Charter Day School, Inc. v. New Hanover County Board of Education

NO. COA13-488

NORTH CAROLINA COURT OF APPEALS

Filed: 18 February 2014

CHARTER DAY SCHOOL, INC.,

Plaintiff-Appellee,

v. New Hanover County

No. 11 CVS 2777

THE NEW HANOVER COUNTY BOARD OF

EDUCATION and TIM MARKLEY,

SUPERINTENDENT IN HIS OFFICIAL

CAPACITY, d/b/a “New Hanover

County Schools,”

Defendant-Appellants.

Appeal by defendant from order and judgment entered 4 December

2012 by Judge W. Douglas Parsons in New Hanover County Superior

Court. Heard in the Court of Appeals 23 October 2013.

Shipman & Wright, LLP, by Gary K. Shipman and Gregory M.

Katzman, for plaintiff-appellee.

Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by Jill

R. Wilson, Robert J. King, III, and Jennifer K. Van Zant, for

defendant-appellant.

Allison B. Schafer and Christine T. Scheef for the North

Carolina School Boards Association, amicus curiae.

McCULLOUGH, Judge.

Defendant, New Hanover County Board of Education d/b/a New

Hanover County Schools (“NHCS”), appeals from the order and

judgment entered by the trial court on 4 December 2012. For the

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following reasons, we reverse in part and affirm in part.

I. Background

Plaintiff, Charter Day School, Inc. (“Charter Day”), is a

charter school in Brunswick County that provides free public

education to students from various southeastern North Carolina

counties, including New Hanover County. As a public school, see

N.C. Gen. Stat § 115C-238.29E(a) (2013) (“A charter school that is

approved by the State shall be a public school within the local

school administrative unit in which it is located.”), Charter Day

is entitled to state and local funding. Specifically, for the

time period pertinent to this case, N.C. Gen. Stat. § 115C-238.29H

(the “Charter School Funding Statute”) provided, “[i]f a student

attends a charter school, the local school administrative unit in

which the child resides shall 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) (2007).1

On 30 June 2011, Charter Day commenced this action against

NHCS and Al Lerch, in his official capacity as Superintendent of

1The years at issue in this appeal are the 2007-2008 through 2009-

2010 fiscal years. Thus, we cite to the 2007 version of the North

Carolina General Statutes, which were unaltered during the

relevant time period.

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NHCS, by filing a complaint in New Hanover County Superior Court.2

In the complaint, Charter Day asserted two claims for relief: (1)

a declaratory judgment that NHCS failed to transfer all amounts

owed to Charter Day under the Charter School Funding Statute from

the time Charter Day opened, the 2001-2002 fiscal year ending 30

June 2002, through the 2010-2011 fiscal year ending 30 June 2011;

and (2) a judgment against NHCS to recover the amount Charter Day

alleged to be underfunded. By amended complaint filed shortly

thereafter, Charter Day replaced defendant Al Lerch, who retired

prior to the commencement of the action, with Tim Markley, the

superintendent of NHCS at the time. NHCS and Tim Markley (together

“defendants”) answered the complaint on 1 September 2011.

On 12 April 2012, Charter Day filed a motion for partial

summary judgment on defendants’ seventh and eighth defenses, in

which defendants alleged “Charter Day School is not a legitimate

non-profit entity, as required by North Carolina law for the

operation of a charter school.” Thereafter, on 25 April 2012,

defendants filed their own motion for partial summary judgment on

Charter Day’s claims for the 2001-2002 through 2006-2007 fiscal

years on the ground that the claims were barred by the applicable

2Columbus Charter School initially joined Charter Day as a

plaintiff in the lawsuit; however, on 11 April 2012, Columbus

Charter voluntarily dismissed its claims without prejudice.

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three-year statute of limitations. Both partial summary judgment

motions came on for hearing in New Hanover County Superior Court

on 7 May 2012, the Honorable W. Allen Cobb, Jr., Judge presiding.

Following the hearing, the trial court granted the motions in

separate 14 May 2012 orders.

On 22 June 2012, Charter Day filed a motion for summary

judgment on the remaining issues. Charter Day’s motion came on

for hearing in New Hanover County Superior Court before the

Honorable W. Douglas Parsons on 5 July 2012.

On 17 July 2012, the trial court filed an order for partial

summary judgment in favor of Charter Day. The trial court

concluded defendants’ “methods for calculating the per pupil local

current expense appropriation for the fiscal years in question

(2008, 2009 and 2010) [was] improper, as a matter of law[.]”

