Wells v. ONE2ONE Learning Foundation

• Decision Date: 31 August 2006
• Docket Number: No. S123951.,S123951.
• Citation: 48 Cal.Rptr.3d 108,141 P.3d 225,39 Cal.4th 1164
• Court: California Supreme Court
• Parties: Joey WELLS, a Minor, etc., et al., Plaintiffs and Appellants, v. ONE2ONE LEARNING FOUNDATION et al., Defendants and Respondents; State of California, Real Party in Interest and Respondent.

48 Cal.Rptr.3d 108

39 Cal.4th 1164

141 P.3d 225

Joey WELLS, a Minor, etc., et al., Plaintiffs and Appellants, v. ONE2ONE LEARNING FOUNDATION et al., Defendants and Respondents;

State of California, Real Party in Interest and Respondent.

No. S123951.

Supreme Court of California.

August 31, 2006.

Law Offices of Michael S. Sorgen, Michael S. Sorgen, Andrea Adam Brott, Joshua N. Sondheimer, Robert S. Rivkin, San Francisco, Claudia A. Baldwin, Oakland; Haley and Bilheimer, Allan Haley and John Bilheimer, Nevada City, for Plaintiffs and Appellants.

James Moorman, Amy Wilken, Joseph E.B. White; Law Offices of Paul D. Scott and Paul D. Scott, San Francisco, for Taxpayers Against Fraud as Amicus Curiae on behalf of Plaintiffs and Appellants.

Gordon & Rees, Dion N. Cominos, Fletcher C. Alford, Heather A. McKee and Mark C. Russell, San Francisco, for Defendant and Respondent One2One Learning Foundation.

Seyfarth Shaw, James M. Nelson, Oakland, Kurt A. Kappes, Jason T. Cooksey, Sacramento, and William S. Jue for Defendant and Respondent Charter School Resource Alliance.

California Education Legal Services, Thomas M. Griffin, Long Beach; Girard & Vinson, Christian M. Keiner, Sacramento, and David E. Robinett, Pleasantion, for Defendant and Respondent Camptonville Union Elementary School District.

Parks, Dingwall & Associates, Linda Rhoads Parks, Brentwood; Law Offices of Jon Webster and Jon Webster, Concord, for Defendants and Respondents Camptonville Academy, Inc., and Janice Jablecki.

Needham, Davis, Kirwan & Young, Marc E. Davis, Marc J. Cardinal, Menlo Park, and Matt Demel for Defendant and Respondent Mattole Unified School District.

Duncan, Ball & Evans, Evans, Wieckowski & Ward, Matthew D. Evans and James B. Carr, Sacramento, for Defendants and Respondents Sierra Summit Academy, Inc., and Sierra Plumas Joint Unified School District.

Farmer, Murphy, Smith & Alliston, Craig E. Farmer, Sacramento, and Jojra E. Jackson for Statewide Association of Community Colleges, Southern California Regional Liability Excess Fund, Northern California Regional Liability Excess Fund and Schools Excess Liability Fund as Amici Curiae on behalf of Defendants and Respondents.

Sharon L. Browne, Sacramento, for Pacific Legal Foundation as Amicus Curiae on behalf of Defendants and Respondents.

Declues & Burkett, J. Michael Declues and Gregory A. Wille, Huntington Beach, for Coast Community College District as Amicus Curiae on behalf of Defendants and Respondents.

Gibson, Dunn & Crutcher, Joel S. Sanders, San Francisco, Mark A. Perry, Ethan D. Dettmer and Rebecca Justice Lazarus, San Francisco, for PricewaterhouseCoopers LLP as Amicus Curiae on behalf of Defendants and Respondents.

Ann Miller Ravel, County Counsel (Santa Clara) and Kathryn J. Zoglin, Deputy County Counsel, for California State Association of Counties as Amicus Curiae on behalf of Defendants and Respondents.

Thomas Law Firm, R. Todd Bergin and Allen L. Thomas, Long Beach, for Fullerton Joint Union High School District, Brea-Olinda Unified School District, Claremont Unified School District, Huntington Beach Union High School District, Long Beach Unified School District, Newport-Mesa Unified School District, Placentia-Yorba Linda Unified School District, Pomona Unified School District Santa Monica-Malibu Unified School District, Tustin Unified School District and Whittier Union School High School District as Amici Curiae on behalf of Defendants and Respondents.

Bill Lockyer, Attorney General, Manuel M. Medeiros, State Solicitor General, James Humes, Chief Assistant Attorney General, Christopher Ames, Assistant Attorney General, Larry G. Raskin and Mark R. Soble, Deputy Attorneys General, for Real Party in Interest and Respondent.

BAXTER, J.

The Charter Schools Act (CSA; Ed. Code, § 47600 et seq.), as adopted by the Legislature in 1992 and since amended, represents a revolutionary change in the concept of public education. Under this statute, interested persons may obtain charters to operate schools that function within public school districts, accept all eligible students, charge no tuition, and are financed by state and local tax dollars, but nonetheless retain considerable academic independence from the mainstream public education system. Such schools may elect to operate as, or be operated by, corporations organized under the Nonprofit Public Benefit Corporation Law. (Id., § 47604, subd. (a).)

