Indiana Court of Appeals: Tort Claims Act Extends to Charter School Organizer

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by: Colin E. Flora

     This week we take yet another look at the Indiana Tort Claims Act, a topic we have discussed in various forms now nine times. Nevertheless, today’s discussion is quite different from those in the past. The issue today comes to us from the recent decision Flanner House of Indianapolis, Inc. v. Flanner House Elementary Schools, Inc. from the Court of Appeals of Indiana. That issue is whether the Tort Claims Act applies to a non-profit corporation who organizes a charter school.

     To understand what was at issue, we need to look at the corporate entities involved in the case:

Flanner School, Inc. is a nonprofit Indiana corporation that was established in early 2002. On February 27, 2002, Flanner School, Inc. entered into a charter school agreement with the Mayor of Indianapolis to establish a charter school named Flanner House Elementary School (Elementary School). Flanner School, Inc. operated the Elementary School as a charter school under this agreement until its charter was revoked on September 11, 2014. During that time, Flanner School, Inc. leased its school building from Flanner House, a separate nonprofit Indiana corporation.

“In August 2015, Flanner House sued Flanner School, Inc. for breach of contract, sued the Appellees for negligence and fraud, and sued Liberty Mutual Insurance Group for bad faith.”

     While there can sometimes be a debate over whether an entity is permitted to invoke the Indiana Tort Claims Act, the Indiana Code specifically defines a charter school as a “governmental entity” under the Tort Claims Act. Thus, the problem for Flanner House was that if it was suing a “charter school,” it had to meet the requirements of the Tort Claims Act, chiefly that a timely tort claim notice was filed.

     As the Court of Appeals summarized:

In this litigation, Flanner House did not provide notice of its claims to the Appellees as required by the Act. The thrust of Flanner House’s argument is that Flanner School, Inc. is not a “charter school,” as that term is used in the Act, and therefore is not entitled to the notice required under the Act. Although Flanner House acknowledges that the Elementary School is a charter school, it contends Flanner School, Inc. is not a charter school but is instead an organizer of a charter school and therefore a distinct entity from the charter school itself. Accordingly, Flanner House argues that Flanner School, Inc. is not entitled to the notice provisions of the Act because it is not a governmental entity under the Act. The question before us then is whether our legislature intended to include the nonprofit organizer of a charter school in the meaning of that term for purposes of the Act.

     The court’s analysis turned to the statutory process for creating a charter school and the ongoing duties of the organizer even after formation. After reviewing the process, the court summarized:

As demonstrated by the statutes, the organizer determines the organization and management of the school, receives the charter for the charter school, is responsible for the implementation of the charter, is accountable for the financial and academic viability of the school, and insures compliance with federal and state laws and authorizer expectations. A charter school cannot exist without an organizer, and the organizer is required to have nonprofit status. Based upon our review of the relationship, responsibilities, duties, and authority of a charter school organizer as set out in these statutes, we conclude that an organizer of a charter school is not an entity separate from the charter school. Rather, an organizer and a charter school jointly are the charter school.

     Flanner House also assailed the protection afforded to Flanner School, Inc. as violating the Indiana Constitution, chiefly under the Indiana Constitution’s Equal Privileges and Immunities Clause. The thrust of the argument was that Flanner School, Inc. was receiving unequal treatment as compared to other private schools and nonprofit corporations. But the Court of Appeals disagreed:

Charter schools are neither private schools nor nonprofit corporations; rather, by the plain terms of the statute creating them, they are public schools. Contrary to Flanner House’s argument, this legislative designation does not change depending on with whom the charter school is dealing. Further, although an organizer of a charter school is an entity that has been determined by the Internal Revenue Service to be operating under nonprofit status, it is not a nonprofit entity separate from the school. Rather, as we determined earlier in this opinion, an organizer and a charter school, together, are the charter school. As discussed previously in this opinion, charter schools must be organized and operate according to a charter agreement and are subject to extensive, particularized statutes for their governance and educational matters with a considerable level of governmental oversight. These stringent statutory guidelines and requirements apply only to charter schools and their organizers who, although having the status of a nonprofit entity, are a very specific type of nonprofit performing under a specific charter agreement as the organizer, administrator, and fiscal agent of a charter school. These characteristics are unique and inherent to charter schools, and they distinguish charter schools from both private schools and other nonprofit corporations.

Therefore, application of the Tort Claims Act to charter school organizers did not run afoul of the Equal Privileges and Immunities Clause.

     Lastly, Flanner House argued that application ran afoul of the Open Courts clause. Once again, the Court of Appeals found no problem:

The courts of our state have uniformly held that in cases involving injury to person or property, article I, section 12 does not prevent the legislature from modifying or restricting common law rights and remedies. Yet, the legislature’s actions in this regard are not without limits; any legislative alteration must not interfere with constitutional rights. Legislation that restricts a complete tort remedy must be a rational means to achieve a legitimate legislative goal.

As we have noted in this opinion, one of the primary concerns the Act was intended to address was protection of the public treasury, and by extension the taxpayers, from a multitude of tort lawsuits and the possibility of enormous monetary liabilities if government entities were held legally accountable in civil litigation in the same fashion as private entities and persons. With regard to governmental immunity in the Act, our supreme court has stated, “In tort cases, the source of authority or lack thereof to sue the State originally arose from rights at common law, not from rights contained in the Constitution. Thus, it is within the legislature’s authority to expand or restrict the scope of sovereign immunity through the Tort Claims Act.” [State v.] Rendleman concerned a suit against the State for damages allegedly sustained in a motor vehicle accident involving Rendleman and an Indiana State Trooper. In holding that the law enforcement immunity section of the Act was a constitutional exercise of legislative authority, the [Indiana Supreme] Court stated: “That [the law enforcement immunity section] may result in Rendleman bearing the full economic burden of his injuries and damages without the ability to insure himself against such losses, is a matter of policy for the legislature, not this Court, to address.”

Similarly, the extension of the immunity provision of the Act to a charter school and its organizer, which we determined are, jointly, a charter school, is a rational means to achieve the legitimate legislative goal of protecting the public treasury.

     Join us again next time for further discussion of developments in the law.

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*Disclaimer: The author is licensed to practice in the state of Indiana. The information contained above is provided for informational purposes only and should not be construed as legal advice on any subject matter. Laws vary by state and region. Furthermore, the law is constantly changing. Thus, the information above may no longer be accurate at this time. No reader of this content, clients or otherwise, should act or refrain from acting on the basis of any content included herein without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue.