1 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP 2 3 4 5 6 7 A Limited Liability Partnership Including Professional Corporations ARTHUR J. FRIEDMAN, Cal. Bar No. 160867 DANIEL P. BANE, Cal. Bar No. 251144 ADRIENNE W. LEE, Cal. Bar No. 265617 650 Town Center Drive, 10th Floor Costa Mesa, California 92626-1993 Telephone: 714.513.5100 Facsimile: 714.513.5130 E mail afriedman@sheppardmullin.com dbane@sheppardmullin.com alee@sheppardmullin.com 8 Attorneys for Petitioner and Plaintiff 9 10 Orange County School of the Arts Exempt from Filing Fees – Gov. Code § 6103. 11 SUPERIOR COURT OF THE STATE OF CALIFORNIA 12 COUNTY OF ORANGE, CENTRAL JUSTICE CENTER 13 14 ORANGE COUNTY SCHOOL OF THE 15 ARTS, a California non-profit public benefit corporation, 16 17 18 Petitioner/Plaintiff, v. SANTA ANA UNIFIED SCHOOL 19 DISTRICT; BOARD PRESIDENT VALERIE AMEZCUA; BOARD VICE PRESIDENT 20 RIGO RODRIGUEZ; BOARD CLERK ALFONSO ALVAREZ; BOARD MEMBER 21 JOHN PALACIO, 22 Respondents/Defendants. Case No. ORANGE COUNTY SCHOOL OF THE ARTS’ VERIFIED PETITION FOR WRIT OF MANDATE AND COMPLAINT [Code of Civil Procedure §§ 1085, 1094.5, Education Code §§ 47635, 47646, 56205, Breach of Charter Agreement, 42 U.S.C. § 1983 (14th Amendment to United States Constitution – Due Process) Declaratory and Injunctive Relief] Action Filed: Trial Date: May 7, 2019 None Set 23 24 Petitioner and Plaintiff Orange County School of the Arts (“OCSA”), brings this Verified 25 Petition for Writ of Mandate and Complaint (“Petition”) against Respondent/Defendants Santa 26 Ana Unified School District (the “District”) and its current Board Members as individuals, and 27 acting in their official capacities for the District as OCSA’s charter school chartering authority and 28 SMRH:490189396.3 -1- VERIFIED PETITION AND COMPLAINT 1 local educational agency (“LEA”) administering the District’s Special Education Local Plan Area 2 (“SELPA”). 3 4 INTRODUCTION 1. In March 2019, the District informed OCSA for the first time of its contention that 5 from 2002 to the present, OCSA had failed to contribute “equitable share” support for District6 wide special education costs in excess of District revenues (“general fund support”), and thus 7 submitted an invoice to OCSA in the amount of $19,493,329, purportedly representing OCSA’s 8 shortfalls in equitable share contributions each year from 2002 through 2019 (the “Demand”). 9 2. Not surprisingly, the District’s sudden Demand on OCSA for retroactive recovery 10 of 17 years-worth of alleged “equitable share” shortfalls violates California’s Charter Schools Act 11 (“CSA”), multiple requirements of the charter agreement between the District and OCSA, and 12 OCSA’s constitutional right to due process, among other legal prohibitions described herein. 13 3. Nonetheless, on April 15, 2019, the District informed OCSA that commencing on 14 May 15, 2019, the District would begin to “offset” its Demand by withholding from OCSA each 15 monthly transfer of in lieu property tax payments, averaging approximately $500,000 each month 16 and representing approximately 30% of OCSA’s state funding (“Monthly Transfers”). The 17 District’s threatened action violates its mandatory duty to make Monthly Transfers under 18 Education Code section 47635 and the parties’ charter agreement, among other legal prohibitions. 19 4. OCSA thus seeks by this action a writ of mandate and judgment directing the 20 District to set aside and void its unlawful Demand, along with temporary and permanent injunctive 21 relief enjoining the District from withholding OCSA’s Monthly Transfers. 22 23 THE PARTIES AND STANDING 5. Petitioner/Plaintiff OCSA is a California non-profit public benefit corporation, 24 authorized to do and doing business in Santa Ana, California. OCSA operates the Orange County 25 School of the Arts charter school located at 1010 North Main Street, Santa Ana, California, 26 serving more than 2,200 students in grades 7-12 from over 100 cities throughout Southern 27 California. 28 SMRH:490189396.3 -2- VERIFIED PETITION AND COMPLAINT 1 6. OCSA is informed and believes that Respondent/Defendant the District at all times 2 mentioned herein is a public school district duly organized and operating under the laws of the 3 State of California. The District is OCSA’s “chartering authority” under the CSA. The District 4 originally approved OCSA’s charter in 2000, and since then has renewed OCSA’s charter several 5 times, most recently for the term July 1, 2015 through June 30, 2020. The District also serves as 6 lead educational agency (“LEA”) for the District’s Special Education Local Plan Area (“SELPA”). 7 7. OCSA is informed and believes that Defendant Valerie Amezcua is a resident of 8 Santa Ana, California, the current President of the District’s governing Board and one of the 9 decision-makers for the District who has acted unlawfully in her capacity as OCSA’s chartering 10 authority and LEA as alleged herein. 11 8. OCSA is informed and believes that Defendant Rigo Rodriguez is a resident of 12 Santa Ana, California, the current Vice-President of the District’s governing Board and one of the 13 decision-makers for the District who has acted unlawfully in his capacity as OCSA’s chartering 14 authority and LEA as alleged herein. 15 9. OCSA is informed and believes that Defendant Alfonso Alvarez is a resident of 16 Santa Ana, California, the current Clerk of the District’s governing Board and one of the decision17 makers for the District who has acted unlawfully in his capacity as OCSA’s chartering authority 18 and LEA as alleged herein. 19 10. OCSA is informed and believes that Defendant John Palacio is a resident of Santa 20 Ana, California, a current member of the District’s governing Board and one of the decision21 makers for the District who has acted unlawfully in his capacity as OCSA’s chartering authority 22 and LEA as alleged herein. 23 24 JURISDICTION AND VENUE 11. This Court has general subject matter jurisdiction over state law claims, including 25 administrative and traditional mandamus claims pursuant to Code of Civil Procedure sections 26 1085 and 1094.5. The Court has concurrent jurisdiction over OCSA’s federal law claim under 42 27 U.S.C. § 1983 under 42 U.S.C. § 3613 (Tafflin v. Levitt (1990) 493 US 455, 459-460.) 