Minnesota Transitions Charter School, Minnesota School District #4017, Relator, vs. Minnesota Department of Education, Respondent.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A03-1367

 

Minnesota Transitions Charter School,
Minnesota School District #4017,
Relator,
 
vs.
 
Minnesota Department of Education,
Respondent.

 

Filed May 11, 2004

Remanded

Stoneburner, Judge

 

Minnesota Department of Education

 

John A. Cairns, Thomas J. Basting, Jr., Elizabeth M. Brama, Briggs and Morgan, P.A., 2200 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402 (for relator)

 

Mike Hatch, Attorney General, Steven B. Liss, Assistant Attorney General, Suite 1200, 445 Minnesota Street, St. Paul, MN 55101-2130 (for respondent)

 

            Considered and decided by Stoneburner, Presiding Judge; Hudson, Judge; and Crippen, Judge.*

     

 

U N P U B L I S H E D  O P I N I O N

 

STONEBURNER, Judge

 

            Relator Minnesota Transitions Charter School, Minnesota School District #4017, challenges the Minnesota Department of Education (MDE) audit determination that relator received overpayments of education aid from the state.  Because the record is insufficient to allow adequate review, we remand.

FACTS[1]

           

            MDE notified relator by telephone that it would be conducting an audit, but did not identify the scope of the audit.  One-and-one-half business days before the audit was scheduled to begin, MDE sent a letter, confirming that a 2000-01 MARSS[2] audit was scheduled for July 30 through August 2, 2002, at the office of relator's business director.  The letter did not identify the scope of the audit but listed the data that MDE needed to complete the audit.  All of the requested data related to the number of students and the number of instructional days.

            In mid-September 2002, the auditor emailed the school with a list of additional items that MDE needed to complete the audit.  The items included free- and reduced-lunch applications, calculated average daily membership for twelfth-grade students, adult learners, early kindergarten students, and original Continual Learning Plans (CLPs) for all students.

            In April 2003, MDE issued its audit report.  The cover letter for the report stated: "The audit findings indicate a decrease in general education revenue of $229,655.45 for the 2000-01 fiscal year and a decrease in compensatory revenue of $206, 247.60 for the 2001-02 school year."[3] 

            According to the report, the audit included, but was not limited to, examination of the school calendar, length of student school day, manual monthly/daily attendance records, student transcripts, continuing learning plans, and education benefits applications. 

            The report included five major findings and recommendations that (1) reduced the number of instructional days for students in grades K through 12 from 173 to 168 in the 2000-01 core school year; (2) reduced the number of instructional days from 38 to 30 for students in grades K6 and 912 in the 2000-01 learning year; (3) reduced the number of instructional days for students in grades 78 from 38 to 29 in the 2000-01 learning year; (4) reduced the average daily membership by 48.09 students for the 2000-01 school year, and (5) decreased the total number of students eligible to receive reduced lunch by 5, and the number of students eligible to receive free lunch by 82 for calculating compensatory revenue for fiscal year 2001-02.  The audit report contains exhibits purporting to support each finding and an additional seven "General Comments" noting deficiencies in relator's records, record keeping, and procedures.

            The cover letter for the report advised relator to review the findings and recommendations and stated, "Final determination as to any action that may be required will be made after you have an opportunity to appeal the findings and recommendations."  The letter asked relator to forward any additional information it believed "may have a bearing on the final determination of the report" within two weeks.

            Relator asserts that because the data requested for the audit was limited to documentation proving that the reported number of students in school on days reported was correct, relator believed the scope of the audit was limited to an audit of general education revenue, and that it first learned that the audit covered compensatory revenue issues when it received the audit report.  But relator admits that the repeated visits of the auditor after the original date for conclusion of the audit and expanded information requests by MDE included data relating to compensatory-aid eligibility. 

            Relator e-mailed notice of an intent to appeal all of the audit findings, and followed up with a letter confirming the appeal with ten pages of argument and six exhibits attached.  MDE does not have any identified process for conducting an audit appeal.  MDE's brief on appeal, supported by an affidavit prepared for this appeal, asserts that Assistant Commissioner Chas Anderson established an audit appeals committee, consisting of senior MDE staff, to review the appeal and make recommendations to her.  

            Relator's representatives met with MDE staff, presumably the audit appeals committee, but there is no record of who was present.  Relator characterizes this encounter as a hearing; MDE characterizes it as a meeting to give relator's representatives the opportunity to explain submissions in support of its appeal.  The event was not recorded and there are no minutes or notes of what occurred.  Relator was not given any guidance from MDE concerning how the appeal would be conducted or what additional documentation would be considered.  Assistant Commissioner Chas Anderson, who decided the appeal, did not attend the meeting.  After the meeting, MDE requested additional materials in support of relator's appeal.  In August 2003, Anderson issued MDE's decision regarding the appeal, adjusting the audit findings to increase relator's general education revenue for 2000-01 by $28,811.26.[4]  The decision states specifically what MDE agreed to change from the original report, which included (1) revising the number of instructional days found in the audit from 168 to 170 for elementary students and 169 for secondary students; (2) counting August 723, 2001, that the audit had excluded from the Learning Year Program instructional days, but only for five students, not eight as claimed by relator; and (3) accepting CLPs for elementary students.

