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Indiana Coalition for Public Education v. McCormick

United States District Court, S.D. Indiana, Indianapolis Division

November 29, 2017



          Hon. Jane Magnus-Stinson, Chief Judge

         Plaintiff Indiana Coalition for Public Education (“Coalition”) alleges that the Indiana Charter School Act (“Charter School Act” or “Act”), Ind. Code § 20-24-1-1, et seq, delegates the power to authorize public charter schools to religious institutions. [Filing No. 1.] According to the Coalition, this delegation and the funding that accompanies it violate both the Establishment Clause of the First Amendment to the U.S. Constitution and the Indiana Constitution. [Filing No. 1.] Nonparty Grace College is one such private religious institution that may authorize charter schools under the Act. Grace College has authorized several charter schools, including Intervenor Defendant Seven Oaks Classical School, Inc. (“Seven Oaks”). Pending before the Court is Seven Oaks' Motion to Dismiss, [Filing No. 57], which seeks to dismiss the Coalition's Complaint for lack of jurisdiction and for failure to state a claim. The Court concludes that it cannot fully address all of Seven Oaks' arguments in the absence of a factual record. The Court therefore GRANTS IN PART and DENIES IN PART Seven Oaks' Motion.


         Standards of Review

         Seven Oaks first seeks to dismiss the Coalition's Complaint for lack of standing. Standing is a jurisdictional requirement, Cabral v. City of Evansville, 759 F.3d 639, 641 (7th Cir. 2014), and must therefore be evaluated under Rule 12(b)(1). Rule 12(b)(1) “allows a party to move to dismiss a claim for lack of subject matter jurisdiction.” Hallinan v. Fraternal Order of Police of Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). The burden is on the plaintiff to demonstrate that subject matter jurisdiction exists for its claims. See Lee v. City of Chicago, 330 F.3d 456, 468 (7th Cir. 2003).

         Seven Oaks also contends that the Coalition's Complaint fails under Rule 12(b)(6), which allows a party to move to dismiss a claim that does not state a right to relief. The Federal Rules of Civil Procedure require that a complaint provide the defendant with “fair notice of what the . . . claim is and the grounds upon which it rests.” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007)). In reviewing the sufficiency of a complaint, the Court must accept all well-pled facts as true and draw all permissible inferences in favor of the plaintiff. See Active Disposal Inc. v. City of Darien, 635 F.3d 883, 886 (7th Cir. 2011). A Rule 12(b)(6) motion to dismiss asks whether the complaint “contain[s] sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). The Court will not accept legal conclusions or conclusory allegations as sufficient to state a claim for relief. See McCauley v. City of Chicago, 671 F.3d 611, 617 (7th Cir. 2011). Factual allegations must plausibly state an entitlement to relief “to a degree that rises above the speculative level.” Munson v. Gaetz, 673 F.3d 630, 633 (7th Cir. 2012). This plausibility determination is “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id.



         The following facts are drawn from the Coalition's Complaint, [Filing No. 1], and the Charter School Act. The factual allegations in the Complaint are accepted as true for the purpose of resolving Seven Oaks' Motion.

         A. The Parties and One Nonparty

         The Coalition is a nonprofit association located in Monroe County, Indiana, consisting of public school teachers, public school employees, parents with children in public schools, and taxpayers. [Filing No. 1 at 3.] The Coalition advocates for the funding of public school corporations and against the diversion of funds to private and charter schools. [Filing No. 1 at 3.]

         The Defendants include Seven Oaks, a charter school in Monroe County, and, in their respective official capacities as superintendent of public instruction and as executive director of the Indiana Charter School Board, Jennifer McCormick and James Betley (“State Defendants”). [Filing No. 1 at 3-4.] Seven Oaks is the only Defendant to file a motion to dismiss under Rule 12(b)(6).

