Monarch Academy Baltimore Campus, Inc. v. Baltimore City Board of School Commissioners

Graeff, J. This appeal arises from complaints filed in the Circuit Court for Baltimore City by appellants, charter schools in Baltimore City (the “Charter Schools”), against the Baltimore City Board of School Commissioners (the “City Board”), appellee. 1 The complaints alleged a breach of contract by appellee in failing to provide funding to the charter schools that was ⁶⁰⁰ commensurate with the amount disbursed to other public schools and in failing to provide budget and financial information. After counterclaims were filed, the circuit court issued an order that stayed the proceedings in the circuit court “pending administrative review of the parties’ dispute by the State Board of Education” (the “State Board”). On appeal, the Charter Schools present a single question for our review, which we have rephrased, as follows: Did the circuit court err in staying the proceedings pending administrative review on the ground that the State Board has primary jurisdiction over the issues raised in the complaint? For the reasons set forth below, we conclude that the circuit court’s order is not an appealable order, and therefore, we shall dismiss this appeal.

BACKGROUND A decision to dismiss an appeal typically will not require a detailed discussion of background facts and law. In this case, however, the nature of the issues presented to the circuit court, including the connection between the authority of the State Board with respect to school budgets and the issues presented in the Charter Schools’ breach of contract claim, requires some background discussion. State Board’s Authority Over Public Schools Maryland Code (2014) § 2-205 of the Education Article (“ED”) sets forth the “broad” and “comprehensive” authority of the State Board. See Bd. of Educ. for Dorchester County v. Hubbard, 305 Md. 774, 787-88 , 506 A.2d 625 (1986).

It “exercised general control and supervision over the public schools and educational interests in this State,” ED § 2—205(g)(2), determines the “educational policies of this State,” ED § 2-205(b), and it “shall decide all controversies and disputes under” the Education Article. ED § 2-205(e)(2). The Court of Appeals has stated that ED § 2-205 provides the State Board with “visitatorial power of such ⁶⁰¹ comprehensive character as to invest the State Board “with the last word on any matter concerning educational policy or the administration of the system of public education.’ ” Hubbard, 305 Md. at 788 , 506 A.2d 625 (quoting Bd. of Educ. of Prince George’s County v. Waeldner, 298 Md. 354, 360 , 470 A.2d 332 (1984)). Accord Baltimore City Bd. of Sch.

Commr’s v. City Neighbors Charter Sch., 400 Md. 324, 343 , 929 A.2d 113 (2007) (State Board has the “paramount role” “in interpreting the public education law.”). Although that visitatorial power is not unlimited, “ ‘the paramount role of the State Board of Education in interpreting the public education law sets it apart from most administrative agencies,’ ” Patterson Park Pub. Charter Sch., Inc. v. Baltimore Teachers Union, 399 Md. 174, 195 , 923 A.2d 60 (2007) (quoting Hubbard, 305 Md. at 790-91 , 506 A.2d 625 ), and “ ‘decisions of the State Board of Education are entitled to greater deference than those of most other administrative agencies.’ ” Id. at 197, 923 A.2d 60 . Charter School Funding Charter schools have been described as “semi-autonomous public schools that operate under a contract with a State or local school board.” City Neighbors, 400 Md. at 328 , 929 A.2d 113 . “The contract, or charter, defines how the school will be structured, staffed, managed, and funded, what programs will be offered, and how the school will operate and account for its activities.” Id.

In 2003, the General Assembly created the Maryland Public Charter School Program by enacting Title 9 to the Education Article. Id. at 329 , 929 A.2d 113 . The purpose of the charter school system is to “establish an alternative means within the existing public school system in order to provide innovative learning opportunities and creative educational approaches to improve the education of students.” ED § 9-101(b). Because charter schools are public schools, they generally are subject to the “provisions of law and regulation governing other public schools.” ED § 9-102(11).

The General Assembly, in “trying to fashion a formula for public funding” for charter schools, opted not to set a “specific ⁶⁰² formula,” but rather, it determined that funding for charter schools should be in an amount “commensurate” with the amount disbursed to other public schools. City Neighbors, 400 Md. at 354-55 , 929 A.2d 113 . Accordingly, the statute provides: A county board shall disburse to a public charter school an amount of county, State, and federal money for elementary, middle, and secondary students that is commensurate with the amount disbursed to other public schools in the local jurisdiction. ED § 9-109(a).