28 SMRH:490189396.3 -3- VERIFIED PETITION AND COMPLAINT 1 12. This Court has personal jurisdiction because each respondent/defendant has its 2 principal place of business, executed the charter agreement and/or resides in Orange County. 3 13. Venue is proper in this Court because all parties conduct business and/or reside in 4 this County, and the events at issue took place in this County. 5 14. OCSA has performed any and all conditions precedent to filing this action, 6 including dispute resolution procedures provided under the charter agreement and has exhausted 7 any and all available administrative remedies to the extent required by law. 8 15. OCSA has no plain, speedy and adequate remedy in the ordinary course of law, 9 other than the relief sought in this Petition, that will prevent the District from acting outside its 10 legal authority. The prosecution of this action will further confer a substantial benefit on the 11 public at large by compelling the District to comply with California law and the United States 12 Constitution in executing its public, governmental functions. 13 STATEMENT OF FACTS 14 A. The Charter School Act and OCSA’s Success Story 15 16. The California Legislature enacted the CSA in 1992 (Sections 47600 et seq.) to 16 provide for the establishment and operation of charter schools within the state. The CSA reflects 17 an express legislative intent that “charter schools are and should become an integral part of the 18 California educational system and that the establishment of charter schools should be 19 encouraged.” (§ 47605(b).1) Under the statutory scheme, charter schools are part of the public 20 school system, but they operate independently from local school districts and offer an alternative 21 to traditional public schools. (§ 47601; Calif. School Bds. Assn. v. State Bd. of Education (2010) 22 186 Cal.App.4th 1298, 1305.) Like traditional public schools, charter schools “must admit all 23 pupils who wish to attend the school,” may not discriminate in their admission of students, cannot 24 charge tuition, and must be entirely secular. (§ 47605(d)(2).) 25 17. The CSA’s declared purposes are to improve student learning; increase educational 26 opportunities; encourage different and innovative teaching methods; create new professional 27 28 1 Hereinafter, all sections are references to the California Education Code, unless otherwise indicated. SMRH:490189396.3 -4- VERIFIED PETITION AND COMPLAINT 1 opportunities for teachers; expand school choices within the public school system; hold schools 2 accountable; and “provide vigorous competition within the public school system to stimulate 3 continual improvements of all public schools.” (§ 47601; Calif. School Bds. Assn., supra, at 1306.) 4 18. OCSA is a crowning success story. OCSA has received numerous honors and 5 recognition for excellence in both arts and academic education. As noted in its 2015 Renewal 6 Charter, OCSA’s academic recognitions include: one of the top three public high schools in 7 Orange County (Orange County Register, 2014), A California Distinguished School (2005, 2009, 8 2013), A U.S. Department of Education National Blue Ribbon School (1998, 2006), America’s 9 Best High Schools (Newsweek 2009, 2010, 2013, 2014), Best High Schools in America (US News 10 & World Report (2008, 2009, 2010, 2011, 2012, 2013), and the Daily Beast in 2014 ranked OCSA 11 the #52 best Academic High School in America, #14 in the West and #6 in California. 12 19. Once approved by the chartering authority, charter schools operate independently, 13 but are subject to public oversight by the chartering authority. Pursuant to the CSA’s 14 requirements, each year since its formation, the District as OCSA’s chartering authority has 15 monitored OCSA’s fiscal condition and academic performance, including annual reviews of 16 OCSA’s budgets and financial plans (§§ 47604.32, 47604.33) and charged OCSA for these 17 oversight services. (§ 47613.) 18 20. The CSA declares that charter schools “are part of the Public School System” 19 (§47615(a)(1)) and, as such, entitled to full and fair funding “equal to the total funding that would 20 be available to a similar school district serving a similar pupil population.” (§§ 47630(a), 21 47615(a)(3).) Public charter schools receive funding in the same way as traditional public schools 22 on a per pupil basis based on the average daily attendance of students they serve (“ADA”). Thus, 23 public charter schools and traditional district-run public schools are in direct competition for 24 students and dollars. Vigorous competition is explicit in the statutory design of the CSA. (§ 25 47601.) 26 21. Because of the “complicated relationship” between charter schools and their 27 chartering authority, their respective rights and obligations, particularly with respect to funding 28 matters, are strictly defined and enforced by the mandates of the CSA and the charter which SMRH:490189396.3 -5- VERIFIED PETITION AND COMPLAINT 1 constitutes a contract between the charter school and its chartering authority. The great bulk of 2 OCSA’s funding, like other charter schools, derives from a combination of grant ADA funding 3 supplied directly from the state and from the local chartering authority’s (i.e. the District’s) 4 monthly transfers of in lieu property tax payments. The District’s Monthly Transfers to OCSA 5 average approximately $500,000 and constitute approximately 30% of OCSA’s state funding. 6 B. The District’s SELPA 7 22. In 1974, the California State Board of Education adopted the California Master 8 Plan for Special Education. This statewide plan outlined the process of developing a quality 9 educational program for disabled students in California. The Master Plan required that all school 10 districts and county offices of education join together in geographical regions in order to develop a 11 regional special education service delivery system. The service regions were named Special 12 Education Local Plan Areas (“SELPAs”). Each SELPA is required each year to develop a local 13 plan describing how it will provide special education services. 