            The decision asserts that relator "agreed to accept the audit finding for FY 2002" regarding the number of students eligible for free or reduced-price lunch, a statement that relator asserts is not true, noting that it produced records regarding 16 students to challenge the audit findings.  At oral argument, MDE's attorney candidly conceded that the decision does not address this challenge by relator. 

            In this appeal by certiorari, relator argues that (1) MDE arbitrarily ignored evidence of student attendance and eligibility; (2) MDE's failure to support its decision makes it arbitrary and capricious; and (3) MDE's failure to consider all issues appealed, failure of Anderson to attend the review, and the fact that those present reviewing the appeal had not previously been involved in such an appeal, denied relator due process.

D E C I S I O N

            Administrative decisions are generally presumed correct and are given a narrow scope of review.  Reserve Mining Co. v. Minnesota Pollution Control Agency, 364 N.W.2d 411, 414-15 (Minn. App. 1985).  Agency decisions are given great deference because of the expertise enjoyed by the agency.  Id. at 415.  On review of an agency decision, this court must sustain the commissioner's decision if the findings are supported by substantial evidence.  Caldwell v. City of Minneapolis, 486 N.W.2d 151, 155 (Minn. App. 1992), review denied (Minn. Aug. 4, 1992).  "The substantial evidence test requires a reviewing court to evaluate the evidence relied upon by the agency in view of the entire record as submitted."  Cable Communications Bd. v. Nor-west Cable Communications P'ship, 356 N.W.2d 658, 668-69 (Minn. 1984).

            Generally, great deference is given to administrative fact finding.  Hough Transit, Ltd. v. Harig, 373 N.W.2d 327, 333 (Minn. App. 1985).  Absent manifest injustice, inferences drawn from the evidence by an agency must be accepted by a reviewing court "even though it may appear that contrary inferences would be better supported or that the reviewing court would be inclined to reach a different result were it the trier of fact."  Ellis v. Minneapolis Comm'n on Civil Rights, 295 N.W.2d 523, 525 (Minn. 1980).

            But an agency decision is arbitrary and capricious if it is not supported by written findings and reasons, in more than just a conclusory fashion, because "it represents the agency's will rather than its judgment."  Reserve Mining, 364 N.W.2d at 414.  There is no defined rule as to how detailed and specific findings should be.  Morey v. Sch. Bd. of Indep. Sch. Dist. No. 492, Austin Pub. Schs., 271 Minn. 445, 450, 136 N.W.2d 105, 108 (1965).  The general rule is that an administrative agency

should state with clarity and completeness the facts and conclusions essential to its decision so that a reviewing court can determine from the record whether the facts furnish justifiable reason for its action.  An administrative [agency] should not leave to the court the obligation to spell out, to argue, to choose between conflicting inferences.

 

Id. (quotations omitted).  When an agency makes an important decision without written findings and reasons, it will not be allowed to rationalize its action in retrospect on appeal.  Reserve Mining, 364 N.W.2d at 415 (noting that to sanction such a procedure runs the risk inherent in any opportunity to rationalize or justify what one has done before).

 

I.          Evidence and findings

            Relator argues that MDE arbitrarily disregarded certain evidence and failed to support its decision with appropriate findings.  Specifically, relator argues that in reducing relator's number of instructional days from relator's claim of 173 to 170 for grades K6 and 169 for secondary students, MDE ignored evidence from the Minneapolis Public Schools Transportation documenting bus runs on the excluded days, and evidence from relator's catering service of meals served to students on the disputed days.  MDE dismissed this evidence as "insufficient proof of instruction."  At oral argument, relator claimed that attendance records for those days showing students were present were reviewed by the auditor but not made part of the record.

            Minnesota law requires a public school to keep its records open for inspection by the state auditor, and to keep for a minimum of three years: (1) identification of the annual session days held; (2) a record of each pupil's daily attendance; and (3) identification of the to-and-from school transportation category per pupil.  Minn. Stat.      § 127 A. 41, subd. 5 (Supp. 2003).  A charter school, like relator, is defined as a public school within the public school system.  Minn. Stat. § 124D.10, subd. 7 (2002).  Charter schools receive state funds the same as other schools in the school district.  Minn. Stat.    § 124D.11 (2002).  The attendance records that are in the record are inadequate to support relator's assertion that students were in attendance on some of the disputed days, and do not identify whether they are for elementary, seventh- and eighth-grade, or secondary students.  But the record is silent concerning why transportation and meals-served records offered by relator are inadequate to supplement the faulty attendance records.  And there is no explanation in the record regarding whether additional attendance records were reviewed, and if not, how the reviewed records were selected. 

