Two charter schools ordered shut down by L.A. Unified amid questions over their financial management will be allowed to continue operating for now, according to a tentative ruling made public Thursday.
Los Angeles County Superior Court Judge Luis A. Lavin said district officials overstepped their authority in closing two campuses operated by the Magnolia Educational and Research Foundation without bringing the issue to the Board of Education. In his ruling, Lavin said there was no evidence that board members gave such sweeping authority to district staff.
In a court hearing, Lavin also said he was troubled that Magnolia officials were not given the chance to respond to a district audit that found fiscal mismanagement before they were notified June 27 that their charters would not be renewed. At issue are science academies in Palms and Northridge, two of eight campuses that Magnolia operates in L.A. Unified.
"There's not a lot of fairness in that," said Lavin, whose ruling could change when it's released Friday.
Magnolia officials have flatly denied allegations of financial mismanagement and said they were heartened by the court hearing. Under the ruling, they will be allowed to open their doors for the 2014-15 school year beginning Aug. 12 while litigation continues over whether the district's actions were proper. Charters are publicly financed but independently run; Magnolia is authorized by L.A. Unified.
School board members declined to comment or could not be reached. L.A. Unified Supt. John Deasy also declined to comment. He earlier confirmed that the district had expanded its probe into the fiscal operations of all eight schools, which are focused on math and science and celebrate Turkish culture with, among other things, language classes, festivals and visits to Turkey.
L.A. Unified officials have acknowledged that the Palms and Northridge schools are performing well academically, with test scores well above the state's target of 800 on the 1,000-point Academic Performance Index.
But the financial problems "rise to the level of severity that seriously questions [Magnolia's] ability to operate the school let alone support itself," wrote Jose Cole-Gutierrez, the district's charter school division director, in his June 27 letter to foundation officials.
Cole-Gutierrez cited findings in the audit — performed by an outside firm for the district's Office of Inspector General — that the foundation was $1.66 million in the red, owed $2.8 million to the schools it oversees and met the federal definition of insolvency. The Palms academy was also insolvent, the audit found.
In addition, the audit found fiscal mismanagement, including lack of disclosure of debts, weak fiscal controls over the principals' use of debit cards and questionable payments for immigration fees and services. The foundation also may be paying for duplicative academic and business services to a related nonprofit, the audit found.
Inspector General Ken Bramlett said, however, that "no clear evidence of fraud has been disclosed" in a June 23 confidential letter to Deasy and board members. Bramlett said the accounting review — limited by a June 30 deadline — had left "significant open areas of inquiry that still must be pursued … to determine their propriety."
In a July 3 response, Mehmet Argin, the foundation's chief executive, said Magnolia was in sound fiscal health with $4.8 million in net assets in 2013, which officials estimated would rise to more than $7 million by June 2014.
Argin denied the other allegations.
For their part, parents said they were outraged by the district's actions, which plunged them into uncertainty just a few weeks before the new school year.
On Wednesday, more than 60 parents and children protested the decision at the Magnolia Science Academy 7 in Northridge. Wearing neon-green shirts and waving signs pleading to save their school, the families praised what they called caring teachers and a strong academic curriculum.
Victoria Denk said she chose Magnolia, which serves more than 300 students from kindergarten through fifth grade, because of its small size. Her 9-year-old son suffered from speech delay, she said, but the teachers helped him meet the challenge and blossom. He has shed his former shyness and now shines as a "math whiz," she said.
"I'll be lost without them," Denk said of the school. "He won't be as successful."
Shimaali Gomez said she and her son Diren toured several charter and magnet schools but chose Magnolia after attending what she said was a stellar science fair. After enrolling, the teachers recognized Diren's academic gifts and helped him ease into advanced studies with an older class, she said.