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State and federal lawsuits filed against AISU, former board members, officers

FILE - American International School of Utah in Murray is pictured on Friday, May 3, 2019.
FILE - American International School of Utah in Murray is pictured on Friday, May 3, 2019.
Kristin Murphy, Deseret News

SALT LAKE CITY — Two lawsuits have been filed against American International School of Utah, its operator American International Schools L.L.C. and former board members and executive directors.

The State Board of Education and the Utah State Charter School Board filed a lawsuit in 3rd District Court seeking more than $418,600 owed to the state for using restricted education funds for “unallowable expenditures.”

The lawsuit states that a State School Board staff review found AISU administrators incorrectly used federal Individuals with Disabilities Education Act special education funds to pay for unallowable expenses such as health insurance premiums, salaries and benefits for teachers. It also alleges incorrect use of state special education funds to pay for unsupported salaries and benefits of school employees.

The lawsuit says “the defendants failed to develop and implement policies and procedures incorporating internal control that ensured restricted funds are spent for allowable activities and costs.”

The plaintiffs allege the school’s directors and officers “either directed, reviewed and approved the improper handling of state and federal funds; or, in the alternative, failed to comply or to ensure compliance by their staff with AISU policies, applicable rules, state laws and rules, and federal laws and rules.”

The State Board of Education’s demands for repayment of the money have largely gone unanswered.

AISU’s board of directors voted in May to close the school after growing concerns about its financial viability. Prior to the closure vote, state officials had demanded repayment of the state and federal education funds for the 2016, 2017 and 2018 fiscal years.

According to state education officials, repayment was sought because the funds were improperly spent or there was insufficient or no documentation to support expenditures.

The school also struggled financially after it received and paid a $250,000 property tax bill and after state education officials started reimbursing the school for special education expenses after it provided documentation of their use instead of fronting the school its monthly allotment.

The K-12 school closed in June following its last graduation and in July, the Utah State Charter School Board voted to remove the school’s executive director, Tasi Young. The board immediately appointed Utah Auditor John Dougall as the school’s interim director.

After Young’s removal, AISU’s remaining board members resigned en masse.

Dougall served as interim executive director less than a week, and Royce Van Tassell, executive director of the Utah Association of Public Charter Schools, was appointed board chairman.

Van Tassel assembled a new board of directors but they - and Van Tassell - resigned within a matter of days citing the state’s refusal to obtain liability insurance for the new board members, which was tasked to complete the school’s closure.

The lawsuit names the American International School of Utah, a nonprofit public charter school in Murray; American International Schools LLC, the limited liability corporation that operated the school; and 16 former members of the school’s board of directors, including Richard Maxfield, inaugural president of the school’s board of directors, and former principal Nathan Justis, who is identified in court documents as an officer and/or director.

Other defendants include the charter school’s volunteer directors Kenneth Grover, April Todd, Kent Burggraaf, Diane Longhurst-Johnson, Jennifer Humphries, Matthew Bowman, Craig Lawson, Daniel Griffiths, Mindy Young, Lisa Taylor-Swanson, Laura Hamilton, Michael Edmonds, David Chan and Geoff Davis.

In a related matter, Hanover Insurance Co. filed a federal lawsuit for declaratory judgment against American International School of Utah, American International Schools LLC; Tasi Young, the school’s executive director during the 2018-19 school year; and Michael Farley, the school’s founder and inaugural superintendent.

AISU was insured by Hanover Insurance and its former board members had insurance coverage. Hanover seeks a court ruling that it should not have to assist in or pay for the legal defense of the school, limited liability corporation or AISU’s past executives or board members nor be obligated for claims by the State Board of Education or the Utah State Charter School Board.

The lawsuit notes that in August 2017, AISU received a “notice of concern” letter from the State Charter School Board, which outlined deficiencies that required corrective action. In December 2018, the charter board placed the school on “warning” due to the “unresolved deficiencies” identified in the notice of concern.

Though she State School Board’s efforts for repayment have largely gone unanswered, some some the school’s remaining funds and proceeds from liquidating of assets have been identified as possible sources of repayment.

The federal lawsuit alleges the state board’s demand letter “arises out of AISU obtaining ‘remuneration’ or ‘financial gain’ to which it was not legally entitled. “

“Accordingly, the policy does not afford coverage for the Board of Education demand letter (or the Utah Lawsuit, or the Attorney General’s demand), and Hanover has no duty to defend or to indemnify AISU and/or the insureds for any obligation to repay $514,905.99 or any other monies for improper remuneration,” the lawsuit states.