STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JOHN WINN, AS COMMISSIONER OF EDUCATION,

Petitioner,

vs.

MUSKATEER'S ACADEMY, INC.,

Respondent.

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) Case No. 06-5074

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RECOMMENDED ORDER

This case came before Administrative Law Judge John G. Van Laningham for final hearing by video teleconference on January 9, 2007, at sites in Tallahassee and Miami, Florida. Thereafter, on January 18 and February 1, 2007, the parties examined six additional witnesses via videotaped depositions, and they elicited further testimony, via deposition, from three witnesses who had testified previously at hearing. All nine depositions, including the six videotapes, were received in evidence in lieu of reconvening the final hearing.

APPEARANCES

For Petitioner: Jason M. Hand, Esquire

Department of Education

325 West Gaines Street, Suite 1244 Tallahassee, Florida 32399-0400

James A. Peters, Esquire Daniel Biggins, Esquire

Office of the Attorney General The Capitol, Plaza 01 Tallahassee, Florida 32399-1050

For Respondent: Marie G. Vital, Esquire

The Whitaker Building

1065 Northeast 125th Street, Suite 317

Miami, Florida 33161 STATEMENT OF THE ISSUES

The issues in this case are (a) whether Respondent committed fraud in seeking to obtain funds from the McKay Scholarship Program, thereby warranting Petitioner's summary suspension of payments to Respondent; and (b) whether Petitioner should revoke Respondent's participation in the McKay Scholarship program for failing to comply with applicable laws.

PRELIMINARY STATEMENT

On November 1, 2006, Petitioner John L. Winn, as Commissioner of Education, issued an Administrative Complaint against Respondent Muskateer's Academy, Inc., through which the Commissioner sought to revoke Respondent's participation, as a private school, in the McKay Scholarship Program. In addition, having found probable cause to believe that Respondent had made fraudulent misrepresentations in an effort to obtain payment of scholarship funds, the Commissioner simultaneously ordered that all payments to Respondent be immediately suspended. Respondent

timely requested a formal administrative hearing to contest the Commissioner's allegations, which it denied.

On December 13, 2006, the matter was referred to the Division of Administrative Hearings ("DOAH") for further proceedings. Once assigned, the undersigned scheduled the final hearing for January 9, 2007.

At the final hearing, which took place as scheduled, Petitioner presented the testimony of Chad Aldis, Seth Stoughton, Oscar Miranda, and Altagracia Moreta. Respondent called Erick Cermeno, Michael Nelson, Demara Young, and Jacqueline Cermeno. Thereafter, on January 18 and February 1, 2007, the parties examined six additional witnesses via videotaped depositions, namely: Amneris Mesa, Lidet Fernandez,

1. F., and N. P. (Petitioner's witnesses); and C. M. and Madeline Pena (Respondent's witnesses). Respondent also re- called, via deposition, Erick Cermeno, Jacqueline Cermeno, and Michael Nelson. These depositions, nine in total, were received in evidence according to the parties' stipulation.

   Petitioner introduced 18 Petitioner's Exhibits, numbered 1 through 18, and each was received in evidence. Respondent's Exhibits E, H, J (as supplemented post hearing, without objection), and K were offered and admitted as well.

   The evidentiary record was complete on February 27, 2007. Each party timely filed a Proposed Recommended Order before the established deadline, which was March 9, 2007.

   Unless otherwise indicated, citations to the Florida Statutes refer to the 2006 Florida Statutes.

   FINDINGS OF FACT

   
   

   1. Respondent Muskateer's Academy, Inc. ("MAI") is a Florida corporation that, at all times relevant to this case, operated a private school known as Muskateer's Academy ("Muskateer's"). MAI was closely held by Erick and Jacqueline Cermeno, a married couple. Together, they ran the school, holding (and sometimes swapping) various titles of importance, such as "principal" and "superintendent," which signified their supervisory roles.

   2. Located in Hialeah, Florida, Muskateer's served mainly at-risk students who, for one reason or another, were unable or unlikely to succeed in the public school system. On paper, the school's tuition was quite steep. The undersigned infers, however, that few parents, if any, actually paid the "sticker price" for tuition and other expenses that Respondent reported to the Florida Department of Education ("Department") in its student fee schedules, which charges totaled $24,000 per year, per child. Rather, the undersigned infers that, for most students at least, Respondent agreed to accept as payment in

      full whatever amount was available annually for a particular student under the John M. McKay Scholarships for Students With Disabilities Program ("McKay Scholarship Program").