Specifically, defendants “were required to include the entire Fund

Balance for the fiscal years in question, and not just the

‘modified’ or ‘appropriated’ Fund Balance[,]” and defendants

“improperly included ‘pre-Kindergarten’ (‘pre-K’) students in

their total student enrollment[.]” The trial court did not,

however, grant Charter Day’s motion for summary judgment “as to

the amounts due from the [d]efendants[.]” Instead, the trial court

ordered defendants to “re-calculate its’ Funding Formula for the

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fiscal years in question[] . . . [and] provide its re-calculated

per pupil allocation for the years in question for the pupils

attending [Charter Day] to [Charter Day]” within ninety (90) days.

Defendants filed a submission regarding per pupil allocations

for the fiscal years in question on 12 October 2012 and a revised

submission on 20 November 2012.

Following the submissions of defendants’ recalculations, the

trial court filed a final order and judgment on 4 December 2012.

In the order and judgment, the trial court reiterated its prior

determination that “[d]efendants’ method for calculating the per

pupil local current expense appropriation for the fiscal years in

question was improper, as a matter of law, and failed to comply

with the requirements of [N.C. Gen. Stat.] § 115C-238.29H(b), in

that the [d]efendants did not include the entire Fund Balance in

the numerator and included pre-K students in the denominator.”

Then, based on defendants’ submissions regarding per pupil

allocations, the trial court entered judgment against NHCS in favor

of Charter Day in the amount of $138,878.91. Additionally, the

trial court dismissed all claims against Tim Markley and ordered

NHCS, “[s]ubject to any subsequent changes in the law,” to

“transfer to [Charter Day] an amount equal to the per pupil local

current expense appropriation for each student enrolled in a

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charter school operated by [Charter Day]” in accordance with the

order “for all subsequent fiscal years beyond those in question in

[the] action[.]”

NHCS filed notice of appeal on 21 December 2012 and execution

of the judgment was stayed pursuant to the terms of the order and

judgment.

II. Discussion

On appeal of the trial court’s grant of summary judgment in

favor of Charter Day, NHCS raises two issues: whether the trial

court erred by (1) including the entire fund balance in the

calculations of the per pupil local current expense appropriation,

and (2) excluding pre-K students from the calculations of the per

pupil local current expense appropriation.

Standard of Review

“Our standard of review of an appeal from summary judgment is

de novo; such judgment is appropriate only when the record shows

that ‘there is no genuine issue as to any material fact and that

any party is entitled to a judgment as a matter of law.’” In re

Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008)

(quoting Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385

(2007)). In the present case, the facts are not in dispute and we

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need only determine whether the trial court erred as a matter of

law in entering summary judgment in Charter Day’s favor.

Fund Balance

Fund balance results where money appropriated to the local

school administrative unit is not spent in the fiscal year in which

it was intended, but is saved for future use. Thus, the fund

balance is essentially a savings account. In this case, NHCS

acknowledges that the portion of the fund balance appropriated for

use in any given year is included in the local current expense

appropriation and shared pursuant to the Charter School Funding

Statute. Yet, NHCS argues the trial erred in ordering the entire

fund balance to be included in the local current expense

appropriation. Upon review, we hold the trial court erred.

As noted above, charter school funding is governed by statute.

During the years at issue in this case, subsection (b) of the

Charter School Funding Statute provided, in pertinent part, “[i]f

a student attends a charter school, the local school administrative

unit in which the child resides shall 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) (2007). Similar

to previous charter school funding cases decided by this Court,

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the predominant issue for our determination is what comprises the

local current expense appropriation that must be shared pro rata.

In Francine Delany New School for Children, Inc. v. Asheville

City Bd. of Educ., 150 N.C. App. 338, 563 S.E.2d 92 (2002), this

Court addressed whether revenues from fines, forfeitures, and

supplemental school taxes accruing to the “local current expense

fund” pursuant to N.C. Gen. Stat. § 115C-426(e) of the Fiscal

Control Act were required to be shared on a per pupil basis with

charter schools pursuant to N.C. Gen. Stat. § 115C-238.29H(b) of

the Charter School Funding Statute as part of the “local current

expense appropriation.” In deciding the charter school was

entitled to a share of the supplemental revenues, this Court

affirmed the trial court’s conclusion “that the phrase ‘local

current expense appropriation’ in the Charter School Funding

Statute, [N.C. Gen. Stat.] § 115C-238.29H(b), is synonymous with

the phrase ‘local current expense fund’ in the [Fiscal Control

Act], [N.C. Gen. Stat.] § 115C-426(e).” Id. at 347, 563 S.E.2d at

98. Accordingly, charter schools are entitled to a pro rata share

of the local current expense fund under the Charter School Funding

Statute.3

3Subsequent to the time period at issue in this case, the General

Assembly amended N.C. Gen. Stat. § 115C-238.29H(b) to replace “per

pupil local current expense appropriation to the local school

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Subsequent to Francine Delany, this Court has decided several

