M.K. v. Prestige Academy, 1:17-cv-01135

Background

M.K., a student with disabilities, and his mother filed a due process complaint against Prestige Academy Charter (the LEA) alleging IDEA violations; they executed a written settlement agreement in May 2016 requiring Prestige to reimburse up to $30,000 for educational expenses and $15,000 in attorney’s fees.
The parties waived the IDEA resolution waiting period and ended the due process hearing by stipulation; the State of Delaware (the SEA) did not participate in negotiations and is not a signatory to the Settlement Agreement.
Prestige allegedly failed to make payments under the Agreement and has not renewed its charter, prompting Plaintiff to seek enforcement against Delaware as the SEA because Prestige may be defunct and unable to satisfy the Agreement.
Delaware moved to dismiss, arguing (a) federal courts lack jurisdiction because the settlement was not reached through the IDEA resolution/mediation process, and (b) as a matter of state law Delaware is not liable for a charter school’s contractual obligations; it also asserted several procedural defenses (statute of limitations, laches, ripeness, defective service).
The district court treated the jurisdictional challenge as facial, considered public administrative records, and evaluated whether federal-question jurisdiction exists under 28 U.S.C. § 1331 via Grable.
The court denied Delaware’s motion to dismiss, holding (1) federal-question jurisdiction exists because Plaintiff’s claims necessarily raise substantial and disputed issues of federal law about an SEA’s obligations under the IDEA, and (2) Delaware’s substantive and procedural defenses did not warrant dismissal at this stage.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the IDEA provides federal jurisdiction to enforce a settlement reached outside the IDEA resolution/mediation period	The Agreement vindicates federal IDEA rights and should be enforceable; enforcement against the SEA is proper because the LEA is defunct	IDEA jurisdiction attaches only to settlements reached during the statutory resolution or mediation processes; agreements outside those processes are state-contract matters	Court: IDEA does not by itself authorize enforcement of settlements made outside the resolution/mediation period, but federal-question jurisdiction still exists for other reasons
Whether federal-question jurisdiction exists under Grable for state-law enforcement action that turns on an SEA’s IDEA obligations	Plaintiff: enforcement necessarily raises a federal issue (scope of SEA responsibility under IDEA); the complaint is grounded in federal law	Delaware: this is a simple contract claim about who owes money; no substantial federal issue	Court: Grable satisfied—claims necessarily raise an actually disputed, substantial federal question (SEA obligations under IDEA) and federal forum will not disturb federal-state balance
Whether Delaware can be held liable or bound as a matter of state law for a contract to which it was not a party	Plaintiff: SEA has obligation to ensure FAPE and may be responsible if LEA fails; state-law defenses cannot defeat federal IDEA duties	Delaware: not liable under Delaware law; cannot be bound because it was not a contracting party; corporate/bankruptcy remedies against Prestige are proper route	Court: Rejected Delaware’s substantive arguments at dismissal stage, relying on IDEA structural duties and prior district precedent (Charlene R.) to permit the claim to proceed
Procedural defenses: statute of limitations, laches, ripeness, and service	Plaintiff: claims are for breach of the Settlement Agreement that accrued on breach; due process complaint was timely; service complied with federal rules; dispute is ripe given Prestige’s apparent cessation	Delaware: claim time-barred (IDEA violations occurred earlier), laches, not ripe if effective recourse against Prestige remains, improper service under Delaware statute	Court: Statute of limitations not yet expired for enforcement claim; laches and ripeness arguments insufficient at this stage; federal service rules were followed so service challenge fails

Key Cases Cited

Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308 (federal jurisdiction over state-law claim that necessarily raises substantial federal issue)
Gunn v. Minton, 568 U.S. 251 (federal jurisdiction lacking where state claim involved a federal issue without broader federal significance)
Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677 (federal jurisdiction rejected where dispute traditionally belongs in state court and lacked a discrete federal issue)
Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, 136 S. Ct. 1562 (federal jurisdiction principles when state-law claim requires proving violation of federal statute)
Charlene R. v. Solomon Charter Sch., 63 F. Supp. 3d 510 (E.D. Pa. 2014) (district-court decision recognizing SEA responsibility to ensure FAPE and permitting federal enforcement theories)
Kruelle v. New Castle County Sch. Dist., 642 F.2d 687 (3d Cir. 1981) (legislative history supporting centralized SEA responsibility for special education)
Gadsby v. Grasmick, 109 F.3d 940 (4th Cir. 1997) (SEA’s supervisory role and potential liability when LEA fails to provide FAPE)
Lawrence Twp. Bd. of Ed. v. New Jersey, 417 F.3d 368 (3d Cir. 2005) (no private right of action under IDEA for LEAs; distinguishes fiscal disputes from children’s educational rights)