   3. Respondent operated two separate high schools at Muskateer's. One was a "regular," four-year high school that followed the traditional model, where instructors taught various academic subjects to classes of students, who attended classes for the purpose of learning academic subjects from their teachers. In this high school, tests were given periodically, as a means of measuring the students' mastery of the material.

   4. The other program was an "accelerated" high school where each student worked individually, at his own pace. Teachers played a relatively small part in this program, doing little but overseeing the "testing room" in which the students took tests——their primary scholastic activity. Students received course credit for passing tests.1

   5. At the relevant times, there were three or four teachers at Muskateer's. To be a teacher there, a person did not need a bachelor's degree. Instead, MAI was willing to hire individuals having some type of educational background, preferably including at least 40 college credits, more or less. One of the teachers at Muskateer's was Amneris Mesa, whose brother, O. F., attended the school for some period of time. As

      will be seen, O. F. is one of the key figures in the instant dispute.

   6. In August 2006, the Department's Office of Independent Education and Parental Choice ("Choice Office") received a complaint about Muskateer's, the gravamen of which was that MAI was continuing to receive funds under the McKay Scholarship Program for former students who had stopped attending the school. The Choice Office, which administers the McKay Scholarship Program, referred the complaint to the Department's Office of Inspector General ("OIG") for investigation.

   7. The OIG's investigation led to the discovery of evidence sufficient to persuade the Commissioner of Education ("Commissioner") that MAI had engaged in fraudulent activity with regard to the McKay Scholarship Program. Consequently, on November 1, 2006, the Commissioner issued an Administrative Complaint against MAI, which charged MAI with fraud and other violations of the laws governing the McKay Scholarship Program. At the same time, the Commissioner immediately suspended all payments to MAI under the McKay Scholarship Program. Being thus cut off from its primary source of revenue, MAI closed Muskateer's on November 18, 2006. As of the final hearing, the school had not reopened.

   8. The Commissioner's present case against MAI hinges on allegations that, to induce the payment of funds under the McKay

      Scholarship Program, the company falsely represented to the Department that three students——O. F., N. P., and C. M.——had "reenrolled" at Muskateer's for the 2006-07 school year, when in fact two of them (O. F. and N. P.) previously had graduated, and the third (C. M.) had dropped out midway through the preceding school year. MAI disputes these allegations, and hence the focus of the hearing largely was on whether the three individuals in question had attended Muskateer's during the 2006-07 school year. Before addressing the contested factual issues, however, a brief examination of the McKay Scholarship Program is in order, to provide context for the findings of fact that will follow.

   9. The McKay Scholarship Program affords a disabled student the option of attending a different public school from the one to which he is assigned, or, if he is eligible, the opportunity to receive a scholarship to defray the cost of attending a private school of choice. Once awarded, a McKay scholarship remains in force until the student returns to a public school, graduates, or turns 22, whichever first occurs; provided, however, that he does not drop out, which would render the student ineligible for the scholarship, at least during the period of non-enrollment.

   10. To participate in the McKay Scholarship Program, a private school must meet certain conditions as well. Inasmuch

       as the Commissioner has alleged that MAI failed to comply with some conditions of continued eligibility, the relevant ones will be discussed in greater detail below. For the moment, however, it is sufficient to note that McKay scholarship funding is potentially available to most private schools operating lawfully in the state, for the program is designed to be inclusive in this regard.

   11. A private school that wants to participate in the McKay Scholarship Program must notify the Department of its interest and submit information demonstrating compliance with the eligibility requirements. This information——and other data necessary to secure the disbursement of scholarship funds——must be transmitted to the Department electronically, through forms available online to registered users, at a secure website maintained by the Department. To access this site, a private school must first obtain a unique code and establish a confidential password, both of which must be entered correctly in order to logon to the Department's secure web page.

   12. If the parent of an eligible student chooses the private school option and secures a place for his child at the private school of choice, then the parent must notify the Department of his decision before the child begins attending the private school. After receiving such notice, the Department verifies the student's enrollment in the private school, obtains

       from the private school a schedule of the tuition and fees, and receives from the student's school district a "matrix of services" reflecting the student's special educational needs.