additional charter school funding cases determining whether

certain funds held in the local current expense fund must be shared

pro rata with charter schools. See Sugar Creek Charter School,

Inc. v. Charlotte-Mecklenburg Bd. of Educ., 188 N.C. App. 454, 655

S.E.2d 850 (Sugar Creek I), disc. review denied, 362 N.C. 481, 667

S.E.2d 460 (2008), (holding the charter school was entitled to a

share of funds earmarked for Bright Beginnings, a special program

for at-risk pre-K children, and a High School Challenge grant

because the funds were included in the local current expense fund);

Sugar Creek Charter School, Inc. v. Charlotte-Mecklenburg Bd. of

Educ., 195 N.C. App. 348, 673 S.E.2d 667 (Sugar Creek II), appeal

dismissed and disc. review denied, 363 N.C. 663, 687 S.E.2d 296

(2009) (holding the charter school was entitled to a share of funds

carried over from previous years into the current year’s local

current expense fund and other earmarked funds included in the

local current expense fund). As this Court noted in Thomas

Jefferson Classical Academy v. Rutherford County Bd. of Educ., _

N.C. App _, _, 715 S.E.2d 625, 630 (2011), appeal dismissed and

administrative unit” with “per pupil share of the local current

expense fund of the local school administrative unit[.]” 2013

N.C. Sess. Laws c.355 s. 1(h).

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disc. review denied, _ N.C. _, 724 S.E.2d 531 (2012), “[t]he common

thread running through each of these holdings is that if funds are

placed in the ‘local current expense 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 present case, however, is unlike the previous cases.

Here, the issue is not whether certain funds in the local current

expense fund must be shared, but rather what portion of the fund

balance is included in the local current expense fund and subject

to allocation pursuant to the Charter School Funding Statute.

The Fiscal Control Act provides guidance.

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 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

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current operating expenses of the public

school system.

N.C. Gen. Stat. § 115C-426(e) (2007) (emphasis added). Thus, fund

balance is included in the local current expense fund when it is

“made available or accruing to the local school administrative

unit for the current operating expenses[.]”

Charter Day contends the entire fund balance is available to

the local school administrative unit for current operating

expenses because it can be appropriated for use. NHCS, on the

other hand, contends only that portion of the fund balance that is

appropriated for use is available to the local school

administrative unit for current operating expenses. We agree with

NHCS.

The Fiscal Control Act mandates “[e]ach local school

administrative unit shall operate under an annual balanced budget

resolution[.]” N.C. Gen. Stat. § 115C-425(a) (2007). “A budget

resolution is balanced when the sum of estimated net revenues and

appropriated fund balances is equal to appropriations.” Id.

Moreover, “no local school administrative unit may expend any

moneys, regardless of their source . . . , except in accordance

with a[n adopted] budget resolution.” N.C. Gen. Stat. § 115C-

425(b). A budget resolution must be adopted by the local board of

education. See N.C. Gen. Stat. § 115C-432 (2007).

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Considering these provisions together, we hold the fund

balance is not available to the local school administrative unit

for current operating expenses until it is appropriated for use in

a budget resolution adopted by the local board of education.

Therefore, only that portion of the fund balance that is actually

appropriated in a particular year is to be included in the local

current expense fund and subject to pro rata allocation pursuant

to the Charter School Funding Statute. That portion of the fund

balance that is not appropriated remains a balance sheet entry,

subject to appropriation in future years.

In addition to deciding the issue on appeal, we take this

opportunity to reconcile the holding in Sugar Creek II, which

Charter Day argues already resolved the issue at hand. Because we

determine the issue presented to this Court in Sugar Creek II is

different from the issue in the present case, we are not bound by

Sugar Creek II. See In re Civil Penalty, 324 N.C. 373, 384, 379

S.E.2d 30, 37 (1989) (“Where a panel of the Court of Appeals has

decided the same issue, albeit in a different case, a subsequent

panel of the same court is bound by that precedent, unless it has

been overturned by a higher court.”).

In Sugar Creek II, this Court addressed, among other issues,

whether the trial court properly included the fund balance in the

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local current expense fund for purposes of calculating its award

to the charter school. 195 N.C. App. at 360, 673 S.E.2d at 675.

