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Monarch Academy Baltimore Campus, Inc. v. Baltimore City Board of School Commissioners

Court of Appeals of Maryland

December 18, 2017


          Argued: September 11, 2017

         Circuit Court for Baltimore City Case No. 24-C-15-005507.

          Barbera, C.J. Greene, Adkins, McDonald, Watts, Hotten, Getty, JJ.


          GETTY, J.

         This Court has twice addressed appeals in which public charter schools alleged that a local school board failed to meet the requirement in Maryland Code, Education Article ("ED") § 9-109 to provide the charter schools with funding that is "commensurate with the amount disbursed to other public schools in the local jurisdiction." See Frederick Classical Charter Sch., Inc. v. Frederick Cty. Bd. of Educ., 454 Md. 330 (2017), reconsideration denied (Aug. 24, 2017); Balt. City Bd. of Sch. Comm'rs v. City Neighbors Charter Sch., 400 Md. 324 (2007). However, in both of those cases, charter schools initially challenged a local school board's proposed annual funding allocation in an administrative adjudicatory proceeding before the State Board of Education ("the State Board"), and the dispute came before the courts only when one of the parties subsequently filed a petition for judicial review of the State Board's decision.

         In contrast, the Petitioners in the instant case, thirteen operators of charter schools in Baltimore City (the "Charter School Operators"), [1] sought to obtain relief in a similar commensurate funding dispute by filing breach of contract complaints against the Respondent, the Baltimore City Board of School Commissioners (the "City Board"), directly in the Circuit Court for Baltimore City without first seeking review before the State Board. The contracts at issue all contained a provision in which the City Board agreed to "allocate Commensurate Funding to the [Charter] School Operator, " and to provide information as to its own finances and how it had reached a specific per-pupil commensurate funding figure for the charter school. The Charter School Operators contended that the City Board breached those contractual requirements by not providing information as to its finances and commensurate funding calculations and by failing to provide the correct amount of commensurate funding for the 2015-16 school year.

         After the cases were consolidated before the circuit court, the City Board moved to dismiss the case or stay the proceedings on the grounds that the State Board had primary jurisdiction over commensurate funding determinations. After holding a hearing, Judge Julie Rubin concluded that the State Board had "provided sufficient guidance" regarding the meaning of commensurate funding so that the circuit court was "no longer obliged to punt the issue to the expertise of the administrative body." Therefore, she declined to invoke the primary jurisdiction doctrine and denied the motion to dismiss.

         On the same day as it filed its motion to dismiss before the circuit court, the City Board filed a petition for declaratory relief before the State Board, requesting that the State Board declare that its funding formula complies with ED § 9-109 and has resulted in commensurate funding. After Judge Rubin's order, the State Board dismissed the petition, noting that the circuit court had "asserted its jurisdiction." Thereafter, the City Board filed a counterclaim against the Charter School Operators before the circuit court. The Charter School Operators moved to dismiss the counterclaim, and a hearing on their motion to dismiss was scheduled before the circuit court. At that hearing, Judge Alfred Nance questioned counsel as to the procedural background of the case, instructing them to "[t]ell me what happened that causes you to rightfully be in my courtroom." After a brief recess and off-the-record discussion in chambers, counsel for the City Board made an oral motion to dismiss the Charter School Operators' complaints. Judge Nance, after hearing arguments for and against the motion, determined that "in lieu of" granting the motion he would issue an order staying proceedings in the circuit court "pending administrative review of the parties' dispute by the State Board of Education."

         After the Stay Order ruling, the parties moved to proceed on separate procedural tracks. The Charter School Operators appealed from the circuit court's Stay Order to the Court of Special Appeals, while the City Board once again filed a petition for declaratory relief before the State Board. The State Board once again dismissed the City Board's petition, stating that "the case remain[ed] within the jurisdictional purview of the courts." Subsequently, in a reported opinion, the Court of Special Appeals dismissed the Charter School Operators' appeal after concluding that the circuit court's Stay Order was not an appealable order. Monarch Acad. Balt. Campus, Inc. v. Balt. City Bd. of Sch. Commissioners, 231 Md.App. 594, 619 (2017). The Charter School Operators filed a petition for writ of certiorari from that dismissal, which we granted on April 4, 2017. Monarch Acad. Balt. Campus v. Balt. City Bd. of Sch. Comm'rs., 452 Md. 523 (2017).

         On appeal to this Court, the Charter School Operators contend that the circuit court's Stay Order was a final and appealable judgment, and therefore urge us to hold that the Court of Special Appeals erred in dismissing the appeal. The Charter School Operators further assert that the State Board does not have primary jurisdiction over their breach of contract claims, and therefore the circuit court erred in entering the Stay Order.

