Honors Academy, Inc., d/b/a/ Honors Academy and American YouthWorks, Inc., d/b/a American YouthWorks Charter School, Petitioners,
Texas Education Agency and Michael Morath, In His Official Capacity as Texas Commissioner of Education, Respondents
Date: January 10, 2018
Petition for Review from the Court of Appeals for the Third
District of Texas
Justice Blacklock did not participate in the decision.
P. Devine, Justice
12.115 of the Texas Education Code requires the Commissioner
of Education to revoke an open-enrollment charter
school's charter after three consecutive years of
"an unacceptable performance rating, " an
unsatisfactory "financial accountability performance
rating, " or any combination of the two. Tex. Educ. Code
§ 12.115(c). The Commissioner's revocation decision
is subject to an administrative review, but the decision may
not be appealed beyond that. Id. § 12.116(c).
Two open-enrollment charter schools nevertheless seek
judicial review of the Commissioner's decision to revoke
their charters, raising both constitutional and ultra vires
complaints. A district court forestalled the
Commissioner's revocation by granting temporary
injunctive relief. After an interlocutory appeal, the court
of appeals vacated the temporary injunctions and dismissed
the suit, concluding that sovereign immunity barred the
schools's claims. Tex. Educ. Agency v. Am.
YouthWorks, Inc., 496 S.W.3d 244, 270 (Tex. App.-Austin
2016). We agree and affirm.
1995, open-enrollment charter schools have been a part of the
Texas public-school system." LTTS Charter Sch., Inc.
v. C2 Constr., Inc., 342 S.W.3d 73, 74 (Tex. 2011).
Charter schools are created under and generally governed by
chapter 12 of the Education Code. This chapter provides for
three charter types: home-rule school district, campus or
campus program, and open-enrollment. Tex. Educ. Code §
12.002. This appeal concerns open-enrollment charters. Such
charters are typically held and run by nonprofit
corporations, qualifying under § 501(c)(3) of the
Internal Revenue Code. See id. § 12.101(a)(3).
Although less common, institutions of higher education and
governmental entities are also eligible to apply for such a
charter. Id. § 12.101(a)(1), (4).
petitioners here are American YouthWorks, Inc., which
formerly operated the American YouthWorks Charter School
(collectively AYW), and Honors Academy, Inc., which formerly
operated the Honors Academy Charter School (collectively
Honors). Both are private, nonprofit corporations and early
charter applicants under chapter 12. See id. §
12.101 (authorizing Commissioner to grant applications for an
open-enrollment charter school). AYW obtained its charter in
1996 and describes itself as a drop-out-recovery school
serving "Austin's under-served and under-privileged
youth, through work, work-study and work training
opportunities." Honors received its charter in 1998 and
describes its schools as serving a large population of
transient, low-income, at-risk students who have not been
successful in regular public schools. Honors's schools
are located predominantly in north Texas. AYW and Honors
continuously operated their schools under renewals until
legislative changes to chapter 12 led the Commissioner to
revoke their charters.
here is the work of the Texas Sunset Commission, which in
2012 issued its report on the Texas Education Agency (TEA).
The report included a section on charter
schools. The report noted that, while some charter
schools were among the highest-achieving schools, others were
among the lowest-performing schools. The Sunset Commission
focused on the difficulty in addressing academic and
financial issues at these low-performing schools. The report
emphasized the TEA's inability to move quickly to revoke
charters for poor performance, and that the delay left
"students to be educated at under performing charter
schools" for too long. The Sunset Commission believed
that the TEA lacked the tools necessary to effectively
address poor academic and financial performance and urged
that revocations "should occur more quickly to protect
students from an inadequate education." The report
recommended that the Legislature require the Commissioner of
Education to revoke a charter, without a hearing, if the
charter school failed to satisfy academic or financial
accountability standards for three consecutive
the 2013 session, the Legislature acted on the Sunset
recommendation by amending the Education Code to change the
Commissioner's authority in this regard. Before these
amendments, the Commissioner had discretionary authority
under section 12.115 to revoke a charter or take a lesser
adverse action against a charter holder that committed a
material violation of its charter, failed in its fiscal
management of the school, failed to protect the health,
safety, or welfare of its students, or failed to comply with
applicable law. Act of May 28, 2001, 77th Leg., R.S., ch.
