Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Deron School of New Jersey, Inc. v. United States Department of Agriculture

United States District Court, Third Circuit

September 3, 2013



KATHARINE S. HAYDEN, District Judge.

I. Introduction

Plaintiffs, the Deron School of New Jersey, Inc., ELO Incorporated, and KDDS Inc.- corporate entities that own and operate for-profit schools serving children with disabilities-have sued defendants the United States Department of Agriculture, the New Jersey Department of Agriculture, the New Jersey Department of Education, and their respective chiefs for allegedly discriminating against their students on the basis of disability and harming their businesses in the process. The Court held a six-day bench trial, after which the parties submitted written summations.

Behind the litigation is the history of how the parties negotiated about, adjusted for, and stopped negotiating about, remedial statutes perceived to be on a collision course. The basic facts are not really in dispute, and so this opinion will begin with plaintiffs' description of what the case is about and why they brought it:

"The core facts of this case date back to 1984, when officials of the United States Department of Agriculture (USDA') met with officials of the New Jersey Department of Education (NJDOE') to formulate a plan to permit students attending the Deron Schools to receive federally funded free and reduced-price school lunch even though the entity that owned the Deron Schools, The Deron Schools of New Jersey, Inc. (Deron'), was a for-profit entity and, therefore, statutorily prohibited from serving as a sponsor' under terms of the National School Lunch Act. The plan devised by those officials was an arrangement in which a public entity, the Montclair Board of Education, provided the meals and took responsibility for compliance with program requirements at the Deron Schools. From then on, the Montclair Board included Deron's two school sites in its food service and received reimbursement for meals served to income-eligible Deron students. The reimbursement was provided by USDA, through NJDOE and later the New Jersey Department of Agriculture (NJDOA), which administered the programs from 1997 on. In the mid-1990s, the arrangement was expanded to include Gramon School (Gramon') and Glenview Academy (Glenview'), whose owners also were for-profit entities. The arrangement continued, without issue, until 2007.

"Then, without any warning or explanation, [1] NJDOA notified the Montclair board and directors of the schools [ ] that the workaround' would be terminated. After unsuccessful efforts at the State level to have that decision reversed, Plaintiffs filed this action, challenging the termination of the workaround and seeking its reinstatement." (Pls.' Closing Br. 2-4.)

Having heard the testimony of the witnesses, reviewed the exhibits, and considered the parties' written summations, the Court, in accordance with Fed. R. Civ. P 52(a), sets forth its factual findings and legal conclusions.

II. Factual Background

A. Introduction

Fed. R. Civ. P 52(a) directs the Court to make findings of fact. Here, the facts are not in dispute; rather it is the implications that flow from them. The Court will therefore provide a narrative, supported by citations to the operative statutes and the trial record, which, particularly through the live testimony, provided the Court with context about the relevant events.

Plaintiffs called the following trial witnesses: Dr. David Weeks, the CEO of plaintiffs ELO Incorporated and KDDS Inc.; Kenneth Alter, the owner and director of plaintiff The Deron School of New Jersey, Inc.; Dr. Vito Gagliardi and Robert Davis, called as experts on matters relating to the New Jersey public-school system; and Barbara Martin, a former employee of defendant USDA. Defendants' fact witnesses were Mary Jane Whitney and Cynthia Long, both employees of defendant USDA; Elise Sadler-Williams, an employee of defendant NJDOE; current and former employees of defendant NJDOA, Emily Lomerson, Janet Hawk, and Katherine Attwood; and as an expert offered to rebut the opinions offered by Robert Davis, Dr. William Hamm, an economist, testified.

The parties also submitted deposition excerpts from other witnesses. [D.E. 294, 297, 299.]

B. The Parties

Plaintiff The Deron School of New Jersey, Inc. is a New Jersey corporation that owns and operates two private, for-profit schools for disabled students, Deron I and Deron II. (Joint Stipulation of Facts ("JSF") ¶¶ 1, 5.) Kenneth Alter is the owner and director of the schools, which were founded by his parents. (T2:71:7-9, 14-15 (Alter).)[2] Deron serves students who have been classified as having multiple disabilities. (T2:71:14-19 (Alter).)

Plaintiffs ELO Incorporated and KDDS Inc. are limited liability corporations in New Jersey that own and operate, respectively, The Gramon School and Glenview Academy, both of which are private, for-profit schools for disabled students. (JSF ¶¶ 2-3, 5.) The "Weeks family partnership, " comprising Dr. David Weeks, his wife, and two children, owns the holding company that owns the schools. Weeks and his wife are co-executive directors of the schools. (T1:6:19-25, 119:25-120:5 (Weeks).) Their schools have traditionally served children with emotional difficulties. (T1:93:11-13 (Weeks).) In this opinion, the Court will refer to the plaintiff corporate entities together as "plaintiffs, " and to Deron, Gramon, and Glenview together as "plaintiffs' schools."

