One Down, More to Go, the ECOT Slippery Slope

State’s Actions and Decisions Should Frighten Every Ohioan

By Scott Pullins

 

“that way madness lies…”https://lh4.googleusercontent.com/aXI5OGe6TTjyRVN-99b6Ip14eKVb6rWADb3xeY4vZv9Q6oXmLUT28o0qaB1tgb5x3PCXvQ8EUBucuV-06um0e2ioZUY1AhlM6f3NcN9HmcDE6rhemPBViGE4Qwgs9TXIj5pekWoqicbEuUlWSw

King Lear – By William Shakespeare

 

On Tuesday, July 3, 2018, Ohio Attorney General Mike DeWine filed a document with the Franklin County Common Pleas Court that alleges that his office will attempt to recover nearly $200 million personally from ECOT Founder William L. Lager.  Somehow, mysteriously, this filing quickly made itself to the front page of the Columbus Dispatch, although it didn’t reach the court’s docket until days later.  

 

This filing is also very irregular because the Ohio Attorney General is not a party to this action.  In fact, the Ohio Attorney General has not even requested court permission to intervene in this case.  An earlier request from Ohio’s Auditor of State to intervene was denied.

 

The Attorney General argues that Bill Lager should be held personally responsible for money that was paid to companies that he either owned or allegedly controlled. 

 

Their argument for piercing the corporate veil of these limited liability companies is rather ridiculous and should send chills down the spine of any federal, state, or local government contractor, along with the entirety of Ohio’s school choice movement. 

 

The school was granted tax exempt status by the Internal Revenue Service and filed its first annual tax return for the tax year 2000 in December of 2002.  It has filed its annual tax returns without challenge by the IRS every year since then. Likewise, as a charitable organization the school was required to file certain information with the Ohio Attorney General on an annual basis.  From what I can determine, the school has done so without question or issue.

 

The school was audited by the Ohio Auditor of State on an annual basis starting with a special audit in 2001.  During the first few years there were recommendations by the State Auditor that Altair provide more detailed monthly invoices to better document their services.  That issue was remedied starting in July 2007. However, a review of each of these annual audits does not show that William Lager was ever considered as an agent or a public official for the school.  

 

Instead, the Ohio Attorney General’s office now argues that it has authority to assert these claims against Lager because of a recently completed trial court case in Cincinnati.  The case can be found here.  DeWine’s office argues that he could not intervene earlier because charter schools are governed by the Ohio Department of Education and this recent case gives him additional authority.

 

Setting aside the fact that a trial court ruling in Cincinnati has no precedent on a case in Columbus, the facts and the law are vastly different here.  In the Cincinnati case the superintendent paid her husband and herself approximately $1,855,047.17 over several years for janitorial services through a separate corporation that they set up.  During that period both the superintendent, her husband, and their daughter were all school employees.

 

As far as I can tell (or anyone that actually decides to do the research) William L. Lager has never been an employee of the Electronic Classroom of Tomorrow.  He has never been an officer or a director of the nonprofit corporation. Ohio law states that “an official is involved in the receipt or collection of public funds if he or she has authority over the bank accounts those funds are paid into or has the ability to withdraw those funds or write checks against them”. William L. Lager has never had that authority as far as I can determine.  

 

Likewise, Ohio law states that “an officer, employee, or duly authorized representative or agent of a community school is a public official and may be held strictly liable to the state for the loss of public funds”.  Again, William L. Lager has never been an officer, employee or duly authorized representative or agent of a community school.

 

Instead, the State of Ohio is apparently arguing that the fact that he originally registered the name “Electronic Classroom of Tomorrow” makes him a public official as an “agent” of the nonprofit.  Ridiculous isn’t it?

 

Perhaps this is par for the course for this highly irregular case that appears to be much more about political donations, media coverage, and election year posturing than the actual laws of this state.  But if it continues, imagine the slippery slope that leads to legal and financial madness.

 

Under such a precedent as this, any for profit and/or nonprofit management company and their officials could be held personally liable for receiving money years later.  Even if it was duly authorized by independent directors. Even after the sponsor and the Ohio Department of Education approved the contract.

 

Rich Cordray and the Ohio Democratic Party are just salivating at this prospect.  Not even Ohio’s former Democrat Governor Ted Strickland imagined trying something as brash as this.  And its all being done with a Republican Governor, Attorney General, Auditor, and both houses of the general assembly!

 

And what about other similarly situated charter schools in Ohio? According to their 2016 IRS 990, the Ohio Distance and Electronic Learning Academy (OHDELA) paid out just under 90 percent of its revenues to its for profit management company, WHLS of Ohio LLC.  

 

For those that don’t know, WHLS is one of the White Hat family of companies founded by longtime GOP donor David Brennan.  And under the current theory of going after school choice operators in Ohio, David Brennan could be held personally liable for over $156 million in management fees taken over the years by his companies.  

 

What about Ohio Virtual Academy, now Ohio’s largest online charter school?  According to their latest IRS 990 tax return, they paid their management company over $42 million of their over $65 million in annual revenue.  That’s nearly 65 percent of their revenue.  

Under the current theory of personal liability for shareholders, K12 and their owners could be liable for over $306 million in management fees.  And that’s just for the last nine years!

 

K12 was founded and led until 2014 by education entrepreneur Ron Packard.  Does it make any sense whatsoever to go after him personally along with other shareholders?  

 

Ohio politicians, both Republican and Democrat, have now set us on a course towards truly horrendous legal and financial precedents.  It ends with the elimination of all or most of Ohio’s school choice system.

 

Like the Special Counsel investigation in DC, they are trying to achieve through the court system something they were unable to do through the electoral process.  It’s long past time for it to stop.