Shelby School v. Arizona State Bd. of Educ.

• Decision Date: 18 June 1998
• Docket Number: No. 1,CA-CV,1
• Citation: 962 P.2d 230,192 Ariz. 156
• Parties: , 128 Ed. Law Rep. 1254, 271 Ariz. Adv. Rep. 13 The SHELBY SCHOOL, a non-profit Arizona corporation; Dr. Gary W. Moore, applicant, Plaintiffs-Appellants, v. ARIZONA STATE BOARD OF EDUCATION, Defendant-Appellee. 97-0075.
• Court: Arizona Court of Appeals

Page 230

962 P.2d 230

192 Ariz. 156, 128 Ed. Law Rep. 1254, 271 Ariz. Adv. Rep. 13

The SHELBY SCHOOL, a non-profit Arizona corporation; Dr. Gary W. Moore, applicant, Plaintiffs-Appellants, v. ARIZONA STATE BOARD OF EDUCATION, Defendant-Appellee.

No. 1 CA-CV 97-0075.

Court of Appeals of Arizona,

Division 1, Department B.

June 18, 1998.

Rensch & Walker by Steven R. Rensch, Payson, for Plaintiffs-Appellants.

Grant Woods, Attorney General by Ruth E. Koester, Assistant Attorney General and Roger W. Hall, Assistant Attorney General, Phoenix, for Defendant-Appellee.

OPINION

KLEINSCHMIDT, Judge.

¶1 The Arizona State Board of Education denied a charter to the Shelby School for the 1995-96 school year. The School and one of its directors, Dr. Gary W. Moore, appeal from the trial court's ruling upholding the administrative decision. We reverse in part and remand to the Board for further proceedings because the Board did not make findings and conclusions as required by statute.

FACTS AND PROCEDURAL HISTORY

¶2 In 1994, the Arizona Legislature authorized the establishment of charter schools "to provide a learning environment that will improve pupil achievement" and to "provide additional academic choices for parents and pupils." Ariz.Rev.Stat. Ann. ("A.R.S.") § 15-181(A) (Supp.1995). See 1994 Ariz. Sess. Laws S-17, S-17 to S-24, which added A.R.S. §§ 15-181 to 15-189. A charter school is a public school that operates under a charter contract between a sponsor, which may be a school district governing board, the State Board of Education, or the State Board for Charter Schools, and a public body, private person, or private organization. A.R.S. §§ 15-101(3), 15-183(B) (Supp.1997). The authorized sponsors "may" establish charter schools under the legislation, and, as the law was originally written, the State Board of Education and the State Board for Charter Schools could each sponsor up to twenty-five charter schools each fiscal year. A.R.S. §§ 15-181(A), 15-183(C)(2) (Supp.1995). Under the current version of A.R.S. section 15-183(C)(2) (Supp.1997), the State Board of Education and the State Board of Charter Schools may each "approve" up to twenty-five charter schools each fiscal year.

¶3 A charter school applicant submits a written proposal or application to a sponsor. A.R.S. § 15-183(A). Under the original statute, which was in effect when the application relevant to this appeal was filed, "[t]he state board of education or the state board for charter schools shall review the application submitted by the applicant within ninety days and may approve the charter if the application satisfactorily meets the requirements of this article." A.R.S. § 15-183(C)(2) (Supp.1995). ¹ The charter must ensure that the school will comply with a number of specifications as set forth in A.R.S. section 15-183(E).

¶4 The legislature authorized public funding for qualifying charter schools. A.R.S. §§ 15-181(B), 15-185 (Supp.1997). Schools sponsored by the State Board of Education or State Board for Charter Schools receive funds under a formula that includes base support, transportation support, capital outlay revenue limits, and capital levy revenue limits. A.R.S. § 15-185(B).

¶5 The Shelby School is located in Tonto Village, a rural community about seventeen miles from Payson. The School opened in September 1994 with forty-four students. Although the predecessor school had been formed by the Church of Immortal Consciousness, the Shelby School was described as a non-profit, tax-exempt corporation and non-sectarian school.

¶6 In December 1994, the School applied for a charter from the State Board of Education. Its proposal was submitted by Gary W. Moore, Ph.D., the director of education for the School. The Board unanimously approved the School's application in February 1995.

