c). Two open-enrollment charter schools nevertheless seek judicial review of the Commissioner's decision to revoke their charters, raising both constitutional and ultra vires complaints. A district court forestalled the Commissioner's revocation by granting temporary injunctive relief. After an interlocutory appeal, the court of appeals vacated the temporary injunctions and dismissed the suit, concluding that sovereign immunity barred the schools' claims. Tex. Educ. Agency v. Am. YouthWorks, Inc. , 496 S.W.3d 244, 270 (Tex. App.—Austin 2016). We agree and affirm.

I. Background

"Since 1995, open-enrollment charter schools have been a part of the Texas public-school system." LTTS Charter Sch., Inc. v. C2 Constr., Inc. , 342 S.W.3d 73, 74 (Tex. 2011). Charter schools are created under and generally governed by chapter 12 of the Education Code. This chapter provides for three charter types: home-rule school district, campus or campus program, and open-enrollment. TEX. EDUC. CODE § 12.002. This appeal concerns open-enrollment charters. Such charters are typically held and run by nonprofit corporations, qualifying under § 501(c)(3) of the Internal Revenue Code. See id. § 12.101(a)(3). Although less common, institutions of higher education and governmental entities are also eligible to apply for such a charter. Id. § 12.101(a)(1), (4).

The petitioners here are American YouthWorks, Inc., which formerly operated the American YouthWorks Charter School (collectively AYW), and Honors Academy, Inc., which formerly operated the Honors Academy Charter School (collectively Honors). Both are private, nonprofit corporations and early charter applicants under chapter 12. See id. § 12.101 (authorizing Commissioner to grant applications for an open-enrollment charter school). AYW obtained its charter in 1996 and describes itself as a drop-out-recovery school serving "Austin's under-served and under-privileged youth, through work, work-study and work training opportunities." Honors received its charter in 1998 and describes its schools as serving a large population of transient, low-income, at-risk students who have not been successful in regular public schools. Honors's schools are located predominantly in north Texas. AYW and Honors continuously operated their schools under renewals until legislative changes to chapter 12 led the Commissioner to revoke their charters.

Pertinent here is the work of the Texas Sunset Commission, which in 2012 issued its report on the Texas Education Agency (TEA). The report included a section on charter schools.¹ The report noted that, while some charter schools were among the highest-achieving schools, others were among the lowest-performing schools. The Sunset Commission focused on the difficulty in addressing academic and financial issues at these low-performing schools. The report emphasized the TEA's inability to move quickly to revoke charters for poor performance, and that the delay left "students to be educated at under performing charter schools" for too long.² The Sunset Commission believed that the TEA lacked the tools necessary to effectively address poor academic and financial performance and urged that revocations "should occur more quickly to protect students from an inadequate education."³ The report recommended that the Legislature require the Commissioner of Education to revoke a charter, without a hearing, if the charter school failed to satisfy academic or financial accountability standards for three consecutive years.⁴

During the 2013 session, the Legislature acted on the Sunset recommendation by amending the Education Code to change the Commissioner's authority in this regard. Before these amendments, the Commissioner had discretionary authority under section 12.115 to revoke a charter or take a lesser adverse action against a charter holder that committed a material violation of its charter, failed in its fiscal management of the school, failed to protect the health, safety, or welfare of its students, or failed to comply with applicable law. Act of May 28, 2001, 77th Leg., R.S., ch. 1504, § 12, 2001 Tex. Gen. Laws 5344, 5350. After the amendment, the grounds listed in section 12.115 became mandatory. TEX. EDUC. CODE § 12.115(a). Moreover, the legislation included additional mandatory grounds for revocation, including one that required the Commissioner to revoke an open-enrollment charter if the school's academic or financial performance fell below acceptable standards over a three school-year period:

(c) The commissioner shall revoke the charter of an open-enrollment charter school if:

(1) the charter holder has been assigned an unacceptable performance rating under Subchapter C, Chapter 39, for the three preceding school years;

(2) the charter holder has been assigned a financial accountability performance rating under Subchapter D, Chapter 39, indicating financial performance lower than satisfactory for the three preceding school years; or

(3) the charter holder has been assigned any combination of the ratings described by Subdivision (1) or (2) for the three preceding school years.

Id. § 12.115(c). In determining the years of unsatisfactory performance, the Commissioner was directed to begin with the three-year period immediately preceding the legislation:

(c–1) For purposes of revocation under Subsection (c)(1), performance during the 2011–2012 school year may not be considered. For purposes of revocation under Subsection (c)(1), the initial three school years for which performance ratings under Subchapter C, Chapter 39 [academic accreditation], shall be considered are the 2009–2010, 2010–2011, and 2012–2013 school years. For purposes of revocation under Subsection (c)(2), the initial three school years for which financial accountability performance ratings under Subchapter D, Chapter 39 [financial accountability], shall be considered are the 2010–2011, 2011–2012, and 2012–2013 school years. This subsection expires September 1, 2016.

Id. § 12.115(c–1).

The legislation also amended the procedure for revoking a charter under section 12.115. It directed the Commissioner to adopt an informal procedure to implement review of the Commissioner's now mandated revocation decisions. Id. § 12.116(a). An appeal of that decision to the State Office of Administrative Hearings (SOAH) was permitted, but the appeal was not a contested-case hearing or subject to the Administrative Procedure Act. Id. § 12.116(b). Instead, the legislation provided that the administrative law judge was to review the Commissioner's decision under an "arbitrary and capricious or clearly erroneous" standard and that the judge's determination was final and not subject to judicial review. Id. § 12.116(c). These revisions to the Education Code took effect on September 1, 2013.

On December 18, 2013, the Commissioner notified AYW and Honors by letter that their schools had been identified as charters that met the criteria for mandatory revocation under the new legislation. In these letters, the Commissioner explained that he was revoking its open-enrollment charter (effective June 30, 2014) under Education Code § 12.115(c). He cited the performance ratings that were the basis for each recipient's charter revocation and attached exhibits corresponding to the identified ratings. The Commissioner also noted that the performance ratings on which the revocations were based were "final and not appealable" because "all rights to appeal the ratings identified above had been waived or exhausted."

The letters further described the informal appeals process available to the schools: they had "the right to request an informal review of, and hearing regarding" the Commissioner's revocation decision, but "only if the charter holder submits a written request that contains specific answers to each of the findings included in this Notice." The Commissioner explained further that if the charter holder's timely request was denied during the informal review, the charter school's revocation issue would be sent to the SOAH for a hearing under § 12.116. Finally, the Commissioner noted that...