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Ceria M. Travis Academy, Inc. v. Evers

United States District Court, E.D. Wisconsin

July 28, 2016

TONY EVERS, Defendant.



         The plaintiff, Ceria M. Travis Academy, Inc. (“Ceria”), brings this action against the defendant, Tony Evers (“Evers”), individually and in his official capacity as Wisconsin Superintendent of Public Instruction, for violation of its Fourteenth Amendment right to due process. (Docket #1). At the initiation of this case, Ceria filed a motion for a preliminary injunction. (Docket #3). Shortly thereafter, on June 10, 2016, Evers filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). (Docket #16). Because certain arguments in the motion for a preliminary injunction were more fully developed in the motion to dismiss briefing, the Court found it prudent to address these matters together. Both motions are now fully briefed and ready for disposition. (Docket #3, #15, #18, #17, #19, #20). As discussed more thoroughly below, the Court will grant Evers’s motion to dismiss in its entirety and will, accordingly, deny Ceria’s motion for a preliminary injunction as moot.


         Ceria is a domestic non-stock corporation and 501(c)(3) entity duly organized and existing under the laws of the State of Wisconsin. (Compl. ¶ 7). Ceria operates a school, Ceria M. Travis Academy (“Academy”), that provides instruction to students from kindergarten through twelfth grade.[2](Compl. ¶ 28). Evers is the Wisconsin Superintendent of Public Instruction, which is the executive of the Wisconsin Department of Public Instruction (“DPI”). (Compl. ¶ 8). Evers is responsible for administering and making payments under the Milwaukee Parental Choice Program, pursuant to Wis.Stat. 119.23 (“Choice Program”). (Compl. ¶ 8).

         The Choice Program was first enacted by the Wisconsin legislature in 1990. (Compl. ¶ 10). The program allows parents who meet low income and residency requirements to choose to use state funds to enroll their children in a private school participating in the program instead of a Milwaukee public school. (Compl. ¶ 11). As the State Superintendent, Evers is responsible for making state payments to a school participating in the Choice Program on behalf of the students enrolled in the program. (Compl. ¶ 12).

         Throughout a school year, schools participating in the Choice Program incur costs associated with providing educational programming instruction and related services to students enrolled in the school. (Compl. ¶ 16). Pursuant to statute, for each school year in which a school participates in the Choice Program, Evers is responsible to pay the school an amount calculated based on the amount of eligible pupils enrolled in the school. (Compl. ¶ 17). This payment is divided into four installments that are to be paid throughout the year, one in September, one in November, one in February, and one in May. (Compl. ¶ 18). DPI has an established payment schedule to determine the amount of the quarterly payment that is subject to adjustments authorized by law at the end of the year. (Compl. ¶ 19).

         Each year, a Choice Program School is required to have a financial audit conducted by an independent certified public accountant. The Choice School must submit the audit to DPI on a form called the Financial Information Report. (“FIR”) (Compl. ¶ 20). The FIR determines the school’s total and per pupil costs for the prior school year. (Compl. ¶ 21). After DPI reviews the FIR, DPI issues a certified letter to determine whether it has overpaid or underpaid the school during the prior year, and adjustments are made between the school and DPI. (Compl. ¶ 22). Additionally, Choice Program schools are required to submit an independent audit of the school’s student enrollments that identifies ineligible pupils for whom the school has received payment, the amount of payment received for each such pupil, and additional eligible pupils qualifying the private school for a payment. Those enrollment audits are submitted to DPI. (Compl. ¶ 24). Upon review of the September enrollment audit, DPI certifies an amount due from the school for payments made to the school for ineligible pupils, or amounts due to the school for additional qualifying pupils. (Compl. ¶ 25).

         Ceria’s school, the Academy, is currently a participant in the Choice Program and has been a participant since 1997. (Compl. ¶ 28). On September 22, 2014, DPI issued preliminary decisions to prohibit the Academy from future participation in the Choice Program and to withhold the quarterly payments from the 2013-2014 school year. (Compl. ¶ 30). This decision was allegedly made because the Academy’s independent auditor failed to timely submit the FIRs for the 2013-2014 year. (Compl. ¶ 30). Ceria appealed the decision and negotiated a settlement to allow the Academy to participate in the Choice Program and receive the November 2014 payment provided that Ceria met certain requirements. (Compl. ¶ 31). On December 17, 2014, pursuant to this agreement, the Academy posted a bond in the amount of $789, 222.00; this bond remains in effect to date. (Compl. ¶ 32); (Stipulated Facts ¶ 35, Docket #14).

