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Fallis v. Ambach

June 10, 1983


Appeal from an order of the United States District Court for the Northern District of New York (Neal P. McCurn, Judge ), denying appellants' motion for a preliminary injunction, pending determination of their challenge to tuition reimbursement rate for school providing education to handicapped children. Affirmed.

Author: Pierce

Before: TIMBERS, NEWMAN and PIERCE, Circuit Judges.

PIERCE, Circuit Judge:


Appellants are autistic children, their parents, and Jowonio: The Learning Place (Jowonio), which is the school the appellant children attend. Appellees are certain New York State departments and officials responsible for education and budget matters.*fn1 The present dispute concerns the rate, set by the State, at which the local school districts reimburse Jowonio for providing appellant children with a free, appropriate, public education, pursuant to the Education for All Handicapped Children Act (EHA), 20 U.S.C. §§ 1401-1420 (1976 & Supp. V 1981).

Jowonio is a private school for both typical (non-handicapped) and non-typical (handicapped) children four to eight years of age. The school enrolls approximately 60 students, of whom about 20 non-typical children are integrated with the others. The tuition of the typical children is paid by their parents and ranges from $20.00 (scholarship rate) to $40.00 (full tuition) per week. Non-typical children's tuition is paid by their local school districts upon placement at Jowonio by their local Committees on the Handicapped (COH).*fn2 See generally EHA, 20 U.S.C. §§ 1411-1420.

The State Department of Education is charged with the responsibility of "us[ing] all means and measures necessary to adequately meet the physical and educational needs of" handicapped children in New York State. N.Y. Educ. Law § 4403(1) (McKinney 1981). With respect to handicapped children who are placed in private schools by their local COH, the Commissioner of Education (Commissioner) annually recommends to the Division of the Budget the allowable tuition rate at which the private schools will be reimbursed by the State for the cost of educating the handicapped children placed in such schools. See id. §§ 4401(5), 4405(3)(d). The rate is not effective until approved by the Director of the New York State Division of the Budget. Id. § 4405(3)(d)(ii).

Pursuant to these provisions, the tuition reimbursement rates at Jowonio for the academic years 1978-79 and 1979-80*fn3 were $2,847 and $6,083,*fn4 respectively, based on budgetary information submitted to the State by the school. In August, 1980, Jowonio was notified by the office of the Assistant Commissioner for Education of Children with Handicapping Conditions (Assistant Commissioner) that the recommended rate for 1980-81 would be $7,788 per child, subject to adjustment after a field audit.

Prior to the 1980-81 academic year, the reimbursement rate was set based on unaudited budgetary information submitted by each school.For 1980-81, however, there was a change in the manner in which the rate was set. Rather than rely solely on budgetary information submitted by each school, the State Department of Education began calculating the rate based on certified financial statements submitted by the school at the end of the academic year. After a desk audit of Jowonio's 1979-80 financial statement, Jowonio was informed by the office of the Assistant Commissioner, in a letter dated July 31, 1981, that the approved tuition rate for 1981-82 would be $2,260, subject to a field audit. Dr. Barnes, Director of Jowonio, filed a formal appeal with the Assistant Commissioner, requesting a tuition rate of $8,145 per child for 1981-82. In response to that appeal, the recommended rate was adjusted to $6,294 per child. Dr. Barnes requested a meeting to discuss the amended 1981-82 rate of $6,294. Before the meeting took place, however, Jowonio was notified by letter from the Assistant Commissioner's office that several issues had to be resolved before the 1981-82 rate adjustment could be recommended to the State Division of the Budget. Among the items questioned were the low fees charged to parents of typical students; that Jowonio appeared to be operating as a private school for typical students with some non-typical students enrolled, indicating that a more equal sharing of costs should be in effect; and that the school was still billing school districts at the 1980-81 rate ($7,788) even though the then current certified tuition rate was $2,260. In addition, the letter questioned the school's distinction, for budget purposes, between staff assigned to non-typical and typical students. Because the classes are intermingled, it was observed that a sharing of teacher services was the likely result. Therefore, the school's suggested allocation for instructional staff was not considered justifiable unless a complete separation of classes took place.