         Conspicuously (and perplexingly) absent from this list of defendants is Grace College, whose ability to authorize charter schools (including Seven Oaks) is at the heart of the Coalition's constitutional challenge. [SeeFiling No. 1.] Grace College is an evangelical Christian college and seminary which, according to the Coalition, “applies biblical values to its educational mission, emphasizes a biblical worldview, and teaches students to recognize scripture as the inerrant and inspired Word of God.” [Filing No. 1 at 7-8.]

         B. Charter Authorization System

         With the stated goals of providing “innovative and autonomous programs” to serve “different learning styles” and offer “choices” and “flexibility, ” Ind. Code § 20-24-2-1, the Charter School Act created a group of “authorizers” to consider applications from prospective organizers wishing to operate “nonsectarian and nonreligious” public charter schools, [1] Ind. Code § 20-24-1-4; e.g., Ind. Code §§ 20-24-1-2.5, 20-24-1-3, 20-24-3-1. The Act names as authorizers the mayor of Indianapolis, the Charter School Board, and state and nonprofit colleges, among others. Ind. Code § 20-24-1-2.5. Prior to July 1, 2015, this meant that any college could authorize a charter school, Ind. Code § 20-24-1-2.5(5) (2013) (amended 2015); a subsequent amendment requires colleges to seek approval from the state board prior to becoming authorizers, though the amendment grandparented any college that had issued a charter prior to July 1, 2015, Ind. Code §§ 20-24-1-2.5(5), 20-24-2.2-1.2. Authorizers “shall adopt standards of quality charter school authorizing, as defined by a nationally recognized organization with expertise in charter school authorizing.” Ind. Code § 20-24-2.2-1.5.

         A prospective organizer initiates the application process by submitting a proposal to an authorizer. Ind. Code § 20-24-3-4(a). The proposal must provide a variety of information ranging from governance structure, Ind. Code § 20-24-3-4(b)(3)(C), to instructional methods, Ind. Code § 20-24-3-4(b)(3)(F), to admission criteria, Ind. Code § 20-24-3-4(b)(3)(H), to financial plans, Ind. Code § 20-24-3-4(b)(3)(M). The authorizer is then responsible for reviewing the application pursuant to its “procedures, practices, and criteria, ” which must be “consistent with nationally recognized principles and standards for quality charter authorizing.” Ind. Code § 20-24-3-4.5. Prior to issuing a charter, the authorizer must conduct a public hearing in the school corporation where the proposed charter school would be located. Ind. Code § 20-24-3-5.5. Authorizers must annually report to the Indiana Department of Education information on all charter proposals, including the reasons for any rejections and the length of any approvals. Ind. Code § 20-24-3-10.

         A charter may only be granted for a period of three to seven years, Ind. Code § 20-24-4-1(a)(5)(A), after which the organizer and authorizer may agree to a renewal, Ind. Code § 20-24-4-1(a)(6)(B). The Act provides that a charter school must “not remain in the lowest category or designation of school improvement . . . in the third year after initial placement in the lowest category or designation” as determined by the State Board of Education pursuant to statute. Ind. Code § 20-24-2.2-2(a). An authorizer wishing to renew a charter school that does not comply with these minimum standards must petition and appear before the state board. Ind. Code § 20-24-2.2-2(b)-(c). The state board may take any appropriate action, including ordering the closure of the underperforming school. Ind. Code § 20-24-2.2-2(d).

         The authorizer must conduct a performance review of a charter school at least once every five years, as specified in the charter. Ind. Code § 20-24-4-1(a)(6)(A). The charter must also specify its own standards for renewal, grounds for revocation of a charter prior to its expiration, and accountability and assessment methodology, among other details. Ind. Code § 20-24-4-1(a). Additionally, the charter school and authorizer must set annual performance goals “designed to help each school meet applicable federal, state, and authorizer expectations.” Ind. Code § 20-24-4-1(b).

         If an organizer's charter school proposal is rejected by an authorizer, the organizer may amend its proposal and submit the amended proposal to the same authorizer or may submit a proposal to another authorizer.[2] Ind. Code § 20-24-3-11. There are no limitations on the number of times an organizer may submit a charter school proposal. See id.