14 23. The District is the local education agency (“LEA”) responsible for administering 15 the District’s SELPA. As such, the District must comply with numerous substantive and 16 procedural requirements each year in proposing and ultimately adopting its local plan. Each year, 17 the District must submit its proposed local plan to the State’s Superintendent describing, among 18 other things, the local plan area’s allocation plan, all sources of revenues by revenue source 19 received, a breakdown of funds to each local educational agency within the SELPA, and a 20 description of projected total special education expenditures. (§56205(b).) Moreover, each 21 SELPA member, particularly those identified as a source of revenue, are afforded due process 22 protections to comment and object to the proposed local plan (including the proposed budget) in at 23 least two respects. First, the annual budget for the District’s proposed local plan must be adopted 24 at a duly noticed public hearing. (§56205(b)(1).) Second, the proposed local plan submitted to the 25 Superintendent must include a description of dispute resolution processes to resolve disputes over 26 “the distribution of funding, the responsibility for service provision, and other governance 27 activities specified within the local plan.” (§56205(b)(6).) 28 SMRH:490189396.3 -6- VERIFIED PETITION AND COMPLAINT 1 24. OCSA has at all times been part of the District’s SELPA. Under Section 47646(c), 2 each charter school within a SELPA must contribute an “equitable share” of its block grant 3 funding to special education instruction and services pursuant to a local plan established under the 4 substantive and procedural requirements of Section 56205. 5 25. However, since OCSA’s formation in 2000, the District and OCSA agreed to 6 allocate responsibilities and costs for special education services as follows:  7 8 First, OCSA employs its own Special Education Coordinator and Resource Specialist(s) to provide special education services to OCSA students; and  9 Second, the District reimburses OCSA on a quarterly basis for OCSA’s actual costs 10 from special education funding the District receives from the State on OCSA’s 11 behalf, and retains any remaining State funding. 12 26. Under this agreement, since 2000 the District has retained in excess of $11.2 13 million of state special education funding provided on OCSA’s behalf over and above the amounts 14 reimbursed to OCSA (the “Windfall”). 15 27. During negotiations between OCSA and the District prior to OCSA’s 2010-2015 16 Charter Renewal, the District raised the prospect, on a going forward basis, of OCSA annually 17 contributing approximately $1,000/student (“encroachment”) towards the District’s unfunded 18 District-wide special education services (“general fund support”) 19 28. OCSA rejected this proposed encroachment, which amounted to approximately 20 $1.5 million a year, on the grounds that it was financially infeasible, and because the District’s 21 annual Windfall, at a minimum, constituted OCSA’s “equitable share” general fund support. 22 OCSA further informed the District that it would be forced to leave the District’s SELPA if the 23 District required such annual encroachments from OCSA. 24 29. Accordingly, OCSA and the District agreed as follows, as reflected in the 2010- 25 2015 Charter Renewal and operative 2015-2020 Charter Renewal. First, in the unlikely event that 26 OCSA’s actual costs for special education services ever exceeded special education revenues 27 provided by the State on its behalf, OCSA would not look to the District to cover that shortfall. 28 SMRH:490189396.3 -7- VERIFIED PETITION AND COMPLAINT 1 Second, the District would not seek from OCSA an encroachment for “general fund support” 2 unless it first satisfied four conditions:  3 4 The District must provide OCSA 15 months written notice that it will be assessing general fund support;  5 6 The District must calculate OCSA’s proposed pro-rata share of general fund support at the end of each fiscal year for that year;  7 The District must provide OCSA with documentation supporting the District’s pro- 8 rata calculation and allow OCSA an opportunity to provide input and respond 9 prior to invoicing OCSA for the prior year; and  10 The District must have provided an estimate of OCSA’s share of the general fund 11 support by June 30 of the preceding year for budgeting purposes (collectively, the 12 “Conditions Precedent”). 13 C. The District’s Unlawful Acts Threaten OCSA’s Continued Existence 14 30. On March 8, 2019, the District made its unlawful Demand, and subsequently issued 15 its invoice to OCSA for retroactive “equitable share” general fund support for each year from 16 2002 to 2019 in the amount of $19,493,329. Prior to issuing this invoice, the District had not 17 provided OCSA with 15-months notice of its demand for encroachment, it had not proposed to 18 OCSA its pro-rata share for general fund support at the end of each fiscal year, for that year, and it 19 had not provided OCSA with documentation to support this Demand, nor allowed OCSA an 20 opportunity to provide input and respond. The District also failed to provide an estimate of 21 OCSA’s share of the general fund support by June 30 of any preceding year (or at any time). 22 Additionally, each year from 2002 through 2019, the District had not identified OCSA as a source 23 of revenue or general fund support in any of its annually adopted SELPA local plans and budgets. 24 Moreover, each year from 2002 through 2019, the District reviewed OCSA’s budgets and 25 financial plans in its oversight capacity and never informed OCSA that it had failed to adequately 26 contribute toward District-wide special education funding. 27 31. On April 8, 2019, in response to the Demand, OCSA gave notice to the District of 28 its intent to leave the District’s SELPA, effective July 1, 2020. OCSA thus exercised the very SMRH:490189396.3 -8- VERIFIED PETITION AND COMPLAINT 1 right and resulting benefit of the 15-month notice requirement it negotiated for and secured in the 2 charter agreement, and thus owes no duty to contribute to the District’s general fund support either 3 retroactively or prospectively, as OCSA will leave the District’s SELPA within 15 months of the 4 District’s March 8, 2019 notice regarding the Demand. 