         When a court determines that a party's claim is within the authority of an administrative agency under the doctrine of primary jurisdiction, it is ordinarily entirely appropriate under the primary jurisdiction doctrine to enter a stay to permit that party to bring his or her claim before the appropriate agency. Then, after the agency has had the opportunity to evaluate and rule on the claim, a party may ordinarily seek judicial review before the circuit court. In this appeal, however, we are confronted with a rare and unique set of circumstances in which there is a strong likelihood that the Charter School Operators would not be able to obtain an administrative ruling on their breach of contract claim.

         Here, the State Board is the only agency to which the Charter School Operators can bring their claim at the juncture at which the Stay Order was entered, and they can only do so in the form of a petition for declaratory relief. However, the agency has twice denied petitions for declaratory relief in this case, citing in the first denial the lack of any factual record upon which it could review and issue a declaratory judgment. Despite the arguments raised by the City Board in this appeal, there is no guarantee that the State Board would grant a third petition for declaratory relief under the circumstances present here. The State Board's prior declaratory rulings and this Court's precedent set forth a detailed and highly fact specific inquiry for charter school funding disputes. Of great significance to our decision, the contract between parties requires certain financial information to be disclosed by the City Board to the Charter School Operators. However, the Charter School Operators allege that they did not receive that information. If true, the Charter School Operators simply may not have enough information to successfully frame a declaratory petition to the State Board, or to obtain a declaratory order from the State Board that fully resolves the charter school funding issues raised in their Complaint. And, although there is the potential for a limited discovery process before the State Board, it is discretionary and even if employed may not be sufficient to address this concern.

         Finally, the Stay Order was entered in a rushed and improper manner, before there was any opportunity for discovery as to the information necessary for the resolution of the charter school funding claims, and without clear guidance to the State Board as to exactly what issues needed to be resolved before the matter could resume before the circuit court. Thus, the rushed and non-specific Stay Order at issue here further exacerbated the difficulties facing the Charter School Operators in pursuing an administrative remedy and eventually being able to return to court for a judicial resolution of their claim.

         Therefore, under the above-described unique circumstances of this case, we shall hold that the Stay Order was a final and appealable judgment and therefore shall reverse the judgment of the Court of Special Appeals dismissing the appeal. We shall also hold that the circuit court abused its discretion in staying the proceeding in order for the parties to seek administrative review because the court did not first allow for discovery and did not provide guidance as to how and when the case would resume in circuit court. However, we shall also hold that the State Board retains primary jurisdiction as to the underlying commensurate funding issues in dispute and that, after discovery before the circuit court is concluded, it will be appropriate for the circuit court to enter a more definite order staying proceedings for review of those issues before the State Board.


         A. Primary Jurisdiction

         The doctrine of primary jurisdiction derives from "the relationship between legislatively created administrative remedies and alternative statutory, common law or equitable judicial remedies." Prince George's Cty. v. Ray's Used Cars, 398 Md. 632, 644 (2007). We have explained the relationship between those remedies as follows:

[W]henever the [General Assembly] provides an administrative and judicial review remedy to resolve a particular matter or matters, the relationship between that administrative remedy and a possible alternative judicial remedy will ordinarily fall into one of three categories:
[T]he administrative remedy may be exclusive, thus precluding any resort to an alternative remedy. Under this scenario, there simply is no alternative cause of action for matters covered by the statutory administrative remedy.
[T]he administrative remedy may be primary but not exclusive. In this situation, a claimant must invoke and exhaust the administrative remedy, and seek judicial review of an adverse administrative decision, before a court can properly adjudicate the merits of the alternative judicial remedy.
[T]he administrative remedy and the alternative judicial remedy may be fully concurrent, with neither remedy being primary, and the plaintiff at his or her option may pursue the judicial remedy without the necessity of invoking and exhausting the administrative remedy.

United Ins. Co. of Am. v. Maryland Ins. Admin., 450 Md. 1, 14-15 (2016) (quoting Ray's Used Cars, 398 Md. at 644 (quoting Zappone v. Liberty Life Ins. Co., 349 Md. 45, 60-61 (1998))) (emphasis in original) (footnote omitted).

         When a party's claim(s) could properly be brought before either a court or an administrative agency, the agency remedy will generally be deemed primary "whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body[.]" Arroyo v. Bd. of Educ. of Howard Cty., 381 Md. 646, 658 (2004) (quoting United States v. Western Pacific R.R. Co., 352 U.S. 59, 63-64 (1956)). This Court has held that "[n]o fixed formula exists for applying the doctrine of primary jurisdiction[, ]" and that "[i]n every case the question is whether the reasons for the existence of the doctrine are present and whether the purposes it serves will be aided by its application in the particular litigation." Id. at 658-59 (quoting Western Pacific R.R. Co., 352 U.S. at 63-64). However, the Court has recognized that "[i]n the absence of specific statutory language indicating the type of administrative remedy, there is a rebuttable presumption that an administrative remedy was intended to be primary." United Ins., 450 Md. at 15 (citing Zappone, 349 Md. at 63).

