Thomas Jefferson Classical Acad. Charter Sch. v. Cleveland Cnty. Bd. of Educ. , 234 N.C. App. 318 ( 2014 )

NO. COA13-893
NORTH CAROLINA COURT OF APPEALS
Filed: 3 June 2014
THOMAS JEFFERSON CLASSICAL ACADEMY
CHARTER SCHOOL, PIEDMONT COMMUNITY
CHARTER SCHOOL AND LINCOLN CHARTER
SCHOOL,
Plaintiffs,
v. Cleveland County
No. 12 CVS 41
CLEVELAND COUNTY BOARD OF
EDUCATION, D/B/A CLEVELAND COUNTY
SCHOOLS,
Defendant.
Appeal by defendant from Judgment entered on or about 13
February 2013 and Order and Judgment entered 2 April 2013 by
Judge Jesse B. Caldwell III, in Superior Court, Cleveland
County. Heard in the Court of Appeals 23 January 2014.
Robinson Bradshaw & Hinson, P.A., by Richard A. Vinroot and
Matthew F. Tilley, for plaintiffs-appellees.
Tharrington Smith, L.L.P., by Deborah R. Stagner, for
defendant-appellant.
Allison B. Schafer and Christine T. Scheef for N.C. School
Boards Association, for amicus curiae.
STROUD, Judge.
The Cleveland County Board of Education, d/b/a Cleveland
County Schools (“CCS” or “defendant”), appeals from the judgment
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entered by the trial court on or about 13 February 2013, wherein
it concluded that certain funds that CCS had placed in Fund 8
should have been placed into the local current expense fund and
distributed on a pro rata basis to the plaintiff charter schools.
CCS also appeals from an order awarding plaintiffs attorneys’
fees. We remand to allow the trial court to apply the correct
legal standard. We reverse the trial court’s order awarding
attorneys’ fees.
I. Background
On 9 January 2012, Thomas Jefferson Classical Academy
Charter School, Piedmont Community Charter School, and Lincoln
Charter School (“plaintiffs”) filed a complaint in superior
court, Cleveland County, alleging that CCS had failed to pay
them the proper per-pupil amount required by statute. Plaintiffs
specifically contended that CCS wrongfully moved approximately
$4.9 million from the local current expense fund, which must be
shared with the charter schools, to a “special revenue fund,”
which is not shared. Plaintiffs alleged that they were owed
approximately $102,480. Plaintiffs sought a declaratory judgment
that CCS must allocate the funds as plaintiffs contended the
statute required, recovery in the amount of $102,480, and
attorneys’ fees under N.C. Gen. Stat. § 6-19.1. CCS answered,
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denying that their transfer of the funds to the special revenue
fund violated any of the applicable statutes and that plaintiffs
were owed anything.
The case was tried by the superior court sitting without a
jury. The parties each presented evidence to support their
claims. Plaintiffs primarily relied on the testimony of David
Lee, financial director for CCS. Mr. Lee prepared an audit
report of CCS’ finances, which used various state budget codes
for different revenue sources. Many of the funding sources that
CCS had placed in the special revenue fund were classified by
Mr. Lee as “unrestricted.” Defendant presented a number of
witnesses who administered various programs within the CCS
system who testified about their funding sources and the use of
those funds. After two days of testimony, the trial court took
the matter under advisement.
The trial court entered its judgment on 21 February 2013,
wherein it found that defendant had misappropriated
approximately $2,781,281 that should have been placed in the
current expense fund rather than the special revenue fund. It
found that Mr. Lee had admitted that $2,109,377 of the funds,
called “Column A,” were “unrestricted.” It further found, based
on Mr. Lee’s testimony and that of the other CCS administrators,
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that $671,904 of the funds, listed under “Column B” and “Column
C” were “(a) part of ‘moneys made available to CCS for its
‘current operating expenses, (b) used by CCS to operate its
general K-12 programs and activities, and (c) not restricted to
purposes outside CCS’s general educational programs.” It
concluded that defendant owed plaintiffs $57,836 collectively
and entered judgment against CCS in that amount. Defendant
filed written notice of appeal from the 21 February 2013
judgment on 18 March 2013.