5 32. On April 15, 2019, the District informed OCSA by letter that it intends to offset 6 the unpaid Demand by withholding OCSA’s Monthly Transfers, commencing on May 15, 2019. 7 As the District’s unlawful actions as set forth herein threaten OCSA’s ability to continue 8 operations, OCSA has no alternative but to bring this action. 9 FIRST CAUSE OF ACTION 10 (Petition for Writ of Mandate Code of Civil Procedure Section 1085 and 1094.5 Violation of Education Code section 47635) (As Against the District) 11 12 13 33. OCSA realleges and incorporates all prior allegations as if fully set forth herein. 14 34. At all relevant times including the present, the District has been and remains 15 OCSA’s chartering authority and LEA for the District’s SELPA within the meaning of Section 16 47635. 17 35. On April 15, 2019, the District informed OCSA by letter that it intends to offset the 18 unpaid Demand by withholding OCSA’s Monthly Transfers, commencing on May 15, 2019. 19 36. The District has no legal authority to withhold any funding from OCSA because the 20 Demand is unlawful for the reasons alleged herein, including each cause of action incorporated by 21 reference as if stated herein. 22 37. Additionally, even if OCSA owed any amounts to the District for general fund 23 support, the District may not lawfully withhold OCSA’s Monthly Transfers. Section 47635 24 imposes a ministerial and mandatory duty on the District to transfer to OCSA funding in lieu of 25 property taxes in monthly installments, by no later than the 15th of each month. Subsection (b) of 26 Section 47635 provides in pertinent part: 27 28 (b) The sponsoring local educational agency shall transfer funding in lieu of property taxes to the charter school in monthly installments by no later than the 15th of each month. SMRH:490189396.3 -9- VERIFIED PETITION AND COMPLAINT 1 (emphasis added). 2 38. Section 47635 grants no discretion to the District in its obligation to perform this 3 ministerial and mandatory duty. 4 39. The District and OCSA, however, agreed under OCSA’s charter that the District 5 may withhold OCSA’s Monthly Transfers for failure to timely pay the District’s invoice for 6 general fund support, but solely and expressly contingent upon the District’s compliance with each 7 of the Conditions Precedent under OCSA’s charter – each of which are designed to prohibit and 8 protect OCSA from the District’s actions at issue here. 9 40. The District, however, has failed to comply with all of the Conditions Precedent, 10 and thus remains subject to its ministerial and mandatory duty under Section 47635(b) to make 11 Monthly Transfers to OCSA. 12 41. The District’s actions and threat to withhold Monthly Transfers constitutes 13 arbitrary and capricious conduct in violation of the District’s mandatory legal duties, as well as an 14 abuse of discretion to the extent any discretion exists. Pursuant to California Code of Civil 15 Procedure section 1085, “a writ of mandate may be issued by any court… to compel the 16 performance of an act which the law specifically enjoins, as a duty resulting from an office, trust, 17 or station….” 18 42. OCSA thus seeks a writ of mandate directing the District to comply with its 19 ministerial and mandatory legal duty to make all Monthly Transfers to OCSA pursuant to Section 20 47635. OCSA additionally seeks temporary and permanent injunctive relief enjoining the District 21 from withholding or offsetting any amounts of Monthly Transfers to OCSA. 22 SECOND CAUSE OF ACTION 23 (Petition for Writ of Mandate Code of Civil Procedure Section 1085 and 1094.5 Violation of Education Code section 47646) (As Against the District) 24 25 26 43. OCSA realleges and incorporates all proceeding allegations as if set forth herein. 27 44. Section 47646(c), provides that the District, as the LEA operating a SELPA local 28 plan established pursuant to Chapter 3 (commencing with Section 56205) of Part 30, shall ensure SMRH:490189396.3 -10- VERIFIED PETITION AND COMPLAINT 1 that each charter school that is deemed a public school for purposes of special education also 2 “contributes an equitable share of its charter school block grant funding to support districtwide 3 special education instruction and services….” 4 45. The District, however, has acted arbitrarily and capriciously and abused its 5 discretion under Section 47646(c) in pursuing its Demand on OCSA for retroactive “equitable 6 share” general funding support dating back to 2002. 7 46. First, Section 47646(c) expressly provides that the District’s authority to demand 8 “equitable share” contribution from OCSA is contingent on the District’s operation of special 9 education pursuant to the local plan established pursuant to Chapter 3 (commencing with Section 10 56205) of Part 30. Here, however, the District’s Demand for retroactive general fund support is 11 not consistent with, but instead contradicts each of the District’s previously adopted SELPA local 12 plans and annual budgets. The Demand therefore effectively seeks to amend each previously 13 adopted local plan post hoc – in violation of the mandatory substantive and procedural 14 requirements for adoption and operation of SELPA local plans under Section 56205 et seq., as 15 well as OCSA’s due process protections afforded under these statutory requirements. 16 47. Second, because the District received a Windfall each year from State-provided 17 special education funding on OCSA’s behalf under its agreement with OCSA regarding allocation 18 of special education responsibilities, the parties agreed under the prior and current charter 19 agreements that the District may not encroach or assess OCSA for District-wide general funding 20 support unless it first satisfies all Conditions Precedent. The Conditions Precedent are legally 21 valid and enforceable, as OCSA’s rights under the charter derive both from the statutory 22 framework of the CSA as well as contract, and each may be harmonized with Section 47646(c). 