JANE TRICHE MILAZZO, District Judge.
Before the Court are Plaintiffs' Motion for Preliminary Injunction (Doc. 63) and Cross-Motions for Partial Summary Judgment (Doc. 73, 83). For the following reasons, Plaintiffs' Motions are DENIED, and Defendants' Motion for Partial Summary Judgment is GRANTED.
Plaintiffs are two non-profit organizations that contracted with the Orleans Parish School Board ("OPSB") to operate Type 3 public charter schools in the parish. Plaintiff Lake Forest Elementary Charter School Corporation operates Lake Forest Elementary Charter School, and Plaintiff Advocates for Arts-Based Education Corporation operates Lusher Charter School. Plaintiffs allege that the Operating Agreements that they entered into with OPSB in 2011 explicitly guarantee funding in accordance with the Minimum Foundation Program ("MFP") formula adopted by the Louisiana Board of Elementary and Secondary Education ("BESE") and approved by the state legislature ("the Operating Agreement"). In 2015, the Louisiana Legislature adopted Act 467, amending Louisiana Revised Statutes § 17:3995(A)(3)(b) to provide for a district level allocation policy applicable only in Orleans Parish. Plaintiffs allege that the legislature's adoption of Act 467 violates their vested contractual rights to funding in accordance with the state-wide MFP. The relevant provision of the Operating Agreement ("the Funding Provision") states as follows:
The MFP is the "principal source for funding elementary and secondary education" in Louisiana.
Pursuant to this provision, the OPSB formed a "Collaborative Working Group" ("CWG") to develop a funding formula that takes into account students with special needs, such as special education students, English language learners, over-age students, and gifted or talented students. The CWG recommended a funding formula that assigns a base level per pupil amount for each student in the OPSB and supplements additional funds to those students with identified special needs (the "Differentiated Formula"). After the CWG recommended the Differentiated Formula, the OPSB voted to authorize the Superintendent to distribute the MFP funds. The School Superintendent, Defendant Dr. Henderson Lewis, has implemented the Differentiated Formula developed by the CWG, and the OPSB has adopted a resolution approving of that implementation.
Plaintiffs allege that, over time, the Differentiated Formula will significantly reduce their funding and eliminate their ability to predict funding and plan a budget for future years. They also argue that the new formula attempts to impermissibly "shift the burden of increased special needs funding onto Plaintiffs by diverting their contractually guaranteed minimum funding to other schools, substantially impairing Plaintiffs' contracts in violation of Article I, Section 10 of the U.S. Constitution."
Subsequent to the filing of this action, the legislature adopted an additional, relevant amendment to § 17:3995. Act 91, effective July 2017, amends § 17:3995 to give the OPSB the power to adopt a differentiated formula, adding the following language:
In light of Act 91, then, the Differentiated Formula adopted in 2016 is only in effect for the 2016-2017 school year, and therefore 2016-2017 is the only year relevant for purposes of this matter.
Plaintiffs allege violations of the Contracts, Due Process, and Equal Protection Clauses of the U.S. Constitution. Plaintiffs bring a § 1983 claim against the OPSB and Dr. Henderson Lewis in his official capacity as the New Orleans Superintendent of Schools. Plaintiffs now seek a preliminary injunction enjoining Defendants from continuing to impair their vested contractual rights. In addition, the parties have filed cross-motions, asking this Court to determine whether BESE has fulfilled its responsibility in adopting the Differentiated Formula pursuant to Act 467. This Court will address each motion in turn.
An applicant for preliminary injunctive relief must show: (1) a substantial likelihood that he will prevail on the merits; (2) a substantial threat that he will suffer irreparable harm if the injunction is not granted; (3) his threatened injury outweighs the threatened harm to the party whom he seeks to enjoin; and (4) granting the preliminary injunction will not disserve the public interest.
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."
In determining whether the movant is entitled to summary judgment, the Court views facts in the light most favorable to the non-movant and draws all reasonable inferences in his favor.
As previously outlined, an applicant for preliminary injunctive relief must show: (1) a substantial likelihood that he will prevail on the merits; (2) a substantial threat that he will suffer irreparable harm if the injunction is not granted; (3) his threatened injury outweighs the threatened harm to the party whom he seeks to enjoin; and (4) granting the preliminary injunction will not disserve the public interest.
Plaintiffs have failed to show that they will suffer irreparable harm if a preliminary injunction is not granted. In general, a harm is irreparable where there is no adequate remedy at law, such as monetary damages.