The Court of Appeals has explained that this funding provision “necessarily left some room for interpretation—what was commensurate and how was the amount disbursed to other public schools to be determined when no amounts were actually disbursed to public schools?” City Neighbors, 400 Md. at 355 , 929 A.2d 113 , The Court stated that, by providing for funding in this manner, the legislature “must have envisioned that” the State Board, “the body it has consistently vested with the ultimate administrative authority to interpret, explain, and apply the public education laws—would have the primary authority to interpret, and the ultimate authority to implement, that provision.” Id. Commensurate Funding Cases In May 2005, the State Board issued opinions addressing several charter school funding cases. Id. at 335-36 , 929 A.2d 113 . 2 The State Board concluded that the phrase “commensurate with the amount disbursed to other public schools in the local jurisdiction” meant that a public charter school would receive funding in an “amount proportionate to the amount of funds expended for elementary, middle, and secondary level students in the other public schools in the same system.” Id. at ⁶⁰³ 336, 929 A.2d 113 . That included “funding for services for which students in the public charter schools are eligible such as free and reduced price meals, prekindergarten, special education, English language learners, Perkins, Title I, and transportation.” Id.

Noting that there was “no statewide formula or methodology for determining how local school systems fund their schools,” the State Board decided on an “average per-pupil amount,” which is then multiplied by the student enrollment of the school. Id. at 336-37 , 929 A.2d 113 . The formula to determine the average per-pupil amount was the “[t]otal annual school system operating budget,” excluding debt service and adult education, divided by the “September 30 enrollment count for the previous year.” Id. at 337 , 929 A.2d 113 & n.5 . This amount was then reduced by 2% for reasonable administrative costs of performing school system central office functions.

Id. at 337 , 929 A.2d 113 . 3 The Court determined that the Board’s use of an average per pupil funding approach “had the virtues of both simplicity and flexibility,” given that, at that time, there was not an enrollment history at the schools “upon which to base a more refined enrollment-driven allocation of funds.” Id, at 355-56, 929 A.2d 113 . Once that type of history existed, however, the Board could revisit the issue. Id. at 356 , 929 A.2d 113 . The Board again addressed charter school funding in Monocacy Montessori Communities, Inc. v. Frederick County Board of Education, MSBE Op.

No. 06-17, p. 3 (May 24, 2006). As this Court explained in Frederick Classical Charter School, Inc. v. Frederick County Board of Education, 227 Md.App. 439, 446 , 134 A.3d 376 , cert. granted, 448 Md. 724 , ⁶⁰⁴ 141 A.3d 135 (2016), the Board in Monocacy determined that “a school system could use a different formula so long as it resulted in a ‘bottom line amount of money’ ” that the Board could conclude amounted to the school system providing “proportionate/commensurate funds to the charter school.” More recently, in Frederick Classical, the Board again addressed funding issues relating to a charter school. This Court upheld the Board’s determination that the charter school was not entitled to funding for transportation costs when, pursuant to its charter agreement, the school did not “participate in the public school transportation program,” but rather, the families of the students provided transportation. Id. at 459, 134 A.3d 376 .

The Board determined that a charter school is not entitled to receive funds for services it does not provide, and if it did, it would receive “more than its share of commensurate county funds.” Id. at 453 , 134 A.3d 376 . Proceedings in the Present Case In 2015, a number of Baltimore City’s public charter schools filed breach of contract complaints against the City Board. 4 The complaints alleged that, for the 2015-2016 school year, there would be 34 charter schools in Baltimore City, “with a combined enrollment of approximately 13,724 students, or more than 15% of Baltimore City’s public school enrollment.” The Charter Schools asserted that the Charter School Agreement (the “Contract”) that they entered into with the City Board, addressed, among other things, funding of the schools and the City Board’s obligation to provide financial transparency in the funding process. Specifically, the Contract provided the following: 6.1 OPERATING FUNDS. The parties agree that Title 9[ 5 ] requires funding of the charter school that is commensurate ⁶⁰⁵ with the amount disbursed to other public schools in the local jurisdiction, and that Commensurate Funding is integral to this contractual relationship and essential to the School Operator’s ability to operate the School hereunder and that all funds provided by the School Board to the school are to be used solely for the benefit of the school and its students.

