65-1300-30948 ORDER PARTIALLY GRANTING AND ...

OAH 65-1300-30948

STATE OF MINNESOTA

OFFICE OF ADMINISTRATIVE HEARINGS

FOR THE DEPARTMENT OF EDUCATION

In the Matter of

Independent School District #271

(Bloomington)

and

Intermediate District #287

ORDER PARTIALLY GRANTING AND

PARTIALLY DENYING

INTERMEDIATE DISTRICT¡¯S

MOTION FOR RECONSIDERATION

AND ORDER DENYING

BLOOMINGTON¡¯S MOTION FOR

RECONSIDERATION

This matter comes before Administrative Law Judge Ann O¡¯Reilly on the parties¡¯

cross Motions for Reconsideration.

David L. Holman, Holman Law Offices, appeared on behalf of Independent School

District #271 (Bloomington). Anne Becker, General Counsel, and Katherine Barrett Wiik,

Robins Kaplan, L.L.P., appeared on behalf of Intermediate School District #287

(Intermediate District or District).

Based upon all of the files, records, and proceedings herein, and for the reasons

set out in the attached Memorandum, the Administrative Law Judge makes the following:

ORDER

1.

The Intermediate District¡¯s Motion for Reconsideration is GRANTED in part

and DENIED in part;

2.

Bloomington¡¯s Motion for Reconsideration is DENIED; and

3.

An Amended Findings of Fact, Conclusions of Law, and Decision is hereby

issued to reflect the Administrative Law Judge¡¯s decision after reconsideration. The

Amended Findings of Fact, Conclusions of Law, and Decision shall be the final decision

in this case, subject to the parties¡¯ right to appeal to the Minnesota Court of Appeals.

Dated: June 29, 2015

s/Ann C. O¡¯Reilly

__________________________

ANN C. O¡¯REILLY

Administrative Law Judge

SUMMARY OF DECISION

The Intermediate District has established that the Administrative Law Judge

erroneously included restricted funds associated with the North Education Center (NEC),

and inadvertently excluded depreciation on equipment, in the determination and

calculation of assets to be distributed to Bloomington in this matter. Based upon these

errors, the Administrative Law Judge GRANTS the Intermediate District¡¯s Motion for

Reconsideration. An Amended Findings of Fact, Conclusions of Law, and Decision shall

be issued contemporaneously with this Order to correct the Judge¡¯s mathematical errors.

The Administrative Law Judge DENIES the District¡¯s Motion for Reconsideration on all

other bases.

With respect to Bloomington¡¯s Motion for Reconsideration, Bloomington has failed

to establish any basis for reconsideration of the Administrative Law Judge¡¯s decision in

this case. Accordingly, the Administrative Law Judge DENIES Bloomington¡¯s Motion for

Reconsideration. The Judge¡¯s decision regarding the allocation of pension and other

post-employment benefits is fully explained in the original Findings of Fact, Conclusions

of Law and Decision, dated January 7, 2015 (Original Decision), and remains unchanged

in the Amended Findings of Fact, Conclusions of Law, and Decision issued herewith.

MEMORANDUM

I.

PROCEDURAL HISTORY

On June 30, 2011, Bloomington withdrew from the Intermediate District. Upon

withdrawal, Bloomington and the Intermediate District were unable to agree on

Bloomington¡¯s proportionate share of the Intermediate District¡¯s assets and liabilities.

Minnesota Statutes section 123A.24 (2014) provides that if a withdrawing school

district and an intermediate district cannot agree on the withdrawing district¡¯s share of

assets and liabilities upon withdrawal, the districts may submit the matter to the

Commissioner of the Department of Education (Commissioner) for final resolution. The

Commissioner shall then resolve the dispute by determining the withdrawing district¡¯s

¡°proportionate share¡± of assets and liabilities based on the withdrawing district¡¯s

¡°enrollment, financial contribution, usage, or other factor or combination of factors

determined appropriate by the [C]ommissioner.¡± 1

The Commissioner met with the parties on two occasions to resolve the matter

informally. 2 Despite her efforts, the Commissioner was unable to assist the parties in

settling the matter. The parties disagreed about three main issues: (1) the value of, and

Bloomington¡¯s financial obligations for, the District¡¯s real estate interests; (2) the amount

of, and Bloomington¡¯s liability for, employee pension benefits and other post-employment

benefits (OPEB); and (3) the calculation of Bloomington¡¯s ¡°proportionate share¡± of the

District¡¯s assets and liabilities.