         Of significance to this appeal, even when a court ultimately determines that one or more claims filed before it are properly within the primary jurisdiction of an administrative agency, that does not mean that the circuit court is divested of jurisdiction over the claim(s), or necessitates the dismissal of the action before the court. Instead, the doctrine only applies to preclude the court from adjudicating the claim(s) "until a final administrative determination is made." Arroyo, 381 Md. at 660 (emphasis in original). Thus, the appropriate action for a trial court in such an instance is generally not to dismiss the claim(s), but rather to "stay further proceedings regarding the judicial complaint" until the party can obtain a final administrative determination as to the issue in dispute. Carter v. Huntington Title & Escrow, LLC, 420 Md. 605 (2011); see also Maryland Reclamation Assocs., Inc. v. Harford Cty., Maryland, 382 Md. 348, 367 (2004).

         B. Authority of the State Board of Education

         The General Assembly has vested the State Board of Education with expansive authority to interpret the provisions of the Education Article. Pursuant to ED § 2-205, the State Board has the authority to: "[d]etermine the elementary and secondary educational policies of this State, " ED § 2-205(b); "[a]dopt bylaws, rules, and regulations for the administration of the public schools" which "have the force of law when adopted and published, " ED § 2-205(c); "explain the true intent and meaning" of the Education Article and its own regulations and "decide all controversies and disputes" regarding those provisions, ED § 2-205(e); and, "exercise general control and supervision over the public schools and educational interests of this State, " ED § 2-205(g).

         We have explained that the State Board's authority under section 2-205 "constitutes a visitatorial power of such comprehensive character as to invest the State Board with the last word on any matter concerning education policy or the administration of the system of public education." Frederick Classical, 454 Md. at 370 (quoting City Neighbors, 400 Md. at 342-43). We have held that the State Board's visitatorial power "is not unlimited, " and it is the courts that ultimately must decide purely legal questions. Id. at 371 (quoting City Neighbors, 400 Md. at 343). But, "'the broad statutory mandate given to [the State Board] requires that special deference be given to its interpretation of statutes that it administers, ' . . . over and above that generally afforded to other administrative agencies[.]" Id. at 370 (quoting City Neighbors, 400 Md. at 343).

         C. Administrative Remedies Before the State Board

         At the local level, the twenty-three Maryland counties and Baltimore City each have a school board that has oversight and control of education matters in its jurisdiction. Each local school system also has a superintendent-or, in Baltimore City, a Chief Executive Officer-who is the administrator of that system and is responsible for enforcing the rules and policies of both the local school board and the State Board, and for implementing State law. See ED §§ 4-101, 4-102, 4-108. A county superintendent's decision may be appealed to a local school board within thirty days. ED § 4-205(3). And, if a party is dissatisfied with the local school board's decision, that party may appeal to the State Board within thirty days from the decision of the local school board. Id.; see also Md. Code Regs. ("COMAR") 13A.01.05.02(A)-(C) (describing the required contents of an appeal to the State Board, and a deadline to file the appeal "within 30 calendar days of the decision of the local board").

         However, and of great significance to the present dispute, there is also another process through which parties may ask the State Board to resolve a dispute as to the meaning and proper application of State educational law or State Board rules, regulations, or policies. If there is an "existing case or controversy" between an aggrieved party and a local school board, either party-the aggrieved party or the local school board-may at any time file "a petition for declaratory ruling by the State Board on the interpretation of a public school law or regulation of the State Board that is material to [that] existing case or controversy." COMAR 13A.01.05.02(D).

         D. Charter Schools and Commensurate Funding

         Charter schools are a statutorily created alternative to traditional public schools that are "in the nature of semi-autonomous public schools, " operating "under a contract with a State or local school board." City Neighbors, 400 Md. at 328. "The contract, or charter [agreement], defines how the school will be structured, staffed, managed, and funded, what programs will be offered, and how the school will operate and account for its activities." Id. In Maryland, charter schools are governed by the Maryland Public Charter School Program ("Charter School Program"), ED §§ 9-101 et seq., which "sets forth a process for establishing new charter schools as well as monitoring, oversight, and accountability standards for charter schools once they are established." Frederick Classical, 454 Md. at 344. The purpose of the Charter School Program is to "establish an alternative means within the existing public school system in order to provide innovative learning opportunities and creative educational approaches to improve the education of students." ED § 9-101(b).

         Charter schools operate under the supervision of the local school board of the county or local jurisdiction in which they are located. See ED § 9-103 (stating that local school boards are the "public chartering authority" for the granting of a charter agreement); ED § 9-102(11) (mandating that charter schools operate "under the supervision of the public chartering authority from which its charter is granted and in accordance with its charter" and, with limited exceptions, "the provisions of law and regulation governing other public schools"). Charter schools also receive funding from their local school board. ED § 9-109 provides a mandate for public funding of public charter schools:

A county board shall disburse to a public charter school an amount of county, State, and federal money for elementary, middle, and secondary students that is commensurate with the amount disbursed to other public schools in the local jurisdiction.