Plaintiffs then filed a petition for attorneys’ fees under
N.C. Gen. Stat. § 6-19.1(a). The trial court, by order and
judgment entered 2 April 2013, granted plaintiffs’ petition and
awarded them $47,195.90 in attorneys’ fees. Defendant filed
written notice of appeal from the 2 April 2013 judgment and
order on 30 April 2013.
II. “Restricted” Funds
Defendant argues that the trial court erred in finding that
various revenue sources were not “restricted” and concluding
that these funds were therefore subject to a per-pupil
distribution to the plaintiff charter schools. Recently the
Legislature has amended the statute the Judge applied below
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clarifying the definition of “restricted” funds, so we remand
for the trial court to apply this definition to the facts here.
A. Standard of Review
When the trial court sits without a jury,
the standard of review on appeal is whether
there was competent evidence to support the
trial court’s findings of fact and whether
its conclusions of law were proper in light
of such facts. . . . Evidence must support
the findings, the findings must support the
conclusions of law, and the conclusions of
law must support the ensuing judgment.
Jackson v. Culbreth, 199 N.C. App. 531, 537, 681 S.E.2d 813, 817
(2009) (citations, quotation marks, and brackets omitted).
B. Charter School Funding and the Uniform Budget Statute
The allocation of funds between local school administrative
units and charter schools is governed by N.C. Gen. Stat. § 115C-
238.29H (2009). That statute requires the local school
administrative unit to “transfer to the charter school an amount
equal to the per pupil local current expense appropriation to
the local school administrative unit for the fiscal year.” N.C.
Gen. Stat. § 115C-238.29H(b). This Court has interpreted the
phrase “local current expense appropriation” to be “synonymous
with the phrase ‘local current expense fund’ in the School
Budget and Fiscal Control Act, N.C.G.S. § 115C–426(e).” Francine
Delany New School for Children, Inc. v. Asheville City Bd. of
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Educ., 150 N.C. App. 338, 347, 563 S.E.2d 92, 98 (2002), disc.
rev. denied, 356 N.C. 670, 577 S.E.2d 117 (2003). We have
further held that charter schools “are entitled to an amount
equal to the per pupil amount of all money contained in the
local current expense fund.” Sugar Creek Charter School, Inc. v.
Charlotte-Mecklenburg Bd. of Educ., 188 N.C. App. 454, 460, 655
S.E.2d 850, 854 (Sugar Creek I), disc. rev. denied, ___ N.C.
___, 667 S.E.2d 460 (2008). It is immaterial that the school
board has earmarked particular funds for a specific purpose if
the funds have been deposited in the local current expense fund.
Sugar Creek Charter School, Inc. v. Charlotte-Mecklenburg Bd. of
Educ., 195 N.C. App. 348, 360-61, 673 S.E.2d 667, 676 (Sugar
Creek II) (holding, inter alia, that the trial court did not err
in concluding that funds designated for students affected by
Hurricane Katrina were subject to per-pupil distribution to
charter schools because they were placed in the current local
expense fund, as opposed to a separate fund), disc. rev. denied,
363 N.C. 663, 687 S.E.2d 296 (2009).
The local current expense fund is defined by N.C. Gen.
Stat. § 115C-426(e) (2009):
The local current expense fund shall include
appropriations sufficient, when added to
appropriations from the State Public School
Fund, for the current operating expense of
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the public school system in conformity with
the educational goals and policies of the
State and the local board of education,
within the financial resources and
consistent with the fiscal policies of the
board of county commissioners. These
appropriations shall be funded by revenues
accruing to the local school administrative
unit by virtue of Article IX, Sec. 7 of the
Constitution, moneys made available to the
local school administrative unit by the
board of county commissioners, supplemental
taxes levied by or on behalf of the local
school administrative unit pursuant to a
local act or G.S. 115C-501 to 115C-511,
State money disbursed directly to the local
school administrative unit, and other moneys
made available or accruing to the local
school administrative unit for the current
operating expenses of the public school
system.