1

2

Minn. Stat. ¡ì 123A.24, subd. 1(c).

See Notice and Order for Prehearing Conference and Hearing at 2.

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2

Ultimately, the Commissioner concluded, ¡°The Minnesota Department of

Education does not have the technical knowledge or expertise to make an appropriate

determination of the correct valuation of Bloomington¡¯s share of the Intermediate¡¯s assets

and liabilities.¡±3 As a result, the Commissioner referred the matter to the Office of

Administrative Hearings (OAH) for a contested case hearing pursuant to the Minnesota

Administrative Procedure Act, and for final decision pursuant to Minn. Stat. ¡ì 14.57(a)

(2014). 4 The parties to the proceeding included the Intermediate District and

Bloomington. The Department of Education (Department) was not a party to the action,

but observed the proceedings through its legal representative, Daron Korte.

On or about October 20, 2013, the Commissioner filed a Notice and Order for

Prehearing Conference and Hearing (Commissioner¡¯s Order for Hearing). As set forth in

Minn. Stat. ¡ì 14.57(a), the Commissioner¡¯s Order for Hearing provided that the

Administrative Law Judge¡¯s decision shall constitute the agency¡¯s final decision in this

case. 5

A contested case hearing was held before Administrative Law Judge Ann O¡¯Reilly

on June 23, 24, 25, 26, 27, and 30, 2014. The parties called numerous witnesses,

including seven expert witnesses (four real estate appraisers, two accountants, and an

actuary), to testify to the Intermediate District¡¯s assets and liabilities.

During the hearing, Bloomington offered into evidence (among other things): (1)

an unexecuted copy a Refunding Lease Agreement for the West Education Center (WEC)

(Exhibit 11); (2) an unexecuted copy of the Lease-Purchase Agreement for the South

Education Center (SEC) (Exhibit 12); and (3) an executed copy of the Lease Purchase

Agreement for the Edgewood Education Center (EEC) (Exhibit 13). These documents

were received into evidence at the hearing. However, Exhibits 11, 12, and 13 referenced

numerous other documents and agreements that were not offered into evidence by the

parties during the hearing.

After the hearing, the Administrative Law Judge afforded the parties the

opportunity to submit post-hearing briefs, which were filed on or about August 22, 2014.

After an extensive review of the exhibits, hearing transcripts, post-hearing briefs, and

arguments, the Administrative Law Judge concluded that she could not decide the case

without reviewing the documents referenced in Exhibits 11, 12, and 13. In addition, after

reviewing Exhibits 11, 12, and 13, the Judge concluded that certain representations made

by witnesses regarding the nature of the real estate transactions were inconsistent with

terms and provisions of the real estate contracts themselves.

3

Id.

Id. Minn. Stat. ¡ì 14.57(a) provides:

An agency shall initiate a contested case proceeding when one is required by law. Unless

otherwise provided by law, an agency shall decide a contested case only in accordance

with the contested case procedures of the Administrative Procedure Act. Upon initiation of

a contested case proceeding, an agency may, by order, provide that the report or order of

the administrative law judge constitutes the final decision in the case.

5 See Notice and Order for Prehearing Conference and Hearing, dated October 20, 2013.

4

[50451/1]

3

The value of the District¡¯s interest in, and financial obligations for, its real estate

investments was a central issue in the case. However, the hearing record included only

incomplete copies of some, but not all, real estate contracts. Therefore, the

Administrative Law Judge concluded that a full review of all agreements entered into by

the District for the acquisition of real estate was necessary to accurately determine the

nature of the District¡¯s legal interests in the properties, as well as the District¡¯s financial

obligations under the real estate contracts.

On September 11, 2014, the Administrative Law Judge requested that the parties

voluntarily ¡°supplement the hearing record¡± by providing final execution copies of all

lease, purchase, trust, and other agreements involving the WEC, SEC, EEC, and NEC

properties. 6 The Administrative Law Judge noted, ¡°I will mark each of these exhibits

separately and advise you of the exhibit numbers upon receipt of the documents.¡± 7 The

documents requested were all contracts and agreements with self-evident terms and

provisions.

Without objection, on or about September 14, 2014, the Intermediate District

provided most of the documents requested by the Administrative Law Judge to

supplement the hearing record. However, certain documents were still missing.