Plaintiffs have failed to prove facts to support their first two arguments for irreparable harm. First, it was revealed at the hearing that, in light of Act 91, the Differentiated Formula is applicable only for the 2016-2017 school year. This Court should not, therefore, consider any changes that may take place to the funding of schools under Act 91 or thereafter. Plaintiffs have estimated the 2016-2017 year combined loss at $754,000. They cannot therefore claim that they will suffer the harm of uncertainty as to their funding this year. Relatedly, Plaintiffs also claim they will be harmed because they will be required to bring successive lawsuits every year the funding formula is changed. While this may be true, an injunction would not remedy this concern. Only the effects of Act 467 are before this Court, and an injunction would affect only its implementation. Regardless of this Court's ruling on the limited issue before it, Plaintiffs will still need to bring an action regarding Act 91 to the extent that they challenge its validity.
Third, Plaintiffs assert that they will suffer irreparable harm by the continued violation of their constitutional rights through Act 467's impairment of their contracts with the OPSB. They allege that violations of constitutional rights constitute irreparable harm as a matter of law. This Court has previously rejected such an argument in a contracts clause case.
Fourth, Plaintiffs complain that they will suffer irreparable harm by the depletion of their operating reserves. Such a harm can clearly be remedied by money damages and therefore is not a basis for a preliminary injunction.
Finally, Plaintiffs argue that irreparable harm will result if Defendants are allowed to commence funding to the charter schools in the parish and then judgment is entered in Plaintiffs' favor. Plaintiffs argue that in such a scenario, Defendants would be forced to reclaim overpayments made to some schools in order to redistribute those funds. Such a harm is too speculative to support a preliminary injunction.
This Court likewise finds that Plaintiffs have not carried their burden to show a likelihood of success on the merits. Plaintiffs allege that they have established a substantial likelihood of success on their impairment of contract claim. The contracts clause of the United States Constitution provides that "No State shall . . . pass any . . . Law impairing the Obligation of Contracts."
The contracts clause imposes limits on the power of the state to abridge existing contractual relationships even in the exercise of legitimate police power.
Therefore, this Court must first consider whether Act 467 has operated as a substantial impairment on the Operating Agreements between Plaintiffs and the OPSB. In consideration of this question, background information regarding the MFP is helpful. Article 8, section 13 of the Louisiana Constitution provides in pertinent part that:
The clear wording of this constitutional provision provides that BESE shall develop a formula that determines the minimum cost of education in each school system. This formula is used to equitably allocate funds set aside for education by the state, as well as contributions from each school system. MFP allocations are administered by block grant to each local school system for their management.
The Orleans Parish School System, however, is unlike any other school system in the state. Following the devastation of Hurricane Katrina, the state "handed over the majority of Orleans Parish public schools to the state Recovery School District" ("RSD").
With that backdrop in mind, in 2015 the legislature adopted Act 467, amending Louisiana Revised Statutes § 17:3995 to allow for a New Orleansonly Differentiated Funding Formula. Plaintiffs contend that the 2015 amendment to § 17:3995 impairs their rights under their Operating Agreements with the OPSB. The Funding Provision of their Operating Agreements state in pertinent part that:
Plaintiffs contend that this provision guarantees, at a minimum, funding equal to the per pupil calculation for the MFP. Plaintiffs argue that "except as provided for explicitly in" applies to the "provisions of the MFP" clause, and as a result, the Funding Provision provides in pertinent part that the Plaintiffs "shall receive a per pupil amount each year from OPSB . . . pursuant to La. R.S. § 17:3995, except as provided for explicitly in . . . the provisions of the [MFP] adopted by BESE and approved by the State Legislature." Plaintiffs argue that such an interpretation guarantees them funding in accordance with the state-wide MFP. They argue that Act 467 allows OPSB to fund their schools below this explicit protection and therefore impairs their contractual rights.
Defendants, on the other hand, argue that the "except as provided for explicitly in" clause applies only to the immediately following provisions Section 5.7 and Section 2.2.2, which outline amounts owed by the schools to the OPSB. Such an interpretation would result in the relevant portions of the Funding Provision reading that the Plaintiffs "shall receive a per pupil amount each year from OPSB . . . pursuant to La. R.S. § 17:3995 . . . and the provisions of the [MFP]." Defendants argue that the Funding Provision promises allocation in accordance with § 17:3995 and that the Operating Agreements contemplate a legislative change to that provision.