         C. Funding

         Charter schools receive public funds in the same manner as all other Indiana public school corporations. Ind. Code § 20-24-7-15. An authorizer “may collect from the organizer of a charter school . . . an administrative fee equal to not more than three percent (3%) of the total amount the organizer receives . . . for basic tuition support.” Ind. Code § 20-24-7-4(c). The authorizer, in an annual report made publicly available on the internet, Ind. Code § 20-24-9-1, must “summariz[e] the total amount of administrative fees collected by the authorizer and how the fees were expended, ” Ind. Code § 20-24-9-2(9).

         D. Seven Oaks' Approval

         Seven Oaks is an Indiana charter school formed under the Charter School Act. [Filing No. 1 at 6.] Seven Oaks' approved application with Grace College was its third attempt at obtaining a charter. First, in 2014, Seven Oaks applied to the Indiana Charter School Board for authorization, which was denied. [Filing No. 1 at 5.] In spring 2015, Seven Oaks again applied to the Indiana Charter School Board, but withdrew the application the day before the Board was scheduled to vote because the organizers were informed that the application would again be denied. [Filing No. 1 at 5.]

         Finally, in fall 2015, Seven Oaks submitted its application (substantively unchanged from its spring application) to Grace College. [Filing No. 1 at 5.] That application was approved at a closed meeting of the Grace College governing board in 2016. [Filing No. 1 at 5.] Grace College's governing board also makes decisions regarding the college's operation and religious mission and did not create any separate entity to facilitate the charter school authorization process. [Filing No. 1 at 6.] Grace College has not made any information publicly available regarding its procedures and criteria for authorizing Seven Oaks, nor has it explained whether it complies with nationally recognized standards for quality charter authorizing. [Filing No. 1 at 5.]

         Seven Oaks opened in 2016 and enrolled 166 students in the 2016-17 school year. [Filing No. 1 at 6.] Seven Oaks expects to enroll between 400 and 700 students in future years. [Filing No. 1 at 6.] Most enrolled students reside in Monroe County and would otherwise enroll in one of two Monroe County public school corporations. [Filing No. 1 at 6.] Under Indiana law, the funding follows the student, meaning that a public school's state funding is based upon the number of students attending. Ind. Code §§ 20-43-1-8, 20-43-6-3.[3] The public school corporations stand to lose approximately $6, 500 per student for those who attend Seven Oaks instead of the public school corporation schools. [Filing No. 1 at 6.] The loss of funds has caused or will cause a reduction in the public corporation schools' budgets, leading to staff and teacher layoffs, increased class sizes, and programming cuts. [Filing No. 1 at 6.]

         E. Procedural History

         On April 25, 2017, the Coalition brought suit, alleging that the Charter School Act violates the First Amendment to the U.S. Constitution and the Indiana Constitution, Article I, section 6 by allowing religious institutions to authorize charter schools and by providing public funding to the religious institutions to cover administrative fees. [Filing No. 1.] These claims are divided into three counts: Count I alleges that permitting religious schools, such as Grace College, to serve as authorizers violates the Establishment Clause. [Filing No. 1 at 7-9.] Count II alleges that the provision of public funds to religious institutions violates the Establishment Clause. [Filing No. 1 at 9-10.] Count III alleges that the provision of public funds to religious institutions violates the Indiana Constitution. [Filing No. 1 at 10.]

         On June 19, 2017, Seven Oaks filed a motion to dismiss for failure to state a claim, [Filing No. 32], and a motion to join Grace College as a defendant, [Filing No. 33]. On June 28, 2017, the Coalition noticed the voluntary dismissal of Seven Oaks, [Filing No. 35], after which the Court denied Seven Oaks' pending motions to dismiss and for joinder as moot, [Filing No. 39; Filing No. 40.] On July 12, 2017, Seven Oaks moved to intervene, [Filing No. 41], which the Court granted on August 2, 2017, [Filing No. 56].

         On August 10, 2017, Seven Oaks filed its Motion to Dismiss, [Filing No. 57], which is now ripe ...

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