1504, § 12, 2001 Tex. Gen. Laws 5344, 5350. After the
amendment, the grounds listed in section 12.115 became
mandatory. Tex. Educ. Code § 12.115(a). Moreover, the
legislation included additional mandatory grounds for
revocation, including one that required the Commissioner to
revoke an open-enrollment charter if the school's
academic or financial performance fell below acceptable
standards over a three school-year period:
(c) The commissioner shall revoke the charter of an
open-enrollment charter school if:
(1) the charter holder has been assigned an unacceptable
performance rating under Subchapter C, Chapter 39, for the
three preceding school years;
(2) the charter holder has been assigned a financial
accountability performance rating under Subchapter D, Chapter
39, indicating financial performance lower than satisfactory
for the three preceding school years; or
(3) the charter holder has been assigned any combination of
the ratings described by Subdivision (1) or (2) for the three
preceding school years.
Id. § 12.115(c). In determining the years of
unsatisfactory performance, the Commissioner was directed to
begin with the three-year period immediately preceding the
(c-1) For purposes of revocation under Subsection (c)(1),
performance during the 2011-2012 school year may not be
considered. For purposes of revocation under Subsection
(c)(1), the initial three school years for which performance
ratings under Subchapter C, Chapter 39 [academic
accreditation], shall be considered are the 2009-2010,
2010-2011, and 2012-2013 school years. For purposes of
revocation under Subsection (c)(2), the initial three school
years for which financial accountability performance ratings
under Subchapter D, Chapter 39 [financial accountability],
shall be considered are the 2010-2011, 2011-2012, and
2012-2013 school years. This subsection expires September 1,
Id. § 12.115(c-1).
legislation also amended the procedure for revoking a charter
under section 12.115. It directed the Commissioner to adopt
an informal procedure to implement review of the
Commissioner's now mandated revocation decisions.
Id. § 12.116(a). An appeal of that decision to
the State Office of Administrative Hearings (SOAH) was
permitted, but the appeal was not a contested-case hearing or
subject to the Administrative Procedure Act. Id.
§ 12.116(b). Instead, the legislation provided that the
administrative law judge was to review the Commissioner's
decision under an "arbitrary and capricious or clearly
erroneous" standard and that the judge's
determination was final and not subject to judicial review.
Id. § 12.116(c). These revisions to the
Education Code took effect on September 1, 2013.
December 18, 2013, the Commissioner notified AYW and Honors
by letter that their schools had been identified as charters
that met the criteria for mandatory revocation under the new
legislation. In these letters, the Commissioner explained
that he was revoking its open-enrollment charter (effective
June 30, 2014) under Education Code § 12.115(c). He
cited the performance ratings that were the basis for each
recipient's charter revocation and attached exhibits
corresponding to the identified ratings. The Commissioner
also noted that the performance ratings on which the
revocations were based were "final and not
appealable" because "all rights to appeal the
ratings identified above had been waived or exhausted."
letters further described the informal appeals process
available to the schools: they had "the right to request
an informal review of, and hearing regarding" the
Commissioner's revocation decision, but "only if the
charter holder submits a written request that contains
specific answers to each of the findings included in this
Notice." The Commissioner explained further that if the
charter holder's timely request was denied during the
informal review, the charter school's revocation issue
would be sent to the SOAH for a hearing under § 12.116.
