Southern Corrections Sys. v. Union City Pub. Sch.

• Decision Date: 26 November 2002
• Docket Number: No. 97,890.,97,890.
• Citation: 64 P.3d 1083,2002 OK 93
• Parties: SOUTHERN CORRECTIONS SYSTEMS, INC., Plaintiff/Appellant, v. UNION CITY PUBLIC SCHOOLS, Oklahoma Independent School District No. 57, Joe Wall, an individual, Mike Dawson, an individual, Patsy Alexander, an individual, and Dale Debord, an individual, Defendants/Appellees.
• Court: Oklahoma Supreme Court

64 P.3d 1083

2002 OK 93

SOUTHERN CORRECTIONS SYSTEMS, INC., Plaintiff/Appellant, v. UNION CITY PUBLIC SCHOOLS, Oklahoma Independent School District No. 57, Joe Wall, an individual, Mike Dawson, an individual, Patsy Alexander, an individual, and Dale Debord, an individual, Defendants/Appellees.

No. 97,890.

Supreme Court of Oklahoma.

November 26, 2002.

Thomas J. Daniel IV, Eric Gray, Oklahoma City, OK, for Plaintiff/Appellant.

Frederick J. Hegenbart, Tulsa, OK, for Defendants/Appellees.

KAUGER, J.

¶ 1 This cause concerns Union City Public School District's contract with Southern Correctional Systems, Inc., to provide educational services to a juvenile correctional facility. The agreement provided for the facility's costs to be reduced by an amount equal to the funds the school district received from State aid which was attributable to the children residing at the facility.¹ The determinative issue presented is whether the Okla. Const. art. 10, § 26² which prohibits school districts from using income from one fiscal year to pay obligations incurred in another fiscal year, precludes the school district from making payments pursuant to the contract. We hold that, under the facts presented, the school district's obligation is not a "debt" for purposes of the constitutional debt limitation pursuant to the Okla. Const. art. 10, § 26.

FACTS

¶ 2 In 1998, the appellant, Southern Corrections Systems, Inc. (Southern/SCS) constructed an eighty bed medium security residential treatment center for juveniles (juvenile facility) in Union City, Oklahoma. On July 15, 1998, Southern contracted with the Union City Public School District (school district) to provide education to the children who lived at the juvenile facility.³ The school district operates on a fiscal year which runs from July 1st to June 30th, and it refers to a fiscal year as a "school year." The contract, which was effective for the 1998-1999 school year, required Southern to provide the facilities and equipment necessary to educate the children and to pay the school district for the costs of providing education.⁴

¶ 3 Although Southern was required to pay the school district for educational costs, the contract also provided for the costs to be reduced by the amount equal to any funds which the school district received, or became eligible to receive, from any State aid during the term of the contract which was attributable to the children residing within the school district's boundaries.⁵ The juvenile facility opened in February of 1999, and the school district provided educational services for the remainder of the 1998-1999 school year.

¶ 4 Southern paid the school district $238,323.31 for the 1998-1999 school year. However, it is undisputed that state educational funding is based on a periodic census of the number of students in attendance in the school district and adjusted based on a variety of factors.⁶ A census is taken in May of each year, and it is used to determine aid for the following year. In October, another census is made to determine if an adjustment in aid should be made in January. Consequently, no aid was actually received by the school district during the 1998-1999 school year attributable to the children residing at the juvenile facility until the following school year.⁷ ¶ 5 Another contract was negotiated for the 1999-2000 school year. Because the school district received aid during the 1999-2000 school year, it reimbursed Southern by an agreed amount. In January of 2000, the school district informed Southern that it did not wish to contract for the 2000-2001 school year. However, it is undisputed that the school district received State aid for the 2000-2001 school year attributable to the children residing at the juvenile facility.

¶ 6 Initially, Southern had trouble finding another school system to provide education for the children. The State Department of Education informed the school district that it would be required to provide education to the children at the juvenile facility if Southern could not reach an agreement with another school system. Ultimately, Southern contracted with the Butler Public School District for the 2000-2001 school year, and it sought reimbursement from the Union City School District for the $238,323.31 it had spent during the 1998-1999 school year.