   13. The maximum amount of the McKay scholarship for a particular student is the lesser of (a) the "calculated amount" (which is roughly equal to the estimated cost of educating the student in the public school to which he is assigned) or (b) the actual amount of the private school's tuition and fees.2 The amount of the student's scholarship is deducted from his public school district's total funding entitlement.3

   14. McKay scholarship payments are made in four equal amounts during the school year to which the scholarship applies. The payment dates are September 1, November 1, February 1, and April 1. Payments are made by warrant payable to the student's parent. The Department mails each warrant to the private school of the parent's choice. The parent is required restrictively to endorse the warrant, authorizing the funds to be deposited only in the private school's account.4

   15. To remain eligible for the McKay scholarship, the student must have regular and direct contact with his teacher(s) at the private school's physical location. Thus, ahead of each payment (after the initial payment), the private school must verify, through the Department's secure, password-protected

       website, that the student continues to be enrolled in, and to attend, the private school.

   16. It is in connection with this ongoing duty to verify continued enrollment and attendance at the private school that MAI is alleged to have engaged in fraudulent activity, namely, reporting to the Department that O. F., N. P., and C. M. were still enrolled in, and attending, Muskateer's when, in fact, they were not. The undersigned will now turn to these allegations, which lie at the heart of this matter.

   17. But first: It must be acknowledged that the evidence is in conflict concerning the historical facts relevant to the allegations of fraudulent activity. Given the evidential conflicts, the undersigned supposes that reasonable people might disagree about what happened here. Ultimately, however, it falls to the undersigned, rather than a group of hypothetical "reasonable people," to resolve the evidential conflicts and settle the disputed issues of material fact. Thus, to the extent that any finding below (or herein) is inconsistent with the testimony of one witness or another, or with some documentary evidence, the finding reflects a rejection of all such inconsistent testimony and evidence (none of which was overlooked, disregarded, or ignored) in favor of proof that the undersigned deemed, in the exercise of his prerogatives as the

       fact-finder, to be more believable and hence entitled to greater weight.

       O. F.

       
       

   18. In January 2006, halfway through the 2005-06 school year, O. F. was enrolled as a student of Muskateer's. He began attending the accelerated high school on January 26, 2006. At the same time, his sister, Ms. Mesa, started working for MAI as a teacher in the regular high school.

   19. About five months later, O. F. graduated from Muskateer's. O. F. participated in a graduation ceremony on June 3, 2006, and, according to the transcript maintained in his student file, O. F. was awarded a diploma or certificate on that date.

   20. The transcript notwithstanding, it is undisputed that

       
       

       O. F. did not actually receive his diploma until several months after his graduation date. MAI contends that it withheld O. F.'s diploma because he had not finished all the tests necessary for graduation. The undersigned finds, however, that the evidence is insufficient to support a finding that O. F. had not finished his degree requirements as of June 3, 2006; indeed, the greater weight of the persuasive evidence is to the contrary. Accordingly, MAI's assertion that O. F. did not graduate from high school at the end of the 2005-06 school year is rejected.

   21. On May 26, 2006, MAI reported to the Department, through the Department's secure, password-protected website, that O. F. had reenrolled in Muskateer's for the 2006-07 school year, and that he would resume attending the school on July 1, 2006. On the same date and in the same manner, MAI reported that O. F.'s tuition and fees for the upcoming school year would total $24,000. These representations were made for the purpose of obtaining funds from the McKay Scholarship Program.

   22. The foregoing representations regarding O. F.'s reenrollment in Muskateer's for the 2006-07 school year were false. Moreover, the greater weight of the evidence persuades the undersigned that, more likely than not, the individuals responsible for making these representations——namely Mr. And Mrs. Cermeno——actually knew that the representations were false, or they recklessly disregarded the truth or falsity of the matters asserted.5