Finally, the Commissioner noted that the SOAH hearing would
be "limited to the specific findings and revocation
detailed in this correspondence, " that his decision
would be upheld "unless the judge finds the decision is
arbitrary and capricious or clearly erroneous, " and
that the SOAH judge's decision would be final and not
subject to further appeal.
pursued the Commissioner's informal review process, but
the Commissioner determined that he would proceed with the
revocation. The Commissioner then forwarded AYW's appeal
to the SOAH. After receiving notice of the denial of its
informal appeal and the SOAH hearing date, AYW filed suit
against the Commissioner and the Texas Education Agency
(hereafter collectively referred to as
"Commissioner") in district court.
also pursued its right to an informal review with the
Commissioner who again determined that the revocation would
proceed. Honors's appeal was forwarded to the SOAH, and
the administrative law judge issued a decision upholding the
revocation on May 20, 2014. Before that occurred, however,
Honors intervened in AYW's pending litigation against the
The Judicial Proceedings
asserted several claims in its district-court petition,
including the deprivation of a vested property right without
due process, the unconstitutional impairment of contract
based on the retroactive use of past financial ratings to
revoke AYW's charter, and ultra vires claims. AYW sought
a temporary injunction specifically to stop the SOAH hearing
from proceeding and more generally to prevent the revocation
from occurring. Honors's petition alleged similar claims
and sought similar relief, although it did not seek to stop
its SOAH hearing.
Commissioner responded with a general denial and plea to the
jurisdiction. Hearings ensued after which the district court
issued two orders temporarily enjoining the Commissioner from
(1) taking any further action to revoke AYW's charter and
(2) from taking any further action to impair Honors's
educational operations or enforce any order revoking
Honors's charter. The respective injunctions were
slightly different because the administrative law judge
decided Honors's SOAH appeal before the district court
issued the temporary injunction.
Commissioner immediately appealed the temporary injunctions.
The district court subsequently denied the Commissioner's
plea to the jurisdiction, and the Commissioner appealed that
interlocutory order as well. The Commissioner's two
appeals were consolidated for decision in the appellate
court. The court of appeals vacated the temporary injunctions
and dismissed AYW's and Honors's underlying claims,
concluding that all claims were barred by sovereign immunity.
496 S.W.3d at 270. Petitions for review in this Court
III. The Petitions for Review
Petitions here challenge the validity of the
Commissioner's decision to revoke AYW and Honors's
respective charters, but chapter 12 does not provide for
judicial review of these administrative orders. See
T ex. Educ. Code § 12.116(c)(2) (making decision of the
administrative law judge final). Moreover, "[i]t is well
settled that trial courts may review an administrative action
only if a statute provides a right to judicial review, or the
action adversely affects a vested property right or otherwise
violates a constitutional right." In re Office of
the Attorney Gen., 456 S.W.3d 153, 157 (Tex. 2015) (per
curiam) (citing Stone v. Tex. Liquor Control Bd.,
417 S.W.2d 385, 385-86 (Tex. 1967)). Because the statute does
not provide for judicial review, AYW asserts both due process
and contractual impairment/retroactivity claims based on an
asserted vested right to its charter. See Tex.
Const. art. I, §§ 16, 19. AYW also asserts that the
Commissioner's actions were ultra vires, precluding the
application of sovereign immunity and providing another path
to judicial review. See City of El Paso v. Heinrich,
284 S.W.3d 366, 372 (Tex. 2009) (noting "that suits to
require state officials to comply with statutory or
constitutional provisions are not prohibited by sovereign
immunity"). Honors confines its argument to the
Commissioner's alleged ultra vires actions in revoking
its charter. We begin with AYW's constitutional claims.
AYW's Constitutional Claims
Texas Constitution provides that "[n]o citizen of this
State shall be deprived of life, liberty, property,
privileges or immunities . . . except by the due course of
the law of the land." Tex. Const. art. I, § 19. Our
due course clause is nearly identical to the federal due
process clause, which provides: "No state shall make or
enforce any law which shall abridge the privileges or
immunities of citizens of the United States; nor shall any
State deprive any person of life, liberty, or property,
without due process of law. . . ." U.S. Const. amend.
XIV, § 1. Because the two are so similar, "we have
traditionally followed contemporary federal due process
interpretations of procedural due process issues."
Univ. of Tex. Med. Sch. at Houston v. Than, 901
S.W.2d 926, 929 (Tex. 1995); see also Patel v. Tex.
Dep't of Licensing & Regulation, 469 S.W.3d 69,
86 (Tex. 2015) (noting the typical alignment of federal and
state law in this area).
any substantive or procedural due-process rights attach,
however, the citizen must have a liberty or property interest
that is entitled to constitutional protection. Klumb v.