(Emphasis added.) As we noted in Frederick Classical, "[t]he statutory interpretation of [ED § 9-109] and deciphering the meaning of 'commensurate' in this context has required extensive administrative deliberations" by the State Board. 454 Md. at 345.

         a. City Neighbors Declaratory Rulings

         In 2005, the State Board issued a set of three declaratory rulings, which constituted its first definitive statements interpreting the meaning of ED § 9-109 and the commensurate funding requirement. We have previously referred to these rulings, which ultimately came before this Court in our decision in City Neighbors, as the "City Neighbors declaratory rulings." See Frederick Classical, 454 Md. at 346.

         In the City Neighbors declaratory rulings, the State Board set forth a detailed, multi-step formula for calculating a charter school's per-pupil funding that the State Board would deem to be "commensurate" with funding provided to other public school students:

The State Board concluded that ED § 9-109(a) "expressed a legislative intent that a charter school 'receive federal, State, and local funding in an amount proportionate to the amount of funds expended for elementary, middle, and secondary level students in the other public schools in the same system.'" [City Neighbors, 400 Md. at 336.] Furthermore, the State Board determined that the calculation of commensurate funds must include "'funding for services for which students in the public charter schools are eligible such as free and reduced price meals, pre-kindergarten, special education, English-language learners, Perkins, Title I, and transportation.'"[2] [Id.] The Board further specified that the commensurate funding was to be calculated by starting with the local school system's total annual operating budget that includes all federal, State, and local funding, [3] and dividing by enrollment for the previous year[4] to reach an average per-pupil figure, overall and for each major category of spending. Id. at 336-37. Then, after deducting two percent for central office administrative costs, the State Board directed that local boards multiply the average per-pupil figure "by the student enrollment of the charter school to determine the total funding amount for the charter school." Id. at 337.
The State Board determined that "[b]ecause the total school system operating budget encompassed all funds, " including funds for specific services, "the average per[-]pupil amount derived from [the total operating budget] figure would be sufficient for the charter school to deliver the services for which its students were eligible." Id. The State Board noted, however, that charter schools "would have to make budgetary allocations in light of the students' eligibility requirements" under federal or state law "and in doing so must comply with all applicable Federal and State requirements." Id. "For the special services that must be provided to eligible students, " the State Board determined that "[a] charter school could elect either to provide the services directly or have them provided by the school system, but if it opted for the latter, it would be required to reimburse the school system for the proportionate cost of those services." Id. at 337-38. A charter school would also need to reimburse the local school board "'for salary, local retirement, and other fringe benefit costs for the public school employees working in the charter school as well as for regular services and supplies that the charter school requests the local school system to provide.'" Id. at 338.

Frederick Classical, 454 Md. at 347-48 (footnotes in original) (bracketed text added).

         Of significance to this appeal, the State Board also stated that the detailed formula it had set forth "should be used as 'guidance and direction' to [ ] other charter school applicants and local school systems 'for the refinement of their working relationships on behalf of the public school children throughout this State.'" Id. at 349 (quoting City Neighbors, 400 Md. at 339).

         b. This Court's City Neighbors Opinion

         Several local school boards, including the City Board, took issue with the State Board's formula and filed petitions for judicial review of the State Board's decision. Those petitions ultimately came before this Court on appeal in City Neighbors, 400 Md. 324 (2007).

         We began our analysis in City Neighbors by considering the local school boards' claim that the declaratory rulings were in effect a binding "regulation" and must be deemed invalid because they were not issued in conformance with the requirements of Maryland Code, State Government Article ("SG") § 10-101 et seq. for formal rulemaking through regulations. 400 Md. at 344. We rejected that claim, noting that declaratory rulings are generally treated by courts "more in the nature of contested case adjudications than the adoption of a regulation." Id. at 345. And, we held that declaratory rulings as "a permissible mechanism by which [the State Board] may exercise its statutory authority to 'explain the true intent and meaning' of the public school laws and decide 'controversies and disputes' under those laws." Id. at 346. We therefore concluded that the State Board "was well within its discretion to proceed in the manner it did-adjudicating the cases before it and offering 'guidance' to other applicants, rather than proceeding with more formal and binding regulations." Id.

         Turning to the principal question of whether the State Board "had properly construed and applied ED § 9-109(a), " we concluded that the statute was "patently ambiguous." Id. at 346-47. We reviewed the statute's legislative history and concluded that the General Assembly had clearly intended "that the determination of commensurate funding would necessarily be on a per[-]pupil basis." Id. at 355. However, we also determined that the General Assembly had not specified "what was commensurate and how [ ] the amount disbursed to other public schools [was] to be determined, " and that it "must have envisioned" that the State Board, "the body [the General Assembly] has consistently vested with the ultimate administrative authority to interpret, explain, and apply the public education laws, " would interpret the meaning of those terms. Id.