Accordingly, during each school year during the Term, the School Board shall allocate Commensurate Funding to the School Operator for the following school year pursuant to Applicable Requirements. Any financial commitment on the part of the School System contained in this Agreement is subject to the annual appropriation by the School Board. The School Board’s staff shall deliver to the School Operator a draft of the funding formula including the amount of the estimated per pupil allocation for the applicable school year (determined in accordance with the School Board’s “approved funding formula” and Applicable Requirements) and will make a good faith effort to deliver these materials in no less than two weeks prior to the budget (distinct from the Budget of the School Operator covered in Section 6.2) submission deadline for the School, such deadline to be consistent with the deadline for all School System schools. The draft document will include: (i) the School System’s budget and line item amounts necessary to calculate the per pupil allocation, and (ii) copies of any materials or documentation related thereto that is delivered to the School Board for public presentation.

Additionally, the School Board agrees to make reasonable efforts to provide to the School Operator background information on the methodology and assumptions behind the calculations as soon as such materials are available. (footnotes omitted). The complaints asserted one count for breach of contract, averring that the City Board “is contractually obligated to provide [the Charter Schools] ‘commensurate funding’ under the Contracts, but has failed to do so”; the City Board “is contractually obligated to provide [the Charter Schools] certain budget and financial information under the Contracts, but ⁶⁰⁶ has failed to do so”; and the Charter Schools “ha[ve] sustained damages and will continue to sustain damages as a result of [the City Board’s] breach of contract.” Specifically, the complaints alleged that the City Board never provided the Charter Schools with commensurate funding, and instead, “from year to year, arbitrarily presented charter school operators with take-it-or-leave-it charter school per pupil figures derived using varying (or no) calculation methodology, inflated estimates of overall System enrollment, and unsupported and dubious financial and budget figures.” Further, the City Board “failed to apply the per pupil calculation methodology put forth by the [State Board] and affirmed by the Court of Appeals,” and it not only failed to disclose the details of its calculations, but it “unilaterally changed their methodology in developing the amount to be disbursed to charter schools.” The City Board filed motions “to dismiss, or in the alternative, motion to stay,” asserting, among other things, that the “gravamen” of the complaints, that the City Board had not provided “commensurate funding” for charter school students, was a matter that should be decided by the State Board, not the court, under the primary jurisdiction doctrine. Noting that it had filed, the same day as it filed the motions to dismiss, a petition for declaratory relief with the State Board, seeking a ruling that it had provided commensurate funding and properly applied the funding formula, the City Board asked that the complaints be dismissed pending a decision from the State Board.

Alternatively, the City Board proposed that the circuit court proceedings be stayed until the State Board, the body best equipped to hear those issues, had ruled on the administrative proceeding. The Charter Schools opposed the City Board’s motions, asserting that the circuit court, not the State Board, “has proper jurisdiction over this breach of contract action.” They asserted that the relief being sought was “equitable and legal redress and monetary damages for [the City Board’s] ongoing breach of its contractual obligations to pass through commen ⁶⁰⁷ surate funding to [the Charter Schools] and its students in an open and transparent process,” which is “not a dispute resolvable through administrative remedies.” In any event, they argued, “the only remedy the ... State Board ... could provide—its own interpretation of [the City Board’s] related statutory obligations,” including the methodology applicable to funding of charter schools, had already been decided in City Neighbors . Thus, they asserted, to the extent the State Board “ever had ‘primary jurisdiction’ over its interpretation of [ED § 9-109] that jurisdiction has long been fully completed.” With respect to the alternative relief requested, the Charter Schools asserted that the City Board’s motions to stay should be denied because its petition to the State Board was not asking the State Board to interpret the “true intent and meaning” of education law, but instead, it was requesting that the State Board “apply the education law, as already explained and interpreted, and incorporated into a contract, to a specific set of circumstances.” Moreover, they asserted that, because the State Board was not required to issue a declaratory ruling, if the motions to stay were granted, appellants could “be left indefinitely without any result.” After a hearing on January 8, 2016, the circuit court issued a lengthy oral ruling from the bench.

The court relied heavily on the City Neighbors opinion, stating that the following paragraph in the opinion was important: Finally, perhaps in light of the fact that it was already dealing with three charter schools and that there were several others in the pipeline and that it was issuing a declaratory ruling, the Board noted that its opinions should be used as “guidance and direction” to other charter school applicants and local school systems “for the refinement of the working relationships on behalf of the public school children throughout this [S]tate.” (quoting City Neighbors, 400 Md. at 839 , 929 A.2d 113 ), The circuit court explained that this paragraph was important because it showed that the State Board understood that the ⁶⁰⁸ methodology identified “should be used as guidance and direction” in future cases. The court ultimately determined that City Neighbors “provided sufficient guidance” regarding the meaning of commensurate funding, including the “requisite factors to be considered, the data to be considered.” Under these circumstances, it concluded that the court was “no longer obliged to punt the issue to the expertise of the administrative body,” but rather, it was entitled “to decline to invoke primary jurisdiction.” Accordingly, the court denied the motion to dismiss. After the circuit court ruled, the State Board dismissed the City Board’s petition, without prejudice. It noted that the circuit court had “asserted its jurisdiction” on the issue, and it did not serve the interests of conserving judicial (and quasi-judicial) resources to have parallel proceedings. 6 Subsequently, the City Board filed counterclaims against the Charter Schools.

