Charter school chain sues L.A. Unified over two campus closures

Principal John Terzi plays table tennis with students during recess at Magnolia Science Academy in Palms on March 3, 2014. The school is one of two Magnolia campuses that the L.A. Unified School District ordered shut down after an audit.
(Gary Friedman / Los Angeles Times)

A battle for the future of a California charter school chain is headed to court Thursday over a decision by Los Angeles Unified officials to close two of its campuses.

Late last month, L.A. Unified notified the Magnolia Educational and Research Foundation that it was shutting down one of its schools in Northridge and another in the Palms neighborhood of Los Angeles because of financial irregularities discovered in a district audit. The schools, like the other six the chain operates in the district, are focused on science and math.

Magnolia officials have flatly denied allegations of financial mismanagement, and school parents are outraged by what they call a last-minute decision by L.A. Unified that has left them scrambling to find new schools for their children just a few weeks before the 2014-15 school year begins.

On Wednesday, more than 60 parents and children gathered to protest the decision at the Magnolia Science Academy 7 in Northridge. Wearing neon green shirts and waving signs, 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 a speech delay, she said, but the teachers helped him meet the challenge and blossom. He has since 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. The teachers recognized Diren’s academic gifts and helped him ease into advanced studies with an older class, she said.

If the school is not allowed to reopen, Gomez said, she will home-school her children.

Magnolia has sued L.A. Unified, alleging the district improperly closed its campuses. A court hearing for the lawsuit is scheduled for 1:30 p.m. Thursday in L.A. County Superior Court.

L.A. Unified officials have acknowledged that both campuses were 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 a 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 a June 27 letter to foundation officials.

Cole-Gutierrez said the audit -- performed by an outside firm for the district’s Office of Inspector General -- found 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 may also be paying for duplicative academic and business services to a related nonprofit organization, the audit found.

Inspector General Ken Bramlett, however, in a June 23 confidential letter to the Board of Education and L.A. schools Supt. John Deasy, said that “no clear evidence of fraud has been disclosed.” 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.”

Deasy declined to comment but confirmed that officials had expanded their investigation to all eight Magnolia campuses in the district.

In a July 3 response, Mehmet Argin, the foundation’s chief executive officer, said Magnolia was in sound fiscal health with $4.8 million in net assets in 2013, which officials estimate would rise to more than $7 million by June 2014.

Argin also denied the other allegations.

For education-related news, follow @TeresaWatanabe.