Here certain charter schools, their corporate operators, and the chartering school districts were sued on multiple grounds by some of the schools' students and their parents or guardians. The gravamen of all the claims is that the schools—designed to provide and facilitate home instruction through use of the Internet (so-called distance learning)—failed to deliver instructional services, equipment and supplies as promised, and as required by law. In effect, the plaintiffs assert, the schools functioned only to collect "average daily attendance" (ADA) forms, on the basis of which the schools, and the districts, fraudulently claimed and received public education funds from the state. Plaintiffs also claim violations of specific statutory rules governing "independent study" programs offered by the public schools.

This case concerns whether, and in what circumstances, public school districts, charter schools, and/or the operators of such schools may be exposed to civil liability based on allegations of this kind. Among other things, we must determine whether such entities, or any of them, are "persons" who may be sued (1) under the unfair competition law (UCL; Bus. & Prof. Code, § 17200 et seq.) and (2) in a qui tam action, brought by individuals on behalf of the state, under the California False Claims Act (CFCA; Gov.Code, § 12650 et seq.).¹

We reach the following conclusions: (1) Public school districts are not "persons" who may be sued under the CFCA. (2) On the other hand, charter schools, and the individuals, corporations, entities, or organizations that operate them, are "persons" subject to suit under both the CFCA and the UCL, and are not exempt from either law merely because such schools are deemed part of the public school system. (3) The CFCA cause of action is not a barred claim for "educational malfeasance" (see Peter W. v. San Francisco Unified Sch. Dist. (1976) 60 Cal.App.3d 814, 131 Cal.Rptr. 854 (Peter W.)) insofar as it asserts, not simply that One2One's charter schools provided a substandard education, but that they submitted false claims for school funds while failing to furnish any significant educational services, materials, and supplies. (4) The CFCA cause of action is not barred insofar as it alleges that, before 2000, the charter schools violated "independent study" rules set forth in a 1993 statute, Education Code section 51747.3, because section 51747.3 applied to charter schools even before its amendment in 1999.(5) Finally, a qui tam action under the CFCA against a charter school operator is not subject to the Tort Claims Act (TCA; Gov.Code, § 815 et seq.) requirement of prior presentment of a claim for payment (see id., §§ 905, 910 et seq.). These conclusions require that we affirm in part, and reverse in part, the judgment of the Court of Appeal.

FACTS AND PROCEDURAL BACKGROUND

On December 30, 1999, plaintiffs filed a complaint, which included a claim for qui tam relief on behalf of the state, under the CFCA. (Gov.Code, § 12652, subd. (c)(1).) As provided by the CFCA in such cases, the complaint was filed under seal. (Id., subd. (c)(2).) In July 2000, after the seal was lifted, the Attorney General noticed his election to intervene in, and proceed with, the CFCA action on behalf of the state. (Id., subd. (c)(6).)

On August 11, 2000, plaintiffs filed their first amended complaint (the complaint). As pertinent to the issues before us, the complaint alleged the following:

At various times during 1997, 1998, and 1999, defendant One2One Learning Foundation (One2One), a Texas corporation, operated three charter schools in California through its California corporate alter ego, defendant Charter School Resource Alliance (CSRA). These schools included (1) defendant Sierra Summit Academy, Inc. (Sierra Summit Academy), operating as a California nonprofit corporation, and chartered by the Sierra Plumas Joint Unified School District (Sierra District) in Sierra County, (2) defendant Mattole Valley Charter School (Mattole Valley School), chartered by the Mattole Unified School District (Mattole District) in Humboldt County, and (3) defendant Camptonville Academy, Inc. (Camptonville Academy), operating as a California nonprofit corporation, and chartered by defendant Camptonville Union Elementary School District (Camptonville District) in Yuba County.

Defendant Robert Carroll is One2One's president and chief executive officer. Defendant Jeff Bauer is Superintendent of the Sierra District. Defendant Carol Kennedy is the Director of Sierra Summit Academy. Defendant Richard Graey is Superintendent of the Mattole District and the Director of Mattole Valley School. Defendant Allen Wright is Superintendent and Principal of the Camptonville District. Defendant Janis Jablecky is the Director of Camptonville Academy.²

Each plaintiff was a minor student enrolled in one of the defendant charter schools at some time during 1998 and/or 1999, or the parent and/or guardian of such a student. All the plaintiffs were direct victims of One2One's failure to provide promised instruction, testing, equipment, materials, and supplies.

Like traditional public schools, charter schools are funded by the state based on ADA records. While charter schools have considerable freedom in their academic approach, they must meet statewide educational standards and use appropriately credentialed teachers. The chartering entity, usually a school district, has oversight responsibilities, and must revoke a school's charter for fiscal mismanagement, material violation of the...