23 The District has failed to satisfy all four Conditions Precedent, and thus has abused its discretion 24 in pursuing the Demand. 25 48. Third, the District confirmed and ratified each year from 2002 through 2019 that it 26 would not seek general fund support from OCSA by not identifying OCSA as a source of revenue 27 (or debtor with any outstanding liabilities) in each previously adopted SELPA local plan and 28 supporting budgets. Additionally, each year the District exercising its chartering authority SMRH:490189396.3 -11- VERIFIED PETITION AND COMPLAINT 1 oversight responsibilities (and charging OCSA for these services) approved OCSA’s budgets and 2 financial plans without ever informing OCSA of its alleged failure to adequately provide general 3 fund support. The District therefore additionally waived and is estopped from pursuing the 4 Demand. 5 49. Fourth, to the extent the District retains any discretionary authority to enforce 6 Section 47646(c) in light of the foregoing prohibitions, the District has acted arbitrarily and 7 capriciously and abused its discretion because the District’s Demand is not “equitable” and does 8 not constitute “equitable share” contribution within the meaning of the statute for several reasons: 9  The Demand is not equitable because as applied retroactively, and without notice 10 and opportunity to comment or object, it violates OCSA’s fundamental right to due 11 process. 12  The District’s statutory authority as LEA to ensure that a SELPA member 13 “contributes” its “equitable share” applies consistent with budgeting practices to 14 present expenses/liabilities (the current or immediately preceding year) rather than 15 limitlessly retroactive. §47646(c). 16  The District’s retroactive Demand spanning 17 years and intent to withhold 17 OCSA’s Monthly Transfers (estimated for the 2018-2019 year to total 18 approximately $5.5 million – 30% of OCSA’s state funding) until the Demand is 19 satisfied, is ultra vires, unconscionable and exceeds the scope of any reasonable 20 interpretation of “equitable share” contribution within the meaning of the statute. 21 Had the District complied with the Conditions Precedent (assuming OCSA did not 22 exercise its right to leave the District’s SELPA following the District’s required 23 15-month notice of intent to encroach), the District would have provided OCSA 24 with an estimated assessment prior to the fiscal year at issue, which would have 25 allowed OCSA to budget accordingly. At the conclusion of that fiscal year, the 26 District would have proposed an assessment to OCSA – for that single prior year – 27 supported by documentation, coupled with the opportunity to review and 28 comment. These charter requirements, each of which are consistent with best SMRH:490189396.3 -12- VERIFIED PETITION AND COMPLAINT 1 practices and thus inherent in the meaning of “equitable” share as referenced in the 2 statute, would enable OCSA to anticipate, budget for, confirm through 3 documentation, and influence the amount of assessment (limited to one year), thus 4 limiting OCSA’s exposure to feasible amounts. The District’s actions, however, in 5 violation of the Conditions Precedent and the statute’s threshold guiding principle 6 of “equity,” deprived OCSA of all the foregoing protections. As a consequence of 7 the District’s actions, the District now demands and intends to withhold from 8 OCSA approximately $5.5 million a year for approximately 4 years to 9 retroactively recover for 17-years of alleged shortfall – actions that would bankrupt 10 OCSA (and any other charter school), actions and resulting consequences that are 11 inherently inconsistent with any reasonable interpretation of “equitable share” 12 contribution contemplated by the statute.  13 14 OCSA is equitably entitled to offset against any required contribution the District’s Windfall obtained because of OCSA.  15 To the extent the Conditions Precedent are not enforceable, the Demand likewise is 16 unenforceable as OCSA’s participation in the District’s SELPA since 2010, as well 17 as any requirements regarding OCSA’s contribution to the District’s SELPA 18 general fund contained in OCSA’s 2010-2015 and present charter, are subject to 19 rescission, severance and/or reformation based on the District’s misrepresentations 20 that induced OCSA to remain in the District’s SELPA, and/or based on the 21 doctrines of unilateral or mutual mistake, ultra vires and unconscionability. 22 50. The District thus has acted arbitrarily and capriciously, and failed to proceed in the 23 manner required by law in making its Demand on OCSA in reliance on Section 47646. OCSA is 24 entitled to a writ of mandate directing the District to void and set aside any Resolutions, approvals 25 or directives relating to the Demand (including any efforts to enforce it). OCSA further seeks a 26 temporary and permanent injunction enjoining the District from withholding all or any portion of 27 OCSA’s Monthly Transfers. 28 SMRH:490189396.3 -13- VERIFIED PETITION AND COMPLAINT 1 THIRD CAUSE OF ACTION 2 (Breach of Contract) (As Against the District) 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 51. OCSA realleges and incorporates all proceeding allegations as if set forth herein. 52. OCSA and the District are parties to that certain agreement titled OCSA’s Charter Renewal, 2015-2020. OCSA’s charter while statutorily authorized additionally constitutes a legally enforceable contract between OCSA and the District. 53. OCSA has performed all of its obligations under the charter or is excused from any non-performance of its obligations. 54. The charter agreement provides that OCSA’s legal obligation in response to the Demand is expressly conditioned upon the District’s compliance with each of the Conditions Precedent. 55. The District has failed to comply with each of the Conditions Precedent. Specifically, the District failed to provide OCSA 15-month advance notice of the Demand. The District failed to provide OCSA its proposed pro-rata share for general fund support at the end of each fiscal year, for that year. The District failed to provide OCSA with documentation to support the Demand, and it failed to allow OCSA an opportunity to provide input and respond prior to issuing its invoice. Finally, the District failed to provide an estimate of OCSA’s share of the general fund support by June 30 of the preceding year (or at any time). 