N.C. Gen. Stat. § 115C-426(c) also permits the creation of
“other funds . . . to account for trust funds, federal grants
restricted as to use, and special programs.” Thus, we have held
that “the provisions of Chapter 115C . . . do not require that
all monies provided to the local administrative unit be placed
into the ‘local current expense fund’ (Fund Two).” Thomas
Jefferson Classical Academy v. Rutherford County Bd. of Educ.,
215 N.C. App. 530, 543, 715 S.E.2d 625, 633 (2011) (Thomas
Jefferson I), disc. rev. denied and app. dismissed, ___ N.C. ___,
724 S.E.2d 531 (2012). “Restricted funds” kept in a fund
separate from the local current expense fund are exempt from per-
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pupil distribution to the charter schools. Id. at ___, 715 S.E.2d
at 630 (“[I]f funds are placed in the ‘local current expense
fund’ and not held in a ‘special fund,’ they must be considered
as being part of the ‘local current expense fund’ used to
determine the pro rata share due to the charter schools.”). The
local school board has the authority to place such restricted
funds in a separate fund. Id. at ___, 715 S.E.2d at 634 (“Sugar
Creek I and II clearly indicate that it is incumbent upon the
local administrative unit to place restricted funds into a
separate fund.”); Sugar Creek I, 188 N.C. App. at 460-61, 655
S.E.2d at 855. However, we have never defined what “restricted
funds” are or who has the authority to make that determination.
Thus, there are two fundamental questions we must address
here: (1) does the local school board have discretionary
authority to allocate funds into the local current expense fund
or a separate fund as it sees fit?; and if not, (2) did
defendant here properly classify the funds at issue as
restricted?
N.C. Gen. Stat. § 115C-426(e) states that the local current
expense fund
shall be funded by revenues accruing to the
local school administrative unit by virtue
of Article IX, Sec. 7 of the Constitution,
moneys made available to the local school
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administrative unit by the board of county
commissioners, supplemental taxes levied by
or on behalf of the local school
administrative unit pursuant to a local act
or G.S. 115C-501 to 115C-511, State money
disbursed directly to the local school
administrative unit, and other moneys made
available or accruing to the local school
administrative unit for the current
operating expenses of the public school
system.
“It is well established that the word ‘shall’ is generally
imperative or mandatory.” Chandler ex rel. Harris v. Atlantic
Scrap & Processing, ___ N.C. App. ___, ___, 720 S.E.2d 745, 750
(2011) (citation and quotation marks omitted), aff’d and
remanded, ___ N.C. ___, 749 S.E.2d 278 (2013). Consistent with
this Court’s decisions in Sugar Creek I, Sugar Creek II, and
Thomas Jefferson I, as well as the plain language of N.C. Gen.
Stat. § 115C-426(e), we conclude that the local school
administrative unit may deposit any “restricted” funds into a
fund separate from the current expense fund. See Thomas
Jefferson I, 215 N.C. App. at 544, 715 S.E.2d at 634; Sugar
Creek I, 188 N.C. App. at 460, 655 S.E.2d at 855. By contrast,
any funds covered by N.C. Gen. Stat. § 115C-426(e) must be
deposited into the local current expense fund. We further
conclude that the determination of which funds may be placed in
a separate fund is not solely in the discretion of the local
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school board, given the mandatory language found in the budget
statute. See Chandler, ___ N.C. App. at ___, 720 S.E.2d at 750
(holding that the Industrial Commission has no discretion in
determining an interest award when the relevant statute employed
the word “shall”).
C. Defining “restricted” funds
“Restricted” is not a term found in any of the relevant
statutes. Rather, it is a gloss this Court has put on the
statutory definitions found in N.C. Gen. Stat. § 115C-426(c). It
was the Court’s shorthand for those monies that can be placed in
a separate fund, i.e. those from “trust funds, federal grants
restricted as to use, and special programs” which must be
accounted for separately. N.C. Gen. Stat. § 115C-426(c).
The guidance from the Department of Public Instruction that
we reviewed in Thomas Jefferson I indicated that Fund 8 was a
new, separate fund “to separately maintain funds that are
restricted in purpose and not intended for the general K–12
population in the LEA.” Thomas Jefferson I, 215 N.C. App. at
537, 715 S.E.2d at 630. Such funds included:
(a) State funds that are provided for a
targeted non–K–12 constituency such as More–
at–Four funds;
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(b) Funds targeted for a specific, limited
purpose, such as a trust fund for a specific
school within the LEA;
(c) Federal or other funds not intended for
the general K–12 instructional population,
or a sub-group within that population, such
as funds for a pilot program;
(d) Indirect cost, such as those associated
with a federal grant that represent
reimbursement for cost previously incurred
by the LEA.
