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Alternatives Unlimited-Special, Inc. v. Ohio Department of Education

Court of Appeals of Ohio, Tenth District

September 10, 2013

Alternatives Unlimited-Special, Inc. et al., Plaintiffs-Appellants,
v.
Ohio Department of Education, Defendant-Appellee.

APPEAL from the Court of Claims of Ohio Ct. of Cl. No. 2009-03410

Michael A. Sanchez, pro hac vice; and Edward D. Hayman, for appellants.

Michael DeWine, Attorney General, and Christopher P. Conomy, for appellee.

DECISION

KLATT, P.J.

{¶ 1} Plaintiffs-appellants, Alternatives Unlimited-Special, Inc. ("AU-Special") and Alternatives Unlimited, Inc. ("AU"), appeal from a judgment of the Court of Claims of Ohio. For the following reasons, we affirm in part and reverse in part.

{¶ 2} On September 1, 1999, the Ohio Board of Education ("Board"), entered into a contract with the board of directors of the Cleveland Alternative Learning Academy Community School ("CALA") to establish a new start-up school in the Cleveland City School District. In the contract, the Board agreed to sponsor CALA, and AU-Special agreed to act as CALA's governing authority.[1] The contract set forth the parameters under which AU-Special, as governing authority, would establish and operate CALA.

{¶ 3} The contract stated that it would begin at the commencement of the 1999- 2000 school year and terminate on June 30, 2004. Pursuant to Article VIII of the contract, the Board could terminate the contract prior to June 30, 2004 if: (1) AU-Special failed to meet student performance requirements, (2) AU-Special failed to meet generally accepted standards of fiscal management, (3) AU-Special violated any provision of the contract or applicable state or federal law, or (4) other good cause. Article VIII also provided:

The termination of this contract shall be effective only at the conclusion of a school year. At least one [sic] 180 days prior to the termination or non-renewal of this contract, the SPONSOR shall notify [CALA] of the proposed action in writing. The notice shall include the reasons for the proposed action in detail and that [CALA] may, within fourteen days of receiving the notice, request an informal hearing before the SPONSOR. Such request shall be in writing.

{¶ 4} CALA operated as a community school during the 1999-2000 and 2000-2001school years. During the time CALA was open, AU-Special managed CALA, and AU managed AU-Special.

{¶ 5} Originally, the Board and appellants contemplated that CALA would educate children in grades three, four, five, and six. Shortly after opening for the 1999-2000 school year, CALA also began enrolling students in grades two, seven, and eight. CALA expanded to include additional grades because parents of students in grades three through six wanted to also enroll at CALA the younger and older siblings of those students. CALA requested that the Board approve a modification of the contract to include the additional grades. The Board never agreed to a modification.

{¶ 6} Defendant-appellee, the Ohio Department of Education ("Department"), funded CALA with state revenues in amounts calculated using a formula dependent on the number of students enrolled at the school. As the Board never modified its contract with AU-Special to include grades two, seven, and eight, the Department did not pay CALA for the instruction of students in those grades. Throughout the years CALA operated, AU-Special repeatedly complained to the Department that it was not receiving the amount of funds that state statutes entitled it. The Department disagreed.

{¶ 7} In a letter dated August 24, 2001, the Department notified CALA that it no longer had the authority to operate as a community school. The Department had identified Elijah Scott and David Smith as CALA's governing authority and secured a rescission of the contract from them. Without the contract, CALA could not open for the 2001-2002 school year as a community school.

{¶ 8} CALA responded that Scott and Smith were not CALA's governing authority, and thus, they lacked the ability to rescind the contract. CALA continued to operate during the fall 2001 semester but closed thereafter because the Department refused to fund it.

{¶ 9} On May 7, 2002, appellants filed their initial action against the Department for breach of contract, promissory estoppel, and unjust enrichment. Appellants claimed that the Department had breached the contract by failing to pay for all students enrolled at CALA and improperly terminating the contract. After a trial on liability only, the Court of Claims determined that neither appellant was a party or intended third-party beneficiary to the contract. Consequently, the Court of Claims held that appellants lacked standing to pursue their claims for breach of contract and entered judgment in favor of the Department. Appellants appealed that judgment. We concluded that the state had previously recognized AU-Special as CALA's governing authority in another case. Alternatives Unlimited-Special, Inc. v. Ohio Dept. of Edn., 168 Ohio App.3d 592, 2006-Ohio-4779, ¶ 51 (10th Dist.). Under the doctrine of collateral estoppel, that recognition was binding on the Department. Id. We therefore held that the Department was estopped from denying appellants' standing, and we reversed the Court of Claims' judgment and remanded the matter. Id. at ¶ 53.

{¶ 10} On remand, the Department moved for partial summary judgment, arguing that it did not breach the contract by failing to pay for all the students enrolled at CALA. The Department contended that it was not required to provide CALA with funding for instruction of students in grades two, seven, and eight because the contract did not include those grades. The Court of Claims granted the Department's motion and entered judgment for the Department on one of appellants' breach-of-contract claims. Appellants then moved to amend their complaint to delete all remaining claims. The Court of Claims granted that motion.