56. On or about March 8 and 20, 2019, the District breached the charter by making its Demand, invoicing and retroactively demanding from OCSA general fund support from 2002 through 2019, without first satisfying any, much less all of the Conditions Precedent. 57. OCSA is informed and believes that the District additionally intends to self-enforce its unlawful Demand by withholding OCSA’s Monthly Transfers. The charter agreement provides that the District may withhold Monthly Transfers, but solely on the condition that the District first fully complies with each of the Conditions Precedent (all of which are designed to protect OCSA precisely from the unlawful conduct exhibited by the District’s retroactive 28 SMRH:490189396.3 -14- VERIFIED PETITION AND COMPLAINT 1 Demand). As the District has failed to comply with the Conditions Precedent, any withholding of 2 OCSA’s Monthly Transfers would be in breach of the charter agreement. 3 58. As a proximate result of the District’s breaches, OCSA has been damaged and 4 harmed and will continue to be harmed in an amount to be proven at trial. OCSA, however, does 5 not seek damages as its remedy for this cause of action at present (while it reserves the right to 6 later amend this claim to seek this remedy.) OCSA seeks specific performance of the Conditions 7 Precedent, along with a temporary and permanent injunction enjoining the District from enforce its 8 unlawful demand, including by withholding OCSA’s Monthly Transfers. 9 FOURTH CAUSE OF ACTION 10 (42 U.S.C. § 1983 – Violation of Procedural Due Process 14th Amendment of U.S. Constitution) (As Against all Respondents/Defendants) 11 12 13 59. OCSA realleges and incorporates all proceeding allegations as if set forth herein. 60. OCSA possesses vested and legally enforceable rights within the protections of the 14 Fourteenth Amendment to the United States Constitution under the CSA and its charter to compel 15 the District to afford it due process before depriving it of any property interest. “The essence of 16 due process is the requirement that a person in jeopardy of serious loss [be given] notice of the 17 case against him and opportunity to meet it.” (Today’s Fresh Start, Inc. v. Los Angeles County of 18 Education (2013) 57 Cal. 4th 197, 212, citing Mathews v. Eldridge (1976) U.S. 424 U.S. 319, 19 348.) “The opportunity to be heard must be afforded ‘at a meaningful time and in a meaningful 20 manner.” (Id.) 21 61. The Defendants’ actions in making their Demand on OCSA (in contravention of 22 their previously adopted local plans and budgets, annual oversight determinations and the express 23 terms of OCSA’s charter) and further threatening to enforce this Demand by withholding OCSA’s 24 Monthly Transfers (in violation of mandatory statutory and charter obligation) violated OCSA’s 25 Constitutionally protected due process rights to notice and meaningful opportunity to respond 26 granted to OCSA under the SELPA approval procedures set forth in Section 56205, the District’s 27 chartering authority oversight responsibilities in reviewing and approving OCSA’s annual budgets 28 and financial plans, and as contained in the Conditions Precedent in the charter agreement SMRH:490189396.3 -15- VERIFIED PETITION AND COMPLAINT 1 negotiated for and secured by OCSA precisely to protect against the Defendants’ conduct alleged 2 herein. 3 62. Defendants’ actions are arbitrary and capricious, fail to serve any legitimate 4 governmental objective, and instead are motivated by purely personal, political reasons in 5 response to organized opposition to charter schools as competitors with the District. Defendants’ 6 conduct was not objectively reasonable in light of the legal rules and principles clearly established. 7 Moreover, because Defendants’ actions are based on pretextual and illicit purposes, as reasonably 8 competent public officials acting with improper motives, they should have known that the law 9 proscribes their conduct. 10 63. OCSA has incurred and will continue to incur substantial injury as a proximate 11 result of Defendants’ deprivation of OCSA’s constitutional rights. OCSA therefore seeks 12 preliminary and permanent injunctive relief against Defendants in the form of an order to void and 13 set aside any Resolutions, approvals or directives relating to the Demand (including without 14 limitation any attempts to offset or enforce or offset against the Demand). OCSA additionally 15 seeks from Defendants pursuant to 42 U.S.C. § 1983 compensatory damages in an amount to be 16 proven at trial. 17 FIFTH CAUSE OF ACTION 18 (Declaratory Relief) (As Against the District) 19 20 21 22 23 24 25 26 27 64. OCSA realleges and incorporates all proceeding allegations as if set forth herein. 65. There is now a ripe and justiciable controversy between OCSA and the District as to the parties’ respective rights and obligations under the CSA, OCSA’s charter and the United States Constitution. 66. The District maintains that it may collect from OCSA on its Demand. 67. OCSA disputes the District’s contentions. 68. OCSA seeks a judicial declaration that Section 47646(c) does not authorize the District’s Demand for the following reasons: 28 SMRH:490189396.3 -16- VERIFIED PETITION AND COMPLAINT 1  First, Section 47646(c) expressly provides that the District’s authority to demand 2 “equitable share” contribution from OCSA is contingent on the District’s operation 3 of special education pursuant to the local plan established pursuant to Chapter 3 4 (commencing with Section 56205) of Part 30. Here, however, the District’s 5 Demand for retroactive general fund support is not consistent with, but instead 6 contradicts each of the District’s previously adopted SELPA local plans and annual 7 budgets. The Demand therefore effectively seeks to amend each previously 8 adopted local plan post hoc – in violation of the mandatory substantive and 9 procedural requirements for adoption and operation of SELPA local plans under 10 Section 56205 et seq., as well as OCSA’s due process protections afforded under 11 these statutory requirements. 