Id.After the extensive litigation over the definition of
“restricted” and “unrestricted” funds, the Legislature passed an
amendment to N.C. Gen. Stat. § 115C-426 in 2010 and again in
2013. N.C. Sess. Laws 2010-31, § 7.17(a); N.C. Sess. Laws 2013-
355, § 2(a). The statute now clarifies that:
other funds may be used to account for
reimbursements, including indirect costs,
fees for actual costs, tuition, sales tax
revenues distributed using the ad valorem
method pursuant to G.S. 105-472(b)(2), sales
tax refunds, gifts and grants restricted as
to use, trust funds, federal appropriations
made directly to local school administrative
units, and funds received for
prekindergarten programs. In addition, the
appropriation or use of fund balance or
interest income by a local school
administrative unit shall not be construed
as a local current expense appropriation
included as a part of the local current
expense fund.
N.C. Gen. Stat. § 115C-426 (c) (2013).
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In construing a statute with reference to an
amendment it is presumed that the
legislature intended either (a) to change
the substance of the original act, or (b) to
clarify the meaning of it. A clarifying
amendment, unlike an altering amendment, is
one that does not change the substance of
the law but instead gives further insight
into the way in which the legislature
intended the law to apply from its original
enactment.
Ray v. North Carolina Dept. of Transp., 366 N.C. 1, 8-9, 727
S.E.2d 675, 681 (2012) (citation and quotation marks omitted).
The 2010 amendment to § 115C-426 is fully consistent with
the 2009 definition of “restricted” funds used by the Department
of Public Instruction that we approved of in Thomas Jefferson I
and with this Court’s gloss on that statute. See Thomas
Jefferson I, 215 N.C. App. at 537, 715 S.E.2d at 630. In
addition to being consistent with the prior case law, the
amendment simply provided a more complete description of the
funds which may be excluded from the local current expense fund.
“To determine whether the amendment clarifies the prior law or
alters it requires a careful comparison of the original and
amended statutes. If the statute initially fails expressly to
address a particular point but addresses it after the amendment,
the amendment is more likely to be clarifying than altering.”
Ray, 366 N.C. at 10, 727 S.E.2d at 682. Therefore, we conclude
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that the 2010 amendments were clarifying amendments rather than
substantive changes. See id. at 11, 727 S.E.2d at 683
(concluding that an amendment was a clarifying one “[b]ecause
the legislature left essentially all our pre-amendment cases
intact”). “[S]uch amendments apply to all cases pending before
the courts when the amendment is adopted, regardless of whether
the underlying claim arose before or after the effective date of
the amendment.” Id. at 9, 727 S.E.2d at 681.
It is not clear what definition of “restricted” the trial
court applied, but it is clear that the definition used was not
that laid out by the 2010 amendments. In some instances it
followed the budget code assigned by Mr. Lee, but not in others.
It considered some reimbursements “restricted,” but others
“unrestricted.” Even some pre-K programs were considered
“unrestricted.”
The clarifying amendments provide the proper standard with
which to determine whether funds are “restricted.” “Restricted”
funds, i.e., monies that may be properly placed in a fund
separate from the local current expense fund, are those that
fall into one of the categories mentioned in N.C. Gen. Stat. §
115C-426(c) as amended. It is clear that the trial court did not
apply this standard. We therefore remand to allow the trial
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court to make appropriate findings of fact and to determine
whether the funds at issues are “restricted” under the correct
standard of law. See Powe v. Centerpoint Human Services, 215
N.C. App. 395, 396, 715 S.E.2d 296, 298 (2011) (remanding for
the fact finder to apply the correct legal standard).
On remand, the trial court should make findings about
whether the funds at issue here are “reimbursements, including
indirect costs, fees for actual costs, tuition, sales tax
revenues distributed using the ad valorem method pursuant to
G.S. 105-472(b)(2), sales tax refunds, gifts and grants
restricted as to use, trust funds, federal appropriations made
directly to local school administrative units, [or] funds
received for prekindergarten programs.” N.C. Gen. Stat. § 115C-
426(c) (2013). If the funds fall into any of these categories,
they may be properly considered “restricted,” placed into a
separate fund, and not shared on a pro rata basis with the
charter schools. See Thomas Jefferson I, 215 N.C. App. at 544,
715 S.E.2d at 633.
III. Attorneys’ Fees
Defendant next argues that the trial court erred in
awarding plaintiff attorneys’ fees under N.C. Gen. Stat. § 6-
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19.1 because a local school board is not a state agency. We
agree.