{¶ 11} Armed with a final appealable order, appellants sought this court's review of the partial grant of summary judgment. We found no error in the Court of Claims' summary judgment decision. Alternatives Unlimited-Special, Inc. v. Ohio Dept. of Edn., 10th Dist. No. 08AP-396, 2008-Ohio-6427, ¶ 24.

{¶ 12} On March 20, 2009, appellants re-filed their action against the Department. In their complaint, appellants again asserted claims for breach of contract, promissory estoppel, and unjust enrichment. Rather than answering the complaint, the Department filed a motion to dismiss or, in the alternative, for summary judgment. In part, the Department argued that appellants' action was barred by the two-year statute of limitations set forth in R.C. 2743.16(A). Appellants replied that their action was timely under the savings statute, R.C. 2305.19. The Court of Claims agreed with the Department's argument, and it granted the Department summary judgment. Appellants appealed that judgment to this court. We concluded that the savings statute applied, and thus, we reversed the Court of Claims' judgment and remanded the case. Alternatives Unlimited-Special, Inc. v. Ohio Dept. of Edn., 10th Dist. No. 09AP-756, 2010-Ohio-1226, ¶ 29, 34.

{¶ 13} Once the case was again before the Court of Claims, appellants moved to recuse Judge Joseph T. Clark from the case. Appellants contended that Judge Clark's multiple rulings against them demonstrated that Judge Clark was partial to the Department. The Court of Claims denied the motion.

{¶ 14} Appellants then moved for summary judgment on the Department's liability for breaching the contract through improper termination. At the same time, the Department moved for summary judgment on appellants' claims for promissory estoppel and unjust enrichment. The Court of Claims granted both motions and ordered the case set for a trial on damages.

{¶ 15} Originally, August 15, 2011 was the trial date, but upon the parties' joint motion, the Court of Claims reset the trial for December 19, 2011. On that date, the parties appeared for trial and discovered that a key Department witness was unavailable. The Court of Claims granted appellants' unopposed motion for a continuance, rescheduling the trial for March 5, 2012.

{¶ 16} On January 9, 2012, appellants requested a pretrial hearing. In their request, appellants represented that they intended to introduce expert testimony and sought guidance regarding the timing of filing an expert report. The Department opposed the scheduling of a pretrial hearing. It argued that appellants had never before mentioned their need for an expert witness and the deadline for identifying an expert witness had passed. The Court of Claims denied appellants' motion.

{¶ 17} At the damages trial, appellants presented the testimony of Stuart Berger, formerly AU's chief executive officer and board member of AU-Special. While CALA was open, Berger was in charge of the day-to-day operation of the school. Appellants also presented the testimony of Herbert Burk, who became AU's chief financial officer in August 2005. Through Berger's and Burk's testimony, appellants attempted to show that they were entitled to $50, 000 in federal grant money; the expenses that AU-Special incurred to operate CALA during the fall 2001 semester; lost profits for school years 2001-2002, 2002-2003, and 2003-2004; and other damages.

{¶ 18} The Department introduced the testimony of Joni Hoffman, who was the assistant director of the Department's Office of School Options in 2001. Hoffman testified to CALA's receipt of $100, 000 in grant funds. In a letter dated May 10, 2001, Hoffman had indicated that additional grant funds totaling $50, 000 would be available to CALA in October 2001 and October 2002. Hoffman explained at trial that payment of those funds was within the Department's discretion. Additionally, the Department introduced the testimony of David Varda, previously the Department's associate superintendent for finance and accountability. In late 2001, Varda received a letter from Daniel E. Schultz, Jr., then chief deputy auditor for the auditor of state, reporting that CALA's financial records and statements for the 1999-2000 school year were incomplete and inauditable.

{¶ 19} In its decision, the Court of Claims determined that appellants failed to prove entitlement to damages. As an initial matter, the Court of Claims found that the Department's obligation to fund CALA ended during the fall 2001 semester and, thus, appellants could not collect damages for the remaining two-and-one-half years of the five-year contract. Because CALA did not retain student enrollment data for the fall 2001 semester, appellants could not prove the amount the Department owed it under the statutory funding formula. Thus, the Court of Claims found it could not award appellants damages based on that measurement of loss. The Court of Claims also rejected appellants' alternative methods for demonstrating damages for the fall 2001 semester. Citing evidence that CALA's financial records were incomplete and inauditable, the Court of Claims concluded that appellants failed to prove the existence or amount of lost profits with reasonable certainty. Finally, the Court of Claims found that appellants did not prove that they were entitled to any additional grant funds.

{¶ 20} The Court of Claims issued a judgment entry on July 2, 2012 that rendered judgment in appellants' favor and ordered the Department to pay appellants $25, the amount of their filing fee. Within 30 days of the judgment, appellants moved for their attorney fees pursuant to R.C. 2743.19 and 2335.39. The Court of Claims ...


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