Students May Sue Charter Schools Under California’s False Claims Act

Issue

In Wells v. One2One Learning Foundation (2004 Daily Journal, D.A.R. 2802, Cal. App. 3rd Dist., March 3, 2004) the California Court of Appeal, Third Appellate District, considered whether students of charter schools could sue their charter schools and the chartering districts for (1) violating California’s unfair competition law, (2) misrepresentation and breach of contract, (3) and violating California’s False Claims Act.

Facts

Students enrolled in three charter schools under the control of One2One Learning Foundation and its alter ego Charter School Resource Alliance. The charters for the schools were approved by three different school districts. The students sued the schools and the school districts alleging the charter schools run their programs as "distance learning schools," but have failed to provide instructors, computers, and educational materials as promised. In particular, Students alleged that the charter schools collected state money for these purposes but did not use the money as intended. They also alleged the school districts failed to properly monitor the charter schools. The superior court dismissed Students' lawsuit based on the general rule that bars claims for educational malfeasance against public schools. Students appealed.

Appellate Court Decision

Students’ lawsuit was based on several theories, only one of which the Court of Appeal determined presented a viable claim:

  • Unfair Competition. Under Business and Professions Code section 17203, a court may prohibit “any person” from engaging in unfair competition. The term “person” means “natural persons, corporations, firms, partnerships, joint stock companies, associations and other organizations of persons.” (Bus. & Prof. Code section 17206) According to the Court, this definition does not include public entities such as charter schools, which “derive their existence, restrictions, and funding from the public entities charged with the education of [California’s] children.” Because school districts and charter schools are public entities, they are not subject to the unfair competition law.
  • Breach of Contract and Misrepresentation. No matter what a public school student calls his claim, he may not sue a public school for educational malfeasance, i.e., for failing to properly teach that student. (Peter W. v. San Francisco USD (1976) 60 Cal. App. 3d 814) Based on this principle, the Court determined Students’ breach of contract and misrepresentation claims against the charter schools must fail, because the claims were nothing more than claims for “monetary damages based on the contention the charter school failed to provide the education experience these children and their parents wanted.” In other words, they were claims for educational malfeasance.
  • False Claims Act Violations. Students claimed that the charter schools and school districts violated the California False Claims Act by submitting funding requests based on average daily attendance records, with the knowledge that the records did not accurately reflect the students enrolled in and receiving instruction, educational materials, or services from these schools. The False Claims Act allows a private citizen to file a lawsuit on behalf of the state or a political subdivision when a person or entity makes a false claim for payment from the state or a political subdivision. Here, Students’ claims of violation of the False Claims Act were not merely educational malfeasance – the heart of their false claims accusation was that the charter schools and school districts defrauded the State by submitting false claims.

The Court sent the case back to the trial court to allow Students to proceed on their claim that the charter schools and the school districts violated the False Claims Act.

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