Opinion
H034551
01-12-2012
LIBERTY FAMILY ACADEMY CHARTER SCHOOL, Plaintiff and Appellant, v. NORTH MONTEREY COUNTY UNIFIED SCHOOL DISTRICT, Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Monterey County Super. Ct. No. M95610)
Plaintiff Liberty Family Academy Charter School, a nonprofit corporation (Nonprofit), appeals a judgment of dismissal entered following the trial court sustaining defendant North Monterey County Unified School District's (District) demurrer without leave to amend. The court dismissed the case on the ground that Nonprofit lacked standing to bring an action against District, because the charter for Liberty Family Charter School (School) had been revoked and School ceased to exist.
STATEMENT OF THE FACTS AND CASE
School was created in 1998 through District's grant of a charter for five years pursuant to Education Code section 47605. In 2003, at the end of the five-year-term, School sought a renewal of its charter pursuant to Education Code section 47607. At the time, District had "serious concerns about the performance of [School] under its initial charter."
District approved the renewal request, subject to School fulfilling a number of conditions. One of District's conditions was that School create a nonprofit corporation pursuant to Education Code section 47604. The articles of incorporation for nonprofit were filed with the Secretary of State on May 20, 2003. District renewed School's charter on July 17, 2003.
Following the renewal of the charter, Nonprofit and District entered into an Administrative Services Agreement (ASA) that provided the following: "[Nonprofit] is a nonprofit public benefit corporation that currently operates as a K-12 charter school . . . . [¶] District shall transfer to [Nonprofit] in lieu of property taxes in monthly installments on the fifteenth (15th) of each month pursuant to Education Code section 47635. [¶] . . . [¶] . . . The parties agree that it is their intent, consistent with Education Code section 47604, subdivision (c), that 'an authority that grants a charter to a charter school to be operated by, or as, a nonprofit public benefit corporation shall not be liable for the debts or obligations of the charter school.' [Nonprofit] hereby indemnifies and holds harmless the District, its Board of Education, employees, agents and representatives from all debts and obligations of [Nonprofit]. [¶] . . . [¶] The parties recognize that [Nonprofit] is a separate legal entity that operates as a Charter School under the supervisorial oversight of the District as set forth in Education Code section 47600, et seq."
The ASA also included conditions that Nonprofit improve aspects of its education program, including taking action to "clarify to the District's satisfaction the measurable pupil outcomes and means of measurement . . . ," and require teachers "to hold a Commission on Teacher Credentialing certificate . . . ." The ASA required that the conditions be met by March 15, 2004.
District determined that the conditions of the ASA were not met as of March 15, 2004. As a result, on March 25, 2004, the District's Board of Education voted unanimously to revoke School's charter effective June 30, 2004. Among the findings in support of revocation of the charter was that School was providing religious instruction to children, spent public funds to purchase religious instructional materials, and failed to follow generally accepted accounting practices. In particular, the revocation resolution found that School officials were maintaining five secret cash accounts, and that checks were made out to the person who signed the checks.
Nonprofit did not challenge District's revocation decision.
Following the revocation of School's charter, a dispute arose between District and Nonprofit regarding the funds that could be owed between the parties, and the proper procedures for closure of Nonprofit's books. Between the period of July 2005 and August 2008, the parties communicated through legal counsel, with both agreeing to specific auditors to complete review of Nonprofit's books.
The final audit was completed by the mutually agreed upon auditor on April 17, 2008, and stated that District owed Nonprofit $599,569 for unpaid in lieu of property tax monies, and $448,552 for special education funding for School's final year of operation. The audit also showed that Nonprofit owed a total of $450,494.00 for state and federal taxes, and to District.
Nonprofit submitted the final audit report to District, and requested payment of the full amounts owing by August 1, 2008. District denied Nonprofit's claim as untimely under the Government Claims Act (Gov. Code, § 900, et seq.).
On December 9, 2008, Nonprofit filed a complaint against District seeking a writ of mandate based on a statutory obligation to pay the amounts owed; alleging breach of contract based on the ASA; account stated and breach of letter contract based on District's representations to Nonprofit during negotiations following the charter's revocation; and declaratory relief.
District demurred to all causes of action on the ground that Nonprofit lacked standing to assert the claims, and the claims were barred by the Government Claims Act as untimely.
The court sustained the demurrer, without leave to amend, making the following ruling: "[t]he court finds that because the Charter of the School at issue was revoked, the school ceased to exist on or about June 30, 2004. (Education Code, § 47612; Wilson v. State Board of Education (1999) 75 Cal.App.4th 1125 [(Wilson)]). Therefore, the Plaintiff lacks standing." (Underlining omitted, italics added.)
The court subsequently entered a judgment of dismissal and Nonprofit appealed to this court.
DISCUSSION
In this appeal, Nonprofit argues the trial court erred in sustaining District's demurrer without leave to amend. Specifically, Nonprofit asserts it has standing to bring claims against District, because as a corporation that entered into agreements with District, it is a real party in interest to the action.
Because this case comes to us on appeal as a dismissal following demurrer, we examine the complaint de novo. (See McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) "We give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation] Further, we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law. [Citations]" (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.) When a demurrer is sustained without leave to amend, "we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse. [Citation]" (Ibid.) "If there is a reasonable possibility that the defect in a complaint can be cured by amendment, it is an abuse of discretion to sustain a demurrer without leave to amend. [Citation]" (Hendy v. Losse (1991) 54 Cal.3d 723, 742.)
