Hope Academy Broadway Campus v. White Hat Mgt., L.L.C. (Slip Opinion)
145 Ohio St. 3d 29
| Ohio | 2015Background
- Ten Ohio community (charter) schools contracted in 2005 with White Hat Management (and affiliates) to manage daily operations in exchange for a "continuing fee" (95–96% of per-pupil state funding plus certain government grants). White Hat purchased furniture, computers, software, and other personal property for school operation.
- Contracts made White Hat responsible for nearly all operational functions (hiring, curriculum, purchasing), while reserving accounting/financial reporting for the schools; contracts also labeled White Hat an independent contractor.
- Contracts contained a buy-back provision: upon termination the schools could obtain personal property titled to White Hat only by paying an amount equal to the property’s "remaining cost basis." Section 2.b.i however required the Company to purchase “on behalf of the School” property that, "by the nature of the funding source," must be titled in the School’s name.
- Schools sued after concerns over White Hat’s use of public funds and ownership of property; lower courts upheld the buy-back clause and the case was appealed to the Ohio Supreme Court.
- The Ohio Supreme Court: (a) held the buy-back provision enforceable and remanded for inventory/disposition under contract terms; (b) held that an operator who manages a community school is an "operator" under R.C. 3314.02(A)(8)(a) and that such an operator owes a fiduciary relationship to the community school when it undertakes daily operations, thus implicating public-fund concerns when the operator purchases property for the school.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do public funds paid to a private operator retain public character after transfer? | Schools: funds remain public when used to perform a governmental function; operator is accountable as a fiduciary. | White Hat: funds lose public character once paid; statutory audits suffice for accountability. | Court: Not a blanket rule but when a private operator performs a governmental function (operating a community school) it is accountable for how it uses public funds; funds used to furnish school operations implicate public-fund concerns. |
| When operator uses state-designated education funds to buy school property, must title be in the school? | Schools: operator acts as purchasing agent; property purchased with public education funds must be titled to the school. | White Hat: contract language permits the company to purchase and title property in its name except where specific funding sources (e.g., certain grants) require school title. | Court: Contract controls; where funding source "by its nature" requires school title, property belongs to the school outright; but other contract terms permitting company title with a buy-back payment are enforceable. |
| Does an operator of daily school operations owe fiduciary duties to the school? | Schools: Yes — managing daily functions creates a fiduciary relationship. | White Hat: No — parties agreed White Hat is an independent contractor and not a fiduciary/public official. | Court: Yes — an entity that manages daily operations is an "operator" and can stand in a fiduciary relationship with the school; such relationship is implicated when public funds are used to buy school property. |
| Is the buy-back provision unenforceable because against public policy or unconscionable? | Schools: clause is improper — operator shouldn't keep property bought with public funds and require repurchase. | White Hat: clause is an agreed contractual term and must be enforced; parties negotiated and were represented. | Court: Buy-back provision is enforceable; courts must enforce clear contract terms absent fraud/unconscionability (schools did not establish unconscionability before this Court). Court remanded for inventory and disposition under contract. |
Key Cases Cited
- Cordray v. Internatl. Preparatory School, 128 Ohio St.3d 50, 2010-Ohio-6136, 941 N.E.2d 1170 (Ohio 2010) (community schools are public and a duly authorized representative can be a public official)
- State ex rel. Oriana House, Inc. v. Montgomery, 108 Ohio St.3d 419, 2006-Ohio-1325, 844 N.E.2d 323 (Ohio 2006) (state auditor may audit private entities receiving public funds; entities receiving public funds have a duty to account)
- In re Termination of Emp. of Pratt, 40 Ohio St.2d 107, 321 N.E.2d 603 (Ohio 1974) (definition of fiduciary relationship based on special trust and resulting position of influence)
- Groob v. KeyBank, 108 Ohio St.3d 348, 2006-Ohio-1189, 843 N.E.2d 1170 (Ohio 2006) (fiduciary-related principles in Ohio law)
- Dugan & Meyers Constr. Co., Inc. v. Ohio Dept. of Adm. Servs., 113 Ohio St.3d 226, 2007-Ohio-1687, 864 N.E.2d 68 (Ohio 2007) (clear and unambiguous contract provisions enforced without regard to hardship)