Hous. Mun. Emps. Pension Sys., 458 S.W.3d 1, 15 (Tex.
2015). Property interests "are created and their
dimensions are defined by existing rules or understandings
that stem from an independent source such as state law . . .
." Bd. of Regents of State Colls. v. Roth, 408
U.S. 564, 577 (1972). To have a constitutionally protected
property interest, a person must have a "legitimate
claim of entitlement" rather than a mere
"unilateral expectation." Id. Texas law
similarly states that a "vested right" is
"something more than a mere expectancy based upon an
anticipated continuance of an existing law." City of
Dallas v. Trammell, 101 S.W.2d 1009, 1014 (Tex. 1937).
asserts that it was denied due process in the revocation of
its charter, but before determining what process was due, we
first consider whether AYW has a "property interest that
is entitled to procedural due process protection."
Klumb, 458 S.W.3d at 15. In other words, we must
determine that AYW possessed a vested right to its charter.
court of appeals concluded that AYW's charter was not a
"vested" or constitutionally protected property
interest. 496 S.W.3d at 262. To the contrary, the court
stated that specific provisions in the charter and the
Education Code "conclusively negate[d] any such possible
property interest." Id. at 261. The court noted
that "[s]ome substantive limit on the State's
discretion is an essential characteristic of a property
interest warranting constitutional protection, "
id. (quoting Grounds v. Tolar Indep. Sch.
Dist., 856 S.W.2d 417, 418 (Tex. 1983), and that here,
state law and the charter itself gave the "State
unlimited discretion over the charters." Id.
course, disagrees. AYW views its charter as a contract with
the State for an open-enrollment charter school that vested
upon execution and, according to AYW's argument, could
not be divested or impaired thereafter absent due process of
law. AYW's original charter incorporated by reference all
applicable requirements of state and federal law, and
although the charter did not specifically mention Education
Code § 12.115, it did paraphrase some of that
section's requirements, providing:
Charterholder understands that the Board may modify, place on
probation, revoke or deny renewal to a charter if the
Board determines that a material violation of
the charter has occurred, that Charterholder has failed to
satisfy generally accepted accounting standards of fiscal
management, or that the Charterholder has failed to comply
with an applicable law or rule.
AYW's subsequent charter renewal in 2002 did not again
paraphrase the revocation grounds, but rather simply
incorporated "applicable law." AYW contends that
its charter incorporated a "for cause" provision,
specifically the limitations on revocation found in its
original charter and in Education Code § 12.115,
asserting that these limitations on State discretion created
its vested right.
Commissioner responds that AYW's charter is not a
property right that can be distinguished from the legislative
mandate creating such right. Because the charter-school
system is a legislative creation, AYW's right to operate
a school rests entirely on the Legislature's decision to
continue the system. Moreover, AYW's right to any
particular terms rests on the Legislature's decision to
continue the current law because a charter's terms are
governed by statute. Thus, although AYW's charter and its
renewal take the form of a contract, both documents
anticipate and incorporate changes to the law governing
charters as they arise. The original charter incorporated
"amendments" to the state and federal law governing
charter schools, while the charter renewal incorporated all
applicable law, which included Education Code § 12.1071.
Under that section, AYW's acceptance of state funds
constitutes its agreement to any amendments to the laws
governing charter schools. Tex. Educ. Code § 12.1071.
Because AYW's original charter and subsequent renewal
recognize the Legislature's authority to alter the
charter's terms, the Commissioner submits the documents
are inextricably intertwined with the Legislature's
regulatory authority, rendering AYW's interest in its
charter "entirely contingent on State discretion, "
and not a vested property right. See 496 S.W.3d at
open-enrollment charter school is "indisputably part of
the Texas public-education system." LTTS Charter
Sch., 342 S.W.3d at 76. Thus, AYW's contention is
that its charter with the State created a contractual
relationship that vested its place in that system. The nature
of that relationship and AYW's underlying rights therein
thus require an examination of the laws that made AYW a part
of public education.
