ECOT and its sponsor came to an interim agreement Friday that will allow a special master to take over operations of the now-closed school but keep assets intact until the Ohio Supreme Court rules on its fight with the state.
The Electronic Classroom of Tomorrow was supposed to face off in court Friday over the request of its sponsor, the Educational Service Center of Lake Erie West in Toledo, for the court to appoint a receiver to take over operations of the school to ensure it winds down properly.
Lake Erie West voted Thursday to suspend operations of the financially troubled school that was set to run out of money by March.
A special master would take the place of a court-appointed receiver that could have started immediately liquidating the school’s assets to pay creditors. While the special master will still report to the court and be overseen by a judge, he will be appointed by the boards of ECOT and Lake Erie West.
Marion Little, legal counsel for ECOT, said after Friday’s hearing that the appointment of a special master, rather than a receiver, will allow ECOT a chance to survive.
"There is a pending appeal to the Ohio Supreme Court that a receiver might have terminated, but a special master will allow that case to continue," Little said. "If ECOT is successful before the Supreme Court, there will be a substantial recovery of substantial funds in favor of ECOT and there will be an opportunity for ECOT to restart its operations."
The Supreme Court is set to hear oral arguments in the case in mid-February to determine if the Ohio Department of Education acted legally when ordering the school to repay $80 million for students who were fully funded but did not meet the state’s minimum 920 hours of annual instruction.
ECOT already has lost in two lower courts. And in December, Ohio Supreme Court justices rejected the online school’s request for an injunction or expedited appeal.
Friday’s interim agreement — a final hearing on the issue is scheduled for next week — was reached after an unusual maneuver by Franklin County Common Pleas Court Judge Judge Michael Holbrook to initiate a surprise mediation session between the two sides.
Little argued that the contract with Lake Erie West required that the two sides to go to mediation to settle any disputes. John Borell, legal counsel for Lake Erie West, argued there was not time to do mediation, considering that, among other issues, 12,000 ECOT students needed their records organized and transferred.
So Holbrook spotted fellow Common Pleas Judge Mark Serrott in the audience and asked him to do an instant mediation session. Serrott agreed and took the two sides behind closed doors for about three hours.
"Sometimes you have to think outside the box to accomplish things," Holbrook said. "The chief interest for me is the kids."
Borell said the special master will also oversee the transferring of records to students’ new schools.
"Ultimately they’re going to have to transition to a new school," he said. "ECOT is working hard to ensure those records go over there."
According to a review by state Auditor Dave Yost, ECOT still owes $42.7 million of the initial $60 million repayment to the state for the 2015-16 school year. The Department of Education had been subtracting $2.5 million per month from the school’s state funding payments to repay the amount.
The school also owes nearly $20 million for the 2016-17 school year. Yost noted that the Department of Education has withheld another $8.3 million from ECOT’s payments, but that relates to an expectation that ECOT submitted inflated enrollment figures for the current school year.
If the high court rules against ECOT, Yost said two for-profit companies run by ECOT founder Bill Lager, Altair Management and IQ Innovations, are responsible for $10.7 million of the total owed by the school, while Lake Erie West owes $804,560.
Columbus City Schools sent a letter informing ECOT families of enrollment events on Jan. 25 from 4:30-7:30 p.m. and Jan. 27 from 8:30 a.m. to 4:30 p.m. But many are expected to remain in online schools.
ECOT officials said they tried to work out a different repayment schedule with the Department of Education in an effort to stay open through the end of the school year.
ECOT Spokesman Neil Clark blamed politics, pointing out officials including Gov. John Kasich.
"These bureaucrats wanted blood for ECOT challenging them on their illegal and retroactive rule-making."