         Finally, we addressed the city and county boards' specific complaints about the State Board's formula: "the requirement that the funding be disbursed in cash, rather than in services, inclusion of Title I and special education expenses, and the limitation of the deduction for administration expenses to 2% in the calculation of commensurate funding." Id. at 356. We found no legal error in any of those claims. Noting that the statute calls for the disbursement of "money, " the Court concluded that while charter schools may "negotiate for the provision of services" such services "cannot be forced on the charter schools at the whim of the county boards." Id. The Court also held that the State Board was "clearly entitled" to conclude that "commensurate" funding to charter schools must include funding for Title I and special education funds "to the extent that students in the charter school are eligible for those services." Id. And the Court held that with respect to the 2% cap in central administrative costs, the State Board reasonably determined that "charter schools, being somewhat autonomous, would not need and should not be subject to the full range of control exercised by the central administration over the regular public schools, and that they therefore should not be charged with a share of that total expense." Id. at 356-57.

         c. Frederick Classical

         In Frederick Classical, our most recent case to examine charter school funding, the Frederick County Board of Education withheld transportation funding from the calculation of its annual per-pupil commensurate funding allocation to Frederick Classical, a charter school, because the school did not provide transportation services to its students. 454 Md. at 341. Frederick Classical contested the withholding of the transportation funds before the local school board and, when it summarily refused to amend the allocation, appealed to the State Board. Id. The State Board held that, as a matter of law, "a charter school is not automatically entitled to funds for services it does not provide." Id. at 363. It therefore concluded that the local school board's withholding of transportation funds from Frederick Classical's per-pupil allocation "was not contrary to state law" and was "consistent with [its] past rulings."[5] Id.

         This Court, however, reversed the decision of the State Board. We determined that the State Board's ruling was contrary to its own precedent in the City Neighbors declaratory rulings. We held that under the formula set forth in those rulings a local school board calculating a charter school's annual per-pupil allocation "generally must include in that calculation funds budgeted for any of the services expressly identified in the declaratory rulings-including funds for transportation services." Id. at 392. Although local school boards are not required to include in the calculation "funds for services that have detailed eligibility requirements under state and federal law when the charter school does not meet those eligibility requirements, " we established that "there are no such eligibility requirements" for transportation services for the general student population.[6] Id.

         Consequently, we concluded that, under the City Neighbors declaratory rulings formula, "a local school board must [] include the funds budgeted for [transportation] when calculating a charter school's per-pupil allocation, regardless of whether a charter school provides transportation services to its general student population." Id. As the State Board had incorrectly ruled that withholding transportation funding when Frederick Classical did not provide transportation services was "consistent with [its] prior rulings, " when in fact it was not, we held that its ruling was an abuse of discretion. Id. at 405-406.

         We then considered whether, on remand, the State Board was required to adhere to its own City Neighbors declaratory formula for calculating a charter school's commensurate funding, or if it had the discretion to modify that formula. Id. at 406. We recognized that administrative agencies are generally accorded "ample latitude to adapt their rules and policies to the demands of changing circumstances, " and may generally proceed either through adjudications or through more formal notice-and-comment rulemaking. Id. at 406-07 (quoting Montgomery Cty. v. Anastasi, 77 Md.App. 126, 137 (1988)). However, we also determined that courts have imposed some limits on agency discretion to change policies or rules, and highlighted two of those limits. First, if the policy that is being changed is "a policy of general application, embodied in or represented by a rule" then "the change must be accomplished by rulemaking." Id. at 408 (quoting CBS Inc. v. Comptroller of the Treasury, 319 Md. 687, 696 (1990)). Second, an agency's discretion may be circumscribed "when there is substantial reliance on the agency's settled standard or interpretation and a change would have a detrimental impact." Id. at 409.

         We concluded that the first limitation that an existing rule may only be changed through new rulemaking did not apply because the guidance set forth in the City Neighbors declaratory rulings was not a formal "rule of widespread application." Id. However, we also noted that over a decade had passed since the State Board issued the City Neighbors declaratory rulings, but that the State Board "has never adopted a formal rule or regulation of general application interpreting the 'commensurate' funding requirement of ED § 9-109." Id. at 410. Accordingly, we concluded that "charter schools and their staff and student population have substantial reliance interests in the current State Board approach to determine a commensurate allocation of funds to their charter school in the City Neighbors declaratory rulings." Id. at 411. In light of those reliance interests, we held that "if the State Board proceeds through an adjudicatory approach, it must offer a rational explanation for such a change in its written decision." Id. at 412. "That rational explanation, " we emphasized, "must include how its new interpretation or approach is in keeping with the plain language and, where ambiguous, the legislative history and statutory purpose of ED § 9-109 and the Charter Schools Program statute as a whole, and account for the substantial reliance interests of charter school operators, staff and students, prospective charter school applicants, and local school boards." Id.