Following a brief discussion, this Court held “the trial court did

not err in including the fund balance in its calculation of its

award.” Id. The Court reasoned, “[a]s the fund balance is carried

over from the previous fiscal year to the current fiscal year, it

constitutes moneys in [d]efendants’ local current expense fund.”

Id.

Charter Day argues that, because Sugar Creek II does not

specify appropriated fund balance, the opinion requires the entire

fund balance to be included in the local current expense fund. We

disagree. Although we acknowledge the court did not specify

appropriated fund balance, it is clear that this court upheld the

trial court’s decision. Upon careful review of the record in Sugar

Creek II, it is evident the trial court determined only that the

“fund balance appropriated” was “other local revenue” to be

included in the local current expense fund and shared pursuant to

the Charter School Funding Statute. Thus, in holding “the trial

court did not err in including the fund balance in its calculation

of its award[,]” this Court considered only that portion of the

fund balance that was appropriated for use in the current fiscal

year.

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We find this Court’s analysis in Sugar Creek II further

supports both our interpretation of the Sugar Creek II decision

and our holding in this case. In deciding the fund balance issue

in Sugar Creek II, this Court was guided by its observation “that

the General Assembly intended that charter school children have

access to the same level of funding as children attending the

regular public schools of this State.” 195 N.C. App at 357, 673

S.E.2d at 673. This Court then focused on each year individually

and determined whether the fund balance at issue must be included

in the local current expense fund, discounting defendants’ “double

dip” argument and stating, “[d]efendants’ argument is double-

edged. If [d]efendants do not share the fund balance with

[p]laintiff’s, then [d]efendants’ students will receive more per

pupil funds in the current fiscal year than [p]laintiff’s

students.” Id. at 360, 673 S.E.2d at 675.

Looking at each year individually, it is evident that when

the appropriated portion of the fund balance is included in the

local current expense fund, “charter school children have access

to the same level of funding as children attending the regular

public schools of this State.” On the other hand, when the entire

fund balance is included in the local current expense fund, charter

school students receive greater funding than students attending

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regular public schools because charter school students receive a

share of the unappropriated fund balance that is not available to

students attending regular public schools. Thus, the only

interpretation of Sugar Creek II that gives effect to the

recognized intent of the General Assembly is that this Court

considered only the appropriated fund balance when it stated, “[a]s

the fund balance is carried over from the previous fiscal year to

the current fiscal year, it constitutes moneys in [d]efendants’

local current expense fund.”4

We hold the trial court erred in ordering NHCS to include the

entire fund balance in the calculations of the per pupil local

current expense appropriation.

Pre-Kindergarten Students

4We further note that following the Sugar Creek II decision,

effective beginning with the 2010-2011 school year, 2010 N.C. Sess.

Laws c.31 s. 7.17(c), the General Assembly amended N.C. Gen. Stat.

§ 115C-426(c) to include the following language: “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.” 2010 N.C. Sess. Laws c.31 s.

7.17(a). Although we recognize the amendment does not apply

retroactively, the amendment supports our interpretation of Sugar

Creek II, as the legislature acted to prevent appropriations from

the fund balance from being apportioned pursuant to the Charter

School Funding Statute. Had Sugar Creek II considered the entire

fund balance, following the amendment to N.C. Gen. Stat. § 115C-

426(c), the unappropriated portion of the fund balance would

continue to be included in the local current expense appropriation

while the appropriated fund balance would not. This would be an

absurd and illogical result.

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NHCS acknowledges that, during the time period at issue in

this case, money it received to fund pre-K programs was included

in the local current expense fund and, pursuant to this Court’s

holding in Sugar Creek I, 188 N.C. App. at 461, 655 S.E.2d at 855,

is subject to allocation under the Charter School Funding Statute.

Yet, in the second issue on appeal, NHCS argues the trial court

erred in ordering pre-K students to be excluded from the number of

pupils in the calculations of the per pupil local current expense

appropriation. Upon review, we hold the trial court did not err.

Simple math demonstrates the inclusion of pre-K students in

the calculations of the per pupil local current expense

appropriation increases the denominator in the funding formula and

results in a smaller per pupil appropriation. In turn, where

Charter Day does not operate a pre-K program, the smaller per pupil

appropriation results in a lesser share of the local current

expense appropriation to Charter Day and a greater share of the

local current expense appropriation to NHCS. It is for this reason

that NHCS argues pre-K students should be included in the

calculations of the per pupil local current expense appropriation.

NHCS, however, cites no authority in support of its argument.