Plaintiffs' students have disabilities that cannot be adequately addressed by their local public school districts. (JSF ¶ 59.) A majority of the students come from poor, urban New Jersey municipalities. ( See, e.g., J-39-J-42 (charts identifying the residences of plaintiffs' students and whether they qualify for free or reduced-price meals).)[3]

Defendant the USDA is the federal agency responsible for overseeing the Meals Programs. (T4:51:21-23 (Whitney).) Defendant Thomas J. Vilsack is its Secretary. The Court will refer to these parties as the "Federal Defendants."

Defendant NJDOE administered the Meals Programs in New Jersey until 1997, at which point defendant NJDOA assumed the responsibility. (JSF ¶¶ 19-20.) The heads of those agencies are named as defendants and together with the agencies will be referred to as the "State Defendants."

C. Relevant Statutory Framework

In 1946 and 1966, respectively, Congress enacted the National School Lunch Act, 42 U.S.C. § 1751 et seq., and the Child Nutrition Act, 42 U.S.C. § 1771 et seq., which created the National School Lunch Program and the School Breakfast Program. Generally, these programs provide for financially eligible school children to receive free or reduced-price lunch and breakfast at school. The Court will refer to the programs together as the "Meals Programs" and individually as the NSLP and SBP. The statutes were enacted in furtherance of Congress's declared policy "to safeguard the health and well-being of the Nation's children, " and "[i]n recognition of the demonstrated relationship between food and good nutrition and the capacity of children to develop and learn." 42 U.S.C. §§ 1751, 1771.

State governments administer the programs to schools under their jurisdiction, and must observe various restrictions and regulations to receive reimbursement for the meals. A key restriction is that reimbursement will only be provided for meals that are "served... in schools." Id. §§ 1753(b), 1773(b). And "school" is defined in the statutes as one that is "public or nonprofit private." Id. §§ 1760(d)(5), 1784(3). Additionally, only students who meet income-eligibility restrictions, which are tethered to government-issued poverty guidelines, are entitled to subsidized meals. Id. §§ 1758(b)(1), 1773(e)(1)(A).

Less than ten years after enacting the SBP, Congress passed the Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq., finding that "individuals with disabilities continually encounter various forms of discrimination in such critical areas as employment, housing, public accommodations, education, " and others. 29 U.S.C. § 701(a)(5). Section 504 of the Rehabilitation Act, 29 U.S.C. 794(a), provides: "No otherwise qualified individual with a disability... shall, solely by reason of her or his disability, be excluded from the participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance." Regulations governing the USDA use nearly mirror-image language to prohibit discrimination. See 7 C.F.R. § 15b.4(a) ("No qualified handicapped person shall, on the basis of handicap, be excluded from participation in, be denied the benefits of, or otherwise be subjected to discrimination under any program or activity receiving assistance from this Department.").

Operating in the foregoing context is another federal statute-the Individuals with Disabilities Education Act ("IDEA")-which provides that states receiving funding under IDEA must ensure that students with disabilities are provided with a "free appropriate public education." 20 U.S.C. § 1412(a)(1)(A). What is appropriate depends in large part on a child's special needs: it may require minimal changes to the student's normal course of education, or it may require the child to be sent to an out-of-district school that caters toward students with his or her disability, such as plaintiffs' schools. A guiding principle in providing a free and appropriate education, however, is that the child should be placed in the least restrictive environment-that is, one that alters his or her normal course of education the least. Id. § 1412(a)(5).

D. The Out of District Placement Choice

In New Jersey, if a child does need an out-of-district placement, a process is triggered to choose the appropriate setting. As David Weeks explained from the perspective of a school being considered for placement of a public school student with special needs:

[A] child study team that's usually a psychologist, I believe, a social worker and an educator, a learning theorist... trigger[s] all sorts of evaluations....
The purpose of these evaluations, I believe, is twofold. One is to determine if a child is, in fact, eligible for special education services and related services. And [the] second purpose is to... classify the youngster and determine what sort of services are necessary. Should he be in district or [in an] out of district program and questions of that sort. They can meet with an IEP team who will help develop a plan for the youngster.
And if they have decided a youngster to go to [an] out of district school, such as ours... a case manager... will take the child and parent to one, two, perhaps even three different schools that they think might be appropriate for the youngster.
... And I meet with this group that come[s] out after. And we provide a tour and we discuss what the school has to offer, and we really talk with the parent and the case manager [about] whether what we have, whether our programs seem[] to be well-suited to what we understand the needs of the youngster to be....
If there's a match... we... give the team a letter, saying, we will accept the youngster. Ultimately, we send the state mandated contract of services to the district where the Board of Education has to sign off on it. And once that's signed off, they arrange for transportation and the kid starts shortly thereafter.

