Hope Academy Broadway Campus v. White Hat Management, LLC

Ten Cleveland charter schools including Hope Academy Broadway Campus (plaintiffs) contracted with White Hat Management, LLC (defendant), a private for-profit company, and its subsidiaries (collectively, White Hat) to assume all operation and management of the schools except for some limited financial oversight. The contracts required the schools to pay White Hat 95 to 96 percent of the funding received for each student (called the continuing fee) and government grants. White Hat was to provide facilities and purchase or lease all personal property necessary to operate the schools. The contracts also specified that “Additionally, [White Hat] shall purchase on behalf of the School any furniture, computers, software, and other personal property which, by the nature of the funding source, must be title in the School’s name.” However, the contracts also said that after termination, the schools could retain personal property owned by White Hat only by buying it back at its remaining-cost basis. The schools performed poorly under White Hat’s management. The U.S. Department of Education closed two and placed four on academic watch, and another on emergency status, one step from shutdown. Questioning how White Hat spent the money, the schools discovered it had purchased and renovated buildings owned by its affiliates. White Hat also used part of the continuing fees to purchase personal property used in the school titled in its own name. White Hat refused to provide further information about what happened to the allegedly public funds, prompting the schools to sue for an injunction and accounting, as well as breach of contract and fiduciary duty. The schools moved for partial summary judgment, asking the court to declare the parties’ respective rights to the personal property used to operate the schools. The trial court ruled that the schools had to pay White Hat the remaining-cost basis to obtain the personal property. The appellate court affirmed, finding the continuing fee lost its public-funds nature once paid to White Hat, and that the contracts did not create a fiduciary duty for White Hat to buy and hold property for the schools’ benefit. The schools appealed to the Ohio Supreme Court, arguing that White Hat assuming a fiduciary relationship with the schools that required it to account for public funds and expend them only for educational purposes.