A unanimous N.C. Supreme Court has ruled against the former Kinston Charter Academy and its leader in a dispute involving state funding tied to inflated enrollment projections.

The 6-0 ruling rejects the argument that a charter school is an “arm of the state” with protection from some forms of legal action. On that issue, the Supreme Court reverses a unanimous decision from the N.C. Court of Appeals.

At the same time, the Supreme Court affirmed the appellate court’s ruling against former principal Ozie Hall. Hall had argued that his role as “CEO/principal” of a charter school gave him “public official immunity” against lawsuits.

Justice Phil Berger Jr. did not take part in the case. He had written the Appeals Court decision that his Supreme Court colleagues partially rejected.

The latest ruling means the state can move forward with claims against both the school and Hall under North Carolina’s False Claims Act. State officials contend Hall and the school overinflated enrollment projections in order to get more state funding for students that never would have enrolled.

“[W]e conclude that North Carolina charter schools are not state agencies and are, for that reason, precluded from asserting a defense of sovereign
immunity; that North Carolina charter schools are ‘persons’ as defined in [state law]; that the State properly pled claims against the Academy and Mr. Hall for purposes of the False Claims Act; and that the trial court did not err by denying Mr. Hall’s request that the State’s complaint be dismissed on the basis of public official immunity,” wrote Justice Sam “Jimmy” Ervin IV for the unanimous court.

Ervin and colleagues rejected the notion that the state’s charter school law protected Hall and Kinston Charter.

“The potential harm worked by the Academy’s interpretation of the relevant statutory provisions is demonstrated by the allegations in the State’s complaint, in which the Academy allegedly estimated that it would serve a far greater student population than it had any basis for believing would actually materialize, received more funds than it could actually use for the purpose of educating students in the upcoming academic year, and used the funds to make questionable payments that had the effect of benefitting school officials and their relatives,” Ervin wrote.

“Had the Academy refrained from making such an unsupported estimate of student enrollment, the funds that it obtained and used to pay expenses associated with operations during earlier periods of time would have been available for the education of North Carolina students rather than used for purposes that benefitted the Academy and school officials,” he added.

The dispute that led to the lawsuit 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 Hall. The suit alleged Kinston’s faulty enrollment numbers amounted to violations of the N.C. False Claims Act.

In ruling against Kinston Charter, the Supreme Court rejects the Appeals Court’s December 2019 ruling that charter schools are protected from lawsuits by government’s sovereign immunity.