It stated that Baltimore City is the fourth largest school system in Maryland, serving 85,000 students in 186 schools and programs. Of those 186 schools, 84 are public charter schools, and approximately 16% of all students in public schools attend charter schools. The counterclaim alleged that the City Board’s goals for schools had to “be carried out with limited resources that must be spread across a diverse population of students with varying needs,” and if “Charter Schools receive more than their legally required share, less money is available for students attending Traditional Public Schools.” The City Board asserted that Charter Schools had received services that exceed “the 2% administrative cost included in the funding formula,” and as a result, the Charter Schools had “received more funding than the Traditional Public Schools.” Accordingly, because the parties disputed “which services provided by the District Office are appropriately included in ‘Administrative Costs,’ ” the City ⁶⁰⁹ Board sought a “declaratory judgment regarding which services provided by the District Office are appropriately included in the funding formula 2% line item for ‘Administrative Costs.’ ” The City Board also sought damages for breach of contract by the Charter Schools and unjust enrichment. On April 18, 2016, a hearing was held on the Charter Schools’ motion to dismiss the counterclaims.

At the hearing, the court questioned whether there was an administrative procedure pending, and it asked “what happened that causes you to rightfully be in my courtroom.” 7 Counsel for the City Board responded: I wish I was in front of you several months ago. I think in January we had a hearing on a motion to dismiss where we argued exactly what Your Honor is stating, the doctrine of primary jurisdiction that this case should be stayed in favor of the State Board ... making a determination of these issues and our motion was denied. After further discussion regarding the procedural history of the case, and after a brief recess, the court noted that the City Board “would like to make an oral motion at this time.” Counsel for the City Board then moved to dismiss “on the basis that the appropriate tribunal or court or body to hear this matter is the State Board of Education.” Citing City Neighbors , counsel stated that the “case law is very clear that that body should be the first one to take up matters such as the ones that have been raised by the Plaintiff here relating to intricate, detailed, and important issues of public policy relating to education and educational funding.” Counsel for the Charter Schools responded that the claim raised in the complaint was for breach of contract, and the resolution of such disputes are for the courts. Counsel asserted that the issue of commensurate funding had already been settled and affirmed by the courts, thus “satisfying the re ⁶¹⁰ quirements of primary jurisdiction of letting the administrative agency have a crack at setting out the interpretation.” The court ultimately granted the Charter Schools’ motion to dismiss the counterclaim seeking declaratory judgment, without prejudice.

With respect to the other matters, however, it ruled that dismissal was not appropriate, and the action should be stayed “pending the matter be administratively reviewed before it comes to the [cjircuit [cjourt.” The court entered a written order to that effect. On May 5, 2016, the Charter Schools filed this appeal seeking review of the court’s stay order. 8 DISCUSSION The issue presented by the Charter Schools involves the exhaustion of administrative remedies. As the Court of Appeals has explained, when the General Assembly provides an administrative remedy and a judicial remedy to resolve a matter, the relationship between the remedies typically falls into one of three categories: “[T]he administrative remedy may be exclusive, thus precluding any resort to an alternative remedy. Under this scenario, there simply is no alternative cause of action for matters covered by the statutory administrative remedy. [T]he administrative remedy may be primary but not exclusive.

In this situation, a claimant must invoke and exhaust the administrative remedy, and seek judicial review of an adverse administrative decision, before a court can properly adjudicate the merits of the alternative judicial remedy. ⁶¹¹ [T]he administrative remedy and the alternative judicial remedy may be fully concurrent, with neither remedy being primary, and the plaintiff at his or her option may pursue the judicial remedy without the necessity of invoking and exhausting the administrative remedy.” United Ins. Co. of Am. v. Maryland Ins. Admin., 450 Md. 1, 14-15 , 144 A.3d 1230 (2016) (quoting Prince George’s County, v. Ray’s Used Cars, 398 Md. 632, 644-45 , 922 A.2d 495 (2007)). In the situation where there is no “specific statutory language indicating the type of administrative remedy, there is a rebut-table presumption that an administrative remedy was