            Despite MDE's explanation for its decision contained in its appeal brief, this court cannot accept the agency's retrospective justification for its action.  See Reserve Mining, 364 N.W.2d at 415.  Without a contemporaneous explanation of how MDE reached its determination, this court is not in a position to adequately review the decision.  See Cable Communications Bd., 356 N.W.2d 668-69 (requiring a reviewing court to evaluate the evidence relied on by the agency in view of the entire record as submitted).  We conclude that a remand is necessary for the development of a more complete record and for MDE to make sufficient findings based on the record to permit appellate review.

II.        Due process

            Relator argues that it was denied procedural due process because the decisionmaker was not present at the review meeting, those who were present were not familiar with audit appeals, and MDE refused to consider all issues appealed.  The record does not indicate who was present at the meeting, although MDE does not dispute the assertion that Anderson was not present.  The decision states that Anderson based her decision on "information provided at the May 23, 2003 meeting with department staff and several follow-up inquiries after that meeting," but it is undisputed that there are no minutes, recordings, or notes of what transpired at the meeting or what Anderson was told about what transpired.

            A public school district, as a governmental agency, is not considered a "person" within the protection of the due process clause.  Nelson v. Bemidji Regional Interdistrict Council, 359 N.W.2d 38, 40 (Minn. App. 1984).  Therefore, a public school district cannot demand a formal hearing based on constitutional due process, but can do so only based on a statute granting it the right to a hearing.  State ex. rel. Indep. Sch. Dist. No. 276 v. Dep't of Educ., 256 N.W.2d 619, 623 (Minn. 1977).  MDE has a statutory right to perform an audit.  Minn. Stat. § 127 A. 41, subd. 3 (2002).  The statute, however, does not provide an audited district with the right to a formal hearing.  Despite the heading of subdivision 5, "District appeal of aid reduction," the text of subdivision 5 deals only with the requirement that a school district keep its records open should the commissioner perform an audit.  Minn. Stat. § 127 A. 41, subd. 5 (2002).  If a statute does not provide the right to a formal hearing, "it must be assumed that the legislature intended the proceedings to remain informal and nonadversary despite their adjudicative character."  Indep. Sch. Dist. No. 276, 256 N.W.2d at 624.[5]  And, the statute does not mandate the presence of the decisionmaker at any review process MDE provides on an appeal from a reduction in aid as a result of an error in aid distribution under Minn. Stat. § 127 A. 24, subds. 2, 3 (2002).  It appears, therefore, that although a more structured and clear process of appeal would have been helpful to relator, relator received all of the procedural process it was due.

III.       Failure to consider issues raised in audit appeal

            Relator challenged the audit's finding on the number of students eligible for free or reduced-price lunches, and MDE, without explanation, failed to address this challenge, erroneously stating that relator had accepted the audit figures.  The record contains applications for the benefits, but no explanation of what determination was made about eligibility for the students named.  Despite MDE's counsel's confidence in this court to make an independent evaluation of eligibility, we are unwilling to make this determination, especially given the absence of any record of the arguments for and against eligibility.  The record is not sufficient to permit an adequate review of this issue, and on remand, MDE needs to identify the factual basis and reasoning behind its determination on the number of students eligible for free or reduced-price lunch.

            We agree with relator that MDE, on remand, should identify not only what documentation and data it relied on to support each of its findings, but explain why other offered documentation was rejected or found to be insufficient, and clearly identify how each decision affects the calculation of aid to which relator is entitled. 

Remanded.

 

* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.

[1] Both relator and MDE have included facts in their briefs that are outside of MDE's record.  Each has submitted affidavits that are not in the record, attesting to the accuracy of facts stated.  The facts outlined below are reconstructed from documents contained in MDE's record, unless otherwise identified.

[2] MARSS is the Minnesota Automated Reporting Student System. Due to computer problems, the cause of which has not been identified, relator's 2000-01 MARSS data was corrupted and had to be reconstructed from manually maintained records.

[3] General education revenue is the sum of revenues (including basic revenue, basic skills revenue, total operating capital revenue) allocated by a formula for the number of pupil units, based on the average daily enrollment.  Minn. Stat. §§ 126C.05, subd. 1, 126C.10, subd. 1 (2002).  Compensatory revenue is computed by the sum of the number of pupils enrolled and eligible to receive free lunch and one-half of the pupils eligible to receive reduced priced lunch, on October 1 of the previous fiscal year.  Minn. Stat. §§ 126C.05, subd. 3, 126C.10, subd. 3 (2002).

[4] The parties dispute whether this figure is supported by the appeal decision.  Relator asserts that it has no idea how the figure was calculated.  MDE argued that the calculation can be made based on adjustments to the audit report contained in the appeal decision.  This court is not sufficiently familiar with the formula for calculating aid or its application to these facts to attempt the calculation.

[5] In contrast, Minn. Stat. § 127 A. 42, subds. 1,5 (2002) mandates a hearing when there is a reduction of state aid due to a violation of law.