¶ 7 In April of 2000, the Union City school board voted to pay Southern $238,323.31, contingent upon the receipt of State aid and court approval. Subsequently, the attorney for the school district determined that the school district was constitutionally prohibited from making such a payment. On July 31, 2000, Southern filed a lawsuit against the school district as well as the individual school board members. Southern sought a declaratory judgment to recover $238,323.31, asserting claims of unjust enrichment, breach of contract, and breach of a settlement agreement. Southern later amended its petition to include claims for specific performance and recovery of funds which the school district received attributable to the school's lunch program.

¶ 8 The school district filed an answer, raising numerous affirmative defenses and counterclaims for breach of contract and declaratory judgment. On February 4, 2002, the school district moved for summary judgment. It argued that pursuant to the terms of the contract, it had met its financial obligations and even if it had not, requiring the school district to pay the $238,323.31 to Southern would create an illegal financial obligation for more than one fiscal year. On February 6, 2002, Southern moved for summary judgment asserting that it had a settlement agreement with the school district, and requesting that the court direct the school district to present a joint application and an agreed journal entry of judgment directing the district to make the payment.

¶ 9 The trial court heard the matter on April 12, 2002. On May 24, 2002, it entered an order granting summary judgment in favor of the school district and the individual school board members on all of the claims relating to the $238,323.31. The trial court determined that because it would be unconstitutional for the school district to reimburse Southern the $238,323.31, the school district had no legally enforceable obligation to pay it. It also granted partial summary judgment for Southern on the school district's counterclaim, with the exception of $6,973.15. On June 24, 2002, Southern appealed and filed a motion to retain the cause in this Court. We granted the motion to retain on August 1, 2002.

¶ 10 UNDER THE FACTS PRESENTED, THE SCHOOL DISTRICT'S OBLIGATION IS NOT A "DEBT" FOR PURPOSES OF THE CONSTITUTIONAL DEBT LIMITATION PURSUANT TO THE OKLA. CONST. ART.10, § 26.

a. State aid and the school district's obligation under the contract.

¶ 11 The school district concedes that it cannot lawfully enter into a contract which obligates it to exceed the budgetary limitations of a fiscal year.⁸ Relying on the language of the contract, the school district asserts that it was not required to reimburse Southern for the 1998-1999 school year because it did not actually receive any aid that year. Southern contends that, pursuant to the contract, the school district was obligated to reimburse it because its eligibility to receive State aid was determined during the 1998-1999 contract, even though it was not received until the next school year.

¶ 12 Southern also insists that it reached a settlement agreement with the school district regarding the payment of the $238,323.31 and that it is entitled to payment regardless of whether the underlying debt is constitutional. The school district argues that a settlement agreement was never reached. It also contends that it would be unlawful for it to pay a settlement if the underlying debt were unconstitutional. Even if a settlement agreement were reached,⁹ resolution of this cause depends upon the original contract because unconstitutional contractual obligations could not be subsequently validated by settlement of the contractual dispute.¹⁰

¶ 13 The 1998-1999 contract provides in pertinent part:

"... The amount owed by SCS to the District during the term of this Agreement shall be reduced by the sum of all funds the District receives or becomes eligible to receive during the term of this contract as State and/or Federal aid, textbook allocations, School Lunch Program reimbursements or any other allocations or reimbursements generated by the presence within the District's boundaries of those children residing at the Center. The sum of aid funds described above shall be the amount to which the District is entitled as determined by the State Department of Education, Finance Division...." (Emphasis supplied.)

¶ 14 If the terms of a contract are unambiguous, clear and consistent, they are accepted in their plain and ordinary sense and the contract will be enforced to carry out the intention of the parties as it existed at the time it was negotiated.¹¹ The interpretation of a contract, and whether it is ambiguous is a matter of law for the Court to resolve.¹² Contractual intent is determined from the entire agreement.¹³ If a contract is complete in itself and viewed in its entirety is unambiguous, its language is the only legitimate evidence of what the parties intended.¹⁴ The Court will not create an ambiguity by using a forced or strained construction, by taking a provision out of context, or by narrowly focusing on the provision.¹⁵

¶ 15 Applying these general principles, we hold that the obvious purpose of the contract was to outline the specific terms by which the school district was to provide education for the children at the juvenile facility.¹⁶ The provision in contest unambiguously required the school district to reimburse Southern by an amount equal to any State aid that it either received or became eligible to receive during the 1998-1999 contract which was attributable to the children living within the...