Instead, NHCS relies merely on the facts that the pre-K funds are

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included in the calculations pursuant to Sugar Creek I and the

appropriation is “per pupil.” In NHCS’s own words,

[F]or the relevant year, the funds for the

pre-Kindergarten programs are included in the

local current expense fund. That fund must be

shared pro rata with Charter Day School[,]

which means it is divided by the sum of the

total number of students enrolled in NHCS and

the total number of students enrolled at

Charter Day School. If the funds are in, the

students should be in.

We are not persuaded by NHCS’s argument.

Admission into North Carolina’s public school system is

governed by statute. The admission requirements provide that only

those children who have “reached the age of 5 on or before August

31 of that school year” or those children who had “been attending

school during that school year in another state in accordance with

the laws or rules of that state before the child moved to and

became a resident of North Carolina[]” may enroll in public

schools. N.C. Gen. Stat. § 115C-364(a) (2007). Furthermore, when

a child is enrolled, “[t]he initial point of entry into the public

school system shall be at the kindergarten level.” N.C. Gen. Stat.

§ 115C-364(c). Admission into North Carolina’s charter schools is

subject to these same restrictions. See N.C. Gen. Stat. § 115C-

238.29F(g)(1) (2007) (“Any child who is qualified under the laws

of this State for admission to a public school is qualified for

admission to a charter school.”). Based on these statutes, it is

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evident pre-K students are not entitled to enrollment in North

Carolina’s public school system or charter schools.

Although charter school funding is calculated on a “per pupil”

basis, because pre-K students are not entitled to enrollment in

North Carolina’s public school system or charter schools, we hold

pre-K students should not be included in the pupil count for

purposes of calculating the per pupil local current expense

appropriation.

To this point, NHCS does not dispute that pre-K students are

not entitled to enrollment under the statutes, but instead argues

that because it is required to serve a population of pre-K students

under this Court’s holding in Hoke County Bd. of Educ. v. State of

North Carolina, _ N.C. App. _, 731 S.E.2d 691 (2012), appeal

dismissed and opinion vacated, _ N.C. _, 749 S.E.2d 451 (2013), it

should be allowed to include them in its calculations of the per

pupil local current expense appropriation. Again, we disagree.

In Hoke County, this Court upheld the trial court’s order

“mandating the State to not deny any eligible ‘at-risk’ four year

old admission to the North Carolina Pre-Kindergarten Program.” _

N.C. App. at _, 731 S.E.2d at 695. That decision, however, is not

controlling in the present case for two reasons. First, the trial

court’s mandate in Hoke County was issued by order dated 18 July

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2011 and upheld by this Court in 2012, subsequent to the years at

issue in this case. Second, and more importantly, our Supreme

Court recently vacated this Court’s Hoke County decision and

remanded the case to this Court with instructions to vacate the

trial court’s order. See Hoke County Bd. of Educ. v. State of

North Carolina, _ N.C. _, 749 S.E.2d 451 (2013). As a result,

there is no mandate that the State admit at-risk students into the

North Carolina Pre-Kindergarten Program.

Without a mandate requiring pre-K admissions, we are left

with the holdings of Leandro v. State of North Carolina, 346 N.C.

336, 488 S.E.2d 249 (1997) (Leandro I), and Hoke County Bd. of

Educ. v. State of North Carolina, 358 N.C. 605, 599 S.E.2d 365

(2004) (Leandro II). In Leandro I, our Supreme Court held “Article

I, Section 15 and Article IX, Section 2 of the North Carolina

constitution combine to guarantee every child of this state an

opportunity to receive a sound basic education in our public

schools.” 346 N.C. at 347, 488 S.E.2d at 255. Thereafter, in

Leandro II, our Supreme Court recognized that the issue with pre-

K programs was “whether the State must help prepare those students

who enter the schools to avail themselves of an opportunity to

obtain a sound basic education.” 358 N.C. at 639, 599 S.E.2d at

391. Yet, while recognizing the challenges of at-risk enrollees

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in Leandro II, the Court expressly rejected the portion of the

trial court’s order mandating a pre-K program. Id. at 645, 599

S.E.2d at 395. Thus, while NHCS was required to prepare students

to obtain a sound basic education, they were not required to enroll

any students in a pre-K program.

We hold the trial court did not err in ordering NHCS to

exclude pre-K students from the calculations of the per pupil local

current expense appropriation.

III. Conclusion

For the reasons discussed above, we reverse the trial court’s

decision to the extent it includes the entire fund balance in the

per pupil local current expense appropriation calculations and we

affirm the trial court’s decision to the extent it excludes pre-K

students from the per pupil local current expense appropriation

calculations.

Reversed in part, affirmed in part.

Judges ELMORE and DAVIS concur.