   23. Despite having graduated, O. F. returned to Muskateer's on three or four occasions in September and October 2006, at which times he took a few tests that he had previously taken and passed. This happened because the Cermenos refused to give O. F. his diploma unless he retook these tests——a condition that was repeated both to O. F.'s mother and his sister (the teacher).6 The undersigned infers that, more likely than not, the Cermenos used the threat of withholding O. F.'s diploma as a

       means of coercing his "attendance" at Muskateer's during the 2006-07 school year, to create plausible deniability in the event the charge were brought (as it was) that MAI had fraudulently sought to obtain McKay scholarship funds for O. F. At any rate, post-graduation "attendance" such as O. F.'s——to retake exams for no apparent legitimate reason——is not the kind of regular attendance that would support the reasonable inference that the student had enrolled for the 2006-07 school year.7

       N. P.

       
       

   24. N. P. enrolled in Muskateer's on May 3, 2004, and began attending classes in the accelerated high school on August 16, 2004. He graduated (at least in the ceremonial sense) at the end of the 2004-05 school year but never received a diploma.

   25. N. P. testified that he never returned to Muskateer's as a student after he (ceremonially) graduated. In other words,

       N. P. claims that he was not a student of Muskateer's during either the 2005-06 school year or the 2006-07 school year. N. P.'s testimony in this regard is corroborated by the testimony of his aunt (and legal guardian), Altagracia Moreta.

   26. Additionally, N. P.'s testimony is corroborated by the absence of well-kept, reliable documentation——such as enrollment registers and attendance records——attesting to his ongoing attendance at Muskateer's after the 2004-05 school year. The

       undersigned considers the lack of such documentation to be a telling fact.

   27. Consequently, although there is conflicting evidence, the undersigned finds that, more likely than not, N. P. did not attend Muskateer's during the 2005-06 and 2006-07 school years, as he testified.

   28. On May 4, 2005, MAI reported to the Department, through the Department's secure, password-protected website, that N. P. had reenrolled in Muskateer's for the 2005-06 school year, and that he would resume attending the school on August 8, 2005. On the same date and in the same manner, MAI reported that N. P.'s tuition and fees for the 2005-06 school year would total $24,000. These representations were made for the purpose of obtaining funds from the McKay Scholarship Program.

   29. On May 26, 2006, MAI reported to the Department, through the Department's secure, password-protected website, that N. P. had reenrolled in Muskateer's for the 2006-07 school year, and that he would resume attending the school on July 1, 2006. On the same date and in the same manner, MAI reported that N. P.'s tuition and fees for the 2006-07 school year would total $24,000. These representations were made for the purpose of obtaining funds from the McKay Scholarship Program.

   30. The foregoing representations regarding N. P.'s reenrollment in Muskateer's for the 2005-06 and 2006-07 school

       year were false. Moreover, the greater weight of the evidence persuades the undersigned that, more likely than not, the individuals responsible for making these representations——namely Mr. And Mrs. Cermeno——actually knew that these representations were false, or they recklessly disregarded the truth or falsity of the matters asserted.

       C. M.

       
       

   31. In July 2004, C. M. registered to attend Muskateer's.

       
       

       He began attending the accelerated high school on August 16, 2004.

   32. C. M. testified at hearing (via deposition) that he continued to attend Muskateer's while this proceeding was pending, having been in class there as recently as "yesterday" (January 17, 2007). C. M. did not know what courses he was currently taking or how many other students currently were attending Muskateer's. (Recall that Muskateer's closed its doors on November 18, 2006, and, as of the final hearing, had not reopened).8

   33. Whatever credibility C. M. still possessed after giving testimony such as that just described was shredded when Petitioner impeached him with a prior inconsistent (actually, contradictory) statement. On August 22, 2006, C. M. told the OIG's investigator that he had stopped attending Muskateer's in December 2005 and never returned. The investigator made an

       audio recording of C. M.'s statement, which was received in evidence, but C. M. was not under oath at the time he gave the statement.

   34. The undersigned finds that C. M. is not a believable witness, and his testimony, being unreliable and unpersuasive, is given no weight.9 The documents in C. M.'s disorderly (and seemingly incomplete) student file are likewise insufficient to establish, to the required degree of persuasiveness (namely, that the fact is more likely true than not), the dates on which

       C. M. attended Muskateer's as an enrolled student.

       
       

   35. The bottom line is that the evidence is insufficient to permit the undersigned to make a finding as to when (or whether) C. M. stopped attending Muskateer's (prior to its closure on November 18, 2006).10

   36. Lacking sufficient proof regarding the dates during which C. M. attended Muskateer's as a duly enrolled student, it is impossible to determine whether MAI engaged in any fraudulent activity with regard to C. M.