Standing
The question before us is whether Nonprofit has standing to assert claims against District to collect monies owed for costs associated with School's operation, despite the fact that School's charter has been revoked.
The issue of standing is preliminary in all cases, and is a question of procedure. It is elemental that a named plaintiff generally must have standing to prosecute an action. (Cod. of Civ. Proc. § 367 ["Every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute."].) " 'A real party in interest ordinarily is defined as the person possessing the right sued upon by reason of the substantive law.' [Citation.]" (Redevelopment Agency of San Diego v. San Diego Gas & Electric Co. (2003) 111 Cal.App.4th 912, 920-921.) Stated otherwise, "[t]he existence of standing generally requires that the plaintiff be able to allege injury, i.e., an invasion of his legally protected interests. [Citations.]" (Surrey v. TrueBeginnings (2008) 168 Cal.App.4th 414, 417.) "The real party in interest has ' "an actual and substantial interest in the subject matter of the action," and stands to be "benefited or injured" by a judgment in the action.' [Citation.]" (Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 54-55.) As we stated in Jasmine Networks v. Superior Court (2009) 180 Cal.App.4th 980, "the real question . . . is whether the plaintiff has pled, or can prove, one or more elements of his cause of action—typically the breach of a duty owed to him, or consequent damages sustained by him. [Citations.]" (Id. at p. 992, fn. omitted.)
Here, the claims alleged in the complaint consist of five causes of action, all of which are based in part, on agreements between Nonprofit and District for the payment of monies to support School's educational endeavors. Specifically, the complaint alleges a petition for writ of mandate, and causes of action for breach of contract, account stated, and declaratory relief based on the ASA between Nonprofit and District, and the correspondence between Nonprofit and District following the revocation of School's charter.
There is no question that Nonprofit has alleged injury sufficient to satisfy the requirements of standing. (See Surrey v. TrueBeginnings, supra, 168 Cal.App.4th 414, 417.) As a party to the ASA with District, and the correspondence with District following revocation of School's charter, Nonprofit is a real party in interest to this action. The revocation of School's charter is immaterial to whether Nonprofit has standing to allege injury and entitlement to relief.
Here, the parties have lost sight of the true question of standing, and run far afield in their briefs arguing the merits of the claims under the Education Code and public policy. In particular, the parties address concerns about School's fiscal mismanagement, and the negative allegations supporting the charter revocation. While the allegations are indeed serious, and raise concerns over the possible misuse of public funds, these considerations go to the merits of the claims, and are wholly inappropriate when determining the preliminary legal issue of standing.
This court granted California Charter Schools Association's application to file an Amicus brief in this case. Like the parties, amicus misses the point on the preliminary issue of standing. Amicus frames the question in this case as "whether a nonprofit corporation formed for the sole purpose of operating a single charter school...can be responsible for closure of the charter school following revocation of the charter granted to it?" As stated, this issue relates to the merits of the action, and whether Nonprofit will succeed in its action to collect monies from District. Amicus brief does not address the legal issue of standing, and whether Nonprofit is a real party in interest to the action based on its allegations that it is a party to the ASA, and that it is entitled to recover under that agreement.
The parties' confusion on the issue of standing can in part be attributed to the trial court's error in its ruling on District's demurrer. The trial court determined that Nonprofit lacked standing to assert these claims based on the fact that School's charter had been revoked, and therefore, School no longer existed. In support of its ruling, the trial court specifically cited Education Code section 47612 , which provides, in relevant part: "[a] charter school shall be deemed to be under the exclusive control of the officers of the public schools for purposes of Section 8 of Article IX of the California Constitution, with regard to the appropriation of public moneys to be apportioned to any charter school . . . ." (Ed. Code, § 47612, subd. (a).) In addition, the trial court cited Wilson, supra, 75 Cal.App.4th 1125, which provides that even if a school operates as a nonprofit, as it did in this case, it remains under the control and oversight of the public school chartering authority. (Id. at p. 1139)
Article IX, section 8 provides in part: "No public money shall ever be appropriated for the support of any sectarian or denominational school, or any school not under the exclusive control of the officers of the public schools . . . ."
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The authorities cited by the trial court, coupled with its conclusion that the revocation of School's charter was determinative of the issue, demonstrate the trial court considered the merits of the action when deciding that Nonprofit lacked standing to assert its claims. The application of Education Code section 47612, and the Wilson case relate to whether Nonprofit can successfully recover public funds from District; they do not address if Nonprofit has sufficiently alleged it is a real party in interest to an action against District.
"In reviewing the legal sufficiency of a demurrer, we are not concerned with plaintiff's ability to prove the allegations of the complaint, or the possible difficulties in making such proof. Neither are we bound by the trial court's construction of the pleadings; instead, we exercise our independent judgment in determining whether the complaint states a cause of action." (Schmidt v. Foundation Health (1995) 35 Cal.App.4th 1702, 1706.)
Here, Nonprofit alleges sufficient claims to overcome District's demurrer based on standing. The merits of the action, and whether Nonprofit will be able to recover from District is not a consideration for the issue of standing. Nonprofit has alleged it was a party to agreements with District, and that it is entitled to monies from those agreements. Therefore, Nonprofit has standing as a real party in interest to assert its claims. The trial court erred in sustaining the demurrer without leave to amend on the basis that Nonprofit lacked standing.
DISPOSITION
The judgment is reversed.
RUSHING, P.J.
WE CONCUR:
PREMO, J.
ELIA, J.