State's relationship with its open-enrollment charter
schools is principally set forth in chapter 12 of the
Education Code (the Charter Schools Act). Enacted as part of
major reforms to the Texas education system in 1995, the
chapter's stated purposes included the establishment of
"a new form of accountability for public schools"
and the encouragement of "different and innovative
learning methods." Tex. Educ. Code §
12.001(a)(4)-(5). State oversight of this new component of
the public school system remained, however, to "ensure
the fiscal and academic accountability" of the charters.
Id. § 12.001(b). That oversight, however, was
not to be "applied in a manner that unduly regulates the
instructional methods or pedagogical innovations of the
charter schools." Id.
charter is obtained by application to the Commissioner, who,
along with a designated member of the Board of Education, is
charged with "throughly investigating and evaluating an
applicant." Id. § 12.101(b). As already
mentioned, applicants are typically nonprofit, 501(c)(3)
corporations. See id. § 12.101(a)(3). Any
charter the Commissioner proposes to grant may be reviewed
and denied by the Board, but if not, the charter takes effect
90 days after notice. Id. § 12.101(b-0). The
number of charters the Commissioner may grant, however, is
limited by statute. See id. § 12.101.
charter for an open-enrollment charter school is "in the
form of a written contract signed by the commissioner and the
chief operation officer of the school." Id.
§ 12.112. The initial term is for five years, and if the
charter is renewed, the renewal is for ten years.
Id. §§ 12.101(b-5), .1141(i). Once
chartered, the school is authorized to provide instruction to
students under the charter's described structure, and the
school retains that authority subject to renewal under
section 12.1141, revocation under section 12.115, and Chapter
39A, which pertains to other actions the Commissioner may
take when a school fails to meet academic and financial
accountability standards. Id. § 12.102.
Open-enrollment charter schools do not have the power to tax,
id. § 12.102, but they generally are entitled
to state funding, id. § 12.106, and services,
id. § 12.104(c), as if they were school
districts. Open-enrollment charter schools are subject to the
Education Code and the rules adopted under it only to the
extent specifically provided. Id. § 12.103(b).
Open-enrollment charter schools also accept changes to
applicable law made after the effective date of their
charters by accepting state funds. Id. §
legislative scheme indicates that an open-enrollment charter
is a new and innovative form of public schooling rather than
a mere contract to outsource public education to a private
entity. And while charter schools are designed to foster
greater flexibility through less regulation, they are
regulated nonetheless. Rather than create an ownership
interest or vested right in public education, the charter is
in the nature of a license or permit to operate a charter
school subject to applicable laws and regulations. Cf.
Pocono Mountain Charter Sch. v. Pocono Mountain Sch.
Dist., 908 F.Supp.2d 597, 609 (M.D. Pa. 2012) (holding
that relationship is regulatory, not contractual). We
accordingly agree with the court of appeals that the
Legislature has neither bargained away its discretion over
this aspect of public education nor created vested
private-property rights in the creation of the charter school
system. 498 S.W.3d at 261.
maintains, however, that the Legislature created its vested
right in the charter by establishing a "for cause"
limitation on its revocation. AYW argues further that the
Commissioner's discretion in applying that "for
cause" limitation is what is at issue rather than the
Legislature's authority over the public school system.
AYW submits that "where an official or administrator is
the decision-maker charged with administering a right, the
proper analysis for determining whether the right is vested
is the existence of limitations placed on the decision-making
official or administrator's discretion to impair the
right, " citing Grounds v. Tolar Independent School
District, 856 S.W.2d 417, 418 (Tex. 1993), in support.
The Texas League of Community Charter Schoolsand the Texas
Charter Schools Association have filed amicus briefs that
similarly rely on our decision in Grounds to support
AYW's due process claim.
amici argue that an open-enrollment charter is a contract
that creates a vested property interest in the charter issued
by the Commissioner. See Tex. Educ. Code §
12.112 (providing that an open-enrollment charter "shall
be in the form of a written contract"). They submit that
a constitutionally protected property interest includes
"an individual entitlement grounded in state law, which
cannot be removed except 'for cause, '"
Logan v. Zimmerman Brush Co., 455 U.S. 422, 430
(1982), and analogize the situation here to that in
Grounds where we noted a substantive ...