In interpreting the meaning of the Funding Provision, this Court turns to the rules of contractual interpretation. Both Operating Agreements expressly invoke Louisiana law. "According to the Louisiana Civil Code, `[i]nterpretation of a contract is the determination of the common intent of the parties.'"
With the rules of contract interpretation in mind, this Court has considered the construction of the Funding Provision at issue. It is clear to this Court that Defendants' reading of the provision prevails. According to the well-established rules of English composition, the "except as provided for explicitly in" clause is a non-defining relative clause. A non-defining relative clause is one that is set-off by commas and adds detail to the sentence; however, if it is removed, the overall meaning of the sentence remains the same. The clause, therefore, merely modifies the immediately preceding terms but does not apply to the "provisions of the MFP" as Plaintiffs suggest. If Plaintiffs' reading of the clause were to prevail, an additional comma would need to be added following "Section 5.7 herein," making the "except as provided for" clause applicable to all three of the items listed thereafter. Even Plaintiffs' witness and the drafter of the clause, James Brown, admitted that they "would have done better to have had separate commas next to each concept."
Moreover, Plaintiffs' interpretation of the Funding Provision runs counter to the intent of the parties. The evidence at the preliminary injunction hearing revealed that during negotiations, OPSB provided to Plaintiffs the identical language for the Funding Provision now at issue. The insertion of the non-defining relative clause was the culmination of negotiations unrelated to the MFP or funding. Lusher requested the addition of the clause because of concerns regarding the school board's ability to withhold funds for payment of administrative fees.
Indeed, on multiple occasions Lusher attempted to insert explicit guaranteed funding language into its Operating Agreement. Mr. Brown testified that he proposed the addition of the following language that would have guaranteed funding on a by heads basis: "The per pupil amount provided to the Charter School shall be computed annually and shall be equal to no less than the per pupil amount received by the OPSB based on the October first membership count."
In addition, Lusher made several attempts to narrow Section 15.7.1 of the Operating Agreement, which states that "where this Operating Agreement references federal or state laws, state regulations and OPSB policy, they be bound by any amendments to such laws, regulations and policies upon the effective date of such amendments."
In light of the history of contract negotiations that took place with respect to the Funding Provision, it is obvious to this Court that there was no mutual intent of the parties to guarantee Plaintiffs funding in accordance with the MFP. The unequivocal testimony revealed that the OPSB refused to agree to the addition of language guaranteeing any level of funding and instead maintained that Lusher would be funded in accordance with § 17:3995 and any amendments that may be made thereto. Even assuming that the Plaintiffs believe their Operating Agreements provided for such, certainly the OPSB did not share this intent or understanding. Accordingly, in light of the plain language of the provision and lack of common intent, Plaintiffs' reading of the Funding Provision is unlikely to prevail. This Court therefore finds it unlikely that Plaintiffs will succeed in proving that Act 467 substantially impairs the Operating Agreements. Having failed to carry their burden to prove two of the elements required to obtain a preliminary injunction, this Court denies Plaintiffs' request for such relief.
Next, Plaintiffs have filed a motion for partial summary judgment seeking a judgment that the Differentiated Formula utilized by the OPSB is a nullity. Plaintiffs argue that the Differentiated Formula has not been adopted by BESE, as required by Act 467. Defendants, on the other hand, argue in their cross-summary judgment motion that Act 467 merely requires BESE to adopt student characteristics to be used in deciding on a formula, as it has done, and therefore the formula is not a nullity.
Act 467 states in relevant part:
The issue then is whether the phrase "as determined by the state board" modifies "district-level computation based on student characteristics or needs" or modifies only "student characteristics or needs." Both parties vehemently contend that the statute is clear and unambiguous, but neither agree on its meaning.
The Fifth Circuit has held that in determining whether to relinquish jurisdiction over pendent state law claims, a court should "look to the statutory factors set forth by 28 U.S.C. § 1367(c), and to the common law factors of judicial economy, convenience, fairness, and comity."
In addition, such a decision is in line with "judicial economy, convenience, fairness, and comity."
For the foregoing reasons, the Plaintiffs' Motion for Preliminary Injunction is DENIED, Plaintiffs' Partial Motion for Summary Judgment is DENIED, and Defendant's Partial Motion for Summary Judgment is GRANTED. Plaintiffs' state law nullity claim is DISMISSED WITHOUT PREJUDICE.