       Determinations of Ultimate Fact

       
       

   37. The greater weight of the evidence establishes that, to induce the state to disburse McKay scholarship funds for the benefit of O. F., MAI engaged in fraudulent activity, to wit: MAI intentionally reported to the Department that O. F. had reenrolled in Muskateer's for the 2006-07 school year, while

       either (a) knowing that this representation of material fact was false or (b) recklessly disregarding the truth or falsity of this material representation, which was, in fact, false.

   38. The greater weight of the evidence establishes that, to induce the state to disburse McKay scholarship funds for the benefit of N. P., MAI engaged in fraudulent activity, to wit: MAI intentionally reported to the Department, on separate occasions, that N. P. had reenrolled in Muskateer's for the 2005-06 and 2006-07 school years, while either (a) knowing that these representations of material fact were false or (b) recklessly disregarding the truth or falsity of these material representations, which were, in fact, false.

   39. The greater weight of the evidence is insufficient to establish that MAI engaged in fraudulent activity in connection with its efforts to obtain McKay scholarship funds for the benefit of C. M.

   40. The greater weight of the evidence establishes that, by failing to keep and maintain complete and orderly records of enrollment and attendance, MAI failed to meet its obligation under Section 1002.39(8)(a), Florida Statutes, to comply with all of the requirements set forth in Section 1002.421, which mandates that private schools participating in the McKay Scholarship Program must, among other things, conform to all the requirements outlined in Section 1002.42, Florida Statutes,

       including Section 1002.42(4), which directs that private schools must prepare and keep attendance records in accordance with the provisions of Section 1003.23(2), Florida Statutes.

       CONCLUSIONS OF LAW

       
       

   41. DOAH has personal and subject matter jurisdiction in this proceeding pursuant to Sections 1002.39(7), 120.569, and 120.57(1), Florida Statutes.

   42. The burden of establishing the grounds for suspending or revoking a private school's participation in the McKay Scholarship Program falls on the Commissioner, who must prove his allegations by a preponderance of evidence. See Florida Department of Transportation v. J.W.C. Co., Inc., 396 So. 2d 778, 788 (Fla. 1st DCA 1981)(burden of proof is usually upon party asserting the affirmative of the issue); cf. Florida

       Department of Health and Rehabilitative Services v. Career Service Commission, 289 So. 2d 412, 415 (Fla. 4th DCA 1974)(agency must carry burden of proving grounds for dismissal of employee); cf. Southpointe Pharmacy v. Department of Health

       and Rehabilitative Services, 596 So. 2d 106, 109 (Fla. 1st DCA 1992)(party seeking to establish Medicaid overpayment has burden of proof); see also § 120.57(1)(j), Fla. Stat.

   43. Pursuant to Section 1002.39(7)(c), Florida Statutes, the Commissioner is authorized to

       immediately suspend payment of scholarship funds if it is determined that there is probable cause to believe that there is:

       
       

       1. An imminent threat to the health, safety, or welfare of the students; or

          
          

       2. Fraudulent activity on the part of the private school.

          
          

          (Emphasis added.) The Commissioner's order immediately suspending payments "may be appealed" by timely filing a request for hearing pursuant to Sections 120.569 and 120.57, Florida Statutes. § 1002.39(7)(c), Fla. Stat.

   44. That an aggrieved party can "appeal" the Commissioner's order should not be misconstrued to mean that, in a proceeding such as this, the administrative law judge either sits in review of the Commissioner's probable cause determination or otherwise substitutes his judgment for the Commissioner's on the question of whether probable cause exists. Clearly, the probable cause determination——which is investigative or prosecutorial, rather than adjudicative, in nature——is for the Commissioner alone to make, and he may make his decision without necessarily, or even usually, first allowing the private school under suspicion to attack the evidence of wrongdoing via adversarial mechanisms such as cross- examination.