         We therefore remanded the case to the State Board "to render a decision as to the claims raised by Frederick Classical consistent with our holdings . . . ." Id. at 422. And, we specifically stated that if the State Board determined "that Frederick Classical is entitled to additional funds" then the State Board "shall issue an order calculating the exact amount of additional funds owed based upon Frederick Classical's enrollment during the relevant years, and directing the [local school board] to pay that amount." Id.

         E. Facts and Procedural History of the Instant Appeal

         a. The Charter School Operators Complaints

         In the fall of 2015, the Charter School Operators filed individual breach of contract complaints against the City Board in the Baltimore City Circuit Court. The complaints, which raised "substantively similar" breach of contract claims stemming from charter agreement contracts entered into between each charter school and the City Board, were subsequently consolidated by the circuit court.[7]

         In the complaints, the Charter School Operators alleged that they entered into similar contracts with the City Board to operate one or more charter schools in Baltimore City (collectively, the "Contract"). The complaints quoted a provision of the contract regarding funding of the Charter Schools and financial transparency in the funding process, and provided annotations for terms defined elsewhere in the Contract. Including relevant annotations, the provision as quoted in the complaints reads as follows:

6.1 OPERATING FUNDS. The parties agree that Title 9[8] requires funding of the charter school that is commensurate with the amount disbursed to other public schools in the local jurisdiction, and that Commensurate Funding[9] is integral to this contractual relationship and essential to the School Operator's ability to operate the School hereunder and that all funds provided by the [City Board] to the school are to be used solely for the benefit of the school and its students. Accordingly, during each school year during the Term, the School Board shall allocate Commensurate Funding to the School Operator for the following school year pursuant to Applicable Requirements.[10] Any financial commitment on the part of the [Baltimore City] School System contained in this Agreement is subject to the annual appropriation by the [City Board]. The [City Board's] staff shall deliver to the School Operator a draft of the funding formula including the amount of the estimated per pupil allocation for the applicable school year (determined in accordance with the [City Board's] "approved funding formula" and Applicable Requirements) and will make a good faith effort to deliver these materials in no less than two weeks prior to the budget (distinct from the Budget of the School Operator covered in Section 6.2) submission deadline for the School, such deadline to be consistent with the deadline for all School System schools. The draft document will include: (i) the School System's budget and line item amounts necessary to calculate the per pupil allocation, and (ii) copies of any materials or documentation related thereto that is delivered to the [City Board] for public presentation. Additionally, the [City Board] agrees to make reasonable efforts to provide to the School Operator background information on the methodology and assumptions behind the calculations as soon as such materials are available.

(Emphasis and bracketed text added, additional footnotes omitted).

         The complaints raised a single count for breach of contract. Specifically, the Charter School Operators asserted that the City Board breached the provision quoted above by failing to provide the Charter School Operators with commensurate funding, and also by failing to provide them with the budget and financial information specified in the provision.

         The Charter School Operators claimed that the City Board had "never" provided commensurate funding in line with the City Neighbors declaratory rulings formula, [11] and that the City Board has instead repeatedly "unilaterally changed their methodology in developing the amount to be disbursed to charter schools." And, they more specifically asserted that the City Board failed to provide the Charter School Operators with commensurate funding for Fiscal Year 2016, i.e., the 2015-16 school year.

         According to the Charter School Operators, the Baltimore School System's Chief Financial Officer provided charter schools with a "Revised Per Pupil" allocation for the 2015-16 school year of $9387. The Charter School Operators maintained that per-pupil figure "reflected an expectation that the State of Maryland . . . would cut State funding to the System by approximately $35 million." However, the City Board ultimately adopted a budget for the 2015-16 school year that "reflected the restoration of over $27 million in State funding and increases of $3 million dollars in City funding and $3 million from 'other revenue sources' as compared to the earlier projections." Nonetheless, the Charter School Operators claimed that the City Board, "without explanation, kept the charter school per pupil at the previously stated [$9387]." That figure is, according to the Charter School Operators, 1.77% less than that provided for charter schools in the 2014-15 school year budget. At the same time, the Charter School Operators asserted that the City Board adopted a budget for traditional (non-charter) public schools that was roughly the same as provided in the 2014-15 school year budget.[12]

         The Charter School Operators also claimed that the City Board had not met its contractual requirement to provide detailed information as to its finances and the basis of its calculations of the annual per-pupil commensurate funding allocation. Instead, the Charter School Operators alleged that the City Board "from year to year, arbitrarily presented charter school operators with take-it-or-leave-it charter school per pupil figures derived using varying (or no) calculation methodology, inflated estimates of overall System enrollment, and unsupported and dubious financial and budget figures." Specifically, they claimed that for the 2015-16 school year, the City Board provided only two single page documents in support of the $9387 "Revised Per Pupil" allocation.