(T1:20:17-22:7 (Weeks).)

One of plaintiffs' experts, Dr. Vito Gagliardi, was a career N.J. public-schools employee and former superintendent of both the Washington Township public schools and the entire Union County school system. He testified that "[e]very child that is in need of special education is so unique that there are a combination of factors" that go into the placement decision. (T2:165:21-22 (Gagliardi).) Once an out-of-district school is recommended for the child, "the recommendation is then made to either an assistant superintendent or a director of the special education of the school district. And ultimately to the superintendent of the schools, who must then make the recommendation to the board of education for approval." (T2:162:16-20 (Gagliardi).)

If a child is placed in one of plaintiffs' schools, that school becomes the equivalent of a contractor providing services, for a fee, to the child's public school district. (T1:45:4-5 (Weeks).) Notwithstanding, the child will remain enrolled in and closely associated with his or her public school district. Weeks testified that "[t]he student belongs to the district. He's always a resident student of the district. The district provides the IEP.... The district is custodian of records. The child never leaves being a student of the district." (T1:46:16-21 (Weeks).)

New Jersey regulations specify that the "educational program of a student with a disability provided through contractual agreements... shall be considered the educational program of the district board of education." N.J.A.C. 6A:14-7.5(a). According to Gagliardi:

There's no question... that they remain public school students. The records of the youngsters, the financing of the program, all administrative fiscal and legal issues remain the responsibility of the local district board of education.

(T2:156:3-7 (Gagliardi).)

If for some reason that child is placed out of district and somehow becomes involved in a disciplinary matter.... [i]f that youngster would be suspended for more than ten days, the private school cannot discipline that youngster without approval from the local board of education[.]

(T2:171:19-25 (Gagliardi).) In addition, the child study team remains heavily involved with the child's education, evaluating quarterly progress reports and engaging in other informal involvement, such as regular calls to the schools. (T1:29:1-10 (Weeks).)

E. Tuition

Under New Jersey regulations related to IDEA, each board of education must ensure that "[s]tudents with disabilities, who are placed in private schools by the district board of education, are provided special education and related services at no cost to their parents." N.J.A.C. 6A:14-1.2(b)(12). As private, for-profit schools, plaintiffs charge tuition for educating their students, and are permitted to add a 2.5% surcharge. N.J.A.C. 6A:23A-18.6.

The receiving private school gets paid by the sending district. Gagliardi testified that each year, private schools serving special-needs students submit estimated tuition rates to the state, which are then made available to public school districts. (T3:78:17-22 (Gagliardi).) At the end of the year, the actual cost per student that is billed to the students' public school districts may differ from the estimate. (T3:78:23-79:1 (Gagliardi).) Any variance between the actual and tentative rates for a given year is remedied through refunding or rebilling the sending district. (T1:45:23-46:1 (Weeks).) Defendants' expert Dr. William Hamm reviewed the estimated tuition of plaintiffs and 24 other New Jersey private schools and compared it to their final tuition for each year that data was available. He found that the average difference at plaintiffs' schools was almost $1, 400, and at the other schools the difference was $2, 900. (T5:55:21-57:7 (Hamm).) (Hamm testified that more often than not, the final tuition was higher than the estimate. (T5:56:15-20 (Hamm)).)

If a school is an appropriate match for a student, cost should not sway the placement decision. Gagliardi testified that "I have never come across a situation where an out of district placement is recommended by a superintendent and was rejected [by a board of education] specifically because of what the cost might be. They just want to make absolutely certain, that we need to spend this money to meet this youngster's needs in... the least restrictive environment." (T2:170:18-24 (Gagliardi).) Weeks testified that "the rules are quite clear, that placement is not based on cost. You don't place a kid in the cheapest environment. You place a kid in the most appropriate environment." (T1:28:11-14 (Weeks).)

While cost cannot be the dispositive factor, it is not irrelevant. According to Gagliardi,

Costs of any program is always a concern by the local board of education. They are the ones in most cases that are running for office, and they want to be absolutely certain that any costs for a particular program that is usually expensive is not only ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.