Imagine Schools Inc. ordered to pay nearly $1 million to now-closed Kansas City charter school

A national charter school chain under fire for its management practices has been ordered to pay nearly $1 million to the local board of the now-closed Imagine Renaissance Academy in Kansas City.

Virginia-based Imagine Schools Inc. recruited and manipulated the local school board, according to a federal court ruling, then profited from a “double-dealing” lease scheme.

The local board “was in fact a captive of Imagine Schools both by design and by operation,” U.S. District Judge Nanette K. Laughrey wrote in her decision Dec. 18.

The local board did not know, the court determined, that Imagine Schools was using a finance company that it owned — SchoolHouse Finance — to sell the buildings on Renaissance’s two campuses to obtain lower lease rates.

Imagine Schools benefited from the lower rate but continued to collect the higher rate from the local board, the court said.

“There is no evidence that Imagine Schools ever told any Renaissance board member how Imagine Schools would benefit from the leases,” the court said.

Imagine and the local Renaissance board have since reached a confidential settlement, and Imagine did not appeal the court’s ruling, said James Tippin, attorney for Renaissance. The settlement will aid Renaissance with closing costs, debts, maintaining insurance coverage and other obligations, he said.

“We came to some resolutions and both parties agreed that neither side needs to be appealing,” Tippin said.

The local board was particularly vulnerable to be misled, evidence showed, because the management company wanted a board that served as an inexperienced “rubber stamp,” the judge wrote in the 29-page ruling.

She cited evidence in trial that Imagine obtained “pre-signed, undated resignation letters from board members at the time they joined the board so that board members could be expelled at any time he or she exerted too much authority.”

Imagine Renaissance Academy in Kansas City closed its doors in May 2012, admitting that the schools’ academic performance was too low and that its sponsor, the University of Missouri, was dissatisfied.

But its attorneys noted then that the school had in many ways been hamstrung by its management company, which had come under heavy scrutiny over management concerns of six schools it was operating in St. Louis.

The state took action to close those schools in 2012.

In testimony at trial, Renaissance presented evidence that the Kansas City school between 2007 and 2011 was spending only about 28 percent of its funds on instructional costs, compared to the national and state averages of around 65 percent.

The school served 1,100 students in kindergarten through 12th grade.

The sponsor of the school, the University of Missouri, became more aware of the unbalanced power Imagine held over the local board and began to intervene, the court said.

But “intervention occurred too late to save the school,” the ruling said.

In a proper school board and management company relationship, the court said, it is the responsibility of the local board to manage its school and give direction to the management company.

Imagine’s control of the local board in effect put Imagine in the role of a fiduciary, the court said, giving Imagine increased responsibility to manage the local school’s accounts and put the interests of the school ahead of Imagine’s interests.

Charter school founders need the support of a management company, charter network or foundations in most cases to manage start-up costs for facilities, hiring, training and other expenses before public funding arrives.

“This is the tension that exists out of the way that charters are set up,” Tippin said. The management companies “have to get some return on their money,” he said. But the ruling reaffirms that “local boards are responsible for the best utilization of those dollars.”

In Missouri today, 34 charter school boards run more than 50 charter school buildings. In the 14 years that charter schools have been operating in the state, 18 have shut down, said Doug Thaman, executive director of the Missouri Charter Public Schools Association.

In most cases, the schools shut down over problems with governance, he said.

The association supported the state’s move to shut down the Imagine schools in St. Louis, and the experience with Imagine in Kansas City stresses anew the importance that charter school board members receive adequate training as required by state rule, Thaman said.

“You have well-intentioned volunteers who may know what it means to be on a nonprofit board, but may not know what it means to be on a school board,” he said.

To reach Joe Robertson, call 816-234-4789 or send email to jrobertson@kcstar.com.