Companies can charge charter schools to buy back their property, rules Ohio Supreme Court

The Ohio Supreme Court issued a ruling yesterday in a contentious case involving a number of Ohio charter schools and the management companies that ran them. The case involved ten charter (community) schools out of Cleveland that had entered into a contract with White Hat or WHLS management companies to run the daily operations of the schools. As part of the contract, the parties agreed that the companies would take the state, federal and local public funds provided to the schools and manage the schools, including buying equipment, hiring staff and other operational tasks. The contract also contained a clause that required the schools to buy back the equipment from White Hat that was originally purchased for the schools with public funds when the contract ended if they wanted to keep the property.

Many of the schools managed by White Hat did not succeed, causing the schools to raise questions about how the company spent the funds it received. This led to litigation, in which the schools ultimately challenged the buy-back portion of the contract, arguing that White Hat was in a fiduciary relationship with them, that the public funds given to White Hat were still public even though White Hat was a private company and that property purchased with public funds had to stay titled in the school's name.

The Ohio Supreme Court agreed that White Hat held a fiduciary relationship with the schools and that this relationship was implicated in their use of public money to buy property for the schools, but found that the buy-back clause was enforceable. The Court questioned its conscionability, but found that the Ohio laws governing operators of charter schools were lax and did not provide much in the way of regulating these relationships that could show a breach of fiduciary duty with a clause such as this. The Court also stressed that since the schools did not raise the conscionability of the clause they could not address it as an issue.

The Court found that the buy-back provision was something the parties agreed on, and that it is enforceable even if it now seems unfair. The Court stressed that the schools were represented by counsel when they signed the agreement and that, "unless there is “ ‘fraud or other unlawfulness involved, courts are powerless to save a competent person from the effects of his own voluntary agreement." This effectively upholds the clause and requires the schools to purchase their property from the management companies if they want to keep it, even though it was bought with public funds intended for the school.

Justice Lanzinger wrote the opinion for the majority. The Court was divided as to many aspects of the case, with Chief Justice O'Connor and sitting Justice Wise concurring in the syllabus and judgment only, Justices Kennedy and French concurring in part and dissenting in part, Justice O'Neill concurring in part and dissenting in part and Justice Pfeifer dissenting entirely.

For more information about this case, see this article from Court News Ohio, and this one, from Ohio.com.

Image via Pixabay.