   45. Properly understood, the Commissioner's executive decision on probable cause is a necessary condition of

       immediately suspending payment of scholarship funds to a private school believed to be engaging in fraudulent activity (or to pose an imminent threat to students). However, probable cause is not a sufficient basis for entering a final order suspending payment to such school if the school requests a "substantial interests" hearing. If a formal administrative proceeding is initiated, as here, then the final order must be based, not on probable cause, but on findings of fact supported by the greater weight of the competent substantial evidence adduced at hearing.11 In sum, then, it is not the Commissioner's burden in this adversarial, adjudicative proceeding to prove merely that probable cause exists for believing MAI has engaged in fraudulent activity. Rather, the Commissioner's burden is to prove——over and against MAI's defenses——that, more likely than not, MAI engaged in fraudulent activity.12

   46. The essential elements of a fraud claim are: (1) a false statement concerning a material fact; (2) made (i) with knowledge that the representation is false and (ii) with the intention of inducing another's reliance thereon; and (3) consequent injury to the other party acting in reliance on the false representation. See, e.g., Cohen v. Kravit Estate Buyers, Inc., 843 So. 2d 989, 991 (Fla. 4th DCA 2003).

   47. "[F]raudulent intent usually must be proved by circumstantial evidence and such circumstances may, by their

       number and joint consideration, be sufficient to constitute proof." Nally v. Olsson, 134 So. 2d 265, 267 (Fla. 2d DCA 1961). Therefore, as proof of fraud, "one may show 'a series of distinct acts, each of which may be a badge of fraud and when taken together as a whole, constitute fraud.'" Department of Revenue v. Rudd, 545 So. 2d 369, 372 (Fla. 1st DCA 1989),

       quoting Allen v. Tatham, 56 So. 2d 337, 339 (Fla. 1952). Further, "[s]cienter, or guilty knowledge, [which] is an element of intentional misconduct [such as fraud], . . . can be established by showing actual knowledge, or that the defendant was reckless or careless as to the truth of the matter asserted." Ocean Bank of Miami v. INV-UNI Inv. Corp., 599 So.

       2d 694, 697 (Fla. 3d DCA 1992).

       
       

   48. The undersigned has found, as recited above in the factual findings, that the Commissioner carried his burden of proof regarding the allegations of fraudulent activity. Therefore, the Commissioner is legally authorized to immediately (and indefinitely) suspend payment of McKay scholarship funds to

       MAI.

       
       

   49. It is the undersigned's opinion that a finding of

       
       

       fraudulent activity constitutes a sufficient basis for revoking a private school's participation in the McKay Scholarship Program——or alternatively, at a minimum, makes such revocation superfluous, inasmuch as the immediate and indefinite suspension

       of payments is functionally the equivalent of revocation of participation. Nevertheless, because the Commissioner separately has alleged and proved grounds for revoking MAI's participation in the McKay Scholarship Program, the undersigned has made the relevant findings and will briefly discuss the applicable law.

   50. Pursuant to Section 1002.39(7)(a), Florida Statutes, the Commissioner is required to "deny, suspend, or revoke a private school's participation in the scholarship program if it is determined that the private school has failed to comply with the provisions of this section."

   51. Section 1002.39(8)(a) requires, as a condition of participating in the McKay Scholarship Program, that a private school "[c]omply with all requirements for private schools participating in state school choice scholarship programs pursuant to s. 1002.421."

   52. Section 1002.421(1), Florida Statutes, requires, among other things, that all private school participating in the McKay Scholarship Program "must comply with all requirements . . . outlined in s. 1002.42."

   53. Section 1002.42(4), Florida Statutes, mandates that all private schools' "officials, teachers, and other employees

       . . . shall keep and prepare [attendance] records in accordance with the provisions of s. 1003.23(2)."

   54. Section 1003.23(2), Florida Statutes, provides as follows:

       All officials, teachers, and other employees in public, parochial, religious, denominational, and private K-12 schools, including private tutors, shall keep all records and shall prepare and submit promptly all reports that may be required by law and by rules of the State Board of Education and district school boards. Such records shall include a register of enrollment and attendance and all persons described above shall make these reports therefrom as may be required by the State Board of Education. The enrollment register

       shall show the absence or attendance of each student enrolled for each school day of the year in a manner prescribed by the State Board of Education. The register shall be open for the inspection by the designated school representative or the district school superintendent of the district in which the school is located. Violation of the provisions of this section shall be a misdemeanor of the second degree, punishable as provided by law. This section shall not apply to home education programs provided in s. 1002.41.

       
       

       (Emphasis added.)