¶7 Shortly thereafter, Dr. Linda Fuller, the charter schools administrator for the Board, notified charter school applicants that the Board had decided to request additional information before it entered into a charter contract with any school. To that end, each applicant was required to complete and sign a form on which the applicant was to disclose any criminal history and was to grant permission for reference and credit checks. Dr. Fuller's memorandum advised that the Board would be asked to approve contracts for applicants that had obtained full approval of their applications and for whom background information had been obtained that met the standards acceptable to the Board. The four proposed members of the School's governing board, including Dr. Moore and Charles Walker, promptly returned completed forms and fingerprint cards.

¶8 On March 27, 1995, the Board voted to issue charter school contracts to fourteen applicants, including the School. Issuance of each contract, however, was conditioned upon the Board's receipt of a Statement of Assurances, a favorable background investigation, and upon the applicant securing a facility. At that meeting, a Board member explained that the granting of a charter involved a three-step process--approval of the application, entering into the charter contract, and grant of stimulus funds--and that each step was independent of the other. He noted that the fact that the Board approved an application and that the application was technically complete did not necessarily have any bearing on whether the school would receive a charter.

¶9 During March, the Board staff received written and oral communications from some people in Tonto Village who objected to the issuance of a charter for the School. They primarily complained about the lifestyle and religious beliefs of the people associated with the School and about the inconvenience and tax increases they believed would occur if the charter were granted. As a result of these complaints, the Board staff instructed the private investigative agency that was running the credit checks to also look into the background of the church and Dr. Moore's connection with it.

¶10 Dr. Fuller advised Dr. Moore that his credit report showed a number of unpaid debts and liens. Dr. Moore contacted the credit bureau concerning inaccuracies in the report and items that should have been updated, and he provided that information to Dr. Fuller.

¶11 On May 22, 1995, after meeting in executive session, the Board unanimously denied a charter to the School "based upon the unacceptable financial history as reflected in the credit report." The Board did not publicly discuss or comment on its decision. Moore and Walker were present and were both given the opportunity to speak. Moore spoke briefly to the Board, noting that he intended to take care of his few remaining debts. Walker did not address the Board.

¶12 Within a week of the decision, both Moore and Walker informed the Board that they had resigned from the School's board of directors because they did not want their credit histories to interfere with the School receiving a charter. The School submitted a revised application that substituted two new board members for Moore and Walker. However, Moore continued to be the official applicant for the charter and the director of education for the School.

¶13 The School filed a motion for rehearing and/or review under Rule 2-7-806, Arizona Administrative Code. The Board advised the School that it would reconsider its decision on June 26, 1995, and that the School could submit materials to the Board related to the unfavorable information contained in the credit report.

¶14 At the June 26 session, the Board tried to determine whether the School had received the documents considered by the Board in reaching its decision in May. The Board members indicated they had reviewed only the credit reports on the applicant and proposed governing board members, but Moore believed the Board staff had investigative reports that had not been provided to him. To ensure that the School had all the relevant documents, the Board voted to table the rehearing/reconsideration of its decision concerning the School until its August meeting. The Board advised the attorney for the School that at the August meeting it would review the financial status of the applicants it considered at its May 22 meeting.

¶15 Also at the June 26 meeting, the Board determined that it could not consider the new application submitted by the School because the substitution of two new board members was a material change from the information submitted by the School in its initial application. The Board noted that to be consistent with the way it treated other applicants, the School would have to begin the approval process again if it wanted its amended application to be considered.

¶16 Prior to the August meeting, Moore submitted letters and documents to show that the entries on the March 17, 1995 credit report represented either positive information, reporting mistakes, or debts incurred as the result of family medical expenses not covered by insurance that had been paid or were the subject of payment arrangements with the creditors. At the meeting, Moore explained the information he had submitted and argued that the School was viable financially and was not affected by his credit history. Walker did not appear before the Board.

¶17 The Board voted unanimously to reaffirm its decision to deny a charter to the School. In making the motion to reaffirm the decision, State School Superintendent Lisa Graham Keegan, a member of the Board, commented:

We have a history in this process of charter schools of a review of applicants [sic] financial history. I think that is an appropriate review.... Our boss is approximately 4 million people who live in the State of Arizona and I believe this Charter Board does a good job of being responsible to that public.... [T]he credit history here demonstrates some struggle in managing finances. I would congratulate the applicant that those things are being paid off. I think that's appropriate and it's the responsible...