Ariz. State Bd. for Charter Schools v. U.S. Dept. of Educ., No. 05-17349 (9th Cir. Sept. 25, 2006)

The U.S. Court of Appeals for the Ninth Circuit has ruled that only nonprofit elementary and secondary schools are eligible to receive funds under the federal Individual with Disabilities Education Act (IDEA) and the Elementary and Secondary Education Act (ESEA). A 2003 audit by the U.S. Department of Education’s (ED) Office of Inspector General concluded that the Arizona Department of Education (AED) had improperly distributed IDEA and ESEA funds to operators of for-profit charter schools in the state. ED found that the "definitions clearly provide that an elementary or secondary school must be non-profit," and interpreted the "including clauses to be illustrative of eligible non-profit schools, not to contradict the requirement that they be nonprofit." As result, the department determined that Arizona’s for-profit charter schools were ineligible for federal funding. After the Arizona State Board for Charter Schools (ASBCS) and several for-profit charter school operators unsuccessfully petitioned ED to reverse its determination, they sued federal district court. The district court upheld ED’s determination, holding that IDEA and ESEA unambiguously "express[ ] the congressional mandate that in order to be eligible for federal funds, charter schools must be nonprofit." Even if the statutes were ambiguous, the court added, ED’s construction of the statutory language was reasonable and entitled to the judicial deference given to the interpretations by executive agencies in accordance with Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

The Ninth Circuit affirmed. The appeals court began its analysis by determining that the meaning of IDEA and ESEA is plain and unambiguous because "[a] natural reading establishes that only ‘nonprofit institutional day or residential school[s]’ are eligible for federal funding under the ESEA and the IDEA." The court rejected the ASBCS’s contention that the word "including" should be interpreted to mean "and" or "in addition to" in order to reconcile conflict between the terms "nonprofit school" and "a public charter school." There is no conflict between these terms, the court reasoned, because they are neither incompatible nor mutually exclusive. Accepting ASBCS’s interpretation "would impute meaning not apparent from a natural reading of the text and essentially rewrite the statute to read, ‘nonprofit ... school, including a [for-profit] public ... charter school.’" Because this would produce an "unnecessarily expansive result," the natural reading of the statutory language must control in the absence of more explicit guidance from Congress. Legislative history also supported the district court’s interpretation, the Ninth Circuit held, noting that when Congress amended ESEA in 1994 it added the qualifying words "nonprofit" and "institutional" to the statute’s definitions, and when it again amended the ESEA four years later it inserted "‘including a public ... charter school,’ but left the general nonprofit requirement intact." Based on these amendments, the court concluded that had Congress intended to open eligibility to for-profit charter schools, it could have done so, because the "nonprofit" amendment predated the "charter school" amendment. Congress would have eliminated the statutory language acknowledging that a nonprofit charter school can contract with for-profit companies to manage the operations of a charter school. The appeals court then agreed with the lower court that, at any rate, ED’s interpretation is reasonable and entitled to deference, either under Chevron or under the lesser degree of deference spelled out in Skidmore v. Swift & Co., 323 U.S. 134 (1944).