         b. Initial Motions to Dismiss or Stay the Action

         The City Board filed motions "to dismiss, or in the alternative, motion to stay" the complaints. In an accompanying memorandum, the City Board contended that "at the heart" of the Charter School Operators complaints were the alleged failure of the City Board to provide commensurate funding for charter school students as required under ED § 9-109. The City Board insisted that under the primary jurisdiction doctrine the commensurate funding dispute is "for the State Board to decide in the first instance."[13]

         The Charter School Operators opposed the City Board's motions, asserting that the circuit court, and not the State Board, "has proper jurisdiction over this breach of contract action." They also noted that the relief they were seeking included "monetary damages, " which they contended was not available in a declaratory action before the State Board. In the alternative, the Charter School Operators insisted that "[e]ven if the State Board had jurisdiction and [was] able to provide the [Charter School Operators] with relief, " the State Board had already issued a "comprehensive" interpretation of commensurate funding under ED § 9-109, which was "litigated through final affirmance by the Court of Appeals." Thus, they claimed that "'primary jurisdiction' has already been satisfied." Finally, they requested that even if the court determined that the commensurate funding dispute needed to first be resolved by the State Board, the court should permit the matter to proceed through the discovery phase of litigation in circuit court and merely stay any ruling on a motion for summary judgment or beginning a trial on the breach of contract claim pending the decision of the State Board.[14]

         On January 8, 2016, Judge Rubin held a hearing on the City Board's motion to dismiss, at which both parties offered extensive arguments as to whether the State Board had primary jurisdiction over the parties' dispute. The City Board argued that, although the case was a breach of contract action, the claim that the City Board did not provide funding for charter schools that was commensurate with funding provided to traditional public schools "boils down to whether there has been compliance with [ED § 9-109]." The City Board argued that, under this Court's holding in City Neighbors, ED § 9-109 was ambiguous and the State Board had the primary authority to interpret it. The City Board acknowledged that the State Board had previously set forth a working definition of commensurate funding and a formula for calculating that funding in the City Neighbors declaratory rulings, but insisted that neither the State Board nor this Court has ever said "that is the only formula that can be used." The circuit court questioned the City Board's counsel on that point, resulting in the following exchange:

Judge Rubin: So the question that really I think where the rubber meets the road in this instance is has the issue of commensurate funding already been determined and so to send it back [to the State Board] is not only unnecessary, but, arguably, inefficient and potentially unfair[.] . . . [T]he flip side is that every single time a charter school takes issue or challenges that proper commensurate funding has been placed, at least the way I see the logical extension of your arguments is that . . . the State Board of Education will always be entitled to make that a moving target.
City Board Counsel: But that's what [the State Board has] said in their opinions. I agree with that. If they came out with -- if the statute said this is what you need to do and here are the details or if [the State Board] came up with a regulation that said this is exactly how it needs to be done . . . then I would say no[.] [B]ut in a situation where you have this guidance . . .then I think the State Board of Education should weigh in on these issues and has to weigh in on these issues . . . .

         In response, the Charter School Operators argued that under some circumstances, a party may elect to proceed before the circuit court for its breach of contract claim even if that claim implicated provisions of the Education Article. Specifically, they contended that "once the State Board has had the opportunity to have a crack at interpreting its statutes, " parties may file a claim dependent on that interpretation before the circuit court. And, they disputed the City Board's contention that the State Board would have discretion to depart from its previous interpretation and formula for calculating commensurate funding if the parties' dispute proceeded to adjudication before the State Board.

         The Charter School Operators also opposed the City Board's alternative request that the case be stayed. They pointed out that their claim that the City Board had breached its contractual obligations to provide information as to its budget and finances did not depend on the interpretation of a statute or regulations by the State Board and was "squarely before only the [c]ircuit [c]ourt." They also argued that if the case proceeded before the State Board, discovery to obtain that information would be restricted compared to the discovery available in circuit court. The Charter School Operators therefore contended that even if the court found that the commensurate funding dispute was in the primary jurisdiction of the State Board, rather than grant a stay, the court should permit the case to proceed through discovery in the circuit court. Finally, they requested that if any issue in the case needed to go before the State Board, that the court issue "very specific instructions as to what exactly the State Board would need to accomplish or could accomplish on any proceeding that would be appropriate, " and also explain how to "bring this [matter] back to [the circuit court] for actual resolution and remedies."

         During the hearing, Judge Rubin noted that the City Board's reluctance to disclose the facts supporting the commensurate funding calculations left the Charter School Operators in a disadvantaged position considering the "illusory" nature of commensurate funding:

Judge Rubin: [T]o the extent that the concept of commensurate funding or what it means in each charter school contract could be different from the next charter school contract because there are different things in play, as [City Board has] argued, on some level does this not raise an issue that in essence when the charter school contracts for, among other things, its commensurate funding, that its entitlement to whatever commensurate funding is . . . somewhat illusory? In other words, we'll tell you what it is once you complain that we haven't given it to you.

