Renaissance Acad. for Math & Sci. of Mo., Inc. v. Imagine Sch., Inc.
| Decision Date | 18 December 2014 |
| Docket Number | No. 4:13-CV-00645-NKL,4:13-CV-00645-NKL |
| Parties | RENAISSANCE ACADEMY FOR MATH AND SCIENCE OF MISSOURI, INC., Plaintiff, v. IMAGINE SCHOOLS, INC., Defendant. |
| Court | U.S. District Court — Western District of Missouri |
In November 2007, Plaintiff Renaissance Academy for Math and Science, a charter school, and Defendant Imagine Schools, a charter school management company, entered into an Operating Agreement in which Imagine Schools agreed to provide management services to Renaissance for the operation of its charter school. After the termination of their agreement, Renaissance filed this lawsuit against Imagine Schools alleging breach of fiduciary duty (Counts I-III), unjust enrichment (IV), conversion (V), and violations of the Racketeer Influenced Corrupt Organizations Act (RICO) (VI-VII).
The case was tried before the Court over a one-week period. The Court now makes the following findings of fact and conclusions of law.
The Court finds in favor of Imagine Schools on Counts VI and VII. The greater weight of the evidence shows that Imagine Schools was the owner of SchoolHouse Finance during the relevant time period. Because there is a unitary interest between thetwo legal entities, they could not conspire with each other or engage in a RICO enterprise according to Eighth Circuit law. See Fogie v. THORN Americas, Inc., 190 F.3d 889, 898 (8th Cir. 1999) (). Although there is evidence that Imagine Schools and SchoolHouse Finance filed legal documents subject to the rules of perjury that show a different ownership pattern, the Court concludes those filings were a product of gross negligence and shocking disregard for the law. They were not reflective of who actually owns SchoolHouse Finance. While Renaissance has cited a Seventh Circuit case recognizing exceptions to the unitary rule, Bucklew v. Hawkins, Ash, Baptie & Co., LLP, 329 F.3d 923 (7th Cir. 2003), the Eighth Circuit has not recognized a similar exception, and even the exception cited by the Seventh Circuit is not applicable to the facts of this case.
Missouri uses a five factor test to determine whether there is a fiduciary relationship. Chmieleski v. City Products Corp., 660 S.W.2d 275, 294 (Mo. Ct. App. 1983). To satisfy the test, Renaissance was required to prove that:
All five factors weigh in favor of finding a fiduciary relationship between Renaissance and Imagine Schools. The Renaissance Board was subservient to Imagine Schools as a result of its inexperience with starting and operating a charter school. Mr. Paul Faber, Imagine Schools' witness, testified that he believed the Renaissance board members were enthusiastic and engaged but were not qualified to run a charter school. Doctor Deborah Carr from the University of Missouri - the sponsor of the charter school - also indicated that the board members wanted to do a good job but declined to say that they were equipped to do the job. Although a few members of the Renaissance Board - such as Ms. Tomika Booker and Ms. Wanda Frazier - had prior experience serving on a charter school board, their testimony and the record generally shows they were not qualified to act as competent, independent board members. This is also true of Representative Michael McGhee, not only based on his lack of experience with charter schools and his obvious misunderstanding of what was going on, but also because he had family members who worked for Imagine Schools and because his political campaign received large contributions from persons in the management of Imagine Schools. Mr. Curtis Rogers, a highly qualified and experienced public school administrator, would be expected under ordinary circumstances to be a competent and independent board member. Nonetheless, it was his understanding that Imagine Schools had authority overthe Renaissance Board, and that it was Imagine Schools that started the school not the Renaissance Board. He was very competent and very confused. Doctor Carr also gave strong evidence that Imagine Schools was the dominant party vis a vis the Renaissance Board.
Finally, it is not surprising that the Renaissance Board was weak and confused. Imagine Schools recruited the board members, arranged for the board members to apply for the charter and then entered into an Operating Agreement with the Renaissance Board that required the Board to give Imagine Schools all of the tax revenues that the Board was entitled to receive as a charter school. Under Missouri law, Imagine Schools could not obtain that revenue stream itself absent the formation of the Renaissance Board. In short, there is no evidence that Imagine Schools made any effort to recruit an independent board or to strengthen the independence of the Renaissance Board once selected. In fact, it is the policy of Imagine Schools to control the board rather than vice versa, as evidenced by the statement of Dennis Bakke, the owner and founder of Imagine Schools. [Exh. P158]. Mr. Bakke clearly believed that the Renaissance Academies belonged to Imagine Schools and that the job of the Renaissance Board was to go along with Imagine Schools' decisions unless Imagine Schools was engaging in illegal activity. In fact, Mr. Bakke encouraged his executives to limit and discourage board member control of "Imagine's" charter schools by obtaining pre-signed, undated resignation letters from board members at the time they joined the a board so that board members could be expelled at any time he or she asserted too much authority. Id. It is therefore not a surprise that Mr. Rogers, with all his experience as a public school administrator, did not understand that theRenaissance Board was to give direction to Imagine School and not vice versa. Further, in contrast to the status of the Renaissance Board, Imagine Schools is one of the nation's largest charter school management companies and specializes in managing the operations of charter schools.
Imagine Schools also possessed virtually all of Renaissance's money and property. By the terms of the Operating Agreement that Renaissance signed, the Renaissance Board was required to give Imagine Schools all revenue and property that Renaissance received from the taxpayers. Without the Renaissance Board, Imagine Schools could not get access to that money.
There was also a surrender of independence by Renaissance to Imagine Schools - to the extent it had any meaningful independence at all. Doctor Carr testified that it was a problem that the Operating Agreement allowed Imagine Schools to do essentially everything for the school and that it was difficult to get relevant documentation that was understandable - even though she was an education expert herself. The lack of meaningful access to information about the school was a recurring theme throughout the trial. While the Renaissance Board theoretically had authority to act independently on some limited issues, it was in fact a captive of Imagine Schools both by design and by operation. While this changed over time with the assistance of the sponsor, the University of Missouri, intervention occurred too late to save the school, which operated consistently with too few expenditures for instruction and low student performance.
Imagine Schools also habitually manipulated Renaissance's actions. The Renaissance Board served as a rubber stamp for the actions of Imagine Schools, andImagine Schools indirectly exerted pressure on Renaissance board members to execute certain documents. Imagine Schools made it difficult for the Renaissance Board to get timely information it needed in a format that the board members could understand. While Imagine Schools occasionally went through the motions, a pattern of obstruction - consistent with Mr. Bakke's philosophy - made it difficult for the Renaissance Board to be informed in a meaningful way.
Renaissance placed its trust and confidence in Imagine Schools to create a successful learning environment and to manage the school's operations and its finances. The Operating Agreement itself outlines many duties entrusted to Imagine Schools, but Board President Tomika Booker also explained that she relied heavily on explanations provided by Imagine Schools employee, Sam Howard, and other Imagine Schools employees.
Based on this very strong evidentiary record, the Court finds that the five factor fiduciary test has been established by the greater weight of the evidence, and that Imagine Schools was a fiduciary to Renaissance during the relevant time period. Furthermore, even absent these factors, a fiduciary relationship may still arise as a matter of law by virtue of the parties' relationship or as a result of the special circumstances of the parties' relationship, such as when "one person relies upon and trusts the other with the management of his property and attendance of his business affairs." Shervin v. Huntleigh Securities Corp., 85 S.W.3d 737, 740-41 (Mo. Ct. App. 2002); McKeehan v. Wittels, 508 S.W.2d 277, 280 (Mo. Ct. App. 1974)....
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