12  Second, because the District received a Windfall each year under its agreement 13 with OCSA regarding allocation of special education responsibilities, the parties 14 agreed under the prior and current charter agreements that the District may not 15 encroach or assess OCSA for District-wide general funding support unless it first 16 satisfies all Conditions Precedent. The Conditions Precedent are legally valid and 17 enforceable, as OCSA’s rights under the charter derive both from the statutory 18 framework of the CSA as well as contract, and each may be harmonized with 19 Section 47646(c). The District has failed to satisfy all Conditions Precedent, and 20 thus has abused its discretion in pursuing the Demand. 21  Third, the District confirmed and ratified each year from 2002 through 2019 that it 22 would not seek general fund support from OCSA by not identifying OCSA as a 23 source of revenue (or debtor with any outstanding liabilities) in each previously 24 adopted SELPA local plan and supporting budgets. Additionally, each year the 25 District exercising its chartering authority oversight responsibilities (and charging 26 OCSA for these services) approved OCSA’s budgets and financial plans without 27 ever informing OCSA of its alleged failure to adequately provide general fund 28 SMRH:490189396.3 -17- VERIFIED PETITION AND COMPLAINT 1 support. The District therefore additionally waived and is estopped from pursuing 2 the Demand. 3  Fourth, to the extent the District retains any discretionary authority to enforce 4 Section 47646(c) in light of the foregoing prohibitions, the District has acted 5 arbitrarily and capriciously and abused its discretion because the District’s Demand 6 is not “equitable” and does not constitute “equitable share” contribution within the 7 meaning of the statute for several reasons: 8 (i) 9 The Demand is not equitable because as applied retroactively, and without notice and opportunity to comment or object, it violates OCSA’s 10 fundamental right to due process guaranteed by the United States Constitution, the 11 local plan area annual plan and budget requirements, the CSA’s annual fiscal 12 condition oversight procedures, and the express terms of the charter agreement. 13 (ii) The District’s retroactive Demand spanning 17 years and intent to 14 withhold OCSA’s Monthly Transfers (estimated for the 2018-2019 year to total 15 approximately $5.5 million – 30% of OCSA’s state funding) for approximately 4 16 years until the Demand is satisfied, is ultra vires, unconscionable and exceeds the 17 scope of any reasonable interpretation of “equitable share” contribution within the 18 meaning of the statute. Had the District complied with the Conditions Precedent 19 (assuming OCSA did not exercise its right to leave the District’s SELPA following 20 the District’s required 15-month notice of intent to encroach), the District would 21 have provided OCSA with an estimated assessment prior to the fiscal year at issue, 22 which would have allowed OCSA to budget accordingly. At the conclusion of that 23 fiscal year, the District would have proposed an assessment to OCSA – for that 24 single prior year -- supported by documentation, coupled with the opportunity to 25 review and comment. These charter requirements, each of which are consistent 26 with best practices and thus inherent in the meaning of “equitable” share as 27 referenced in the statute, would enable OCSA to anticipate, budget for, confirm 28 through documentation, and influence the amount of assessment (limited to one SMRH:490189396.3 -18- VERIFIED PETITION AND COMPLAINT 1 year), thus limiting OCSA’s exposure to feasible amounts. The District’s actions, 2 however, in violation of the Conditions Precedent and the statute’s threshold 3 guiding principle of “equity,” deprived OCSA of all the foregoing protections. As 4 a consequence of the District’s actions, the District now demands and intends to 5 withhold from OCSA approximately $5.5 million a year for approximately 4 years 6 to retroactively recover for 17-years of alleged shortfall – actions that would 7 bankrupt OCSA (and any other charter school), actions and resulting consequences 8 that are inherently inconsistent with any reasonable interpretation of “equitable 9 share” contribution contemplated by the statute. 10 (iii) 11 OCSA is equitably entitled to offset against any required contribution the District’s Windfall obtained because of OCSA. 12 (iv.) The District’s Demand is time-barred by the governing one-year 13 statute of limitations under Code of Civil Procedure section 340(b) as an action 14 upon a statute for a forfeiture or penalty to the people of the state, or the three year 15 statute of limitations set forth Code of Civil Procedure section 338(a).  16 Fifth, OCSA seeks a judicial declaration that, to the extent and in the event that the 17 Conditions Precedent are not enforceable, the Demand likewise is unenforceable as 18 OCSA’s participation in the District’s SELPA since 2010, as well as any 19 requirements regarding OCSA’s contribution to the District’s SELPA general fund 20 contained in OCSA’s 2010-2015 and present charter, are subject to rescission, 21 severance and/or reformation based on the District’s misrepresentations regarding 22 the validity and its intent to comply with the Conditions Precedent that induced 23 OCSA to remain in the District’s SELPA, and/or based on the doctrines of 24 unilateral or mutual mistake, ultra vires and unconscionability 25 69. OCSA additionally seeks a judicial determination that the District may not enforce 26 its Demand on the grounds that the Demand is in breach of the charter agreement’s Conditions 27 Precedent. 28 SMRH:490189396.3 -19- VERIFIED PETITION AND COMPLAINT 1 70. OCSA additionally seeks a judicial determination that the District may not enforce 2 its Demand on the grounds that the District’s actions have infringed on OCSA’s right to due 3 process under the 14th Amendment to the United States Constitution. 