The subsequent meeting between representatives of Jowonio and the State Department of Education resulted in the scheduling of a field audit by two representatives of the State Department of Education, covering the academic years 1979-80 and 1980-81. The July 1982 audit resulted in a draft report prepared by the visiting Education Department staff members who had conducted the audit.Their recommendations included the following: tuition reimbursement rates of $2,630 and 2,887 for the academic years 1980-81 and 1981-82, respectively, based on total allowable expenditures divided by total full-time enrollment; required reimbursement to the school districts and counties for overpayments in 1980-81 and 1981-82, totalling some $165,000; and establishment of methods for allocation of costs between the typical and non-typical programs to assure proper accountability in the future. By letter dated August 31, 1982, the office of the Assistant Commissioner informed Dr. Barnes that it had adopted the staff recommendations, adding that the recommended tuition rate for 1982-83 would be $2,992. Shortly thereafter, by letter dated October 15, 1982, Jowonio was notified that the Division of the Budget had approved a rate of $2,628 for the 1982-83 academic year.

In response to this last notification, on October 27, 1982, appellants filed this action in the United States District Court for the Northern District of New York. Appellants (parents and children) claimed, in short, that the tuition reimbursement rate set by the State was so low as to violate their right to a free and appropriate education under EHA and section 504 of the Rehabilitation Act of 1973, 29 U.S.C. § 794 (Supp. V 1981).*fn5 Moreover, they claimed that the recommended rate would result in the financial collapse of the school, effectively causing a transfer of the non-typical children out of Jowonio. Such a transfer, in their view, would constitute a change in placement, triggering the notice and hearing provisions of EHA, 20 U.S.C. § 1415. Finally, they claimed the appellees' actions were in derogation of their federal constitutional due process and equal protection rights and the right of the children to be educated in the least restrictive environment. Appellant Jowonio argued that the State's rate-setting methodology violates its due process and equal protection rights. Appellants sought a temporary restraining order and preliminary and permanent injunctive relief enjoining appellees from (1) reducing the 1982-83 tuition rate below $7,788; (2) requiring reimbursement by Jowonio for alleged excess tuition rates received by the school for 1980-81 and 1981-82; and (3) directing school districts to collect alleged excess rates for 1980-81 and 1981-82 and to reimburse Jowonio at a rate lower than $7,788 for 1982-83. In addition, appellants requested that the injunction require the State to use a rate-setting methodology appropriate to the integrated (typical and non-typical) environment; that appellees provide a full evidentiary hearing prior to reducing the 1980-81, 1981-82 and 1982-83 rates; and that the $7,788 rate be maintained pending resolution of this case and/or administrative review of appellants' need for program and placement. Finally, appellants requested the court to enjoin appellees from failing to develop appropriate education alternatives for appellant children.

On October 29, 1982, the district court granted a temporary restraining order directing appellees not to reduce appellants' tuition reimbursement rate for 1982-83 below $7,788 per handicapped child and restraining appellees from requiring Jowonio to reimburse school districts for the alleged excess tuition rates received by the school for the 1980-81 and 1981-82 school years. A hearing on appellants' application for a preliminary injunction was held on November 1-2, 1982. The temporary restraining order was extended until November 18, 1982. On that date, the district judge denied appellants' application for a preliminary injunction. Appellants unsuccessfully attempted to obtain an injunction pending appeal from the district court on November 19, 1982. This court, on December 14, 1982, granted an injunction pending determination on appeal.

In addressing appellants' request for a preliminary injunction, the district judge found that appellants (parents and children) had demonstrated irreparable harm and a balance of hardships tipping decidedly in their favor. See Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979). However, he determined that the court lacked subject matter jurisdiction over their rate-setting claim and that their constitutional and statutory due process claims were premature. Specifically, he concluded:

[T]he Court lacks jurisdiction to entertain the parents' complaints about the rate of tuition reimbursement to be paid Jowonio and... the claims that plaintiffs' Constitutional and statutory due process rights have been violated are premature, as is their claim that their right to have ...

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