         Judge Rubin thereafter issued a comprehensive oral ruling from the bench, in which she ultimately determined that the State Board had "provided sufficient guidance" regarding the meaning of commensurate funding, including the "requisite factors to be considered, the data to be considered." She therefore concluded that the circuit court was "no longer obliged to punt the issue to the expertise of the administrative body, " but rather, it was entitled "to decline to invoke primary jurisdiction."[15] Accordingly, she denied the motion to dismiss.

         c. The City Board's Initial Petition for Declaratory Ruling

         On November 9, 2015, the same day that the City Board filed its motions to dismiss the complaints in the circuit court, it also filed a petition with the State Board, requesting that the State Board declare that its funding formula complied with ED § 9-109 and resulted in commensurate funding. The Charter School Operators thereafter moved to dismiss the declaratory petition. After Judge Rubin denied the City Board's motions to dismiss before the circuit court, the State Board dismissed the City Board's petition for declaratory ruling. In a written order, the State Board noted that the circuit court had "asserted its jurisdiction" on the issue, and it did not serve the interests of conserving judicial (and quasi-judicial) resources to have parallel proceedings.

         The State Board also addressed whether it should stay or dismiss the declaratory petition, and explained that the City Board had failed to present it with sufficient facts from which it could declare the law:

Having reviewed the Petition, we find that it fails to present any facts concerning the funding formula that the Baltimore City Public School System (BCPSS) actually used to fund the charter schools. . . . The Petition is, in essence, a request for an evidentiary hearing at which time BCPSS states that it will present the facts and the formula it used.
A request for a declaratory judgment must present a "justiciable controversy, rather than abstract, hypothetical, or contingent questions." Miller v. Augusta Mut. Ins. Co., 157 Fed.Appx.. 632, 637 (4th Cir. 2005). The Petition here presents no concrete facts from which we could declare the law.

(Emphasis added). The Charter School Operators requested that the State Board compel the City Board to disclose its commensurate funding information. In a request for an appeal in front of the State Board, a party must provide "a statement of the facts necessary to an understanding of the appeal." COMAR 13A.01.05.02(A)(3). While an appellant may request to "present additional evidence on the issues in an appeal, " the State Board must first deem the additional evidence as "material" and "that there were good reasons for the failure to offer the evidence in the proceedings before the local board." COMAR 13A.01.05.04(C). After satisfying these factors, the State Board may, but is not required to: (a) "[r]emand the appeal to the local board for the limited purpose of receiving the additional evidence, " or (b) "[r]eceive the additional evidence." COMAR 13A.01.05.04(C). Here, the Charter School Operators did not possess the "additional evidence" of commensurate funding information and thus did not have the ability to present "additional evidence" in its petition to the State Board. Adhering to the confines of COMAR, the State Board was unwilling, and statutorily unable, to conduct evidentiary hearings regarding the disputed commensurate funding information.

         d. Further Proceedings Before the Circuit Court

         Subsequently, the City Board filed a counterclaim against the Charter School Operators before the circuit court. In the counterclaim, the City Board contended that it had provided the Charter School Operators with administrative services whose value were significantly greater than 2% of the charter schools' commensurate funding allocation, and that the 2% cap on administrative services stated in the City Neighbors declaratory rulings should only apply to mandatory functions "that may only be performed by the central office of a local school system." The City Board therefore requested that the circuit court issue a declaratory ruling stating which services provided to charter schools were "mandatory" and subject to the 2% deduction. And, the City Board requested that either the value of the additional, non-mandatory services provided be counted as commensurate funding received from the City Board, or in the alternative, that the Charter School Operators be required to reimburse the City Board for the cost of those services to prevent unjust enrichment.[16]

         The Charter School Operators moved to dismiss the City Board's counterclaim for failure to state a claim upon which relief can be granted.[17] On April 18, 2016, the circuit court held a hearing on the Charter School Operators' motion to dismiss. At that hearing, Judge Nance questioned counsel about the procedural history of the case:

May I beg a question of both parties -- or both sides, if you would, please? Tell me procedurally what happened in this case, procedurally in terms of what [the Charter School Operators] did before it got to being a litigation in the Circuit Court for Baltimore City. . . . My understanding is, is that if there is a dispute, the dispute is raised with the local board. If there is a problem in the resolution by the local board there is an administrative process. That is the reason for my question. . . . Tell me what happened that causes you to rightfully be in my courtroom.

(Emphasis added). Counsel for the City Board responded to the judge's question:

I wish I were in front of you I think in January we had a hearing on a motion to dismiss where we argued exactly what Your Honor is stating, the doctrine of primary jurisdiction that this case should be stayed in favor of the State Board . . . making a determination of these issues and our motion was denied.

         Counsel for the City Board also informed the judge that there had been an administrative proceeding pending before the State Board, but that it had been dismissed after Judge ...

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