Seeing Clearly: Dinsmore Helps Ohio Charter Schools Secure Greater Transparency from their Management Company

Across-the-board budget cuts and an unstable economy have dramatically impacted educational funding, making it more important than ever for each dollar to count. That’s why a recent court decision that ordered a charter school management company to disclose detailed financial information about their expenditures could prove to be a significant win for all Ohio charter schools and their students.

We are currently representing a group of charter schools in the Cleveland/Akron area that are seeking access to the financial records of their for-profit management company. The schools currently are managed by White Hat Management, a private, for-profit entity responsible for using the fee paid to it by the charter schools’ from state allocated revenue to operate the schools. According to the Management Agreement, the schools were required to turn over 96 percent of operating funds they received from the state to White Hat, who would in turn take responsibility for handling payroll, facilities, and equipment and supplies purchases.

However, with several of the schools suffering academically, the schools sought to identify areas where additional or adjusted spending could lead to improvement. They then filed suit, alleging that White Hat refused to disclose how the state funds were currently being spent. White Hat alleged that they had followed state statutes in releasing a general expenditures report and that additional financial disclosures would reveal trade secrets.

During pre-trial discovery proceedings, the Franklin County Court of Common Pleas issued an order for the production of detailed financial statements, including tax returns and financial information about the companies affiliated with White Hat. The order was later upheld by the Franklin County Court of Appeals, which found that White Hat “offered little support to explain why the materials sought were confidential and proprietary.” The ruling could set an important precedent in the state regarding the financial obligations and transparency of private entities that manage charter schools.

White Hat may file an appeal to the Supreme Court of Ohio; however, it is our opinion that a decision on a discovery issue will not be accepted for review. There is a second appeal pending at the Franklin County Court of Appeals to determine who should retain ownership of property purchased by White Hat with the fee paid to it to operate the schools. We will provide updates as they occur.