N.C. Gen. Stat. § 6-19.1 (2011) allows the trial court to
award attorney’s fees to a party prevailing over a state agency
in a civil action. This Court has held that the definition of
“agency” for the purposes of § 6-19.1 is the same as the
definition of an “agency” under the Administrative Procedures
Act (APA). Izydore v. City of Durham (Durham Bd. of Adjustment),
___ N.C. App. ___, ___, 746 S.E.2d 324, 326, disc. rev. denied,
___ N.C. ___, 749 S.E.2d 851 (2013). The APA defines an “agency”
as
an agency or an officer in the executive
branch of the government of this State and
includes the Council of State, the
Governor’s Office, a board, a commission, a
department, a division, a council, and any
other unit of government in the executive
branch. A local unit of government is not an
agency.
N.C. Gen. Stat. § 150B-2(1a) (2011) (emphasis added).
Accordingly, we have held that local governmental units, like
municipalities and counties, are not subject to the attorney’s
fees provisions of N.C. Gen. Stat. § 6-19.1. Izydore, ___ N.C.
App. at ___, 746 S.E.2d at 326 (holding that “local governmental
units—such as respondents—are not ‘agencies’ for purposes of §
6–19.1.”). Local school boards and local school administrative
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units are local governmental units, and, as such, are not
“agencies” for the purpose of the APA. See N.C. Gen. Stat. §
115C-5(5)-(6) (defining “local school board” as “a city board
of education, county board of education, or a city-county board
of education” and a “local school administrative unit” as “a
subdivision of the public school system which is governed by a
local board of education. It may be a city school administrative
unit, a county school administrative unit, or a city-county
school administrative unit.”); Coomer v. Lee County Bd. of
Educ., ___ N.C. App. ___, ___, 723 S.E.2d 802, 803 (observing
that “local boards of education are generally excluded from the
requirements of the APA.”), disc. rev dismissed, 366 N.C. 238,
731 S.E.2d 427, disc. rev. denied, 366 N.C. 238, 731 S.E.2d 428(2012).
Plaintiffs contend that the local school boards are subject
to § 6-19.1 because we have held that they “are deemed agents
of the State for purposes of providing public education.” Kiddie
Korner Day Schools, Inc. v. Charlotte-Mecklenburg Bd. of Educ.,
55 N.C. App. 134, 140, 285 S.E.2d 110, 114 (1981), app.
dismissed and disc. rev. denied, 305 N.C. 300, 291 S.E.2d 150(1982). Yet, our Supreme Court has noted that “[a]n agent of the
State and a state agency are fundamentally different . . . .”
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Meyer v. Walls, 347 N.C. 97, 107, 489 S.E.2d 880, 885 (1997);
see also Green v. Kearney, 203 N.C. App. 260, 272, 690 S.E.2d
755, 764 (2010) (noting the distinction between a state agent
and a state agency). In that same opinion, the Supreme Court
quoted a prior opinion for the proposition that “[i]n no sense
may we consider the [Local] Board of Education in the same
category as the State Board of Education . . . .” Meyer, 347
N.C. at 106, 489 S.E.2d at 885 (citation and quotation marks
omitted). Thus, local school boards are not state agencies for
purposes of the APA and N.C. Gen. Stat. § 6-19.1 simply because
they may be considered agents of the State in certain
circumstances.
We hold that the trial court erred in awarding plaintiff
attorney’s fees under N.C. Gen. Stat. § 6-19.1 because defendant
is not an agency for purposes of that statute. Therefore, we
reverse the trial court’s order allowing plaintiff’s petition
for attorneys’ fees.
IV. Conclusion
For the foregoing reasons, we remand for the trial court to
enter a revised judgment with appropriate findings of fact and
conclusions of law applying the correct standard as laid out in
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the 2010 amendments. We reverse the trial court’s order awarding
plaintiffs attorney’s fees.
REVERSED in part; REMANDED.
Judges HUNTER, JR., Robert N. and Judge DILLON concur.