Lawsuit over virtual charter schools can proceed

Indiana can proceed with its effort to recover $154 million from two defunct virtual charter schools and their leaders and business partners, a judge has ruled.

Judge Michael A. Casati rejected requests from school officials that he dismiss state lawsuits aimed at recovering the funds. His decisions were filed Monday in Hamilton Superior Court.

Attorney General Todd Rokita, representing the state, filed suit in July 2021 against Indiana Virtual School, Indiana Virtual Pathways Academy and several of their officers and business partners, alleging they misappropriated state funds. The lawsuit followed a State Board of Accounts investigation that found officials inflated enrollment figures and made improper payments to companies run by themselves and by associates.

Motions to dismiss the suit were filed by school founder Thomas Stoughton and several of his relatives and affiliated businesses; Merle Bright and Greg Bright, who were involved with the schools’ finances; Travis Lynch, an IT director; and Percy Clark, a superintendent. The schools, which had claimed online enrollment of over 7,000 students, closed in 2019.

In their motions to dismiss the case, the defendants argued the allegations in the lawsuit were too vague for them to defend themselves. They cited an Indiana trial rule that says charges involving fraud must be “specifically averred.” They also claimed that, as individuals, they shouldn’t be held legally responsible for the actions of their employers.

Casati rejected the arguments, ruling that while the case involved allegations of fraud, it was “not the lynchpin around which the entire case revolves.”

Clark and Lynch also requested a delay because they may be targets of a criminal investigation and would need to defend themselves in two cases. The judge ruled the Constitution “does not require a stay of civil proceedings pending the outcome of criminal proceedings.”

The parties argued their positions in a hearing Jan. 5. The judge rejected the motions to dismiss the suit but didn’t rule on its merits. Dates have not been set for additional hearings or trials.

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