Authorizing school districts reach repayment settlement in charter school fraud case

In May 2019, a Grand Jury in San Diego County indicted 11 individuals involved in the group A3 Education, which ran 19 charter schools across California. The indictment alleged a scheme to siphon state funds for charter schools to A3 and the criminal defendants.

During the criminal matter, the court appointed a Receiver to manage and operate the assets and properties of A3, as the schools were still in operation. In February 2020, the San Diego District Attorney and the Receiver filed a “disgorgement motion” to require six school districts who authorized the A3 charter schools to repay oversight fees they collected from the schools. In October 2020, San Diego Superior Court Judge Frederick Link issued an order with legal conclusions regarding the appropriate method of collecting oversight fees.

Specifically, Judge Link ruled that local educational agencies may not charge a flat 1 or 3 percent fee for oversight. Rather, they may charge only for the actual cost of oversight, documented through invoices for specific services to charter schools. Judge Link did not make any orders regarding the specific charter schools’ receipt of fees or obligations to repay the fees but encouraged the parties to settle.

The districts each reached settlements In or around January 2021with the District Attorney and Receiver — rather than litigating the amount of oversight fees each would be required to pay to the Receiver. Pursuant to the settlement agreements, the districts will repay various amounts to the Receiver based on the negotiated settlement terms. Judge Link approved the settlement agreements in March 2021, which totaled $1 million that must be repayed to the state.

While a Superior Court judge’s orders and decisions are not precedential, Judge Link’s October 2020 order reflects how a judge may rule on similar matters regarding oversight fees in the future.

By Kristin Lindgren, CSBA Education Legal Alliance Deputy General Counsel