On September 19, 2014, the Administrative Law Judge requested: ¡°Exhibit B¡± to

the EEC lease purchase agreement; the WEC lease purchase agreement dated

August 31, 2004, including all related trust agreements and certificates of participation;

and all documents related to the January 6, 2006 lease purchase agreement, trust

Again, the

agreement, and certificate of participation for the SEC property. 8

Administrative Law Judge noted, ¡°The record will be supplemented with all the documents

I am requesting. I will provide you a list of the exhibits when the documents are finally

received.¡± 9

Without objection, the Intermediate District provided the additional documents

requested on September 19, 2014. On September 26, 2014, the District confirmed,

without objection, that it had provided true and accurate copies of ¡°all of the real estate

financing contracts¡± related to the WEC, EEC, SEC, and NEC properties. 10

All documents received from the Intermediate District were provided to

Bloomington, marked by the Administrative Law Judge as exhibits (Exhibits A through

W), and included in the hearing record. 11 Counsel for the Intermediate District did not, at

6

See e-mail correspondence from Administrative Law Judge Ann O¡¯Reilly to counsel for the parties dated

September 11, 2014, on file and of record in this case.

7 Id.

8 See e-mail correspondence from Administrative Law Judge Ann O¡¯Reilly to counsel for the parties dated

September 19, 2014.

9 Id.

10 See e-mail correspondence from Anne Becker, counsel for the Intermediate District to Administrative

Law Judge Ann O¡¯Reilly, dated September 26, 2014.

11 See Order Supplementing Hearing Record with Additional Exhibits, dated December 19, 2014.

[50451/1]

4

any time, challenge the inclusion of the documents into the hearing record, or request

that additional argument or testimony be provided related to the additional exhibits.

The review of the additional documents and preparation of the Administrative Law

Judge¡¯s decision was an exhaustive process, given the complexities of the issues and

evidence presented. After thoroughly analyzing the real estate documents submitted, the

Administrative Law Judge determined that evidence of legal title for the properties was

relevant and probative to the testimony provided by the Intermediate District¡¯s real estate

appraiser, Robert Strachota, but was unclear in the hearing record. Rather than take

judicial notice of the public title documents, on November 4, 2014, the Administrative Law

Judge made a written inquiry to the parties requesting that the Intermediate District

provide copies of certificates of title or recorded deeds for the District Service Center

(DSC), EEC, SEC, WEC, and NEC properties for inclusion in the hearing record. 12 The

Administrative Law Judge noted, ¡°Once these documents are received, I will issue an

Order supplementing the record and providing you with copies of the marked exhibits

(numbered A-Z). 13

Without objection, on November 11, 2014, the Intermediate District submitted the

certificates of title for the DSC, EEC, SEC, and WEC properties, and provided a copy of

the deed for the NEC property. 14 All of these documents were public documents, duly

filed with the Hennepin County Registrar of Titles or Recorder¡¯s Office. 15

Counsel for the Intermediate District did not, at any time, object to the inclusion of

the documents into the hearing record, or request that additional argument or testimony

be provided related to the additional exhibits. The Administrative Law Judge marked the

certificates of title and deeds for the DSC, EEC, SEC, and WEC properties as Exhibits X,

Y, Z, and AA.

In addition to requesting additional documentation from the parties, between

September and December 2014, the Administrative Law Judge engaged in written

correspondence with counsel for the Intermediate District, Bloomington, and the

Department regarding questions that remained unclear in the hearing record. 16 The

Administrative Law Judge specifically asked the parties if they wished to brief or have oral

argument on the issues raised post-hearing. 17 At no time during these months of posthearing correspondence did the Intermediate District or Bloomington object to the

12

See e-mail correspondence from Administrative Law Judge Ann O¡¯Reilly to counsel for the parties, dated

November 4, 2014.

13 Id.

14 See e-mail correspondence from Anne Becker, counsel for the Intermediate District, to Administrative

Law Judge Ann O¡¯Reilly dated November 11, 2014.

15 Id.; Exs. X, Y, Z, AA.

16

See

letter

to

counsel

for

the

parties

from

Administrative

Law

Judge

Ann O¡¯Reilly dated December 22, 2014, enclosing copies of all post-hearing email correspondence among

the parties for inclusion in the hearing record.

17 See e-mail correspondence from Administrative Law Judge Ann O¡¯Reilly to counsel for all parties dated

September 17, 2014.

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