4 71. OCSA additionally seeks a judicial declaration that the charter’s provisions 5 requiring defense/indemnity from OCSA and waivers of liability are void and unenforceable under 6 Civil Code section 1668 based on the District’s willful injuries and violations of law. 7 72. OCSA additionally seeks a judicial determination that it owes no equitable share 8 contribution to the District for general fund support prospectively because OCSA will leave the 9 District’s SELPA effective July 1, 2020, within the 15-month period commencing from the 10 District’s first notice of its Demand on March 8, 2019. 11 SIXTH CAUSE OF ACTION 12 (Declaratory Relief) (As Against The District) 13 14 73. OCSA realleges and incorporates all proceeding allegations as if set forth herein. 15 74. There is now a ripe and justiciable controversy between OCSA and the District as 16 to the parties’ respective rights and obligations under the CSA and OCSA’s charter agreement 17 with the District. 18 75. The District maintains that it may withhold OCSA’s Monthly Transfers to set off or 19 otherwise collect and/or enforce the Demand. 20 76. OCSA disputes the District’s contention and thus seeks a judicial declaration that 21 the District has a ministerial and mandatory duty under Section 47635 make OCSA’s Monthly 22 Transfers, which is not modified or relieved by the charter agreement because the District has 23 failed to comply with each of the Conditions Precedent. 24 SEVENTH CAUSE OF ACTION 25 (Accounting) (As Against the District) 26 27 77. OCSA realleges and incorporates all proceeding allegations as if set forth herein. 28 SMRH:490189396.3 -20- VERIFIED PETITION AND COMPLAINT 1 To the extent OCSA owes any money to the District, the amount is unknown to OCSA and 2 cannot be ascertained without an accounting documenting the basis for the District’s Demand. 3 The District has failed and refuses to render such accounting. 4 5 PRAYER FOR RELIEF 6 WHEREFORE, OCSA prays for Judgment against Respondent and Defendants as 7 follows: 8 1. As to the First Cause of Action: for judgment and a writ of mandate directing the 9 District to comply with its mandatory legal duty to make Monthly Transfers to OCSA pursuant to 10 Section 47635, as well as temporary and permanent injunctive relief enjoining the District from 11 withholding all or any portion of OCSA’s Monthly Transfers. 12 2. As to the Second Cause of Action: for judgment and a writ of mandate directing the 13 District to void and set aside any Resolutions, approvals or directives relating to the Demand 14 (including any attempt to enforce the Demand by withholding Monthly Transfers). OCSA 15 additionally seeks temporary and permanent injunctive relief enjoining the District from 16 withholding all or any portion of OCSA’s Monthly Transfers. 17 3. As to the Third Cause of Action: for judgment finding the District in breach of the 18 charter, for specific performance of the Conditions Precedent and for temporary and permanent 19 injunctive relief enjoining the District from withholding all or any portion of OCSA’s Monthly 20 Transfers. 21 4. As to the Fourth Cause of Action: for judgment finding that Respondent and 22 Defendants and each of them infringed on OCSA’s constitutional rights. OCSA further seeks an 23 order against Respondent and all Defendants to void and set aside any Resolutions, approvals or 24 directives relating to the Demand (including any attempt to enforce it by withholding Monthly 25 Transfers). OCSA additionally seeks compensatory damages in an amount to be proven at trial. 26 OCSA additionally seeks preliminary and permanent injunctive relief enjoining the District from 27 withholding all or any portion of OCSA’s Monthly Transfers. 28 SMRH:490189396.3 -21- VERIFIED PETITION AND COMPLAINT 1 5. As to the Fifth Cause of Action: for judgment and judicial declarations as set forth 2 in paragraphs 68-72, inclusive. OCSA additionally seeks preliminary and permanent injunctive 3 relief enjoining the District from withholding all or any portion of OCSA’s Monthly Transfers. 4 6. As to the Sixth Cause of Action: for judgment and judicial declaration that OCSA 5 may not withhold OCSA’s Monthly Transfers based on the mandatory requirements of Section 6 47635 which are not modified nor excused by the charter agreement because the District has failed 7 to comply with the Conditions Precedent. OCSA additionally seeks preliminary and permanent 8 injunctive relief enjoining the District from withholding all or any portion of OCSA’s Monthly 9 Transfers. 10 7. As to the Seventh Cause of Action: for an accounting between the District and 11 OCSA relating to the District’s Demand, including without limitation, all documents relating to 12 the District’s annual adoption of SELPA local plans and budgets and its annual review and 13 oversight of OCSA, as well as all other relevant materials. 14 8. For costs of suit. 15 9. For attorneys’ fees as authorized under 42 U.S.C. § 1988, the charter and Code of 16 Civil Procedure section 1021.5 to the extent authorized under the Government Claims Act and 17 other applicable law. 18 10. For such other relief as the Court deems just and proper. 19 20 Dated: May 7, 2019 21 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP 22 23 By /s/ Daniel Paul Bane ARTHUR J. FRIEDMAN DANIEL PAUL BANE ADRIENNE W. LEE 24 25 26 Attorneys for Petitioner/Plaintiff ORANGE COUNTY SCHOOL OF THE ARTS 27 28 SMRH:490189396.3 -22- VERIFIED PETITION AND COMPLAINT VERIFICATION I, Steven Wagner, declare as follows: I. I am the Chief Operating Of?cer and Vice?President of Business for Orange County School of the Arts, petitioner and plaintiff, in the above-named action, and I am authorized to make this veri?cation on its behalf. 2. I have read the foregoing Veri?ed Petition for Writ of Mandate and Complaint and know the contents thereof, and certify that the same are true of my own knowledge, except as to the matters which are stated on information and belief, and as to those matters, I believe them to be true. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed 06 day of May 2019 at Santa Ana, California. 34/? VERIFIED PETITION AND COMPLAINT