       
       

   55. As found above, MAI failed systematically to maintain records showing the attendance or absence of each student enrolled for each school day of the year, as Section 1003.23(2) requires. Indeed, if MAI had met its statutory duty to prepare and maintain such records with respect to O. F., N. P., and C. M., then the instant dispute might not have arisen (assuming, as MAI has maintained, that these students actually were enrolled

       in, and attending, Muskateer's at all times for which scholarship funds were sought). As it happened, the absence of such records constituted a "badge of fraud" that helped the Commissioner prove his case for immediate suspension of payments.

   56. The absence of such records also established the failure of MAI to comply with Section 1003.23(2), Florida Statutes, which (working back through the chain of statutes identified in the preceding paragraphs) constitutes noncompliance with Section 1002.39——which warrants revocation of MAI's participation in the McKay Scholarship Program.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Commissioner enter a final order

(a) suspending payment of McKay Scholarship funds to MAI in connection with the 2006-07 school year (b) revoking MAI's participation in the McKay Scholarship Program.

DONE AND ENTERED this 2nd day of April, 2007, in Tallahassee, Leon County, Florida.

S

JOHN G. VAN LANINGHAM

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 2nd day of April, 2007.

ENDNOTES

1/ The evidence is insufficient for the undersigned to ascertain how the students learned the material on which they were tested, or the number of tests that needed to be passed to receive credit for completing a course.

2/ It is interesting that there is no "fair market value" cap on the scholarship amount. As a result, for schools such as Muskateer's that have few, if any, "paying" (i.e. non- scholarship) students, and which do not attempt to hold parents financially responsible for the difference between the McKay scholarship amount and the published tuition and fees, there is effectively no limit on the amount that can be claimed for such expenses. Market forces do not operate to keep the tuition for such schools competitive because a third party (the state), rather than the consumers (parents), picks up the tabs. The state, of course, pays no more (approximately) than it would have paid had the McKay scholarship recipients remained in public schools. But without market mechanisms to regulate the transactions, the possibility exists that the fair market value

of the educational services being delivered (i.e. the amount a bona fide purchaser would be willing to pay out of his own pocket) might, in some cases, fall below the amount being paid by the state.

3/ School districts are required to report all students who are attending private school under the McKay Scholarship Program.

See § 1002.39(10)(c)1., Fla. Stat. The undersigned is not sure whether these reports identify students by name, but if so he would like to have seen the relevant reports from the Miami-Dade County School District.

4/ The undersigned would like to have seen all of the warrants that were issued for the benefit of O. F., N. P., and C. M. and especially to have taken evidence as to who was endorsing the warrants. Ms. Cermeno testified that she routinely placed copies of all endorsed warrants in the respective students' folders, but her testimony on this point is not substantiated by the folders of O. F., N. P., and C. M., which are in evidence.

O. F.'s folder contains one barely legible copy of what perhaps is an endorsed warrant dated March 30, 2006——covering a period during which, it is undisputed, O. F. was attending Muskateer's. This is the only copy of a warrant in the record.

5/ There was testimony to the effect that MAI never asked its students' parents to sign enrollment agreements prior to each school year, which might explain why no such agreement appears in O. F.'s file or the files of either N. P. or C. M. MAI's practice, according to some testimony, was to assume that each existing student would return for the next year, unless his or her parent expressly notified MAI to the contrary. On the assumption that each student not explicitly "withdrawn" would continue to attend Muskateer's, MAI reported its "reenrollments" to the Department for purposes of obtaining McKay scholarship funds. Whether making such an assumption in regard to the run of students was reasonable (or prudent) might be debatable, but clearly it was not a reasonable assumption to make and act upon with regard to any student, such as O. F., who had graduated.

6/ The outrageousness of the demand that O. F. retake tests he had previously passed is underscored by its seeming arbitrariness. There is no persuasive evidence shedding light on the degree requirements for a student in O. F.'s situation, and the hodgepodge of materials in O. F.'s haphazardly assembled file offers no insight as to which such requirements O. F.

legitimately could be said, based on objective measures, to have lacked at any given point in time. The upshot is that the Cermenos appear to have been in the position of deciding, on their own authority, and at their discretion, whether or not a student had fulfilled the degree requirements.

