Tax dollars fund North Carolina’s public charter schools. But those schools operate — by design — outside the traditional district school system.

That setup has prompted an interesting legal question: How closely is a charter school tied to state government? Two recent court cases are giving judges at the state and federal level a chance to provide answers.

The first case, titled Peltier v. Charter Day School Inc., recently produced a ruling from the 4th U.S. Circuit Court of Appeals. In a 2-1 split decision, the court decided on Aug. 9 that plaintiffs challenging a Brunswick County charter school’s dress code could not treat the school as a “state actor.”

Plaintiffs can continue to fight the dress code through other legal means. But federal courts have now shut the door on the “state actor” argument. That decision could have far-reaching implications for other federal lawsuits involving N.C. charter schools.

Students challenged a skirt requirement for girls within the Charter Day School dress code. They had hoped to win what’s called a “Section 1983” civil rights claim. Section 1983 allows people to sue state government workers and those acting “under color of state law” for alleged civil rights violations.

“The Constitution only reaches government conduct,” Judge Marvin Quattlebaum wrote in the 4th Circuit’s majority opinion. Relying on precedent “and in consideration of the state action doctrine, the skirt requirement is CDS’s conduct, not North Carolina’s. Because Section 1983 does not regulate private conduct, Plaintiffs cannot prevail on their equal protection claim.”

The N.C. Institute for Constitutional Law sees the potential for long-term implications. “The Section 1983 portion of the decision is an important win for charter schools,” said Jeanette Doran, NCICL president and general counsel. “The decision delves into the nature of charter schools in North Carolina and focuses on their statutory and regulatory uniqueness to conclude Charter Day School was not what the law terms a ‘state actor’ when it created the skirts requirement in its dress code.”

“Although the Appeals Court focused on the creation of the dress code in the court’s analysis of whether Charter Day School was a state actor, its reasoning may be applicable to future cases in which charter school opponents try to sue a charter school under various constitutional theories,” Doran added.

While the Peltier case added more clarity to the “state actor” argument at the federal level, North Carolina’s highest state court is addressing a similar issue.

The state Supreme Court hears oral arguments today in State of N.C. v. Kinston Charter Academy. In this instance, a charter school wants to be treated as an “arm of the state” to avoid legal liability.

To lawyers, “state actor” and “arm of the state” are distinct terms. The two cases have other significant differences. But in both instances, a key issue involves a court’s determination of just how closely a charter school ought to be tied to state government.

The state case dates back to 2013. Kinston Charter Academy estimated that it would enroll 366 students in the upcoming school year. That estimate fell within guidelines set by state law, but the school opened its academic year with just 189 students. The Kinston school eventually surrendered its charter in September, forcing families to scramble for other education options.

The state was unable to recover money initially awarded to Kinston Charter based on inflated enrollment numbers. Then-Attorney General Roy Cooper filed suit against the school and its CEO. The suit alleged Kinston’s faulty enrollment numbers amounted to violations of the N.C. False Claims Act.

A unanimous three-judge panel of the N.C. Court of Appeals ruled in December 2019 that legal action could continue against the CEO. But the school itself was off limits.

“Because Kinston Charter, as a public school, was engaged in a constitutionally mandated function reserved to the State, we conclude Kinston Charter is entitled to the State’s sovereign immunity,” wrote Judge Phil Berger Jr.

“Even assuming, arguendo, that charter schools are not categorically entitled to claim sovereign immunity from the [False Claims Act], Kinston Charter would still not be subject to suit under an arm-of-the-state analysis applicable to entities performing State functions.”

In this case, lawyers working for current state Attorney General Josh Stein make the case against treating Kinston Charter Academy as an “arm of the state.”

Much of Assistant Attorney General Matthew Liles’ argument relies on precedent from previous 4th Circuit federal cases. In a 2015 Pennsylvania case, the 4th Circuit had relied on a higher education agency’s “financial independence and its administrative autonomy” as key factors in determining that it was not an arm of the state. Using that case’s “analysis as a guide, it is clear that private charter corporations like Kinston Charter are not arms of the State.”

Moreover, “Kinston Charter is also not an arm of the State, because under the Charter School Act, charter schools — and especially the nonprofit corporations that run them — operate with significant autonomy from the State,” according to Liles’ brief.

The assistant attorney general takes direct aim at the December 2019 ruling. “[T]he Court of Appeals put great emphasis on charter schools’ status as public schools in holding that they are arms of the State. But … the law is clear in the Fourth Circuit that North Carolina’s traditional public schools are not arms of the State. Charter schools are even more clearly autonomous from the State: they are run by private corporations.”

“When faced with laws that set charter schools apart from a State’s traditional educational system, federal courts have held charter schools are not arms of the State,” Liles writes.

Berger now sits on the state Supreme Court. He will have to sit out that court’s upcoming debate over a case he’s already heard. So it’s up to his six colleagues to decide whether a charter school constitutes an “arm of the state.”

As in the federal Peltier case, the decision could have a significant impact on charter schools’ legal protections for years to come.

Mitch Kokai is senior political analyst for the John Locke Foundation.