         On September 1, 2015, the Academy timely submitted its FIR for the 2014-2015 school year. (Compl. ¶ 47). On November 30, 2015, DPI issued a FIR certification letter for the Academy for the 2014-2015 school year that found the Academy’s per pupil cost for eligible programming was $0.00. This finding required the Academy to repay in excess of $2.9 million, which was the total amount previously paid to the Academy for educational programming expenses under the Choice Program during the 2014-2015 school year. (Compl. ¶ 48). In December 2015, Ceria and DPI entered into an agreement allowing the Academy to submit a new FIR for the 2014-2015 school year and its January enrollment audit by February 1, 2016. This agreement was later amended to allow the submissions by March 1, 2016. (Compl. ¶ 51). Additionally, the agreement allowed DPI to withhold from the Academy a future Choice Program payment to be made in May of 2016 for the 2015-2016 school year if DPI overpaid the Academy for the 2014-15 school year as a result of the adjustment process. (Compl. ¶ 51).[3]

         The Academy’s May quarterly payment for the Choice Program for the 2016-2016 school year was calculated by DPI to be $617, 307.00 based on prior enrollment reports. (Compl. ¶ 53). On March 2, 2016, the new auditors submitted the Academy’s January Enrollment Audit to DPI, and on March 4, 2016, they submitted the Academy’s new 2014-15 FIR to DPI. (Compl. ¶ 55). In the past, DPI has accepted other FIRs and Enrollment Audits past the submission deadlines. (Compl. ¶ 56).

         On March 14, 2016, DPI issued a new FIR certification letter. (Compl. ¶ 57) The certification letter concluded that DPI would withhold the May Payment of $617, 307.00 to “net the overpayment” from the past years. (Compl. ¶ 59). DPI issued both the November and March certification letters without conducting an evidentiary hearing. (Compl. ¶ 60). Both certification letters stated that the Academy had a right to appeal to DPI, but if they did not appeal, the certification letters would “constitute the department’s final agency decision” and that the Academy was required to exhaust its administrative remedies. (Compl. ¶ 61).

         On March 25, 2016, Ceria filed an appeal with DPI and requested a hearing with regard to the March and November certification letters. (Compl. ¶ 62). On March 28, 2016, DPI referred the appeal to the Wisconsin Division of Hearings and Appeals (“DHA”) and requested a hearing examiner to preside over a Class 2 hearing. (Compl. ¶ 63). On April 21, 2016, the parties, through their legal counsel, appeared before DHA Administrative Law Judge Jennifer E. Nashold for a Prehearing Telephone Conference. (Compl. ¶ 65). During this conference, DPI, by its counsel, stated it intended to withhold the May payment from the Academy for the stated reason that DPI would never recover the money. (Compl. ¶ 66).

         On April 27, 2016, Ceria filed a motion to stay with ALJ Nashold and requested an order staying DPI’s decision to withhold the May payment. (Compl. ¶ 68). On May 10, 2016, the ALJ issued an order denying the motion to stay. (Compl. ¶ 70). On May 23, 2016, the payments to the Choice Program schools were processed into the State’s payment system and DPI withheld the May $617, 307.00 payment to Ceria. (Stipulated Facts ¶ 33, Docket #14). To date, no evidentiary hearing has been held with respect to Ceria’s March 25, 2016 appeal. (Stipulated Facts ¶ 34, Docket #14) The Academy’s 2015-2016 school year ended on June 3, 2016. (Stipulated Facts ¶ 36, Docket #14).

         2. LEGAL STANDARD

         “A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the viability of a complaint by arguing that it fails to state a claim upon which relief may be granted.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). When reviewing a complaint, the Court construes it in the light most favorable to the plaintiff, accepts as true all well-pleaded facts alleged, and draws all reasonable inferences in the plaintiff’s favor. See Foxxxy Ladyz Adult World, Inc. v. Vill. of Dix, Ill., 779 F.3d 706, 711 (7th Cir. 2015).

         To survive a motion to dismiss under Rule 12(b)(6), “the complaint must provide enough factual information to ‘state a claim to relief that is plausible on its face’ and ‘raise a right to relief above the speculative level.’” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007)); see Runnion ex rel. Runnion v. Girl Scouts of Greater Chi. & Nw. Ind.,786 F.3d 510, 526 (7th Cir. 2015) (explaining that a plausible claim need only “‘include enough details about the subject-matter of the case to present a story that holds together.’”) (quoting Carlson v. CSX Transp., Inc., 758 F.3d 819, 827 (7th Cir. 2014)). Thus, a plausible ...

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