7/ Indeed, going a step farther, even if O. F. truly had needed to retake the tests in question in order to satisfy the applicable degree requirements, his having done so in the fall of 2006 still would not support a reasonable inference that he had enrolled for the 2006-07 school year. This is because, as everyone involved agrees, O. F. received a "diploma" (it was actually a fake) at the baccalaureate service on June 3, 2006, when he "graduated" with his class——at least in the ceremonial sense. Ordinarily, one would infer from this fact (ceremonial graduation) that the student had "graduated" in the sense of having earned a degree. MAI argues, however, that it graciously allowed O. F. to "walk" (i.e. participate in the graduation ceremony as if he were a graduate), as a courtesy to him and his family, despite his having failed to complete all the degree requirements. Assuming for argument's sake that this is true, the reasonable inference therefrom would be that O. F. needed merely to tie up some loose ends (e.g. turn in a paper, take a makeup test, complete an assignment) in connection with courses substantially completed——not to register for new courses and thus to reenroll for another school year. If reenrollment were going to be necessary, no reasonable school administrator would allow the student to ceremonially graduate, for doing so would undermine the integrity of the school's graduation ceremony, not to mention tend to deceive or humiliate the faux "graduate."

8/ In addition, on September 26, 2006, MAI reported to the Department, using the secure website, that C. M. had gotten a job and would not return to Muskateer's as a student. The undersigned is unable to reconcile this formal notice of withdrawal——which, incidentally, was given after MAI had been made aware of the allegations that would lead to this proceeding——with C. M.'s testimony concerning his continued attendance.

9/ C. M.'s father also testified at hearing, essentially averring that he had regularly driven C. M. to school——even after the school had shut down. Ultimately, the testimony of C. M.'s father is about as credible of that of his son, which is to say, insufficiently persuasive to support any finding of fact.

10/ The undersigned cannot base a finding on C. M.'s August 22, 2006, statement because it is hearsay (a) that neither supplements nor explains other nonhearsay evidence in the record, and (b) which was not introduced under a recognized exception to the hearsay rule. See § 120.57(1)(c), Fla. Stat.

C. M.'s prior statement was admissible, of course, for the limited purpose of impeaching his credibility, see § 90.614, Fla. Stat., which it effectively accomplished.

11/ The undersigned assumes without deciding (for a legal conclusion is not required to resolve the instant dispute) that if the Commissioner were unsuccessful in his attempt to prove fraudulent activity, then any back-payments to which the exonerated school's students might be entitled should be immediately disbursed to the school. In this regard, it is somewhat worrisome that the statute authorizing the Commissioner summarily to stop making scholarship payments to a private school is silent concerning the punitive effects that such suspension might have on the students for whose benefit the withheld payments would have been made. The undersigned wonders whether, before summarily suspending payments, the Commissioner considers the deleterious effects this action could have on scholarship students and their parents, which latter (unlike the parents of the students who attended Muskateer's) might be contractually obligated to pay the private school's tuition and fees regardless of the availability of McKay scholarship funds. Parents whose financial liability subsists notwithstanding the loss of scholarship funds might be forced to leave their children at the private school——and hope that back-payments eventually will be made.

12/ Only a preponderance or greater weight of the evidence is necessary to prove fraud. See Wieczoreck v. H & H Builders, Inc., 475 So. 2d 227, 228 (Fla. 1985).

COPIES FURNISHED:

Jason M. Hand, Esquire Department of Education

325 West Gaines Street, Suite 1244 Tallahassee, Florida 32399-0400

James A. Peters, Esquire Daniel Biggins, Esquire Office of the Attorney General The Capitol, Plaza 01

Tallahassee, Florida 32399-1050

Marie G. Vital, Esquire The Whitaker Building

1065 Northeast 125th Street, Suite 317

Miami, Florida 33161

Honorable Jeanine Blomberg Commissioner of Education Turlington Building, Suite 1514

325 West Gaines Street Tallahassee, Florida 32399-0400

Deborah K. Kearney, General Counsel Department of Education

Turlington Building, Suite 1244

325 West Gaines Street Tallahassee, Florida 32399-0400

Lynn Abbott, Agency Clerk Department of Education Turlington Building, Suite 1514

325 West Gaines Street Tallahassee, Florida 32399-0400

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.

Docket for Case No: 06-005074

Orders for Case No: 06-005074