COLUMBUS, OH – Jamie Colner and Adam Galat secured a groundbreaking legal victory in the Ohio Supreme Court that will help reform the charter school system in Ohio. Other members of the legal team included former Shumaker, Loop & Kendrick, LLP partner, Karen Hockstad, and her colleague, Gregory Mathews, both of Dinsmore & Shohl, LLP.
Shumaker represents the governing boards of ten (10) publicly funded charter schools in a lawsuit against their for-profit operator, White Hat Management. The schools filed claims for breach of contract, breach of fiduciary duties, an accounting, and declaratory and injunctive relief.
When White Hat refused to provide information about the expenditure of public funds, the schools successfully obtained an order compelling White Hat to provide this information. The Tenth District affirmed, and White Hat’s further appeal was not accepted for discretionary review. Hope Academy v. White Hat, 10th Dist. Franklin No. 12AP-116, 2013-Ohio-911, appeal not accepted, 136 Ohio St.3d 1452, 2013-Ohio-3210, 991 N.E.2d 258.
The issues then turned to the nature of the relationship between the schools and White Hat. The schools characterized White Hat as their fiduciary, while White Hat claimed to be an independent contractor. On this issue, the trial court held that the parties had not agreed to a fiduciary relationship, but for a very narrow set of circumstances. The Tenth District affirmed, and the schools’ appeal to the Ohio Supreme Court was accepted for discretionary review. Hope Academy v. White Hat, 10th Dist. Franklin No. 12AP-496, 2013-Ohio-5036, appeal accepted, 138 Ohio St.3d 1448, 2014-Ohio-1182, 5 N.E.3d 666.
The Supreme Court reversed after holding that a management company that undertakes the daily operation of a charter school has a fiduciary relationship with the charter school it operates. Hope Academy v. White Hat, __ N.E. 3d __, 2015-Ohio-3716 (slip opinion, Sept. 15, 2015). This holding will have critical, far-reaching implications. As fiduciaries, operators owe their schools the duties of loyalty and good faith and must act primarily for the schools’ benefit. Most importantly, as fiduciaries, operators are strictly forbidden from engaging in self-dealing. Operators that fail to meet their fiduciary duties will be liable.
As an ancillary matter, the Supreme Court also reviewed the parties’ contracts and held that White Hat owns the personal property it purchased with public funds. This holding will be limited by the Ohio General Assembly’s recent enactment of a charter school reform bill, which renders unenforceable any contracts that purport to grant operators ownership rights to property purchased with public funds.
The schools will soon resume litigating their claims before the trial court. And, thus far, the evidence reveals uniform patterns of self-dealing and breached fiduciary duties by White Hat. Consequently, the Supreme Court’s holding should pave the way to finding White Hat liable for, at the very least, the schools’ breach of fiduciary duty claim.
Jamie practices in the areas of business and personal injury litigation. He has extensive jury trial experience representing both plaintiffs and defendants in complex tort and business cases. Jamie is Board Certified by the National Board of Trial Advocacy and on the Executive Board of the American Board of Trial Advocates Ohio Chapter.
Adam practices in the areas commercial litigation and appellate advocacy. His experience includes the representation of manufacturers, employers, financial institutions, commercial landlords, and franchisors in all aspects of commercial litigation. He joined the firm after having served as a judicial clerk at the trial and appellate levels. He has extensive appellate experience in briefing and arguing appeals before the state and federal courts.
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Founded in 1925, Shumaker, Loop & Kendrick, LLP is a full service business law firm with more than 240 attorneys practicing in Toledo and Columbus, Ohio; Tampa and Sarasota, Florida; and Charlotte, North Carolina.